Banking development, economic growth and energy consumption in Vietnam
International Journal of Energy Economics and
Policy
ISSN: 2146-4553
International Journal of Energy Economics and Policy, 2021, 11(1), 632-638.
Banking Development, Economic Growth and Energy
Consumption in Vietnam
Hong Anh Thi Nguyen*
Industrial University of Ho Chi Minh City, Vietnam. *Email: [email protected]
Received: 26 August 2020
Accepted: 08 November 2020
ABSTRACT
This study is aimed towards assessing the role of banking development and energy consumption on economic growth in Vietnam for the period ranging
from 1990 to 2019. The researcher has collected data on the variables from 1990 to 2019 related with banking development, energy consumption and
economic growth. On the data collected on the specified variables, certain tests have been conducted. This research has used Stata as the statistical
platform to carry out data analysis where descriptive statistics, Augmented Dickey Fuller (ADF), Bounds test, and Autoregressive Distributed Lag
Model (ARDL) have been applied on the data. The results indicated that the data was non-stationary and had trend which can predict the future data.
Based on this condition,ARDLtest and Bounds test were applied. The results indicated that overall, the model was found to be significant. Individually,
energy consumption had a significant impact in both short term and long term however, there was insignificant association among banking development
and economic growth.
Keywords: Banking Development, Economic Growth, Energy Consumption, GDP, Vietnam
JEL Classifications: Q1, O13
In part, the difficulties of encouraging domestic deposits,
and, consequently, the acceleration of the development of the
1. INTRODUCTION
money market are overcome with the help of interest rates. The
Vietnamese economy continues to operate primarily through cash
(Tran, 2013). Achievement of sustainably high rates of economic
growth, envisaged by the course of reforms, was due to the growth
of domestic savings and investments, which were directed to the
development of production and the growth of business activity
(Suzuki et al., 2013). Monetary policy transformations included
raising bank real interest rates to positive levels, stabilizing the
national currency by devaluing the dong to the real value of the
“shadow market,” and establishing a flexible unified exchange
rate (Busch, 2017).
The process of reforming the monetary and financial system of
Vietnam dates back to the time of state reunification in the country
in 1976, however, mistakes and failures were made in the first
period associated with the formation of a fundamentally new
banking structure while maintaining the command and control
system of management (Vuong, 2019). The main contradiction was
that attempts were made to combine the financial independence of
enterprises, the expansion of the sphere of internal market turnover
and the decentralization of foreign trade while maintaining
the directive planning system, state pricing, the state system
of distribution of basic necessities and material and technical
resources. Finance and credit served the fulfilment of the planned
targets of the centre and provinces. The planning system was
unable to withstand the spontaneously emerging proportions, was
open to incompetent voluntary state intervention, and was costly
and scarce in nature (Nguyen et al., 2019).
The growth of the economy is mainly due to its decentralization
and open-door policy, which actively attracts foreign investment,
primarily from Taiwan, as well as Singapore and South Korea (Vo
and Nguyen, 2012). Therefore, it is not yet clear whether Vietnam
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Nguyen: Banking Development, Economic Growth and Energy Consumption in Vietnam
will be able to build on its successes. Neighbouring China is
2. LITERATURE
becoming a more and more expensive economy, wages are getting
higher, and we see that many industries are either about to relocate
or are already moving to other countries in SoutheastAsia. In 2018,
Vietnam made significant progress in developing the country’s
economy. Its greatest achievement is the development of the
gross domestic product (GDP) at about 7% (World Bank, 2020).
This is the highest level of economic development in Vietnam in
the 10 years since the 2008 global economic crisis. This result
was achieved thanks to positive changes in various industries.
A significant feature that subsidised to the development of the
economy in 2018 was the further strengthening of the financial
system (World Bank, 2020).
For the economic expansion of the country, it is essential to
stimulate and maintain the stability of economic growth because
economic growth is called a dynamic aggregate an indicator
characterizing the general state of the country’s economy (Rodrik,
2008). Since the markets for securities and insurance services are
underdeveloped in Vietnam, it is reasonable to assume that only
the finance segment has a positive outcome on the volume of GDP
(Dufhues, 2003), since the available borrowed funds help the
population and enterprises to increase consumer and investment
activity, which has a positive effect on production (Kooijman-van
Dijk and Clancy, 2010). This relationship between the banking
system and economic growth was first studied by Schumpeter,
according to which the purpose of banks as monetary mediators
inspires the economy to develop through effective capital
redistribution (Schumpeter and Backhaus, 2003). However, low
rates of economic growth are the main factor limiting the expansion
of the finance structure whereas the high level of competition is an
important factor in reducing the profitability of banks.
