Development Economics Textbook Part 2 - Le My Linh Thanh

- Company revenue (TR): Is the income earned by the company from the consumption of goods or services after deducting intermediate costs in the production process.

- Total expenses (TC) include wages, land rent, loan interest, and business taxes.

- The company's pre-tax profit: P R before tax = TR – TC

- The company's after-tax profit: P R after tax =P r before tax – T de T de : corporate income tax

- In the after-tax P r , after deducting the dividend payment and capital contribution profit (called undistributed profit), the remaining after-tax P r plus the basic depreciation fund forms the company's investment capital.

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4.4.1.3.Residential savings

- People's savings depend on family income and spending.

- Household income includes:

+ Disposable income D I .

+ Other income.

- Disposable income: D I = NI – T d + S d NI: National production income.

T d : Income tax (including corporate income tax T de and personal income tax T dh ). T d = T de + T dh

S d : Government subsidies.

- Other income: Aid, inheritance, sale of assets, lottery, loans.

- Household expenses include:

+ Expenses for purchasing goods and services:

 Expenses for purchasing goods: food, clothing, means of transport.

 Service purchases: tourism, culture, sports.

+ Pay interest on loans.

4.4.2. Overseas savings

- Foreign savings are foreign investments or international investments.

- Foreign investment is a method of investing capital and assets abroad to conduct production, business or services for the purpose of making profit or for certain socio-political goals.

- The development of foreign investment stems from a number of causes.

after:

+ The trend of globalization and regionalization has promoted the liberalization process.

international trade and investment

+ The rapid development of science and technology, especially in the field of information and communication, has promoted the process of economic restructuring of countries, creating capital movements between countries.

+ The development of production and business processes in countries requires foreign capital investment.

- In essence, foreign investment is a form of capital export, a higher form of commodity export. Capital export and commodity export always support each other in the strategy of penetrating and dominating the market of large foreign companies and corporations today.

- Foreign investment capital includes:

Foreign investment

Private equity

Official development assistance from the Government and international organizations

Direct investment

Indirect investment capital

Trade credit

Project support capital

Non-project support capital

Trade credit

4.4.2.1. Foreign direct investment (FDI)

- FDI is a source of foreign private investment capital for production, business and services for the purpose of making profit.

- FDI investment exists in many forms, but the main forms are business cooperation contracts, joint ventures, and 100% foreign-owned enterprises.

a) Business cooperation contract:

It is a document signed by two or more parties (called joint venture parties) that stipulates the responsibilities and division of business results for each party to invest in production and business in the investment receiving country without establishing any legal entity.

b) Joint venture:

It is a type of enterprise in which two or more foreign parties cooperate with the investment receiving country to contribute capital, conduct business together, share profits and bear risks according to the capital contribution ratio. A joint venture enterprise is established in the form of a limited liability company under the laws of the investment receiving country.

c) 100% foreign-owned enterprises:

Is an enterprise owned by foreign investors (foreign organizations or individuals) established by foreign investors in investment-receiving countries, self-managed and self-responsible for production and business results.

- The role of FDI capital:

a) For investing countries:

+ Take advantage of the low production cost advantages of the investment recipient countries (cheap labor costs, local raw material exploitation costs to lower product prices, reduce transportation costs for the production of import substitution goods in the investment recipient countries. Thereby improving the efficiency of investment capital.

+ Investing abroad allows companies to extend the life cycle of products produced and consumed in the domestic market  creating more profits for investors.

+ Allows investors to increase their influence in the international market by expanding product consumption markets, reducing product costs, and increasing competitiveness with imported goods from other countries.

+ Help domestic companies create a market to supply abundant, stable raw materials at low prices.

b) For investment receiving countries.

+ Solve the lack of capital for socio-economic development  to innovate technology.

+ Investment receiving countries receive advanced technology, techniques, management experience, and trained labor force (qualifications, working methods, labor discipline).

+ Make domestic investment activities develop, promote dynamism and domestic competitiveness, create conditions for effectively exploiting the country's potential  shift the economic structure in a positive direction.

+ Do not push countries into debt, do not accept political and social constraints.

+ Increase budget revenue through taxation.

+ Penetrate the world market .

- Limitations of FDI investment:

+ If investing in an economically and politically unstable environment, foreign investors can easily lose capital.

+ In the investment receiving country, there is no specific and scientific investment planning, which can easily lead to widespread, ineffective investment, overexploitation of natural resources, and environmental pollution.

4.4.2.2. Official development assistance ODA

- ODA capital is a financial source provided by official agencies (state and local governments) of a country or an international organization to developing countries to promote economic development and social welfare for this country.

- ODA capital sources include:

+ Non-refundable aid: accounts for 25% of total ODA capital.

+ Mixed aid: includes the grant part and the remaining part implemented in the form of credit loans (preferential or normal).

+ Refundable aid: is preferential credit loan.

- Multilateral aid organizations currently operating include:

+ Organizations of the United Nations system:

 United Nations Development Program UNDP.

 UNICEF International Children's Fund.

 World Food Program WFP.

 United Nations Population Fund UNFPA.

 World Health Organization WHO.

