Long-run Relationship of Economic Growth with Consumption, Unemployment Rates and Saving Rates in Developing Countries: A Case Study of Vietnam

Nguyen Thanh Giang^1,

¹Department of Public Finance, Academy of Finance, Hanoi, Vietnam

Cite this paper:
Nguyen Thanh Giang. Long-run Relationship of Economic Growth with Consumption, Unemployment Rates and Saving Rates in Developing Countries: A Case Study of Vietnam. Journal of Business and Management Sciences. 2020; 8(2):61-66. doi: 10.12691/jbms-8-2-4

Abstract

The Keynesian macroeconomic model implies that household expenditures and savings have significant long-run impacts on economic growth by affecting total expenditures. Therefore, policymakers should determine and apply appropriate policies to maintain these variables. For this purpose, the long-run relationship of economic growth with consumption, unemployment and saving rates in Vietnam is analyzed with the time data method using annual data for the period 1996-2017. Consumption appears to have the most impact on economic growth in accordance with the estimation results of a co-integration test from an autoregressive distributed lag model (ARDL model). In long run, an increase of 1% in consumption expenditures decreases economic growth by 0.41%. A 1% increase in saving rates increases economic growth by 0.0009%. While an increase of 1% in unemployment rates decreases economic growth by 0.043%. Our results demonstrate that there exists only long run relationship among economic growth, consumption, saving and unemployment rates for Vietnam, but not in short run.

Keywords:
economic growth consumption saving unemployment rates long-run

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]	Agbloyor, E. K., Abor, J. Y., Adjasi, C. K. D., & Yawson, A., “Private capital flows and economic growth in Africa: The role of domestic financial markets”, Journal of International Financial Markets, Institutions and Money, 30, 137-152, May. 2014.
[2]	Akeju, K. F., & Olanipekun, D. B., “Unemployment and economic growth in Nigeria”. Journal of Economics and Sustainable Development, 5 (4), 138-144, 2014.
[3]	Aktar, I., Demirci, N., & Ozturk, L., “Can unemployment be cured by economic growth and foreign direct investment?” Sosyal Ekonomik Ara§tirmalar Dergisi, 17, 452-467, 2009.
[4]	Albulescu, C. T., “Do Foreign Direct and Portfolio Investments Affect Long-term Economic Growth in Central and Eastern Europe?”, Procedia Economics and Finance, 23, 507-512, 2015.
[5]	Alper, E. A., “The Relationship of Economic Growth With Consumption, Investment, Unemployment Rates, Saving Rates and Portfolio Investments In The Developing Countries”, Gaziantep University Journal of Social Sciences, 17 (3), 980-987, 2018.
[6]	Begg, D.; Fischer, S. and Dornbusch, R., Economics, McGraw-Hill Education, 2005.
[7]	Bean, C. and Pissarides, C., “Unemployment, consumption and growth”, European Economic Review, 37 (4), 837-854, May. 1993.
[8]	Calmfors, L., & Holmlund, B., “Unemployment and economic growth: a partial survey”. Swedish Economic Policy Review, 7 (1), 107-154, 2000.
[9]	Enrica C. and John, D. H., “The Effect of Unemployment on Consumption: An Experimental Analysis”, The Economic Journal, 114 (497), 660-683, Jul. 2004.
[10]	Gujarati, D., Basic Econometrics. 4th Edition, McGraw-Hill Companies, New York. 2004.
[11]	Keynes, J. M., The General Theory of Employment, Interest and Money. London: Macmillan, 1936. (reprinted 2007).
[12]	Michael, B., “Social Security, Unemployment, and Growth”, International Tax and Public Finance, Vol. 12, 423-434, Aug. 2005.
[13]	Paul A.; Samuelson, P. A. and Nordhaus, W. D., Economics, McGraw-Hill College, 1997.
[14]	Pesaran, M. H.; Shin, Y. and Smith, R. J., “Testing for the Existence of a Long-Run Relationship”, DAE Working Papers Amalgamated Series, No. 9622, University of Cambridge, 1996.
[15]	Richard A. B.; Zhiqi Chen, Z. and Choudhri, E. U., “Unemployment and Growth in the Long Run: an Efficiency‐Wage Model With Optimal Savings”, International Economic Review, 43 (3), 875-894, Aug.2002.
[16]	Singh, T. “Does domestic saving cause economic growth? A time-series evidence from India”. Journal of Policy Modeling, 32 (2), 231-253. Mar.–Apr.2010.
[17]	Tang, C. F., & Tan, B. W. “A revalidation of the savings-growth nexus in Pakistan”, Economic Modelling, 36, 370-377, Jan.2014.