On the other hand, the problems of energy security of the world
economy are basically allied to the level of technical improvement
and progress in technologies for the production of goods, provision
of services, the nature of transport, and the way of life of people
on the planet (Kaygusuz, 2012). But the seven billion inhabitants
of the Earth are divided not only and not so much by continents,
but by the level of education, labour productivity and welfare
(GDP per capita), by the structure of the national economy, by
social structure and lifestyle. This division must certainly be
taken into account when analysing the energy supply to the world
economy as a single system (Omer, 2008). The level and dynamics
of energy consumption are the most important characteristics
of the expansion of the energy structure, just as the degree of
monetary development is a key characteristic of the national
and world economy (Zhang and Xu, 2012). The relationship
between these two indicators for individual countries, regions
and the world as a whole has for a long time been the subject of
research by economists around the world who are looking for
scientific confirmation of the existence of a causal relationship
and determining its direction (Zhang and Xu, 2012).
The finance segment shows a crucial part in the monetary
expansion of all countries. At the same time, the formation of
banking infrastructure, expansion of the range and increase in
the volume of banking operations and services have a more
significant impact on developing economies (Campiglio, 2016).
The formation of a reliable and stable banking system with a wide
range of services provided, taking into account the experience of
more developed countries, can help to overcome income inequality
and improve the living criterions of the inhabitants. In developing
countries, the degree of coverage of the population with banking
services shows an essential part in the expansion of the financial
system (Hannig and Jansen, 2010). Since they lag behind the
developed ones in terms of the number of ATMs and banking
divisions, it is important for them to increase these values and
increase the availability of banking services (Cracknell, 2012);
(Endang, 2020); (Fu et al., 2019).At the same time, it is necessary
to take measures to increase the capitalization of banks and reduce
their costs. This contributes to an upsurge in the competence of
the banking sector (as well as a decrease in the share of non-
performing and ineffective bank loans in the total volume of issued
loans) (Cracknell, 2012).
The domestic financial market has changed positively towards a
gradual decrease in its dependence on the banking sector and an
increase in the part played by the stock market in the economy.
The volume of bank loans provided decreased, but their quality and
efficiency increased. Vietnam possesses significant potential for
the enlargement of the electric power business, with large reserves
of oil, gas, coal and hydropower resources (Karki et al., 2005).
The power of the generated electricity increased from 2161.7 MW
in 1991 to 21250 MW in 2010. The main producers of electrical
energy are hydroelectric power plants (HPPs), thermal power
plants with coal-fired steam turbine units and combined gas
and steam turbine units (Nguyen et al., 2019). Energy shows a
main part in the development of the current financial situation in
Vietnam, primarily hydropower. Vietnam’s hydropower potential is
estimated at 84 TW / year, which is slightly less than the country’s
total electricity consumption (Canh, 2011). The hydroelectric
power plant shows a chief part in the country’s economic progress,
providing about a third of Vietnam’s total electricity demand
(Nguyen, 2007). With respect to this description, this research
paper is intended to answer the following question:
Achieving high efficiency remains a challenge for the first group
of countries. The underdevelopment of the credit market and the
lack of financial depth significantly limit opportunities related with
fiscal progress (Caporale et al., 2015). The degree of development
of the banking system may indicate the level of financial and
monetary expansion of the country as a whole (Beck et al., 2010).
Indicators such as the number of banks, capital adequacy, quality
and quantity of bank credits replicate the efficiency of the finance
segment (Beck et al., 2010). An increase in these values might
be central to an upsurge in the degree of monetary development.
Vietnam has gradually made progress in developing infrastructure
to support a modern banking system and financial markets (Anwar
and Nguyen, 2011), projects have been developed to modernize
the interbank system, create an international settlement system,
What is the influence of energy consumption and banking
development on economic growth of Vietnam?
