The roles of capital

8/7/2019 The roles of capital

1/20

The roles of capital andtechnological progress in

Vietnams economic growthPhan Minh Ngoc

Sumitomo Mitsui Banking Corporation, Singapore Branch, Singapore

Abstract

Purpose The purpose of this paper is to measure the contribution of capital formation, labor, andtechnological progress to the growth of the Vietnamese economy, the impact of economic reforms (doimoi) since the end of 1986, and the rates of returns to capital and labor.

Design/methodologyapproach Cobb-Douglas production functions are built for Vietnams

economy and then estimated using annual data for 1975-2005.Findings The two major findings are that: technological progress was statistically absent in thegrowth of the Vietnamese economy throughout the period studied; and the most important source ofeconomic growth is capital accumulation, accounting for between 84 percent and 89 percent ofVietnamese economic growth throughout the period 1975-2005, and between 85 percent and 90 percentin the reform period (1986-2005).

Originality/value This paper is the first of its kind in the Vietnamese literature that successfullysheds light on, among other things, the roles of capital and technological progress in the Vietnameseeconomy during the period 1975-2005. It also makes clear that Vietnams economic growth has beenfueled mainly by foreign funds and, thus, the continued heavy reliance of the economy on this financialsource will make its growth unsustainable. In order to achieve sustainable growth in the comingdecades, Vietnam must shift to rely more on productivity growth, which has been absent so far, andless on factor accumulation growth.

Keywords Production economics, Capital, Economic reform, Economic growth, Vietnam

Paper type Research paper

1. IntroductionThe failure of the Soviet-style central planning economic system applied in Vietnamfrom 1975 until the mid-1980s forced the Vietnamese government at the end of 1986 toadopt an economic reform program, widely known as doi moi (or renovation), to openitself to the world and build a market-based economy. As a result, high and sustainablerates of economic growth have been achieved since then, albeit with some slowdownsat the end of the 2000s, which was thought to be partly due to the negative effects of the1997 Asian economics crisis. According to Table I, the average growth rate of GDP in

the reform period (1986-2005) was almost double that in the pre-reform period(1975-1986), i.e. 7.0 percent and 3.7 percent, respectively.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0144-3585.htm

JEL classification D24, O40This paper was written when the author was a visiting researcher at the Faculty of

Economics, Kyushu University, Japan. The author thanks Professor Mohsen Bahmani-Oskooee,Editor, for instruction and cooperation, and an anonymous referee of this journal for helpfulcomments. Eric Ramstetters provision of part of the data used in this paper is greatlyacknowledged. Any remaining errors are the authors alone.

JES35,2

200

Received May 2006Accepted May 2007

Journal of Economic Studies

Vol. 35 No. 2, 2008

pp. 200-219

q Emerald Group Publishing Limited

0144-3585

DOI 10.1108/01443580810870173


2/20

A quick check of the data on the growth rates of investment and labor reported inTable I suggests that the high growth rate of investment in the reform period, whichaveraged 13.1 percent as compared to a mere 3.2 percent in the pre-reform period, waslikely the main factor behind this outstanding economic performance. There also is thepossibility that GDP growth was fueled significantly by an improvement in total

Year GDP Investment Exports Labor force

1975 4.38 4.31 2.361976 6.33 6.66 56.71 2.34

1977 1.98 1.58 44.74 2.301978 2.91 2.79 2.26 2.251979 21.89 20.50 23.49 2.201980 24.81 26.38 6.14 2.121981 4.05 4.21 20.37 2.331982 8.73 11.69 30.77 2.481983 6.25 0.58 242.11 2.311984 8.41 11.86 158.96 2.501985 6.20 12.77 212.11 2.791986 2.92 28.22 243.77 2.911987 3.63 10.72 7.92 2.891988 6.01 5.79 22.56 2.711989 4.68 210.27 312.69 2.66

1990 5.09 45.87 26.24 2.251991 5.81 28.52 222.21 2.611992 8.70 40.68 4.10 2.441993 8.08 47.17 26.42 2.301994 8.83 14.12 19.65 2.461995 9.54 17.07 15.62 2.381996 9.34 14.23 22.45 2.501997 8.15 9.38 22.27 2.231998 5.76 12.63 8.38 2.431999 4.77 1.20 23.67 2.502000 6.79 10.11 23.30 2.242001 6.89 10.77 5.80 2.032002 7.08 12.72 10.95 2.232003 7.34 11.86 16.18 1.87

