Chapter 1: Theories of economic growth:

from exogenous model to endogenous model

1.1. Neo-classical growth theory – Solow model
1.2. Endogenous growth theories: education,
human resource, R&D activities and spill over
effect of technology
1.3 Creative destruction model of Schumpeter
1.4 Empirical evidences of economic growth:
convergence or divergence
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
Assumptions
- Two inputs are K and L used to produce only one goods
denoted by Y
- Using constant return to scale production function:
Y = A.K . L1- ; (0 <<1)
- MPK and MPL decrease by scale
- All population is considered as labor force. L, T are fixed
initially and this condition will be relaxed later
- Closed economy, all saving comes from domestic sources
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
Assumptions
Using Harrod – type of technological neutrality
(Types of technological neutrality
+ Hicks type: Y = A.F(K,L) technology is not included in inputs +
Solow type: Y = F(AK,L) technology is included in K
+ Harrod type: Y = F(K,AL) technology is included in L
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
+) Supply and production function
Production function Y = F (K,L) (constant return to scale)
→ zY = F (zK,zL)
Take z = 1/L we have Y/L = F(K/L,1)
Put y = Y/L (output per labor) và k = K/L (capital per person) → y =
f(k)
+) Demand and consumption function
y=c+i
y = (1-s).y + i or i = s.y
In which s is saving rate, i is investment per labor
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
Identify y, i(s), c at a given value of k
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
There are two “forces” that affect the value of k in a
year. One force increases value of k, one force
decreases value of k
Change of k (∆k ) in one year:
∆k = i - δk = sf(k) – δk
in which δ is depreciation rate
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
Steady state of economy: k* as δk* = sf(k*)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
(production function y = kα)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
(production function y = kα)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
(production function y = Akα)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.1. Neo-classical growth theory – Solow model
Policy implications
- Increasing capital only promotes economic growth
in short-run, to attain economic growth in long-run,
economy must have technological advancements
- Increasing population harms long-run steady state
- Appropriate saving rate is defined followed Golden
Rule: MPK = δ + n + gA
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education, human resource,
R&D activities and spill over effect of technology
Learning by Doing (Arrow, 1962)
According to the model Learning by Doing (Arrow, 1962) when
economy reaches steady state then
- Growth rate of Total Capital at steady state: gK = (gA+n)/(1-θ)
- Growth rate of Total Output at steady state : gY = (gA+n)/(1-θ)
- Growth rate of output per labor at steady state : gY/L = (gA+θn)/(1-
θ)
in which θ is learning coefficient which reflect influence of past
capital on current technology efficiency
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2 Endogenous growth theories: education, human
resource, R&D activities and spill over effect of
technology
Almost research relevant to education and economic
growth demonstrated that
- Quality of education has great impact on future
personal income
- In developing countries, quality of education is less
improved than quantity aspect.
- Simply increasing spend on education will not
change its quality
According to the statistics of CNN money, in US, a
labor:
+ Without diploma: $478/week equal to $25.000/year
+ With diploma: $647/week equal to $33.600/year
+ With bachelor: $1.071/week equal to $55.700/year
+ With post-graduate degree: $1.379/week equal to
$71.700/năm
Source: CNN student news January 29th 2013
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education, human
resource, R&D activities and spill over effect of
technology
Education and Institution:
- Benefits of education will be greater in democratic
countries
- Benefits of education will be greater in open
countries
- Technical human resource (engineers) has more
impact on growth than social human resource
(lawyers, economists)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education, human
resource, R&D activities and spill over effect of technology
Model R&D (Romer, 1990)
Model: Assume that economy has two sectors:
+ Commodity producing sector (enterprises) – sector 1: using
capital, labor and technology to produce commodities
+ Knowledge producing sector (institute, university, research
center) – sector 2: using capital, labor and technology to
produce knowledge utilized in both sectors
We have proportion of labor used in sector 2 and 1- proportion
of labor used in sector 1; proportion of capital used in sector 2
and 1- proportion of capital used in sector 1 then
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2 Endogenous growth theories: education, human
resource, R&D activities and spill over effect of technology
Model R&D (Romer, 1990)
Output in sector 1 follows the equation (constant return to
scale)

Output in sector 2 (new knowledge) follows the equation

λ > 0, (*)
in which λ - transfer coefficient indicating proportion of
research was implemented in reality; θ indicating influence
level of current knowledge to success of researches
To be simple, consider depreciation rate is zero
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education,
human resource, R&D activities and spill over
effect of technology
Model R&D (Romer, 1990)
+ at steady state, growth of total capital and total
output is similar to Solow model. However gA is
decomposed