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Nguyen: Banking Development, Economic Growth and Energy Consumption in Vietnam
and admit external auditors to most Vietnamese banks, which
in the formation of GDP (Komal and Abbas, 2015). However, in
the context of globalization of international trade, the reduction
of energy-intensive industries in the developed countries of the
world leads to their replacement in developing countries (Begum
et al., 2015). On the other hand, the problems of energy security
of the world economy are basically allied to the level of technical
improvement and progress in technologies for the production of
goods, provision of services, the nature of transport, and the way
of life of people on the planet (Moreau and Vuille, 2018; Bekhet
et al., 2017).
have received approval from domestic and foreign bankers
(Tram, 2012). However, the banking system continues to suffer
from a lack of trust of potential depositors, a lack of experience
in financial markets and a slow pace of reform (Tram, 2012). The
central bank directs its efforts to fulfil its regulatory function. It
is important and necessary for the Vietnamese finance structure to
increase the confidence of depositors in banks (Demirgüç-Kunt and
Klapper, 2013). The lack of trust can be easily demonstrated with
this example: the population keeps 45% of their money in cash,
and more than 50% of business transactions do not go through
the banking system.
H2: There is a significant influence of energy consumption on
economic growth
H1: There is a significant influence of banking development on
economic growth
The abovementioned Figure 1 highlights the main variables of this
study with the help of the extensive review of previous literature.
As mentioned in Figure 1, independent variables of this study
include banking development and energy consumption, whereas
economic growth has been taken as a dependent variable. In this
manner, the key purpose of this research is to examine the impact
of banking development and energy consumption on the economic
growth of Vietnam.
The association amid energy intake and monetary progress has
also been investigated theoretically by using diverse tactics.
Within the neoclassical prototypes of growth, energy is regarded
as the transitional contribution used for the purpose of production
(Tsani, 2010). As per the study of Bartleet and Gounder (2010),
the key proponents having the similar view consider that several
mechanisms exist through which monetary progress can increase
despite that there is a limited amount of energy sources available.
The key explanation related to this has constructed upon the main
notion of high-tech alteration as well as replacement of several
supplementary physical contributions required for energy and
to utilise the prevailing energy sources in an efficient manner.
The purpose behind this is to create renewable energy sources
that do not involve supply constraints (Binh, 2011). Bartleet
and Gounder (2010) have also professed that it is significant to
analyse whether the consumption of energy leads towards fiscal
progress and whether fiscal progress can lead in the direction of
energy consumption; in this way, whether there is a instrumental
association amongst them. The key object behind this validation is
the fact that it is challenging for various strategy creators to ratify
the policies of energy preservation if a country has been an energy-
dependent country. Therefore, if such relationship is existed, the
structural policies can aim at decreasing the consumption of energy
which can also lead towards slow economic growth.
3. METHOD
This section offers the description of the methodology as well
as tool and techniques used for conducting this research. This
research is based on quantitative research design which could
offer statistical and numerical underpinnings within the data.
According to Watson (2015), the use of quantitative design
can provide the researcher exact and authentic results based on
statistical tests and the justification and testing of the hypothesis.
It has also been proposed that quantitative design is effective for
implementing and using a large sample size and can also enhance
the capability of the researcher to collect large amount of data on
predefined variables. Therefore, in this research, the quantitative
design has been adopted because of the variables of the research
such as energy consumption; banking development and economic
growth are quantifiable. Moreover, this design has allowed the
researcher to further formulate the hypotheses on the basis of
previous researches and by using real-time data, testing those
hypotheses by using statistical testing and tools.
