Innovation in growth model creates breakthrough for economic development

The draft National Development Strategy for the period 2021 - 2030 and vision to 2045 (Draft document submitted to the 13th National Party Congress) has set the goal of "By 2030, becoming a developing country with modern industry, belonging to the upper group of upper middle-income countries. By 2045, becoming a developed country with modern industry and high income".

The above target demonstrates the determination of the Party and the State to transform our country from an underdeveloped country, with a GDP per capita of 2,750 USD (in 2020) to a developed country with a high income, about 7,500 USD/person/year, within more than a decade. To achieve this goal, Vietnam needs to innovate its growth model and take appropriate steps.

Economic growth model innovation is the establishment of a general framework, or a common model to orient the operation of the economy on the basis of optimizing national resources with a reasonable, effective, and modern economic structure, aiming to achieve high economic growth rate towards sustainable development.

The formation of economic growth models depends on the different levels of contribution of factors affecting growth. Economic growth models include: growth in breadth, in depth and combining breadth with depth.

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Robert Solow's Neoclassical Growth Theory in 1956, 1957 argued that technological change (development) (TFP) is a growth component outside the scope of physical capital accumulation. Thus, technology is considered as an external factor (exogenous) not a linked part of the Production Function: Q = F(K, L, t). Thus, according to Solow's exogenous growth theory, the production function is expressed as: Q = A(t) F(K, L). This is a growth model based mainly on extensive growth factors.

The new growth theory of RE Lucas (1988) (won the Nobel Prize in Economics in 1995) has endogenized the technology factor. Thus, according to the endogenous growth theory of PM Romer (1986,1990) the production function is expressed as: Q = F(K, A, L). The new growth model mainly relies on in-depth development factors, promoting rapid increase in labor productivity.

Vietnam's growth model for the coming period must be a model based on knowledge as a fundamental and long-term policy. We must fundamentally change the way of economic growth: from depending on factors such as resources, land, human resources, capital to relying on knowledge - knowledge that has been materialized into new technologies such as information technology, biotechnology, new materials technology, etc. And knowledge that has crystallized into leadership, management, and business technology.

Perspectives and orientations for growth model innovation

- Growth model innovation is to improve growth quality, labor productivity and competitiveness of the economy, develop rapidly and sustainably in all aspects of economy, society and environment. Do not promote growth at all costs, causing negative impacts on macroeconomic stability, ensuring national defense, security, progress, social justice, and preserving the ecological environment.

- Innovating the growth model towards focusing on and increasingly relying more on factors that promote increased labor productivity, effective use of resources, especially promoting patriotism, national pride, creativity of Vietnamese people and scientific and technological achievements of mankind, all potentials and advantages of industries, fields, localities and the whole country.

- Growth model innovation is closely linked to implementing three strategic breakthroughs, restructuring the economy with priority focus on: Perfecting the socialist-oriented market economic institution, ensuring macroeconomic stability and major balances of the economy; improving the attractive and favorable business investment environment for start-ups and innovation, creativity, research and application of science and technology, improving the quality of human resources, and making good use of talents.

- Restructuring agriculture associated with new rural construction; restructuring public investment; restructuring state-owned enterprises; restructuring the system of credit institutions; restructuring the state budget and public debt; restructuring public service units.

- Innovating the growth model, improving growth quality, labor productivity and competitiveness of the economy are fundamental and important tasks, of decisive significance to the implementation of the goal of rapid and sustainable national development in the current period.

Dr. Vu Truong Son

Deputy Director of Graduate Training Institute