+n
+ >= 1 there is no steady state
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education, human
resource, R&D activities and spill over effect of
technology
Model R&D (Romer, 1990)
Policy implications:
- Degree of θ: return of current knowledge
- Degree of β: return of capital in sector 2
- Degree of : return of labor in sector 2
- Degree of n: positive impact of population growth on
economic growth (contrary to traditional Solow model)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.2. Endogenous growth theories: education, human
resource, R&D activities and spill over effect of
technology
Knowledge producing sector provide technology as input
for commodity producing sector. In return, commodity
producing sector create spill-over effect to motivate
knowledge producing sector to produce.
Spill-over effect from:
- FDI companies (technology, management knowledge)
- Industrial zones, industrial clusters (know-how,
information)
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.3 Creative destruction model of Schumpeter
Joseph Schumpeter (1883 – 1950) was born in
Moravia Czech Republic. He is a Professor of
Economics and later became Austria 's Finance
Minister . In 1932 he immigrated to the US to avoid
the rise of Hitler . He spent most of time later in the
US to teach at Harvard . Schumpeter introduced the
concept of creative destruction in 1942 book "
Capitalism Socialism and Democracy "
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.3 Creative destruction model of Schumpeter
Main points:
- Development of society is driven by innovation
- Schumpeter believed that innovation will be
promoted if innovation promises a certain reward.
Reward is actually a monopolistic right of inventor
over his invention, eventually helping enterprises
obtain monopoly profits. Schumpeter believed that
allowing exclusive invention makes society more
benefits from having more inventions.
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.3 Creative destruction model of Schumpeter
Main points:
- Among market types, oligopoly best suits to the concept of
creative destruction since it produces more impetus for
economic growth rather than the perfectly competitive.
Perfect competition with homogeneous products and a given
price will not create impetus to creative innovation.
- Costs of creative destruction process including costs related
to new production processes, new products introduction,
outdated machinery replacement and the cost of reallocating
resources to more productive areas are huge, concentrated
and not pleasant to society. However, they exist in the short
term, whereas benefits they creates slowly spread all
economy and maintain in the long term
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.3 Creative destruction model of Schumpeter
Model:

In which: g – economic growth rate

– productivity growth rate
– labor force
r – interest rate
– probability of retaining innovation
– proportion of labor distribution in GDP
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.3 Creative destruction model of Schumpeter
Examples:
- Photographic camera → Constant camera →
Digital camera → Phone camera
- Gramophone (record) → Cassette → Compact Disk
→ MP3 player → online music
- Newspaper → Television → Online paper
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
Convergence: the trend in which average income
(productivity) in low income countries rises faster
than counterpart in high income countries; as a
result, low income countries could catch-up high
income countries over time
In the case, that a country which could catch – up
high income country with specific conditions of
saving rate, labor force and technological level is
said to be conditional convergence
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
Divergence: the trend in which average income
(productivity) in low income countries rises slower
than counterpart in high income countries; as a
result, income gap between two groups is
increasingly widened
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
Hans Rosling's 200 Countries, 200 Years, 4 Minutes -
The Joy of Stats - BBC Four
https://www.youtube.com/watch?v=jbkSRLYSojo
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
Reasons for convergence:
+ Technology transfer/learning
(UK doubled output within 60 years, US in 45 years,
South Korea in 12 years and China in 9 years)
+ Investment rate
 Chapter 1: Theories of economic growth:
from exogenous model to endogenous model
1.4 Empirical evidences of economic growth:
convergence or divergence
Factors affecting convergence or divergence
Country factors Global factors
Saving, Investment Goods and services trade
Population growth, human resource Inflow, outflow capital

Technology Labor immigration

Infrastructure development Technology transfer

Prudential and Transparent Global economic growth
economic policies
Stable and homogeneous society Peace, oil price…
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
2.2 Unavoidable barriers in development path of a
country
2.3 Case study: Vietnam
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
After WW2, ideologies/theories of development was
divided into 4 school of thought:
- Linear – stages of growth model
- Theories of structural change
- International-dependence revolution
- Neo-classical theory of free market
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
a. Linear – stages of growth model
Rostow model
The Rostow's Stages of Economic Growth model is one of the major
historical models of economic growth. It was published by American
economist Walt Whitman Rostow in 1960. The model postulates that
economic growth occurs in five basic stages, of varying length:
• Traditional society
• Preconditions for take-off
• Take-off
• Drive to maturity
• Age of High mass consumption
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
a. Linear – stages of growth model
Rostow model
• Traditional society (agriculture)
• characterized by subsistence agriculture or hunting and
picking; almost "primary" sector economy
• limited technology
• A static or 'rigid' society: lack of class or individual economic
mobility, prioritize stability and changes seen as negative
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
a. Linear – stages of growth model
Rostow model
• Pre-conditions to "take-off"( agriculture – industry)
• external demand for raw materials initiates economic change;
• widespread and enhanced investment to expand production
in agriculture (i.e. irrigation, canals, ports)
• increasing spread of technology and advances in existing
technologies
• changing social structure, classes division appear
• individual social mobility begins
 Chapter 2: Economic growth and development: theories and
practices

