Although public investment can cause a "stimulating effect" on private investment when the scale of public investment is still low and public investment is well managed. However, such a positive effect is not automatic and is not certain for all scales of public investment. If public investment is in projects that do not have spillover effects, such as investing in museums, monumental statues, etc., when the economy is still poor, it will have almost no effect on stimulating private investment. At the same time, when the scale of investment is large, it will put pressure on debt repayment and increase the cost of capital of the private sector because the state competes with the private sector for idle capital. At a certain limit, the positive benefit from public investment projects on the rate of return of private investment will be lower than the cost that the private sector has to pay for capital costs and taxes and fees that the state collects to finance public investment. As a result, public investment will now create a “crowding out effect” on private investment, reducing economic growth. Barro’s 1990 model pointed out three stages in which the scale of public investment will have a stimulating or crowding-out effect on private investment. In the first stage, called the “stimulus stage”, public investment will increase the rate of return on private investment, increase the rate of private savings, and further promote private investment, leading to economic growth. After the optimal scale in the stimulation stage, continuing to increase the scale of public investment will cause the negative effect of higher taxes (reducing the rate of return on private investment) to gradually overwhelm the positive effect of public investment, so the more public investment increases, the more the rate of return on private investment decreases. This stage is called the “effective crowding out” stage because according to Barro (1990), during this stage, increased public investment still promotes economic growth because public investment is still relatively efficient. In the third stage, public investment becomes less efficient and the increase in public investment reduces the rate of savings and private investment, thereby reducing economic growth. This is called the “ineffective crowding out” stage. The optimal scale of public investment, measured as a proportion of GDP, is the point before the “ineffective crowding out” stage begins.
Barro's (1990) model assumes that public investment is financed through tax revenues. When public investment is financed by borrowing, the effect is similar because the debt is eventually repaid by taxes and subsidies. When public investment is aid-based, the effect of public investment on private investment is complex.
aid is not always a "free lunch" but the recipient country must accept certain unfavorable conditions from the donor country: for example, accepting to open the market for the donor country's enterprises to compete with domestic private enterprises, or accepting very high investment costs despite high interest rates so that in the end, the debt must still be paid back, etc. These can create a crowding-out effect of aid. Some models have predicted an inverted U-shaped effect of public investment on private investment and growth (for example, the study of Lensink and White, 2001).
Increase aggregate demand
In Keynesian models, public investment affects the size of national income through its impact on aggregate demand. These models assume that, because wages and prices are relatively sticky, economies are typically operating below full employment. An increase in public investment will then have an immediate positive effect on the size of national income followed by a smaller positive effect in subsequent years. In other words, for economies growing below potential, an increase in public investment will initially increase income sharply and then gradually slow down.
Y = C+ Ig+ Ip + NX
In Keynesian models, public investment affects the size of national income through its impact on aggregate demand. These models assume that, because wages and prices are relatively sticky, economies are typically operating below full employment. An increase in public investment will have an immediate, direct positive effect on the size of national income, and then a smaller positive effect over the next few years. In other words, for economies growing below potential, an increase in public investment will initially increase income sharply and then gradually slow down.
Reality shows that investment is a factor that accounts for a large proportion of the total demand of the entire national economy. According to the announcement of the World Bank, investment usually accounts for 24-28% of the total demand structure of all countries in the world. For total demand, the impact of investment is short-term, when total supply has not changed, the increase in investment causes total demand to increase.
Conversely, a reduction in public investment, and in particular in infrastructure investment, will shrink aggregate demand and reduce growth. Calderson, Easterly, and Serven (2003b) estimate that a reduction in infrastructure investment in the 1990s reduced long-run growth by about 3 percentage points per year in Argentina, Bolivia, and Brazil, and by 1.5–2 percentage points per year in Chile, Mexico, and Peru.