The industrial period, often referred to as the period of extensive
development or the period of cheap fuel, was characterized by
exponential growth of the world economy, accompanied by a
proportional increase in energy consumption (Li, 2015). The
main stake was placed on energy conservation, supplementary
comprehensive expenditure of energy possessions, development
of nuclear energy, and replacement of oil with natural gas. As the
key portion of energy maintenance, a course was taken towards
operational restructuring of the economy with a decline in energy-
driven manufacturing creation and an upsurge in the stake of the
amenity segment (Stenqvist and Nilsson, 2012). This policy had
its effect (Stenqvist and Nilsson, 2012). The energy intensity
of the economies of oil-importing countries showed a steady
downward trend, GDP growth began to exceed the growth in
energy consumption (Loi, 2012). This is elucidated by the element
that the main direction of the modern energy saving policy in
the developed countries of the world is the restructuring of the
economy with a decrease in the portion of energy-driven industries
For the purpose of data collection, there are two types of data
collection available for the researcher: primary and secondary. The
secondary data collection has been employed in this research where
data has been collected from different reports including World
Bank, country and industrial reports. The researcher has collected
data on the variables from 1990 to 2019 related with banking
development, energy consumption and economic growth. On the
data collected on the specified variables, certain tests have been
conducted. This research has used Stata as the statistical platform
to carry out data analysis where descriptive statistics, Augmented
Figure 1: Conceptual framework
Independent Variables
• Banking
Dependent Variable
• Economic Growth
Development
• Energy Consumption
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Dickey Fuller (ADF), Bounds test, andAutoregressive Distributed
Table 1: Descriptive statistics
Lag Model (ARDL) have been applied on the data. The following
equation has been tested for this research paper:
Variable
Obs.
Mean
Std. dev.
1.242498
13.16962
1.98e+09
Economic growth
Energy consumption
Banking development
30
30
30
6.791768
50.64836
1.12e+09
EG = α + β1EC + β2BD + ε
Where,
Table 2: Unit root testing
ADF- Unit root testing
Economic growth
EG= Economic Growth
α = Intercept
β = Slope
t-statistics
-2.552
-1.786
P-value Hypothesis
0.1033
0.3873
0.0657
Rejected
Rejected
Rejected
Energy consumption
EC = Energy Consumption
BD = Banking Development
Banking development
-2.750
rejected. Thus, the data taken into consideration for this research
paper is non-stationary and has a predictable trend.
4. RESULTS
This section of the paper presents and interprets the results
obtained by evaluating the secondary data with the help of suitable
data analysis techniques mentioned in the previous section. This
study is aimed towards assessing the role of banking development
and energy consumption on economic growth in Vietnam. Stata
has been used as the platform to analyse data where descriptive
statistics, Augmented Dickey Fuller (ADF), Bounds test, and
Autoregressive Distributed Lag Model (ARDL) have been applied
on the data.
4.3. Autoregressive Distributed Lag Model
The subsequent test shows that there is presence of unit root in
all of the variables that are included in the research model, in
alignment to this,ARDLmodel has been used to assess the impact
of predicting variable on the dependent variable. According to
Nkoro and Uko (2016), the causal relationship between two
variables with non-stationary nature can be conducted with the help
ofARDL model. While testing the effects of independent variable
on dependent variable in an ARDL model, it is important to
calculate lags of the variables included. There are two perspectives
that can be assessed with the help of ARDL model, relationship
in long run and short run. There are three levels upon which the
significance of the impact is determined 95%, 99%, and 90%. The
results of ARDL model are shown in Table 3 below:
4.1. Descriptive Statistic
In order to understand the data for the variables considered in this
research, descriptive statistics have been derived. The following
Table 1 shows the results:
Economic growth in this research paper is measured with the
help of Gross Domestic Product (GDP), the mean value indicates
that over the course of 30 years, the average economic growth of
Vietnam was 6.79% and the value is deviated by 1.24 units as
indicated by standard deviation value. The next variable if energy
consumption which is measured by consumption of fuel in the
region was used. The mean value indicates that on an average 50.6
and the value is deviated by 13.16 units as indicated by standard
deviation value. The last variable used in the research model is
banking development which was measured by commercial banks
and others lending. The average value for this variable is found
to be US$1120 million during the period of 1990-2019 and the
value of standard deviation shows that the mean value is deviated
by US$ 1980 million.
In the first row of Table 3, the overall results of the model are
shown. The significance of the model based on 95% significance
level can be assessed based on the P-value which should be less
than 0.05 or 5%. The p-value for the model under consideration
is 0.002 which lies under the acceptable range. This indicates that
both energy consumption and banking development significantly
influences the economic growth of Vietnam. The coefficient value
of the entire model is 0.48 which means that a unit change in
energy consumption and banking development will bring about
0.48 units change in economic growth.