2.1 Evolution of thoughts about poverty alleviation, growth and development

a.Linear – stages of growth model
Rostow model
•Take off (industry – agriculture – service)
• Urbanization increases, Industrialization proceeds, Technological break
through occurs
• the "secondary" (goods-producing) sector expands and ratio of secondary vs.
primary sectors in the economy shifts quickly towards secondary
• textiles and apparel are usually the first "take-off" industry, as happened in
Great Britain's classic "Industrial Revolution"
•Drive to maturity (industry – service – agriculture)
• diversification of the industrial base; multiple industries expand and new
ones take root quickly
• manufacturing shifts from investment-driven (capital goods) towards
consumer consumption-driven
• rapid development of transportation infrastructure
• large-scale investment in social infrastructure (schools, universities, hospitals,
etc.)
Chapter 2: Economic growth and development:
theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth
and development
a. Linear – stages of growth model
Rostow model
• Age of mass consumption (service – industry – agriculture)
• the industrial base dominates the economy; the primary
sector is of greatly diminished weight in economy and
society
• widespread and normative consumption of high-valued
goods (e.g. automobiles)
• consumers typically (if not universally), have disposable
income, beyond all basic needs, for additional goods
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and development
b. Theories of structural change
Dual sector model of Arthus Lewis
The evolution of labor movement from agriculture to industry
• Historically, agriculture pays peasants by APL and industry pays workers by MPL
• Total output in agriculture has limit due to scarce land but total output in
industry has no limit due to technological progress
• All society begins with agriculture. At a point of development (agriculture is
dominant but industry also appears), there is labor surplus in agriculture
• Minimum wage in industry is higher than average wage in agriculture then
labor surplus in agriculture moves to industry
Now, economic growth depends on development of industrial sector, and labor
surplus in agriculture
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
b. Theories of structural change
Dual sector model of Arthus Lewis
Some criticisms:
- Growth rate of labor demand in industry sector is
proportional to growth rate of capital accumulation?
- Labor markets among sectors have competitiveness?
- MPL in industry sector gradually decreases?
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
b. Theories of structural change
Fei–Ranis model is an extension of dual sector applied to only underdeveloped
countries. According to this theory, the primitive sector consists of the existing
agricultural sector in the economy, and the modern sector is the rapidly
emerging but small industrial sector.

