Author(s): Huynh Thi Thu Suong
The purpose of this study focuses on examining the relationship between foreign aids (focus on ODA) and economic growth (focus on GDP) in an emerging economy such as Vietnam. Previous studies and opinions have been analyzed, synthesized and used as a theoretical basis. Employing mathematics tools to attest the relationship of ODA and GDP, this study uses their panel data for 40 years from 1980 to 2019. Research results show that, in the short term, both ODA and GDP have a negligible impact on each other. However, in the long run, although GDP has a vague effect on ODA, on the contrary, ODA has a significant effect on GDP, at the beginning of the fifth year, the relationship is not clear between ODA and GDP to promote itself increase or decrease. Foreign aid initially negatively affects the growth of nations and, over a period of time, positively contributes to economic growth. Furthermore, the results strongly support the notion that both FDI and ODA are more important determinants of GDP, implying that GDP is less likely to be dependent on ODA. In the long-term, assuming other factors remain constant, if the current ODA attraction increases by 1%, two years later, GDP will increase 0.358%. However, the limited test also shows that under the positive impact of GDP, the ability to attract ODA in the long term will gradually decrease compared to the short-term. Strengthening the legal framework would be essential for Vietnam while the choice of ODA flows can lead to negative effects on overall growth. Importantly, the effective management of foreign aid would ensure the achievement of sustainable development goals