The next section of the table indicates the long-term relationship
between the predicting factors of the model and criterion variable
i.e. economic growth of Vietnam. Firstly, the impact of energy
consumption on economic growth has been tested for which
the P-value is 0.011. Considering that the value is less than the
alpha value, in the long-term the impact of energy consumption
on economic growth is found to be statistically significant.
Furthermore, the coefficient value for this predictor is 0.08 which
indicate that in response to a unit change in the predictor, economic
growth will decrease by 0.08 units. Next, the impact of banking
development on economic growth has been tested for which the
P-value is 0.345. Considering that the value is greater than the
alpha value, in the long-term, the impact of banking development
on economic growth is found to be statistically insignificant.
4.2. Augmented Dickey Fuller Test
For a time-series data, it is important to determine the existence
or non-existence of stationarity. This can be done with the help of
conductedADF test which indicate if there is presence of unit root
in the data or not. The results of this test are reflected in Table 2.
The null hypothesis for ADF test is that there is presence of unit
root in the data which means that the data is non-stationary. To
retain the null hypothesis, the p-value for the variables need to be
above 5% or 0.05. For the variables considered in Table 2 that are:
economic growth, energy consumption, and banking development
the p-values are 0.10, 0.38, and 0.06, respectively. All the values
are greater than 0.05 which means that the alternate hypothesis is
The next section of the table indicates the short-term relationship
between the predicting factors of the model and criterion variable
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Table 3: ARDL model
Coef.
Std. err.
t
P>|t|
(95% conf. interval)
Economic growth
LR
-0.4809765
0.13524
-3.56
0.002
-0.760732
-0.2012
Energy consumption
Banking development
SR
-0.0835438
1.76E-10
0.03021
1.82E-10
-2.77
0.96
0.011
0.345
-0.146041
-2.01E-10
-0.021
5.52E-10
Energy consumption
Banking development
_cons
0.1107152
4.98E-10
5.120611
0.05275
2.66E-10
1.29547
2.1
1.87
3.95
0.047
0.074
0.001
0.0015998
-5.19E-11
2.44072
0.21983
1.05E-09
7.8005
i.e. economic growth of Vietnam. Firstly, the impact of energy
consumption on economic growth has been tested for which the
p-value is 0.047. Considering that the value is less than the alpha
value, in the short the impact of energy consumption on economic
growth is found to be statistically significant. Furthermore, the
coefficient value for this predictor is 0.11 which indicate that in
response to a unit change in the predictor, economic growth will
increase by 0.11 units. Next, the impact of banking development
on economic growth has been tested for which the P-value is
0.074. Considering that the value is greater than the alpha value,
in the short-term, the impact of banking development on economic
growth is found to be statistically insignificant.
Table 4: Bounds test
10%
5%
1%
I(0)
P-value
I(0)
I(1)
I(0)
I(1)
I(1)
I(0)
I(1)
F
t
3.42
4.546 4.265 5.564 6.337 8.045 0.002 0.008
-2.574 -3.236 -2.938 -3.641 -3.692 -4.477 0.014 0.058
Table 5: Hypothesis assessment table
S. no. Hypothesis statement
P-value Result
0.011 Accepted
H1
H2
H3
H4
There is a significant impact of
energy consumption on economic
growth in the long run
There is a significant impact of
banking development on economic
growth in the long run
There is a significant impact of
energy consumption on economic
growth in the short run
There is a significant impact of
banking development on economic
growth in the short run
0.345 Rejected
0.047 Accepted
0.074 Rejected
4.4. Bounds Test
Bounds test was developed by Pesaran et al. (2001) in order to
assess the presence of long-term association between variables,
which is an approach of cointegration. This procedure is preferred
over the conventional cointegration test because of the various
advantages it offers such as it is applicable for series 1 or 0. Table4
below shows the results of bounds test:
between the two variables. The long-term relationship between
energy consumption and growth of the economy are vital for the
purpose of determining the future growth and production (Begum
et al., 2015). In alignment with the previous researches, the results
of this research have shown that in the case of Vietnam, energy
consumption has a long-term as well as short term association
with the economic growth.
The important values in the above table are P-values because they
indicate the significance or insignificance of long-term association
among the variables that are under study. All the p-values are
considered significant as per 10% sig level which means that
energy consumption and banking development are associated with
economic growth in the long term.
4.5. Hypothesis Assessment
There is also significant amount of literature which has indicated an
association between banking development and economic growth.