Development can be brought about only by a complete shift in the focal point
of progress from the agricultural to the industrial economy, such that there is
augmentation of industrial output. This is done by transfer of labor from the
agricultural sector to the industrial one, showing that underdeveloped
countries do not suffer from constraints of labor supply. At the same time,
growth in the agricultural sector must not be negligible and its output should
be sufficient to support the whole economy with food and raw materials Like
in the Harrod–Domar model, saving and investment become the driving forces
when it comes to economic development of underdeveloped countries.
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth
and development
b. Theories of structural change
Fei–Ranis model (continue)
The Lewis model is criticized on the grounds that it neglects
agriculture. Fei–Ranis model goes a step beyond and states that
agriculture has a very major role to play in the expansion of the
industrial sector. In fact, it says that the rate of growth of the
industrial sector depends on the amount of total agricultural
surplus and on the amount of profits that are earned in the
industrial sector. So, larger the amount of surplus and the
amount of surplus put into productive investment and larger the
amount of industrial profits earned, the larger will be the rate of
growth of the industrial economy
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth
and development
b. Theories of structural change
Two sector model of Oshima
Oshima proposed investment for economic development in
three stages along with the shift in the economic structure:
+ Beginning Stage: creating more jobs for farmers in leisure time
by investing more for agriculture (e.g crop and livestock
diversification, agricultural market development ... )
Accomplishment sign: agricultural product diversity , increase of
agricultural inputs demand ( fertilizers, seeds ) , increase of agro-
processing demand
Economic structure: agriculture
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
b. Theories of structural change
Two sector model of Oshima
+ Full employment stage: by simultaneously investing in both
industry and agriculture . The industry which is developed are the
ones tied to agricultural sector such as food processing , beverages ,
crafts, farm equipment, fertilizers ... The development of agricultural
products promotes market expansion for industrial products
Accomplishment sign : migration from rural areas to cities with
large-scale , growth rate of employment greater than its counterpart
in labor force, increase of real wage
Economic structure: agriculture - industry
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
b. Theories of structural change
Two sector model of Oshima
+ After full employment stage: develop economic sectors by increasing
productivity therefore reducing labor demand. Service appears in the early
stage in order to serve agriculture and industries which toward substituting
imports and orienting exports
Accomplishment finish : labor demands in agriculture and industry is very low
due to high productivity. By contrast, labor demand in services increases.
Economic structure industry – agriculture - services
In a new round, economy will repeat three stages to move from
manufacturing to services (in the new round industry plays role of agriculture
and services play role of industry). Eventually, economic structure stably stay
at services – industry - agriculture
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
b. Theories of structural change
Economists after Lewis also supplemented other
structure changes accompanied with economic
development:
- Accumulation: capital and human
- Consumption: inferior goods, necessities and luxury
goods
- Demographic: urban and rural area
- Population: quantity and quality
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
c. International-dependence revolution
- Neocolonial dependence model: certain groups of
interest (landowners, businessmen, government
officials, traders) in developing countries (dependent
countries in international relations) who benefit from
the old political system, continue to implement
policies that are not beneficial to the majority of
population but generate benefits manipulated by
multinational corporations, international
organizations.
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
c. International-dependence revolution
- False paradigm model: developing countries fail to
copy in a mechanistic way the development
strategies of Western countries (for example, too
focused on industrial development but not on
institutional changes simultaneously)
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
c. International-dependence revolution
- Dualistic development thesis: The simultaneous
existence of two objects in society, such as wealth –
poverty group, modern economic sector – traditional
economic sector, growing area – stagnated area, high
level skill labor – low level skill labor. Features of
economy: two object coexists in a geographic area in
a long time, the gap increases overtime, predominant
area does not help the disadvantageous area
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
d. Neo-classical theory of free market
- Launched from the 1980s, economic development policy
was oriented towards market liberalization in opposition
to the government intervention policy in the 1970s.
- Free market: commodity prices are governed by market
supply and demand
- Market liberalization policies: promoting market
competition, privatizing SOEs, promoting international
trade, attracting FDI, abolishing state administration of
prices.
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
In practice, there are four growth model applied, which have been
successful
(1) Export oriented industrialization: Countries pioneered in the first
industrial revolution (England, German, US, Belgium, France…)
(2) Import substitution industrialization: Countries followed in the
first industrial revolution (Italy, Japan, Russia…)
(3) Open economy, constraint government intervention: Denmark,
Netherlands, Switzerland, Sweden…
(4) Agricultural and mining economy: land abundant countries like
Australia, Argentina, Canada, New Zealand or large population like
China, India, Egypt
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
In addition, there are also theories that use
interdisciplinary science (economics, demography,
archeology, geography, ethnology, etc.) to look at the
