The economic costs of investment inefficiencies associated with corruption in Vietnam

Investment efficiency has been an important issue in Vietnam for many years. In the last decade, the amount of investment as a ratio to GDP has been high (at around 40 per cent), but this has not made a commensurate contribution to real GDP growth. A crude measure of investment efficiency is the Incremental Capital Input Ratio (ICOR). This ratio can be approximately calculated as the average annual share of investment in GDP and the average annual growth rate of GDP during a period. The ICOR calculated with this method is around 3 for most countries. For Vietnam, it has been observed that the ICOR has risen from 3.5 during the period 1991-1995 to about 7 over 2008-2010. Many commentators have attributed Vietnam’s high ICOR to endemic inefficiencies in the allocation and construction of investment in Vietnam.