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Monday, June 24, 2024

HCMC seen as pivotal region

By Bui Trinh

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The importance of HCMC does not solely rest on the proportion of the city’s GRDP in the nation’s GDP, but also on the dispersion of the end demand and production of the city to other localities in the country.

The Government has issued Resolution 38/NQ-CP proposing the formulation of a National Assembly resolution on piloting a new special mechanism for HCMC’s development.

To measure the importance of a region or a province, an inter-regional input/output analysis is deemed a necessary scientific measure. This study is based on an inter-regional input/output analysis to dig deep into the internal sectoral or inter-sectoral structure as well as the regional and inter-regional structure of HCMC and the rest of the country.

In theory, in any country, there are always certain sectors with relative importance compared to other sectors measured via the indexes of dispersion power and sensitivity of dispersion. The concept of inter-regional analysis was introduced by Isard in 1951, and concretized by Harry W. Richardson (1973) and Miyazawa, K. (1976), which is deemed an important tool to study a regional economy. Similar to a sector, a region or a province has its own importance, and a certain region may have greater importance of dispersion to the national economy than other regions/provinces.

The importance of HCMC does not solely rest on the proportion of the city’s GRDP in the nation’s GDP, but also on the dispersion of the end demand and production of the city to other localities in the country.

The study on Vietnam’s inter-regional IO shows that the end demand and production of HCMC exert very strong dispersion to other regions. HCMC’s index of dispersion is 1.5 times higher than that of northern provinces, 1.7 times over that of central provinces, and 1.9 times that of southern provinces. Investment in HCMC also has strong dispersion effects on other localities. Especially, the exportation of made-in-HCMC products has a dispersion effect on other localities twice as strong as that of exports in other localities on HCMC. Among all the eight regions in the country, HCMC boasts the most sectors or industries with the highest index of dispersion power. Such figures indicate that HCMC is home to many spearhead industries vital not only for the city itself but for other localities and the entire country as well.

Calculations from the IO model also show that investment in most other regions is not as cost-effective as in HCMC. The city’s economic structure shows that all factors in the demand have impressive impacts on production value and added value, more so with exports and investment by the Government.

A noteworthy point is that State-funded investment in HCMC has a stronger dispersion power to production than that in other localities. This index of dispersion power in HCMC is 1.51, far ahead of the second-placed Hanoi’s index at 1.304. The index of dispersion from private investment in HCMC is also the highest in the eight regions, at 1.25, though it is much lower than the index of State investment in the city. Regarding the accumulation of movable assets, HCMC boasts a dispersion index much higher than 1.0 while all other regions have an index under this threshold.

In addition, calculations show that when the internal end demand (comprising people’s final consumption, investment and export) rises by a unit, its internal dispersion rate reaches some 89% while its dispersion rate to other localities is 11%. Especially, the final consumption of HCMC residents spurs the added value in other regions by 17% while investment and export of HCMC have a dispersion effect of 8.8% and 8.7% on other regions, respectively. This is a very high dispersion power, indicating the importance of the city’s economy on the entire country.

If the proportion of a province or region’s GRDP in the nation’s GDP is high but its indexes of dispersion power and sensitivity are low, such a structure is not beneficial on one hand, and reveals inappropriate allocation of resources on the other hand.

When investment in HCMC increases by 10%, it will result in its GRDP rising by an extra 1.5 percentage points and the nation’s GDP growing by an additional 0.8-1.0 point. Therefore, from an economic perspective, HCMC can be seen as a highly pivotal region, and a locomotive for the national economy. If the city’s economic growth slows down, the impacts are not limited to the loss of a few percentage points in its growth rate, but also the knock-on effect on other regions and the entire national economy in subsequent production cycles.

In short, the Government’s decision to propose the formulation of a National Assembly resolution on piloting a new special mechanism for the development of HCMC is a right approach.

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