Impact of Sectoral Public Investment on Economic Growth in Ho Chi Minh City, Vietnam

Ho Chi Minh City (HCMC) is Vietnam’s economic powerhouse, and public sector investment is viewed as a critical lever to sustain and accelerate its growth. This study examines the impact of public investment across different economic sectors on HCMC’s Gross Regional Domestic Product (GRDP) growth. Utilizing official data from the General Statistics Office (GSO) and HCMC Statistical Office (e.g. public capital expenditures and sectoral GRDP), we apply quantitative frameworks including an augmented Solow model and panel regression analysis across major sectors, complemented by input–output (I-O) analysis to capture spillover effects. The findings indicate that public development spending has a significant positive effect on economic growth in HCMC, particularly when directed toward infrastructure and industrial sectors, albeit with diminishing returns at higher investment levels. Investment in infrastructure and construction shows the largest immediate growth multipliers, contributing to robust industrial output and productivity gains. Public spending on social sectors such as education and health, while yielding smaller short-term output impacts, is crucial for long-run growth through human capital improvement. The results align with the hypothesis of an optimal range of public investment – beyond which efficiency declines – consistent with Barro’s public expenditure-growth model. Our sectoral panel estimates find evidence of an inverted-U relationship between public investment and growth, suggesting that HCMC’s recent surge in public spending can bolster growth up to a point before potential crowding-out effects emerge. The input–output analysis further reveals significant inter-sectoral spillovers: for example, public infrastructure projects stimulate output in manufacturing and services through strong backward and forward linkages. Policy implications highlight the need for efficient allocation and management of public funds, prioritization of high-impact projects (e.g. transport and urban infrastructure), and reforms to enhance public investment efficiency. Overall, this research provides an in-depth, data-driven assessment of how sector-specific public capital formation drives HCMC’s economic growth, contributing to the literature on sub-national growth dynamics in emerging economies.