Increase national savings
Public investment can also promote growth through its positive impact on national saving. In some cases, governments can impose consumption taxes, both to encourage people to save and to use tax revenues to finance public investment. For this effect to occur, the private saving rate must not fall sharply when public investment reduces the rate of return on private investment.
However, whether the government can increase national saving through such a policy remains controversial. The most prominent of these are the Ricardo equivalence theorem argument and the finding by Barro (1974) that current generations will respond to tax increases (or decreases) by adjusting their saving down (or up) rather than cutting back on consumption, leaving the national saving rate unchanged.
Other dynamic C
Increased public investment causes total investment to exceed the economy's saving capacity, then increased public investment increases the trade deficit.
Y Y d T C I G NX ( Y d C ) ( T G ) I NX S p S g I S I NX
(11)
The second equation of formula (11) shows that if S is less than I then NX is negative. In other words if saving is less than investment then it will lead to trade deficit.
A summary of the impact of public investment on economic growth is shown in the table below:
Table 1.1: Summary of the impact of public investment on economic growth
Impact channels
Impact on growth | |
Additional private investment | + |
Private investment promotion | + |
Crowding out private investment | - |
Increase aggregate demand | + |
Promote integration and market expansion | + |
Increase national savings | + |
Increased inflation | - |
Increasing trade deficit | - |
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Identify Rating Levels and Rating Scales
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of the islanders. Therefore, this indicator will be divided into two sub-indicators:
a1. Natural tourism attractiveness a2. Cultural tourism attractiveness
b. Tourist capacity
The two island communes in Quan Lan have different capacities to receive tourists. Minh Chau Commune is home to many standard hotels and resorts, attracting high-income domestic and international tourists. Meanwhile, Quan Lan Commune has many motels mainly built and operated by local people, so the scale and quality are not high, and will be suitable for ordinary tourists such as students.
c. Time of exploitation of Quan Lan Island Commune:
Quan Lan tourism is seasonal due to weather and climate conditions and festivals only take place on certain days of the year, specifically in spring. In Quan Lan commune, the period from April to June and from September to November is considered the best time to visit Quan Lan because the cultural tourism activities are mainly associated with festivals taking place during this time.
Minh Chau island commune:
Tourism exploitation time is all year round, because this is a place with a number of tourist attractions with diverse ecosystems such as Bai Tu Long National Park Research Center, Tram forest, Turtle Laying Beach, so besides coming to the beach for tourism and vacation in the summer, Minh Chau will attract research groups to come for tourism combined with research at other times of the year.
d. Sustainability
The sustainability of ecotourism sites in Quan Lan and Minh Chau communes depends on the sensitivity of the ecosystems to climate changes.
landscape. In general, these tourist destinations have a fairly high level of sustainability, because they are natural ecosystems, planned and protected. However, if a large number of tourists gather at certain times, it can exceed the carrying capacity and affect the sustainability of the environment (polluted beaches, damaged trees, animals moving away from their habitats, etc.), then the sustainability of the above ecosystems (natural ecosystems, human ecosystems) will also be affected and become less sustainable.
e. Location and accessibility
Both island communes have ports to take tourists to visit from Van Don wharf:
- Quan Lan – Van Don traffic route:
Phuc Thinh – Viet Anh high-speed boat and Quang Minh high-speed boat, depart at 8am and 2pm from Van Don to Quan Lan, and at 7am and 1pm from Quan Lan to Van Don. There are also wooden boats departing at 7am and 1pm.
- Van Don - Minh Chau traffic route:
Chung Huong high-speed train, Minh Chau train, morning 7:30 and afternoon 13:30 from Van Don to Minh Chau, morning 6:30 and afternoon 13:00 from Minh Chau to Van Don.
f. Infrastructure
Despite receiving investment attention, the issue of infrastructure and technical facilities for tourism on Quan Lan Island is still an issue that needs to be resolved because it has a direct impact on the implementation of ecotourism activities. The minimum conditions for serving tourists such as accommodation, electricity, water, communication, especially medical services, and security work need to be given top priority. Ecotourism spots in Minh Chau commune are assessed to have better infrastructure and technical facilities for tourism because there are quite complete and synchronous conditions for serving tourists, meeting many needs of domestic and foreign tourists.
