This paper looks into the causal relationship between public spending and economic growth. The research model is developed from the comprehensive production function wherein public spending is split into two components (. budget spending and ODA spending) with a view to evaluating how efficiently public finance resources are allocated. | ECONOMIC DEVELOPMENT No. 206, October 2011 PUBPLIC SPENDING AND ECONOMIC GROWTH: A PUBPLIC SPENDING ANDINECONOMIC GROWTH: GRANGER’S CAUSALITY TEST A MULTIVARIATE MODEL A GRANGER’S TEST IN A FOR THECAUSALITY CASE OF VIETNAM MULTIVARIATE MODEL by Assoc. Prof., Dr. SÖÛ ÑÌNH THAØNH* FOR THE CASE OF VIETNAM by Assoc. Prof., Dr. SÖÛ ÑÌNH THAØNH* Over the past two decades, Vietnam’s public spending increases rapidly from of GDP in 1991 to of GDP in 2010. Additionally, since Vietnam resumed its relations with community of international donors, inflows of ODA have numerously supported government’s spending; Vietnam’s economic growth rate has reached on average. The question is whether the rise in public spending will expedite the national economic growth or the national economic growth will push public spending up. This paper looks into the causal relationship between public spending and economic growth. The research model is developed from the comprehensive production function wherein public spending is split into two components (. budget spending and ODA spending) with a view to evaluating how efficiently public finance resources are allocated. Simultaneously, trade openness, private investments and labor force are treated as control variables. With the data set of the period 1990-2010 and the Granger causality test in the multivariate VAR model, the research finds that the model is statistically significant and the two-component public spending has a unidirectional causal relationship with economic growth. Another significant finding is that public spending does not have any relationship with private investment. Eventually, based on findings, some solutions and policy implications will be recommended. Keywords: public spending, ODA, economic growth 1. The government’s role in economic growth and previous researches In the national economy, the government affects GDP through its interaction with the private sector. The development of .