facts and find sources of development. In the book Why
nations fail? The authors mentioned several assumptions
to explain why countries develop and why countries do
not develop
- geography hypothesis
- culture hypothesis
- ignorance hypothesis
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
Geography hypothesis
- Rich countries tend to locate on temperate regions (in the
north), poor ones tend to concentrate in tropics regions (in the
south)
- poor countries are poor because:
+ people tend to be lazy
+ tropical diseases
+ tropical land limits productivity of agricultural production due
to thin soil surface which is easy to lose nutrients by tropical rains
+ 500 years ago, there were more animals and plants tamed in
the north than in the south
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth
and development
- Culture hypothesis
+ Renovated Protestant facilitated the birth of industrial
society in Western Europe
+ The British or European colonies developed better than the
colonies of other countries because they followed British style
institution
+ Indigenous culture
- Ignorance hypothesis: countries are poor because the
people and / or the leader of that country do not know how
to make that country rich.
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and development
According to Daron Acemoglu and James A. Robinson in "Why nations fail" these
hypotheses are unreasonable when explaining the poverty or prosperity of a
country. The authors use institutional hypothesis to explain:
- Inclusive institution is the institution in which everyone has the equal
opportunity in terms of law and is guaranteed the right to join education, access
to the market, and possess property by law. Inclusive institution will promote
talent, skill, creativity and most importantly in the institution, the benefit will be
widely distributed throughout society. Inclusive institution derives from a
inclusive political regime (strong, transparent, accountable, state with widely
distributed political power)
- Exclusive institution is the institution in which opportunities are designed to be
limited creating benefits and monopolies for some minorities by the cost of
majority. Exclusive institution will hold back talent, creativity, and create
monopoly and dictatorship as benefits are distributed to a small number of
people. Exclusive institution derives from exclusive political regime (weak, non-
transparent, irresponsible state with political power focused on a group of
people)
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation, growth and
development
According to the authors:
- Type of institution comes randomly
- Once formed, institution tends to consolidate in a spiral direction
+ Exclusive institution: more benefits focused on some people → power
is more fortified → institution become more exclusive → enlarged
inequality → high social conflict → civil war for power → self destruction
+ Inclusive institution: the benefits are widely distributed → democracy
is strengthened → institution becomes more inclusive → narrowed
inequality → stable society → further development
- In order to move from exclusive institution to inclusive institution,
there must be a revolutionary change with the participation of a
coalition of progressive classes.
 Chapter 2: Economic growth and
development: theories and practices
2.1 Evolution of thoughts about poverty alleviation,
growth and development
Conclusion:
Economy grows and develop like a human. It will
experience stage by stage like a man grow up from weak
to strong, young to old period.
Government could intervene the process (dependent
model) or let it be natural (neo-classical model) to help
economy grow faster
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.1 Vicious cycle of poverty
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.1 Vicious cycle of poverty
Factor accumulation vs production efficiency
Normally, labors in countries with high capital equipped and
high skills use inputs more efficiently
Reasons: i) effective economies often provide more capital
and skills for workers
ii) equipping more capital and skills for the labor help
economy grow faster.
iii) the third factor that causes two variables change in the
same direction, for examples institution
 Chapter 2: Economic growth and
development: theories and practices
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.1 Vicious cycle of poverty
TFP (total factor productivity): measuring the
contribution of technology in economy growth. TFP
covers all the factors that change the relationship
between inputs and outputs
Using the Cobb-Douglas constant function, we have:
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.1 Vicious cycle of poverty
- Productivity is measured by the output produced by a
worker over a given period of time (Y / L)
- Productivity is the key factor to determine real wage
+ According to neoclassical theory MPL = W / P
+ Cobb-Douglas production function shows that MPL
varies in the same direction as Y / L = APL
→ The higher labor productivity is , the higher income is
 Chapter 2: Economic growth and
development: theories and practices
 Chapter 2: Economic growth and
development: theories and practices
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.2 U shaped relationship between economic
performance and social results
Inverted U Shaped curve of Kuznets and empirical evidences
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.3 Aging population
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
World population distribution
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Population structure
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Demographic transition
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.3 Aging population
Demographic transition
Hans Rosling: income per capita and child survival
https://www.ted.com/talks/hans_rosling_shows_th
e_best_stats_you_ve_ever_seen#t-1116665
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Malthus population trap - Negative view on population
- The world population doubles in 30-40 years
- Food production has grown at a much slower rate than
population due to declining marginal productivity of land
(land is finite)
→ income per capita (food per capita) decreases over time
→ living standards decrease → population growth declines
to the point that most of population have adequate levels of
living standards
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Malthus population trap - Negative view on population

