The Relationship Between Investment and Growth Through Supply and Demand Analysis

for investment, in addition to improving the efficiency of capital use. Mobilizing the necessary financial resources for development investment will contribute to increasing the quantity and quality of growth, contributing to improving people's lives. The role of financial resources for development investment can be seen more clearly in the following aspects:

Figure 2.1. The relationship between investment and growth through supply and demand analysis

Po P2

O Q0 Q1 Q2 Q

First of all , mobilized financial resources will form capital for investment, on that basis, it will improve both the production capacity of enterprises and the economy. These resources allow enterprises to purchase machinery and equipment, hire more workers, invest in research and development, etc., thereby expanding and improving production capacity, improving the quality of goods and services. For developing countries, low income and accumulation lead to a lack of financial resources for investment, thereby reducing the growth rate. Low growth leads to low accumulation, creating a vicious circle of poverty. To escape this vicious circle, there must be strong breakthroughs in mobilizing financial resources for investment, creating a 'push' for growth.

Second , mobilized financial resources will stimulate investment, which is also a part of aggregate demand. According to World Bank data, investment accounts for 24% to 28% of the aggregate demand structure of all countries.

in the world. Increased investment increases aggregate demand, thereby promoting growth. For aggregate demand, the impact of investment is short-term. Increased investment increases aggregate demand, thereby creating a stimulus to increase aggregate supply. Increased aggregate supply leads to increased income and savings, which in turn increases aggregate demand. That is the upward spiral of growth.

The relationship between investment and aggregate demand is shown in Figure 2.1. When investment increases, aggregate demand shifts from D to D', increasing output from Q0 to Q1 and increasing prices from Po to P1. Investment in production then shifts the aggregate supply curve from S to S', increasing output from Q1 to Q2 and decreasing prices from P1 to P2.

Table 2.1 reports the results of estimating the spending and investment multiplier of our country's economy according to the research of Nguyen Duc Thanh and colleagues (2008). Statistics show that every VND of investment creates 1.44 to 1.65 VND of increased total demand, meaning that the total demand increases by about one and a half times compared to the amount of investment.

Table 2.1: Expenditure and investment multipliers for each component of aggregate demand in the Vietnamese economy

Consumption	Invest	Export
1989	1.39	1.56	1.46
1996	1.51	1.65	1.53
2000	1.55	1.65	1.53
2005	1.51	1.44	1.51

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Source: Nguyen Duc Thanh et al., 2008

In the early 1950s, Nurkse placed greater emphasis on the role of investment and financial resources in economic development. Nurkse argued that lack of investment capital was a cause of poverty. He pointed out the vicious circle of poverty:

On the supply side : A country with low income will have low accumulation capacity, low accumulation leads to lack of financial resources, lack of financial resources leads to low investment capacity, limited production capacity and labor productivity cannot increase, low production capacity will lead to low income.

On the demand side : Low income leads to low purchasing power, low purchasing power limits the motivation to increase investment, limited investment leads to low production capacity and that in turn leads to low income.

In fact, most of the poor countries in the world today suffer from poverty partly due to the above reasons. That is, poverty in these countries is partly due to the lack of financial resources for investment and appropriate and effective investment. The reason for the limited investment situation in these countries is either because of the lack of motivation to promote investment or because the economy's ability to accumulate is too small.

This shows that, to develop and successfully implement poverty reduction, we must break the vicious circle. One of the measures to break the vicious circle is from the investment aspect. The economy must create a transformation, increase the accumulation level from low to medium and high levels to increase financial resources, thereby increasing the scale of investment, increasing production capacity and finally increasing income.

On the basis of improving production capacity and aggregate demand, financial resources for development investment contribute to increasing economic growth rate. Research results of economists show that to maintain the growth rate at an average level, the investment rate must reach from 15% to 25% compared to national income, depending on the ICOR coefficient of each country. If the ICOR remains unchanged, GDP growth depends entirely on the investment rate. Experience of other countries shows that the ICOR indicator depends strongly on the economic structure and efficiency in industries, regions as well as on the effectiveness of policies.

economy in general. Normally, ICOR in industry is higher than in agriculture, ICOR in the transition period is mainly due to the utilization of production capacity. Therefore, in developed countries, low investment rate often leads to low growth rate.

Third , mobilized financial resources will allow the formation of large capital sources for investment in industries and services with high scientific and technological content, thereby promoting the process of economic restructuring, improving the quality of growth - an important factor ensuring sustainable socio-economic development. Reality shows that the inevitable path to rapid and sustainable growth at the desired rate (9-10%) is to increase investment to create rapid development in areas with high scientific content, creating great added value. Thus, investment policies have a decisive orientation in the process of economic restructuring in countries to achieve rapid and sustainable growth of the entire economy.

Investment also helps to resolve development imbalances between regions, lift underdeveloped regions out of poverty, maximize comparative advantages in terms of resources, terrain, and economy of regions with the potential for faster development, and act as a springboard to promote other regions to develop together, thereby contributing to solving issues of equity and social security.

Fourth , mobilized financial resources will create favorable conditions to help improve scientific and technological capacity and level.

There are two basic ways to have high technology: self-research and invention of technology and import of technology from abroad. Whether self-research or import from abroad, financial resources are required. Self-research and development is more difficult, and there is a high risk when investing and it is not certain to bring results, but if successful, it will create a solid foundation of science and technology for the country. Importing technology is a faster way, with less risk, especially for

For developing countries like Vietnam, technology import is a shortcut to access advanced science and technology. Both of these forms require large financial resources. A technological innovation plan that is not linked to financial resources that can be mobilized for investment will be an unfeasible plan.