3.2.1.4. Determine assessment levels and assessment scales
Corresponding to the levels of each criterion, the index is the score of those levels in the order of 4, 3, 2, 1 decreasing according to the standard of each level: very attractive (4), attractive (3), average (2), less attractive (1).
3.2.1.5. Determining the coefficients of the criteria
For the assessment of DLST in the two communes of Quan Lan and Minh Chau islands, the students added evaluation coefficients to show the importance of the criteria and indicators as follows:
Coefficient 3 with criteria: Attractiveness, Exploitation time. These are the 2 most important criteria for attracting tourists to tourism in general and eco-tourism in particular, so they have the highest coefficient.
Coefficient 2 with criteria: Capacity, Infrastructure, Location and accessibility . Because the assessment area is an island commune of Van Don district, the above criteria are selected by the author with appropriate coefficients at the average level.
Coefficient 1 with criteria: Sustainability. Quan Lan has natural and human-made ecotourism sites, with high biodiversity and little impact from local human factors. Most of the ecotourism sites are still wild, so they are highly sustainable.
3.2.1.6. Results of DLST assessment on Quan Lan island
a. Assessment of the potential for natural tourism development
For Minh Chau commune:
+ Natural tourism attractiveness is determined to be very attractive (4 points) and the most important coefficient (coefficient 3), so the score of the Attractiveness criterion is 4 x 3 = 12.
+ Capacity is determined as average (2 points) and the coefficient is quite important (coefficient 2), then the score of Capacity criterion is 2 x 2 = 4.
+ Exploitation time is long (4 points), the most important coefficient (coefficient 3) so the score of the Exploitation time criterion is 4 x 3 = 12.
+ Sustainability is determined as sustainable (4 points), the important coefficient is the average coefficient (coefficient 1), so the score of the Sustainability criterion is 4 x 1 = 4 points
+ Location and accessibility are determined to be quite favorable (2 points), the coefficient is quite important (coefficient 2), the criterion score is 2 x 2 = 4 points.
+ Infrastructure is assessed as good (3 points), the coefficient is quite important (coefficient 2), then the score of the Infrastructure criterion is 3 x 2 = 6 points.
The total score for evaluating DLST in Minh Chau commune according to 6 evaluation criteria is determined as: 12 + 4 + 12 + 4 + 4 + 6 = 42 points
Similar assessment for Quan Lan commune, we have the following table:
Table 3.3: Assessment of the potential for natural ecotourism development in Quan Lan and Minh Chau communes
Attractiveness of self-tourismof course
Capacity
Mining time
Sustainability
Location and accessibility
Infrastructure
Result
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
CommuneMinh Chau
12
12
4
8
12
12
4
4
4
8
6
8
42/52
Quan CommuneLan
6
12
6
8
9
12
4
4
4
8
4
8
33/52
b. Assessment of the potential for humanistic tourism development
For Quan Lan commune:
+ The attractiveness of human tourism is determined to be very attractive (4 points) and the most important coefficient (coefficient 3), so the score of the Attractiveness criterion is 4 x 3 = 12.
+ Capacity is determined to be large (3 points) and the coefficient is quite important (coefficient 2), then the score of the Capacity criterion is 3 x 2 = 6.
+ Mining time is average (3 points), the most important coefficient (coefficient 3) so the score of the Mining time criterion is 3 x 3 = 9.
+ Sustainability is determined as sustainable (4 points), the important coefficient is the average coefficient (coefficient 1), so the score of the Sustainability criterion is 4 x 1 = 4 points.
+ Location and accessibility are determined to be quite favorable (2 points), the coefficient is quite important (coefficient 2), the criterion score is 2 x 2 = 4 points.
