The Impact of Capital Investment on Economic Growth under Inflationary Conditions

This study examines the impact of capital investment on economic growth in Vietnam, with a particular focus on the moderating role of inflation. Using annual time-series data from 1996 to 2023, the study employs the Autoregressive Distributed Lag (ARDL) approach to analyze both short-run and long-run dynamics. The results indicate that investment has a positive and statistically significant effect on economic growth in the long run, confirming its role in capital accumulation and productivity enhancement. In contrast, inflation does not exert a significant direct impact on growth. However, the interaction between investment and inflation is negative and statistically significant, suggesting that inflation diminishes the growth-enhancing effect of investment. In the short run, the findings reveal dynamic adjustments, with a negative and significant error correction term indicating a rapid convergence toward long-run equilibrium. These results highlight the importance of macroeconomic stability, particularly inflation control, in maximizing investment efficiency. By incorporating an interaction framework within the ARDL model, this study provides new empirical evidence and offers policy implications for improving the quality of economic growth in developing economies such as Vietnam.