2004 7.79 10.54 23.40 2.192005 8.43 10.71 15.11 2.13

Average annual rate of growth in 1975-2005 5.74 9.35 16.43 2.39Average annual rate of growth in 1975-1986 3.66 3.15 9.71 2.41Average annual rate of growth in 1986-2005 6.97 13.12 20.51 2.37

Sources: Calculations based on data taken from the World Banks World Development Indicators(various years) for labor force; the United Nations (http://unstats.un.org/unsd/snaama/SelectionCountry.asp) for current GDP; the General Statistical Office (www.gso.gov.vn) and theUnited Nations (http://unstats.un.org/unsd/snaama/SelectionCountry.asp) for GDP in 1994 prices andGDP deflators; the United Nations (http://unstats.un.org/unsd/snaama/SelectionCountry.asp) forexchange rates; the General Statistical Office (2000) and the Asian Development Banks Key Indicatorsof Developing Asian and Pacific Countries (various issues) for exports in current US dollars; and the

General Statistical Office (www.gso.gov.vn) and the United Nations (http://unstats.un.org/unsd/snaama/SelectionCountry.asp) for investment in current and 1994 prices

Table I.Growth of GDP,

investment, exports and

labor (constant 1994 VNDprices, percent)

Vietnamseconomic growth

201


3/20

productivity as a result ofdoi moi, which has exerted positive effects on, among otherthings, resource allocation (partly reflected through the strong performance of theexport sector, which recorded a growth rate of 20.5 percent in the reform period, morethan double that in the pre-reform period; see Table I), as well as production

organization and techniques.Surprisingly, in spite of a large number of studies that attempt to analyze the effects

of doi moi on various aspects of the Vietnamese economy[1], these and other relatedimportant issues have not been discussed rigorously, and the existing literature hasfailed to ascertain the contribution of capital, labor, and technological progress toVietnams economic success. Furthermore, there has been no quantitative study tomeasure explicitly the effects of doi moi on economic growth and productivityimprovement in Vietnam.

Against this backdrop, in the present study we rely on annual data[2] to discuss thefollowing three important questions, among others, in a production functionframework:

(1) To what extent have capital, labor, and technological progress contributed toeconomic growth in Vietnam?

(2) What are the impacts of doi moi on economic growth and productivityimprovement?

(3) What has been the marginal productivity of capital and labor?

The rest of the paper is organized as follows. Section 2 reviews some important factsconcerning the Vietnamese economy. In Section 3, attempts are made to build series ofcapital stock to be used in production functions. This section also discusses briefly thegrowth trend of total productivity throughout the years. In Section 4, the role of capital,the degree of technological progress, and the marginal productivity of capital and laborare analyzed in a production function framework. Findings and their implications are

summarized in the final section.

2. Economic performance: some stylized factsVietnam was reunited in 1975 after 30 years of war and division. The Communistgovernment quickly applied a Socialist centrally planned economic system to thewhole country in 1976. Under this system, private ownership was not recognized orwas discriminated against in favor of state and collective ownership. In addition,emphasis was given to the development of heavy industry at the expense of agricultureand light industry. As a result, thousands of agricultural cooperatives and productioncollectives as well as state-owned enterprises (SOEs) were created within a couple ofyears.

Nevertheless, massive state and collective ownership did not bring about the

expected outcomes. The economy stagnated in 1977 and 1978, and even recordednegative growth rates in 1979 and 1980 (see Table I). This was mainly because of thedeficiencies inherent in the economic model itself. In agriculture, initially the maineconomic sector (see Table II), lack of incentives as a result of collectivization, amongother things, had a detrimental effect on agricultural output and productivity in1975-1979.

In the industrial sector, the governments ambition for rapid industrialization andeconomic growth led to excessive state investment in the development of production

JES35,2

202


4/20

capacity. However, the investment efficiency was so low (due mainly to economicmismanagement, administrative inefficiency, and bureaucratic inertia) that manydevelopment projects were left uncompleted and the capacity utilization rate of othersstood at less than 50 percent (Kim, 1994). Consequently, after a short boom in 1977 and1978 (10.8 percent and 8.2 percent, respectively; Table II), this sectors output declinedseverely in the two subsequent years (24.7 percent and 210.3 percent in 1979 and1980, respectively).

Poor performance in agriculture and industry, combined with the great economiccosts incurred by Vietnams invasion of Cambodia in December 1978 and its borderwar with China in early 1979, had led the country to the edge of collapse, with thegrowth rate in GDP turning negative in 1979 and 1980 (21.9 percent and24.8 percent,respectively).