+ Infrastructure is rated as average (2 points), the coefficient is quite important (coefficient 2), then the score of the Infrastructure criterion is 2 x 2 = 4 points.
The total score for evaluating DLST in Quan Lan commune according to 6 evaluation criteria is determined as: 12 + 6 + 6 + 4 + 4 + 4 = 36 points.
Similar assessment with Minh Chau commune we have the following table:
Table 3.4: Assessment of the potential for developing humanistic eco-tourism in Quan Lan and Minh Chau communes
Attractiveness of human tourismliterature
Capacity
Mining time
Sustainability
Location and accessibility
Infrastructure
Result
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Point
DarkMulti
Quan CommuneLan
12
12
6
8
9
12
4
4
4
8
4
8
39/52
Minh CommuneChau
6
12
4
8
12
12
4
4
4
8
6
8
36/52
Basically, both Minh Chau and Quan Lan localities have quite favorable conditions for developing ecotourism. However, Quan Lan commune has more advantages to develop ecotourism in a humanistic direction, because this is an area with many famous historical relics such as Quan Lan Communal House, Quan Lan Pagoda, Temple worshiping the hero Tran Khanh Du, ... along with local festivals held annually such as the wind praying ceremony (March 15), Quan Lan festival (June 10-19); due to its location near the port and long exploitation time, the beaches in Quan Lan commune (especially Quan Lan beach) are no longer hygienic and clean to ensure the needs of tourists coming to relax and swim; this is also an area with many beautiful landscapes such as Got Beo wind pass, Ong Phong head, Voi Voi cave, but the ability to access these places is still very limited (dirt hill road, lots of gravel and rocks), especially during rainy and windy times; In addition, other natural resources such as mangrove forests and sea worms have not been really exploited for tourism purposes and ecotourism development. On the contrary, Minh Chau commune has more advantages in developing ecotourism in the direction of natural tourism, this is an area with diverse ecosystems such as at Rua De Beach, Bai Tu Long National Park Conservation Center...; Minh Chau beach is highly appreciated for its natural beauty and cleanliness, ranked in the top ten most beautiful beaches in Vietnam; Minh Chau commune is also home to Tram forest with a large area and a purity of up to 90%, suitable for building bridges through the forest (a very effective type of natural ecotourism currently applied by many countries) for tourists to sightsee, as well as for the purpose of studying and researching.
Figure 3.1: Thenmala Forest Bridge (India) Source: https://www.thenmalaecotourism.com/(August 21, 2019)
3.2.2. Using SWOT matrix to evaluate Quan Lan island tourism
General assessment of current tourism activities of Quan Lan island is shown through the following SWOT matrix:
Table 3.5: SWOT matrix evaluating tourism activities on Quan Lan island
Internal agent
Strengths- There is a lot of potential for tourism development, especially natural ecotourism and humanistic ecotourism.- The unskilled labor force is relatively abundant.- resource environmentunpolluted, still
Weaknesses- Poorly developed infrastructure, especially traffic routes to tourist destinations on the island.- The team of professional staff is still weak.- Tourism products in general
quite wild, originalintact
general and DLST in particularalone is monotonous.
External agents
Opportunity- Tourism is a key industry in the socio-economic development strategy of the province and Van Don economic zone.- Quan Lan was selected as a pilot area for eco-tourism development within the framework of the green growth project between Quang Ninh province and the Japanese organization JICA.- The flow of tourists and especially ecotourism in the world tends toincreasing
Challenge- Weather and climate change abnormally.- Competition in tourism products is increasingly fierce, especially with other localities in the province such as Ha Long, Mong Cai...- Awareness of tourists, especially domestic tourists, about ecotourism and nature conservation is not high.
Through summary analysis using SWOT matrix we see that:
To exploit strengths and take advantage of opportunities, it is necessary to:
- Diversify products and service types (build more tourism routes aimed at specific needs of tourists: experiential tourism immersed in nature, spiritual cultural tourism...)