 Food and Agriculture Organization of the United Nations (FAO).

 World Industrial Organization UNIDO.

These organizations all carry out their aid in the form of non-refundable aid, prioritizing low-income countries, without political conditions.

Aid focuses on:

- Social needs: culture, education, population, hunger eradication...

- Development aid: laboratories, consultants, experts, training, equipment…

+ European Union EU: Is an economic and social organization of developed industrial countries in Europe. This fund focuses on population, environment, and service development issues. This fund is often associated with development aid, politics, and human rights issues.

+ International financial organizations include:

- International Monetary Fund IMF: is a very important monetary and financial organization, all types of IMF credit are carried out in cash.

- World Bank WB is the general name of major financial and monetary organizations (International Bank for Reconstruction and Development, International Finance Corporation IFC...)

- Bilateral aid organizations: usually governments of developed industrial countries such as Japan, the US, Germany, Australia, etc.

According to the United Nations regulations (1970), developed industrial countries must annually allocate 0.7% of their GNP to ODA aid for developing countries (mainly for education, health, transportation, etc.).

Currently, Vietnam has relations with 25 bilateral ODA donors: Japan, France, Spain, Germany, Sweden, Australia, Denmark... (Japan 40%).

- Forms of ODA aid: according to the purpose and method of receiving aid, ODA is implemented through the following forms:

+ Balance of payments support: usually direct financial support, sometimes in kind. Foreign currency and goods are transferred into the country, goods are sold on the domestic market and income in local currency is included in the Government budget.

+ Commercial credit: it is aid with low interest rates and long repayment terms.

It is actually a form of constrained support.

+ Program aid: is aid that aims to provide a certain amount of ODA for a general purpose within a certain period of time, without having to determine exactly how it will be used?

+ Project support includes:

 Basic support: mainly construction (roads, hospitals, schools, telecommunications...). This project is accompanied by a part of technical aid in the form of hiring foreign experts to check the operation.

 Technical support: knowledge transfer (training), planning, pre-investment research (planning, establishing technical and economic arguments).

- The role of ODA with developing countries:

+ ODA is an important source of capital in economic development.

Through ODA projects to develop socio-economic infrastructure.

+ Through ODA projects on education, training and health care, the intellectual level of the people will be developed and the quality of the labor force will be improved.

4.4.2.3. Funding sources of non-governmental organizations (NGOs)

- Currently, there are hundreds of NGOs operating in the world for different purposes (charity, health, humanitarian, religion). NGOs' capital is small, mainly based on donations or sponsorship from governments.

- Characteristics of NGOs:

+ Diverse aid methods: medicine, supplies, equipment, food, cash, clothes...

+ Small aid scale: a few hundred, a few thousand USD..., quick implementation, simple procedures, timely service (natural disasters, epidemics...).

+ Irregular, temporary aid.

+ In addition to humanitarian purposes, there are also religious and political colors, so it is difficult to manage.

- NGO aid is non-refundable aid: Previously it was usually material, now there is also support in terms of resident experts such as training people working in health protection, credit projects, providing clean water in rural areas...

- Commercial credit capital is a source of capital that the receiving countries must repay both the principal and interest to the lending country after a period of time. The lending countries earn profits through the interest rate on the loan.

- Characteristics of this source of capital:

+ Borrowers are usually businesses: high risk for investors when businesses operate inefficiently.

+ Enterprises have full rights to use capital in the form of currency.

This.

+ Foreign investors earn profits through bank interest rates

Fixed according to the loan agreement, independent of the business results of the borrowing enterprise, has the right to use the mortgaged assets, and requires the guarantor to pay the loan in case the borrower is unable to pay.

+ Although capital-providing banks do not participate in the business's operations, before the capital is disbursed, they study the feasibility of the investment project and may require guarantees and mortgages for loans to reduce risks.

- When receiving this capital, the borrowing countries are not subject to any political constraints, have full rights to use the capital, and are subject to commercial interest rates. Therefore, if the business is not effective, there is a risk of failure to pay and bankruptcy.

CHAPTER 5: NATURAL RESOURCES AND ENVIRONMENT WITH ECONOMIC DEVELOPMENT

5.1. Characteristics and classification of natural resources

5.1.1. Characteristics of natural resources

- Natural resources are all natural resources including land, air, water, energy, underground minerals... people can use the benefits of natural resources to satisfy their needs.

- Characteristics of natural resources:

1. Natural resources are unevenly distributed among regions on earth, depending on the geological structure, weather, and climate of each region.

For example, Russia, the United States, and the Middle East have the world's largest oil reserves. The Amazon River basin is a large primeval forest.

2. Most of the resources with high economic value today are formed through a long historical development process.

For example, it takes 10 million-100 million years to get oil. Nickel, iron, copper take centuries.

- Meaning: Due to the nature of natural resources being rare, people must be conscious of conservation, saving and efficiency when using them.

5.1.2. Classification of natural resources

5.1.2.1. Classification by function

- Purpose: To determine the role of natural resources in economic activities and human life.

- According to uses: Natural resources are divided into 7 types.

+ Energy source.

+ Minerals.