Fifth , mobilized financial resources will allow for funding to be available for investment in education, health care, job creation, environmental protection and other development contents, which means improving the quality of growth. In other words, development investment contributes to improving the quality of life of the people and ensuring sustainable growth for the people. This, on the other hand, will also have an impact on growth.

Thus, it can be seen that financial resources play an important role in the growth and development of the socio-economy, both in quality and quantity. It is a necessary condition for growth. The sufficient condition is that these financial resources must be used effectively and economically.

2.1.3. Private economy and financial resources from the private economy

The private economy is a part of the national economy. In the process of operation and development, the private economy has also accumulated significant financial resources, which can be mobilized to serve investment and development. The formation and development of the private economy in our country is closely linked to innovations in the awareness and multi-sector economic policies of the Party and the State.

2.1.3.1 Private economy.

In theory, the concept of private economy is used to refer to the economic sector based on private ownership of means of production, including individual economy, smallholder economy and private capitalist economy. In terms of business registration form, private economy includes individual business households and enterprises and companies based on

on private property.

With such a concept, the composition of the private economy will include both the domestic private economy and the foreign private economy operating in Vietnam. However, according to the viewpoint of the 11th Congress on economic components, the foreign private economy is classified as an economic component with foreign investment capital. Therefore, the scope of the private economy in this thesis will only refer to the domestic private economy.

Marxist-Leninist theory has affirmed that the existence of the private economy is an objective necessity in the transition period to socialism and that reforming this economic sector is one of the fundamental, long-term economic tasks of the entire transition period.

Since the 6th National Party Congress with the Doi Moi process up to now, the private economy has been recognized as a part of the multi-sector economy. The practice of economic innovation in our country shows that developing the private economy in the socialist-oriented market economy is a correct and consistent policy of our Party based on scientific foundations, in accordance with objective economic laws, and is a creative application of Marxism-Leninism and Ho Chi Minh's thought to the specific historical conditions of the country. Its specific achievement is that our country has overcome difficulties, from a poor country to one of the world's leading rice and agricultural product exporters. The economy has grown rapidly and relatively stably for a long time. People's lives have been constantly improved and enhanced. This is achieved because social resources, including a large part from the private economy, are liberated, creating motivation to stimulate labor production, enriching themselves and society.

Up to now, there have been many ways to define the structure and development stages of the private economy. After the successful October Revolution in Russia (1917), V. Lenin pointed out the structure of the private economy in Russia at that time.

including patriarchal peasant economy, small-scale commodity production economy, private capitalist economy. In our country, since the renovation until now, in the Congress documents, the Communist Party of Vietnam has affirmed the development policy of a multi-sector economy, including the private economy. In terms of perception, we recognize the private economy as an economic sector based on private ownership of means of production, with the labor of economic entities and hired labor, including: individual economy, smallholder economy and private capitalist economy. At the 10th Congress, our Party continued to affirm that the private economic sector includes individual economy, smallholder economy and private capitalist economy. The 11th Congress continued to emphasize the role and importance of the private economic sector.

2.1.3.2 Financial resources from the private economy.

Along with the development of the economy in general and the private economic sector in particular, financial resources accumulated in the private sector have grown strongly, accounting for an increasingly large proportion of the total financial resources for development investment in our country. Basically, financial resources from the private economy are also classified according to 3 criteria: By origin, by form of mobilization and by mobilization channel.

- According to origin, financial resources from the private economy include two main sources: 1) financial resources of privately owned enterprises; 2) financial resources of individual and small business households.

Financial resources of privately owned enterprises

Along with the economic liberalization since the implementation of renovation, the private economic sector has developed rapidly. A series of private enterprises were established, especially after the Enterprise Law 1999 (effective from January 1, 2000), contributing significantly to economic growth, job creation and income for workers. If before 2001, the whole country had about 83 thousand enterprises, by 2009, the number of enterprises had increased to 460 thousand enterprises actually operating. In 2009 alone, there were 83 thousand enterprises.

Newly registered enterprises. In the years from 2010 to 2012, the rate of new private enterprise registration decreased, the number of bankrupt enterprises increased due to the general difficult situation of the whole country. However, in general, the number of private enterprises is still increasing, the scale of capital accumulation is getting larger. These enterprises have also accumulated significant financial resources through retained profits and mobilized from society. This is an important basis for enterprises to expand their own production and business investment, lend directly or indirectly to other enterprises in the financial market or participate in investment with the government in public-private partnership projects.

Income and assets of private sector workers are mobilized indirectly through personal income tax payments, bank savings, stock market investments, construction bond purchases, etc.

Along with the country's economic development, household incomes have increased rapidly and thus accumulation has also increased. This financial source provides, according to estimates, approximately 80% of the total mobilized capital of the entire banking system. The reality of issuing government bonds and bonds of some state-owned commercial banks shows that, in just a short time, thousands of billions of VND and tens of millions of USD have been mobilized from the residential area. Many households have truly become dynamic economic units in the fields of trade, services, agricultural production and small-scale industry. Households that do not participate in business are also one of the important sources of concentration and distribution of financial resources in the economy. The remaining idle financial resources in the population, accumulated in the form of cash, gold, foreign currency and other valuable assets, are still very large. According to the State Bank's estimate, there are about 500 tons of gold alone being held by the people.

Although there are no official measurements, only estimates of the source

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