- Effective exploitation of resources and differentiated products (natural resources and human resources)
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Research on the impact of public debt and corruption on economic growth in countries around the world - 32 -
Contribution Level of FDI Sector to Economic Growth of Nghe An Province -
Collecting, Synthesizing and Processing Information to Serve the Assessment of the Comprehensive Impact of Tourism on Vietnam's Economic Growth in 2013 -
Statistical study of the total impact of tourism on economic growth in Vietnam - 2
Source: Lensink and White, 2001
Using VAR model, Sturm (1998) found that infrastructure investment has a positive effect on output in the Netherlands and using the same model to analyze the effects of public investment for six industrial countries, Mittnik and Neumann (2001) found that public investment tends to exert a positive effect on GDP. In addition, they did not find a crowding out effect between public and private investment. Naqvy (2003), Ghani & Din(2006) examined the relationship between economic growth, public investment and private investment using VAR model. Based on annual time series data for Pakistan, the analysis suggests that public investment has a positive effect on private investment and economic growth drives both private and public investment as predicted by the acceleration-based models.
Khan (1996) found out the relative importance of public and private investment in promoting economic growth for a large group of developing countries. The study used a data set of 95 developing countries for the period 1970 - 1990. The results of the study showed that public and private investment have different impacts on economic growth, in which private investment has a greater impact on economic growth than public investment.
Devarajan et al. (1996) present evidence for 43 developing countries, showing that total government spending (including consumption and investment) has no significant impact on economic growth. However, the authors find an important partial effect of government spending: an increase in the share of
consumption has a positive, significant impact on economic growth, while an increase in public investment spending has a negative impact. The negative impact is also true for each major component of public investment, including transport and telecommunications. This leads to the somewhat surprising rule that governments in developing countries would be better advised to shift public resources from public investment to public consumption.
Pritchett (1996) suggests an alternative explanation for the findings of Devarajan et al. (1996)—the “white elephant” hypothesis. Pritchett (1996) argues that public investment in developing countries is often spent on inappropriate and inefficient projects. As a result, the public portion of investment may be a poor measure of the real increase in economically efficient capital investment. On the one hand, higher public investment increases the rate of national capital accumulation above the level chosen (assuming reasonable) by the private sector, so public capital spending may crowd out private investment. On the other hand, public capital—especially infrastructure investment such as highways, water and sewer systems, and airports—appears to be complementary to private capital in private production technology. Thus, higher public investment may increase the marginal productivity of private capital and thereby support private investment.
1.3. Impact of investment on inflation
The impact of public investment on inflation can be considered within the framework of aggregate demand-supply theory (Figure 1.1 and Figure 1.2). According to Keynesian economic theory, public investment will increase aggregate demand, thereby increasing consumption and investment in both the state and private economic sectors. Assuming that aggregate supply is inelastic in the short run, an increase in aggregate demand will push the price level higher. Looking at the supply side, in case the government has to borrow more to cover public spending through the issuance of government bonds, interest rates will rise and reduce consumer demand and private investment, thereby reducing total output. As a result, aggregate supply will decrease, pushing the price level even higher. This crowding-out effect can be partially or completely offset by the effects of expanding public spending on the economy.
Figure 1.2: The impact of aggregate demand on the price level
Figure 1.3: Investment and IS curve
In theory, if this crowding out effect is large, it could cause the spending multiplier to
government spending becomes negative, meaning that an increase in government spending can reduce total output. In addition, the money creation mechanism of central banks to offset the government's public spending needs can also increase the money supply and credit balance in the economy, thereby pushing up aggregate demand and inflation.
Bernstein (1936) argued that although used as an instrument of economic policy especially during recessions characterized by low costs, a significant increase in public expenditure can increase the price level and output. Eltis (1983) found a loose link between inflation and public expenditure when inflation is viewed as a consequence of an increase in the money supply to finance government deficits.