Faced with such a so-called economic crisis, the government had no choice but toadjust its development model. A greater degree of private ownership was allowed andseveral new economic policies, which in essence were piecemeal reform measuresaimed toward market disciplines, were introduced in 1981 to encourage all economicagents, including individuals, to actively involve themselves in the production andcirculation of goods. In agriculture, where the reform attempt was boldest, forcedcollectivization was suspended and an output contract system was adopted, givingindividual peasant households more autonomy in production and the right to sell theirsurpluses on the open market. In addition, they were allowed to cultivate land not inuse by cooperatives. These limited reform measures immediately brought about ashort-term improvement in this sectors performance (Table II). Agricultural outputincreased impressively in the following year at a rate of 11.3 percent, before slowing

down in 1983 and 1984.Similarly, there were also some experimental reform measures in the industrial

sector in 1981. Industrial SOEs were given more autonomy in their production andwere allowed to involve themselves in other productive activities outside stateobligations. Material incentives were also applied to improve workers productivity.The result of this decentralization in economic management was very encouraging,with industrial output recording a rate of growth of nearly 9 percent in 1982, and amuch higher rate in 1983 and 1984 (above 13 percent).

Growth ShareYear Agriculture Industry Construction Others Agriculture Industry Construction Others

1976 39.0 39.2 6.9 14.9

19772

5.6 10.8 0.9 4.8 37.0 41.4 6.7 15.01978 21.9 8.2 20.4 4.5 35.2 43.4 6.4 15.01979 2.8 24.7 20.2 23.3 36.8 42.0 6.5 14.81980 6.0 210.3 20.5 0.7 39.9 38.5 6.5 15.01981 3.5 1.0 23.0 2.7 40.2 38.4 6.2 15.21982 11.3 8.7 211.3 6.0 41.6 38.4 5.1 14.91983 3.3 13.0 13.6 3.7 41.1 39.5 5.3 14.11984 5.3 13.2 13.2 15.8 39.1 40.6 5.4 14.81985 2.5 9.9 9.9 20.7 36.0 40.5 6.8 16.7

Sources: General Statistical Office (1988, 1998), Kim (1994)

Table II.Sectoral growth andshare in GDP in the

pre-doi moi period(constant 1982 VND

prices, percent)


203


5/20

The improved performance of agriculture and, in particular, industry fueled therecovery and growth of the whole economy through 1984[3]. GDP expanded at a rate of4 percent in 1981, and more than twice that rate in 1982 (8.7 percent). After a slightslowdown in 1983 (6.3 percent), growth gained momentum again and reached a level of

8.4 percent in 1984.However, the positive effects on the economy brought about by these piecemeal

reform measures wore off in the mid-1980s because the deep structural problems of theeconomy remained unsolved. In practice, the countrys leaders strongly defendedSocialist disciplines in their development strategy while allowing for somemicroeconomic market-oriented reforms, as mentioned above. The economycontinued to be centrally planned and the state sector continued to be subsidizedheavily despite its low efficiency and the searing size of budget deficits, which wereestimated at about 37 percent of total budget revenue in 1985 (General StatisticalOffice, 1988). Wide-scale collectivization resumed in 1985, particularly in the South.

As a result, agriculture, and particularly industry, showed significant slowdowns in1985 and 1986 (2.5 percent and 4.8 percent for agriculture, 9.9 percent and 6.2 percentfor industry, respectively; see Table II). Correspondingly, the growth rate of GDP fell inthese two years, most considerably in 1986 (6.2 percent and 2.9 percent, respectively),as compared to 8.4 percent in 1984.

The economic difficulties in 1985-1986 prompted the government to accept evenmore radical measures to reform the economy. A comprehensive reform program, doimoi, was introduced in December 1986. In this program, among other things, thedevelopment of the private sector was emphasized; the strategy for industrializationwas altered in that priority was given to the development of light industry instead ofheavy industry as before; exports and inward foreign direct investment (FDI) wereencouraged; and the role of SOEs was reduced. It should be noted that in the first twoyears of the reform period (1987 and 1988) only part of the reform program was

implemented, on a gradual basis. However, the early improvement in economicperformance brought about by the reform measures in these years, together withpressing external developments in the late 1980s (e.g. the collapse of the Soviet Unionand the corresponding loss of major traditional export markets, as well as cheapimports and aid), prompted the government to implement a more radical,comprehensive reform program in 1989 with a big bang approach.

