Comparison of the impact of lending and inflation rates on economic growth in Vietnam and China

  • Received April 2, 2020;
    Accepted December 14, 2020;
    Published December 23, 2020
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    Volume 15 2020, Issue #4, pp. 193-203
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    5 articles

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Inflation and lending rates are two important macroeconomic indicators as they affect economic growth. The correlation between the inflation rate and the lending rate in Vietnam and China is analyzed to determine whether the lending rate causes inflation or not. An ordinary least square model (OLS) and a unit root test are applied to check the correlation and cointegration related to the inflation and lending rates to avoid spurious regression. The research time series data were collected from 1996 to 2017. The correlation of Vietnam’s variables is 56%, the correlation of China’s variables is 55%, which is a close correlation. The empirical cointegration test results for Vietnam and China are suitable for two research models. The relationship between these two indicators influences each other. In the short term, inflation stimulates economic growth through loose monetary policy through the lending rate. However, in the long term, if the money supply increases continuously, inflation will slow economic growth and increase bad debt. The empirical results are to make accurate forecasts and determine monetary policy for micro-managers who set the goal of sustainable economic growth and have a strategy for economic development in the short and long term.

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    • Table 1. Lending interest and inflation rates (unit %)
    • Table 2. Inflation: 0-degree difference test – I(0)
    • Table 3. Lending rates: 0-degree difference test – I(0)
    • Table 4. China’s inflation rate: first-degree difference test – I(1)
    • Table 5. Vietnam’s lending interest and inflation rate: first-degree difference tests I(1)
    • Table 6. Test result for cointegration of inflation and lending rates in China
    • Table 7. Correlation between inflation and lending rates in China
    • Table 8. China’s and Vietnam’s ANOVAa of lending interest and inflation rates
    • Table 9. China’s and Vietnam’s coefficientsa of inflation and lending rates
    • Formal Analysis
      Doan Van Dinh
    • Investigation
      Doan Van Dinh
    • Methodology
      Doan Van Dinh
    • Validation
      Doan Van Dinh
    • Writing – original draft
      Doan Van Dinh