Buiter (1988) studies the inflationary effects of public spending cuts and emphasizes the important distinction between cuts in public consumption spending (which tend to reduce the budget deficit) and cuts in public investment spending (which can have the opposite effect). Özatay (1997) studies the case of Turkey during 1997-1995 and shows that the coordination between fiscal and monetary policies plays an important role in achieving price stability. Ruge-Murcia (1999) develops a dynamic rational expectations model of inflation in which the money supply is an endogenous variable determined by government spending demands. Using data from Brazil (1980-1989), the authors show that inflation and money supply are consistently correlated in both public spending regimes (a contractionary regime characterized by an inflation rate of 8.22%, a monthly money supply growth rate of 7.29%, and a government spending/GDP ratio of 22.73%; an expansionary regime characterized by an inflation rate of 19.12%, a monthly money supply growth rate of 19.25%, and a government spending/GDP ratio of 33.43%). Using panel data for Argentina, Brazil, Chile, Columbia, Costa Rica, the Caribbean, Salvador, Guatemala, Honduras, Mexico, Peru, and Venezuela over the period 1970-1994, Aizenman and Hausmann (2000) find that the correlation between budget deficit and inflation is highly significant. Ezirim and Muoghalu (2006) find that when the size of the budget deficit is large, inflation increases. When public spending/GDP exceeds a certain threshold, the incentive to produce and do business will decrease due to the burden of high taxes, leading to a decline in aggregate supply.
The result of the adjustment between aggregate demand and aggregate supply is an inflationary spiral. Ezirim, Muoghalu, and Elike (2008) studied the relationship between the growth rate of public expenditure and the inflation rate in the United States during the period 1970-2002 and found that these two variables move in the same direction. The results of the analysis show that inflation affects the public expenditure decisions of the federal government but conversely it is also affected in both the short and long run. On the one hand, to control inflation, the government should reduce public expenditure to an appropriate level, on the other hand, to limit the increase in public expenditure, policy makers should control price fluctuations. The recommendation in this case is that fiscal policy should play an effective role in controlling inflation thanks to its ability to
direct impact on public spending. Analyzing the relationship between budget deficits and inflation in high-inflation economies, Pekarski (2010) finds that frequent high inflation outbreaks can be clearly explained by hysteresis effects related to the arithmetic mechanism of the Laffer inflation tax curve and the Patinkin effect (the opposite of the Olivera-Tanzi effect, as it is more commonly referred to). Using time series data, Agha and Khan (2006), Serfraz and Anwar (2009) find evidence of a positive and significant impact of budget deficits on inflation in Pakistan. Roubini and Sachs (1989) demonstrate that there is a positive and significant correlation between budget deficits and public spending. Using quarterly data from 17 industrialized countries, Kandil (2006) found that public spending shocks and inflation were negatively correlated for most of the countries in their sample. Han and Mulligan (2008) found empirical evidence that inflation was strongly and positively related to the size of government spending in the US and UK, mainly due to the relationship between inflation and defense spending. Meanwhile, Becker and Mulligan (2003) found a negative correlation between government spending and inflation. Through qualitative analysis, HuynhBuuSon (2010) argued that the pursuit of a loose fiscal policy for many years and the waste and inefficiency in public investment were the main causes of inflation in Vietnam. Using a quantitative model of the relationship between growth, inflation, savings and investment, Nguyen Duc Do (2014) argues that when the investment/GDP ratio exceeds the savings/GDP ratio too much, inflation will increase despite the decline in GDP growth. According to the author, the investment stimulus policy in Vietnam for a long time led to a high gap between investment and savings in 2007-2008, and was the main reason why the Government's stimulus policy in 2009 not only failed to promote economic growth, but also led to instability of macroeconomic variables such as inflation, trade deficit, public debt, interest rates and exchange rates.
According to Ogbole & Momodu (2015), public expenditure (or Government expenditure) is the amount of money spent by the Government of any country to fulfill its constitutional responsibility in providing social welfare to its citizens and protecting the territorial integrity of the country.