Positive growth when

ΔY / Y> ΔP / P
Negative growth
when ΔY / Y> ΔP / P
At S (low income)
per capita income
will stop. Economy
will not get to T
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Criticisms towards the Malthus model
- Ignore the role of technology (especially technology that
increases productivity in agriculture)
- The relationship between population growth and the level
of income per capita (low income, high population
growth; high income, low population growth) are not
supported by factual data
- Living standards in broad sense (income + other
conditions such as education, health, environment)
dominate the decision to have baby of families
 Chapter 2: Economic growth and
development: theories and practices
2.3 Economics of poverty trap: population,
industrialization and market structure
2.2.3 Aging population
Solow model - Negative view on population
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Kremer model - Positive view on population
M. Kremer said that population growth is a key factor in
boosting the prosperity of the economy. If there are more
people, there will be more inventors, scientists and engineers
to make more innovations and technological progress.

Illustrating this argument, Kremer began by talking about

human history, the world of development, and population
growth. For example, the world has grown faster when the
population reached 1 billion people (around the 1800s)
compared to when it was only 100 million (around 500 BC).
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Kremer's second argument comes to the evidence itself when
comparing regions of the world. If technological advances are widely
spread in places with large populations, densely populated, so the
areas will be the most developed regions.
The reality is so true. The most developed region in the world in the
1500s (before Columbus resumed contact between continents) was
Europe-Africa. Followed the areas were the Aztec and Mayan
civilizations in America, the last one was Australian hunting and
primitive people in Tsmania. The least populated area was an
isolated island between Tasmania and Australia. Because there were
few people on this island so that it had the slowest progress. Around
3000 BC, people living in the island had disappeared altogether.
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
How do living standards affect the decision to have baby?
- As the cost of childbirth
increases: the ab line goes to
the ab’ line. The optimal point
of transition from f to e
- As income rises: the ab line
hanges to the a'b line. The
optimal point of transition
from f to h
- As the income increases and
the cost of raising children
increases: the ab line goes to
the cd line. The optimal point
of transition from f to g
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
Hans Rosling: Global population growth, box by box
https://www.ted.com/talks/hans_rosling_on_global
_population_growth
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.3 Aging population
Even with technology, human kind can overcome the adequate
levels of living standards predicted by R.Malthus with unbelievable
nearly 8 billions people but they can avoid the problem of aging
population because:
- Women are liberalized to have more opportunity in career →
increasing opportunity cost of having baby
- Environment changes → increasing real cost of having baby
- Couple have trend to be more independent from their parent like in
Western culture → without frequent help, they are afraid of having baby
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and
urbanization
Engel’s consumption law
In the process of income enhancement over time :
- The proportion of spending on necessities (food) tends to
decrease (income elasticity of demand under 0)
- The proportion of spending on durable goods tends to rise
slightly (income elasticity of demand between 0 and 1 )
- The proportion of spending on luxury goods ( services ) tends
to rise highly (income elasticity of demand over 1 )
→ structural change follows spending tendency of people
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and urbanization
A.Fisher’s law of increase in productivity
A.Fisher in his 1935 book " The economic relationship of technical progress
" analyzed
- Thanks to the development of technology, agriculture is sector that is
easiest to apply technological progress, thus high productivity replaces a
part of labor force in agriculture. This force moves into industry
- Industry is more difficult to apply technology but finally finished . This
sector’s productivity increases. Likewise, a part of labor force is put into
services
- Services is the most difficult sector to apply progressive technology in
order to replace most of labor, besides people spend high proportion of
income in the sector. Therefore, in accordance to the development,
economic resource will concentrate in this sector
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and
urbanization
- Industrialization is the continuously comprehensive
transforming process from low-skilled labor based economy to
mechanically based economy
- Modernization is the process of equipping and applying
modern technology in production, business and management
- Industrialization and modernization is the comprehensive
process to transform economic activities and management from
low-skilled labor based economy to modern and advanced
technologies equipped labor based economy
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.4 Structural change and process of industrialization
and urbanization
Positive impacts of industrialization:
- Increase productivity, growth rate and income for
employees
- Expand scale of production, create more jobs
- Increase international trade, connect with other
countries
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and
urbanization
The negative impact of industrialization:
- Environmental pollution
- Health of workers and other social issues when
industrialization is always accompanied by urbanization
- Cyclicality of economy becomes stronger
- Inequality increases
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and
urbanization
Industrialization and environmental pollution
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.4 Structural change and process of
industrialization and urbanization
- Urbanization is the expansion of an urban area,
measured as a percentage of the urban population
or the size of an urban area over total population
or country’s size respectively.
- Urbanization is also the process of widespread
development of urban lifestyles
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.4 Structural change and process of industrialization
and urbanization
Developed countries (e.g in Europe, America or Australia)
have a much higher urbanization rate (over 80%) than
developing countries (such as Vietnam or China) (nearly
35%). Urban area in developed countries are largely
stable so the urbanization growth rate is much lower
than in the case of developing countries.
 Chương 2 Tăng trưởng kinh tế
và phát triển: lý thuyết và thực
tiễn
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization and
urbanization
Industrialization and urbanization
- Urbanization is a consequence of industrialization.
- Urbanization helps to create:
+ Industrial / occupational clusters are interrelated
+ Large commodity demand
However, the most serious problem faced by urbanization is the
congestion (especially infrastructure).
Consequence: living in urban areas with high incomes but expensive
will not be as good as living in the suburbs with lower incomes but
costs are also cheaper
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.4 Structural change and process of industrialization
and urbanization
Urbanization and labor immigration
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.5 Free trade trap and middle income trap
Free Trade Trap: As perceived by experts from the Vietnam
Institute in Waseda University, the influence of the free trade
movement makes the structure of comparative advantage of the
latter countries becomes fixed, which is very hard to change. As a
consequence, trapped countries will not be able to move to a higher
comparative advantage.