According to the study of Campiglio (2016) banking sector plays
a key role in the economic development of all countries. At the
same time, the formation of banking infrastructure, expansion of
the range and increase in the volume of banking operations and
services have a more significant impact on developing economies.
The results of this research have indicated that there is no
significant impact of banking development on economic growth in
the case of Vietnam. The findings of this research contradict with
the stance presented by Hannig and Jansen (2010), in developing
countries, the degree of coverage of the population with banking
services plays an important role in the development of the financial
system. This research has determined both the short-term impact
as well as long-term impact however, in the case of Vietnam, both
cases show insignificant results.
The following Table 5 gives a review of the hypothesis and their
results based on the statistical tests that have conducted in the
previous section.
The results in the above Table 5 shows that both in long term
and short-term energy consumption has a significant impact on
economic growth in Vietnam. However, banking development
in both long and short term does not impact economic growth.
Nonetheless, collectively, the model was found to be significant.
5. DISCUSSION
Energy is a pivotal input which is used in all the different phases
of production and is considered to be a significant resource
used for increasing the welfare of societies. Consequently, it is
considered to be an important determinant of economic growth
for a country. From the assessment of the previous researches,
there are certain studies that have found a significant relationship
The assessment of the results of this research paper indicates that
other than individual assessment of the predictors with economic
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Nguyen: Banking Development, Economic Growth and Energy Consumption in Vietnam
growth, the overall model was found to be statistically viable. It
an important contribution in the existing literature. The key
limitation of this research has been linked with its limited scope,
as researcher has conducted this study in the context of Vietnam,
thus the findings and analysis presented in this study cannot viewed
in another scenario or context. In this regard, future researchers
are advised to widen the research scope by carrying out this
study with the incorporation of more countries into the research
investigation. This will help in providing a complete picture with
more conclusive results about the research topic. On the other
hand, the human perspective in the shape of qualitative data has
also been missing from this study, as researcher has only followed
quantitative research design to inquire about the association
between the research variables. Hence, future researchers can
consider conducting the same study with mixed research design
to provide more conclusive results.
can be inferred from the findings of this research as well as the
previous studies that countries must be careful in terms of their
energy consumption because its effect is directly translated as the
economic growth.
6. CONCLUSION
The primary objective of this study was to find out the impact of
energy consumption and banking development on economic growth
of Vietnam during the period ranging from 1990 to 2019. For the
historic data, a range of statistical tests were applied on Stata to
achieve the aim of the study. The results indicated that the data was
non-stationary and had trend which can predict the future data. Based
on this condition, ARDL test and Bounds test were applied. The
results indicated that overall, the model was found to be significant.
Individually, energy consumption had a significant impact in both
short term and long term however, there was insignificant association
among banking development and economic growth. Based on
the findings of this study, it is recommended for the government
of Vietnam and policy makers to pay close attention towards
developing strategies that helps in attaining higher mobilisation of
energy savings to gain confidence of Vietnam’s investors, and also
to attract the foreign investments in Vietnam. However, the energy
consumption should be done in such a manner that it contributes
to the welfare of country and society. Irresponsible consumption
of energy can cause increase in greenhouse emission which in turn
are bad for the environment. Future researches can be carried out
to study the role of CO2 emissions on economic growth.
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6.1. Recommendations
This following recommendation are proposed based on the overall
research outcomes:
•
It is quite evident from the findings that financial developments
and economic growth significantly increase the energy
demand, thus consumption of energy is probably the most
vital aspect for enhancing the country’s economic growth.
Based on this, it has been recommended to the policy makers
to pay close attention towards developing strategies that helps
in attaining higher mobilisation of energy savings to gain
confidence of Vietnam’s investors, and also to attract the
foreign investments in Vietnam.
•
•
It has also been recommended to the policy makers of Vietnam
to must emphasise on developing and exploring domestic
resources of energy to safeguard the country from any adverse
external energy blow. This has played a major role in reducing
the dependence of Vietnam on energy imports and strengthen
the country’s economic growth.
The government of Vietnam has also been advised to introduce
some important measures and reforms for strengthening the
banking development, as well crafted and designed strategy
for financial sector tends to strategize many other reforms
supported by private and public sector development and
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