Long-run Relationship of Economic Growth with Consumption, Unemployment Rates and Saving Rates in Developing Countries: A Case Study of Vietnam

Abstract

The Keynesian macroeconomic model implies that household expenditures and savings have significant long-run impacts on economic growth by affecting total expenditures. Therefore, policymakers should determine and apply appropriate policies to maintain these variables. For this purpose, the long-run relationship of economic growth with consumption, unemployment and saving rates in Vietnam is analyzed with the time data method using annual data for the period 1996-2017. Consumption appears to have the most impact on economic growth in accordance with the estimation results of a co-integration test from an autoregressive distributed lag model (ARDL model). In long run, an increase of 1% in consumption expenditures decreases economic growth by 0.41%. A 1% increase in saving rates increases economic growth by 0.0009%. While an increase of 1% in unemployment rates decreases economic growth by 0.043%. Our results demonstrate that there exists only long run relationship among economic growth, consumption, saving and unemployment rates for Vietnam, but not in short run.