Medium income trap: a situation in economic development where

a country reaches a certain level of income thanks to the current
available advantages and stumbles at that level without being able to
break through the threshold to become richer.
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.5 Free trade trap and middle income trap
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.6 Market failures vs government failures
- Market failure describes the situation where market
conditions do not effectively allocate resources
(externalities, public goods, asymmetric information ...).
- Government failure describes the situation where
government intervention has made economy worsen
than before intervention.
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.6 Market failures vs government failures
Viewpoints of government interventionists:
- The economy has failed to adjust itself
- The government wants to put resources into the
areas that it thinks are best
- Implement social justice
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a
country
2.2.6 Market failures vs government failures
Viewpoints of less government interventionists:
- Allocation of resources from free market in most
cases is better than government
- Government intervention encountered a number of
issues that led to inefficiencies (lack of information,
rigid decision-making, lack of personal attention, lack
of economic motivation for actors, bureaucracy,
corruption, group interests....)
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
According to Nathan Keyfitz and Robert Dorfman, there are 14 requirements
to operate an efficient market economy:
- Trust
- Accountable government
- Validity of contract
- Ownership guarantee
- Balance between competition and cooperation
- Form and maintain competition
- Independent judicial system
- Altruism - Aspiration
- Material motivation to expand production - Have a habit of saving
- Freedom of information (privacy protection) - Full information
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
11 what the government needs to do to support the market economy:
- Establishment of Law on Ownership (material property, intellectual property)
- Establishment of Commercial Law
- Create business freedom
- Stabilize banking system is
- Implement monetary and fiscal policy to support the economy
- Monitor the operation of monopolistic organizations
- Provide sufficient information for the market
- Protect consumers
- Supply of public goods
- Provide social security
- Encourage innovation
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
Washington Consensus
The Washington Consensus refers to a set of broadly free
market economic ideas, supported by prominent
economists and international organizations, such as the IMF,
the World Bank, the EU and the US
The concept and name of the Washington Consensus were
first presented in 1989 by John Williamson
an economist from the Institute for International
Economics, an international economic think tank based in
Washington, D.C
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
Washington Consensus
The consensus as originally stated by Williamson included ten broad sets of
policy recommendations:
• Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
• Redirection of public spending from subsidies ("especially indiscriminate
subsidies") toward broad-based provision of key pro-growth, pro-poor
services like primary education, primary health
care and infrastructure investment;
• Tax reform, broadening the tax base and adopting moderate marginal tax
rates;
• Interest rates that are market determined and positive (but moderate) in real
terms;
• Competitive exchange rates;
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
Washington Consensus
• Trade liberalization: liberalization of imports, with particular emphasis
on elimination of quantitative restrictions (licensing, etc.); any trade
protection to be provided by low and relatively uniform tariffs;
• Liberalization of inward foreign direct investment;
• Privatization of state enterprises;
• Deregulation: abolition of regulations that impede market entry or
restrict competition, except for those justified on safety,
environmental and consumer protection grounds, and prudential
oversight of financial institutions;
• Legal security for property rights.
→ Too much focus on invisible hand, sometimes include politic
purposes
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
2.2.6 Market failures vs government failures
Washington Consensus
The new consensus was made at the 1998 America Summit and was
repeated at the G20 summit in South Korea. The new consensus focused
on three issues:
- Development must be based on market economy but there are
significant market failures that can not be skipped out
- The government should not be involved directly in production
However, the government still plays a role in the following areas: macro
environment stabilization, infrastructure, health, education and training,
technology transfer, environment, Small and medium enterprises,
poverty, financial system supervision, intellectual property protection
 Chapter 2: Economic growth and
development: theories and practices
2.2 Unavoidable barriers in development path of a country
CONCLUSION
In general, a country falls into a poverty trap as it failed to
overcome these unavoidable barriers. The symptoms could be:
- Country is to close to international community
- Population growth is too fast resulting in reduced population
quality
- Delay the process of industrialization, not promote development
of science and technology
- The government intervenes too much on the economy leading to
low operational efficiency
- The economy has low competitiveness, and the financial market
is underdeveloped
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
- Economic growth, economic integration to the world
- Poverty reduction, inequality
- Education and health situation
- HDI (Human Development Index), GCI (Global
Competitiveness)
- Where is Vietnam? Why development is not
commensurate with the potential? Where is new
space for growth?
- Economy in the future (2050)
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
GDP growth rate
10
9.5
9.3
9
8.7 8.8
8.4 8.48
8.1 8.2 8.17
8
7.8
7.3
7 7.1 7.087.02
6.9 6.78 6.81
6.68
6.23 6.21
6 6 5.89 5.98
5.8 5.8 5.8
5.32 5.3
5 5.1 5.03
4.7 4.8

4
3.6

3 2.91
2.8

0
86

88

90

92

94

96

98

00

02

04

06

08

10

12

14

16

18

20
19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Economic integration
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Economic integration
Trade balance
300

250

200

150

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-50

XK NK Trade balance
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
FDI net inflow
Economic integration
18000000000

16000000000

14000000000

12000000000

10000000000

8000000000

6000000000

4000000000

2000000000

0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
 Chapter 2: Economic growth and
development: theories and practices
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
GNI per capita
3000

2636
2590
2500 2380

2130
2080
1970
2000 1880
1720

1540
1500 1370
1250

980 1010
1000
840
720
630
580
500
500 410 430 450
330 340 360
300
250
160 190
130 110 130

