Socio-Economy and CO2 Emissions in Vietnam in the 1990 – 2018 Period

23 May, 2024

In order to evaluate Vietnam’s sustainable economic development strategy before the COVID-19 pandemic outbreak, in 2021, by measuring the level of CO2 emissions, the student research team of University of Economics Ho Chi Minh City (UEH) has carried out the research topic “The impact of socio-economic indicators on CO2 emissions in Vietnam from 1990 to 2018”. This was the foundation for researching and developing sustainable development policies in Vietnam.

In 2020, Vietnam was one of the few countries to achieve positive growth due to its previous solid economy. However, in 2021, Vietnam’s economic growth dropped lower than the previous year as it was strongly affected by COVID-19 outbreaks, especially from the Delta variant in Ho Chi Minh City and a number of other Provinces. This was also the situation of many countries around the world as the COVID-19 pandemic caused major negative impacts, pushing many countries into negative growth in 2020. However, many countries had positive recovery steps and achieved a higher economic growth rate in just one year. Therefore, the study was conducted to evaluate Vietnam’s sustainable economic development strategy before the COVID-19 pandemic outbreak by measuring the level of CO2 emissions.

Important indicators affecting CO2 emissions

With this topic, the UEH research team focused on studying the carbon emission index (CO2) and other indicators related to socio-economics listed as GDP, TR, PD, FDI and K.

The first index mentioned was Per Capita – GDP, an index considered important to measure CO2 emissions as proven by many previous studies (Al-Mulali, Saboori, & Ozturk, 2015; Alam, Murad, Noman, & Ozturk, 2016; Apergis & Ozturk, 2013; Shahbaz, Khraief, Uddin, & Ozturk, 2014). However, the results from previous studies on the relationship between GDP and CO2 emissions in both the short and long term have still been inconsistent. This further highlights the issue of the impact of economic development on the environment.

Trade ratio – TR is the second index mentioned directly in relation to CO2 emissions, especially in the context of increasingly growing international trade and exports being the main source of carbon dioxide emissions. This was the rationale for the rapid increase in global CO2 emissions with many emissions being generated during exports from emerging economies. Therefore, the authors focused on examining the role of exports on global and regional CO2 intensity to achieve the goal of sustainable economic development.

The third index was population density – PD. Because human activities are the main cause of CO2 emissions. As the fifth report of the IPCC determined, human activities accounted for 95% of the increase in carbon dioxide emissions.

The fourth index of interest to the authors was foreign direct investment – FDI, an important factor in the research model on economic growth and CO2 emissions. FDI not only provides capital but also technology and management skills, creates jobs and boosts exports, which all affect CO2 emissions. In Vietnam, the manufacturing sector is the largest source of FDI and has been attracting foreign investors (UNCTAD, 2022).

The final index was the Gross Capital Accumulation Index – K, one of the main factors determining a country’s growth. The relationship between Gross Capital Accumulation and the environment was not uniform across countries, and capital formation could improve the environment when using both FDI and K in the same model.

To achieve the research results, the authors used a quantitative analysis method approaching the autoregressive distributed lag model (ARDL) to evaluate the impact of GDP, TR, FDI, K, PD on Vietnam’s annual CO2 emissions per capita. The analysis of ADF and PP unit root tests, bound test, ARDL model estimation, long-term coefficient estimation, calculation of short-term impacts using the model ECM and diagnostic tests were combined to obtain the final research result. The findings suggested that GDP growth and FDI caused negative impacts on CO2 emissions. On the contrary, TR and K had a positive impact on CO2 emissions. Meanwhile, the PD variable was not significantly significant.

Impact of socio-economic indicators on CO2 emissions in Vietnam from 1990 to 2018

*Vietnam’s GDP growth had a similar trend with the increase in the CO2 emission rate

In the long term, Vietnam’s GDP growth had a similar trend with the increase in CO2 emission rate. This can be explained in two main ways: testing the environmental Kuznets curve (EKC) hypothesis and studies on the impact of economic growth on the environment. In recent years, Vietnam’s economic growth has focused on technology, modernization and integration with the global market, creating a positive impact on GDP but also causing negative impacts on the environment, especially increasing the annual CO2 emission rate.

*Increasing FDI in the long term reduces CO2 emission rates

Similarly, long-term increases in FDI have also reduced CO2 emission rates. This was because FDI promoted green technology transfer and innovation from developed countries along with new policy mechanisms to attract and manage FDI, contributing to reducing CO2 emissions.

*The increase in accumulated capital K were positively correlated with CO2

Regarding the K index, although there were many opposing views on the impact of K on CO2 emissions, this study clarified the close relationship between FDI and K on the CO2 emission model. In addition, it was concluded that the increase in accumulated capital K was positively correlated with CO2 due to the increase in K in the context of limited environmental quality standards.

*TR has a negative impact on CO2 emissions

In the long run, TR had a negative impact on CO2 emissions, which has been proven by many previous studies. Some hypotheses listed as Grossman and Krueger’s U-hypothesis could explain this result in which trade openness created “scale effects”, “technical effects” and “composition effects”, leading to reduced CO2 emissions.

Research significance and recommendations

The study measures the impact of capital, trade and population factors on the CO2 emission to propose policies for the context of Vietnam, helping policymakers and businesses improve efficiency in developing projects to achieve sustainable economic development goals.

Regarding gross domestic product, the Government needs to prioritize the environment in parallel with GDP growth by creating a standard production environment and guiding businesses to reduce CO2 emissions. For FDI, the Government needs to have effective management policies and encourage projects that have a positive impact on domestic industry and reduce CO2 emissions. For gross capital accumulation (K), attention should be paid to strengthening control and investment in R&D of green technology. Not only that, in terms of trade related to the TR index, it is necessary to develop a favorable environment and provide local conditions to reduce CO2 emissions and promote sustainable trade.

The study has some limitations upon using data from the period before the COVID-19 pandemic. The complex developments of the pandemic at different stages can affect the socio-economic indicators in the model. In addition, the study does not approach energy indicators – a core factor affecting CO2 emissions. However, on a larger scale, the results of this study will partly provide information about what factors affect CO2 emissions, helping the Government and businesses revise policies to meet development goals. Besides, the research has implications for University of Economics Ho Chi Minh City in particular and society in general on the journey towards a green and sustainable environment, as well as UEH helping students approach environmental issues from the perspective of an economics student analyzing and understanding the impact of economics on the environment.

The entire research article Impact of economic and social indicators on CO2 emissions in Vietnam in the period 1998 – 2018 can be found HERE.

Authors: Bui Thi Huyen, Nhang Thi My Hau, Tran My Huyen – University of Economics Ho Chi Minh City.

This article was part of the Green Research Community series with the message “Research Contribution for UEH Living Lab Green Campus”. UEH cordially invites the community to read the next Green Research Community newsletter #2.

*In order to maximally facilitate the development of the “UEH Green Research Community”, members will be able to participate in research method classes with the topic of Living lab, Green Campus. In addition, if their products meet the required standards, the research team will be conferred a Certificate from the UEH Sustainable University Project Board and be financially supported.

News and photos: Author group, UEH Youth Union – Student Association, UEH Department of Marketing and Communication