The Relationship between Economic Growth and Current Account in Vietnam: a Special Phenomenon of Developing Countries

Abstract

Abstract: In recent years, the relationship between economic growth and current account has become
a critical issue attracting researchers’ attention. In theory, when the current account is in surplus,
savings will exceed investment, and the economic downturn coincides. However, in the period 2011-
2017, Vietnam shows contradictory phenomena. According to the International Monetary Fund’s
(IMF) Vietnam Macroeconomic Review Report 2018, the IMF emphasized the paradox in Vietnam’s
relationship between current account and economic growth from 2011 to 2017. Specifically, the current
account has been continuously in surplus, despite the Vietnamese economy has grown rapidly. This
is theoretically contradictory. By analyzing the current situation, combined with empirical research on
the relationship between current account and economic growth using the VECM model, we found that
the current account positively affects economic growth in both the short and long term. Besides, this
positive effect is explained by the role of Foreign Direct Investment (FDI) in the relationship between
these two macro variables.