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Poverty reduction
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Inequality situation
 Chapter 2: Economic growth and
development:
2.3 Case study: Vietnam
theories and practices
Education and health situation
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Education and health situation
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
HDI (Human Development Index)
- HDI of Vietnam has been continuously increasing over
the past 24 years. In 2014, Vietnam was ranked 116/188
countries, i.e in the upper group of countries with
average human development.
- However, Vietnam's progress is uneven. From 1980 to
1990 the HDI rose at an average rate of only 0.26% per
year, then increased rapidly to 1.92% per year from 1990
to 2000, before dropping to 1.33% each year between
2000 and 2008 and lower by 0.69% per year from 2008
until now.
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
HDI (Human Development Index)
- The average HDI growth rate is 1.07% per year from
1980 to 2014, which is lower than the average of 1.23%
for countries with average human development and an
average of 1.29% of the East Asia-Pacific region.
- In 1980, the HDI of Vietnam was just above the East Asia
Pacific average and the average human development
group. By 1990 the HDI of Vietnam had clearly lagged
behind the region, down to 8.5%. The gap narrowed to
4.7% in 2008, but by 2014 the gap between Vietnam's
HDI and Asia and the Pacific has rebounded to 10.2%.
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
HDI
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
HDI
2019 (HDI) 0.704 (Ranking) 117º
2018 0.700 118º
2017 0.696 118º
2016 0.693 116º
2015 0.688 118º
2014 0.683 118º
2013 0.681 117º
2012 0.676 115º
2011 0.671 115º
2010 0.661 120º
2009 0.659 115º
2008 0.647 116º
2007 0.640 117º
2006 0.632 117º
2005 0.624 119º
2004 0.620 116º
2003 0.611 115º
2002 0.602 115º
2001 0.594 114º
2000 0.586 114º
1999 0.574 102º
1998 0.567 102º
1997 0.547 105º
1996 0.548 103º
1995 0.537 105º
1994 0.525 103º
1993 0.514 104º
1992 0.504 104º
1991 0.493 106º
1990 0.483 106º
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
GCI (global competitiveness index)
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
GCI
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
GCI
Vietnam’s GCI ranking in 2007 -
2019
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Where is Vietnam?
Vietnam stays at average position in the world
- Low middle-income country: 2,215 USD / person /
year
- The country has an HDI in the middle-income
category
- Competitive capacity at medium level (60/138)
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Why development is not commensurate with the
potential?
- Population in golden age, large population size
- Favorable geographic location, blessed nature
- Political stability
- Open economy
- Long-standing cultural tradition
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Where is new space for growth?
- Young, accessible and technology-based workforce
- Clean energy
- Tourism
- High-tech agriculture
- Demand for labor in countries with aging population
- Resources from Vietnamese living abroad
- Many potential markets not exploited
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
Predictions for the future (2050)
- Vietnam will be the world's 22nd-largest economy
by PPP
- Vietnam and Nigeria are the two fastest growing
economies
- Population in working age increases slowly during
this period (2050 - the end of the golden age)
 Chapter 2: Economic growth and
development: theories and practices
2.3 Case study: Vietnam
2050 outlook
 Chapter 3 Policies to promote
economic growth and development
3.1 Trade policy
3.2 Financial policy
3.3 Poverty alleviation and inequality reduction
policy
3.4 Macroeconomic stabilization policy
3.5 International aid and natural resources policy
 Chapter 3 Policies to promote
economic growth and development
The objectives of the development policies:

- Increase the availability and scope of distribution of essential

commodities such as food, fuel, etc.

- Improve living standards such as higher incomes, more jobs,

better education, protection of environment, culture and other
social issues (material and spiritual)

- Expand the scale of socio-economic options for all people by

liberalizing and democratizing
(David N. Weil, Economic Growth, Pearson, 2005 , tr 22-23)
 Chapter 3 Policies to promote
economic growth and development
3.1 Trade policy
- Open the economy
- Promote the export of key industries
- Attract FDI, ODA
- Control imports by quality standards
- Technology transfer
- Improve competitiveness to avoid free / middle-
income traps
 Chapter 3 Policies to promote
economic growth and development
3.2 Financial policy
- Develop bond market, stocks market
- Develop microfinance market
- Enhance risk management following world and
regional standards
- Develop banking system
- Develop debt trading market
- Create link to the world financial markets
 Chapter 3 Policies to promote
economic growth and development
3.3 Poverty alleviation and inequality reduction
policy
- Complete the personal and corporation income tax
system
- Expand and universalize social welfare programs
such as health and education
- Invest in rural infrastructure
- Develop vocational schools
 Chapter 3 Policies to promote
economic growth and development
3.3 Poverty alleviation and inequality reduction
policy
- Maintain minimum wage law and primary rights of
workers which are defined in ILO Charter
- Develop network of social enterprises, charity
fund, NGOs…
- Maintain price stabilization fund
- Implement land law appropriately
 Chapter 3 Policies to promote
economic growth and development
3.4 Macroeconomic stabilization policy
- Implement discretional fiscal policy, maintain
public debt, budget deficit within safe level
- Implement inflation-targeting monetary policy,
which could be expanded if necessary
- Implement a flexible exchange rate system, avoid
large fluctuations of the domestic currency
- Maintain a reasonable foreign exchange reserve
fund
- Manage gold market, real estate market efficiently
 Chapter 3 Policies to promote
economic growth and development
3.5 International aid and natural resources policy
- Plan rational resource usage
- Discourage export of non-renewable resources
- Attach resource management with environmental
protection
- Utilize international aid efficiently
- Prioritize receiving grants and disbursements for
projects related to education, health,
infrastructure, institutional reform
Thank you!