As shown in Tables I and III, the economy recovered quickly from the 1985-1986recession, with GDP expanding by 3.6 percent in 1987 and 6 percent in 1988. Due to thecollapse of the Soviet Union in 1989, manufacturing was badly affected, and the growthrate of GDP slowed down again, to 4.7 percent. As a result of the 1989 reform program,the economy entered a new development phase in which high and sustained growthwas achieved until 1997. Significant slowdowns were seen in 1998 and 1999, though at

respectable rates of 5.8 percent and 4.8 percent, respectively, compared with thenegative growth rates of some neighboring countries badly hit by the regions financialcrisis. Most observers have argued that the 1997 regional crisis was directlyresponsible for the slowdowns in GDP growth in 1998-1999 (see, for example, theWorld Banks, World Development Indicators, 1998). GDP growth was over 7 percent inrecent years, which was relatively high in the dynamic Asian region.

We now turn to compare the structure of the economy in terms of sectoral share andexpenditure on GDP in the pre-reform and reform periods. Much of the high growth of

JES35,2

204


6/20

GDP in the reform period can be attributed to the rapid growth of mining and utilitiesand construction, as well as manufacturing (Table III). In contrast, if in the pre-reformperiod the agriculture sector grew at a rate slightly higher than the whole economy, it

grew most slowly in the reform period. As a result, the share of agriculture in GDP wason a steadily decreasing trend, from an average of 37 percent in the pre-reform periodto about 22 percent in recent years, demonstrating a significant change in the structureof the economy (Table IV).

With regard to the structure of expenditure on GDP, during the pre-reform period,the share of consumption in real GDP was astonishingly high, almost 100 percent ofGDP (Table V). The share of capital formation was relatively low, at 13 percent. Thus,the fact that consumption was almost equal to GDP in this period indicates that thecountrys investment was totally financed by foreign aid and borrowing, asrepresented by an average trade deficit of a little over 10 percent of GDP[4]. Putdifferently, domestic savings were totally non-existent.

In the reform period, the picture changed considerably. Although consumption

continued to increase at an average growth rate of 5.2 percent, which was higher thanin the previous period (3.7 percent)[5], its rate of growth was slower than that of GDPgrowth (7 percent). As a result, the average share of GDP devoted to consumptioncontracted significantly to 83.1 percent[6]. Nevertheless, this contraction was notsufficiently large to cover the high rate of capital formulation, which averaged 14.7percent in this period, as compared to a mere 3.2 percent in the pre-reform period(Table I). This means that a large part of this growth was still financed by foreignresources, as represented by a large trade deficit recorded until recently (Table V).

Period AgricultureMining,utilities Manufacturing Construction Trade Services

Otheractivities

1986 3.6 13.1 13.1 6.4 22.5 22.8 21.4

19872

2.1 10.1 10.62

1.9 2.3 1.8 5.41988 20.6 24.6 21.0 8.5 19.3 22.4 8.91989 6.7 23.9 212.4 3.9 4.1 0.0 14.31990 1.6 2.5 25.8 4.6 5.3 5.2 14.61991 2.2 13.7 10.3 4.8 4.8 6.3 6.21992 7.1 10.2 11.8 11.1 6.1 6.3 12.21993 3.8 12.2 10.4 18.3 6.0 6.3 9.81994 3.9 12.7 10.1 19.5 9.0 7.1 8.61995 4.8 13.9 13.5 12.7 11.1 10.1 8.61996 4.4 13.9 13.6 16.0 9.9 7.3 8.01997 4.3 13.1 12.8 11.4 6.9 8.8 7.01998 3.5 11.3 10.2 20.5 4.4 3.8 6.01999 5.2 9.3 8.0 2.4 2.1 6.5 1.6

2000 4.6 10.8 11.7 7.6 5.9 5.9 4.62001 3.0 9.8 11.3 12.8 7.0 6.5 5.02002 4.2 9.2 11.6 10.4 7.2 7.2 5.72003 3.6 10.4 11.6 10.8 6.6 5.3 6.52004 4.4 10.6 10.8 8.9 7.8 8.3 6.42005 4.1 10.6 13.2 10.9 9.7 9.8 6.8

Source: United Nations web site (http://unstats.un.org/unsd/snaama/SelectionCountry.asp; accessedApril 1, 2007)

Table III.Sectoral growth in the doimoiperiod (constant 1990

VND prices, percent)


205


7/20

Year/period

Agric

ulture

Mining,utilities

Manufacturing

Construction

Trade

Services

Otheractivities

1975-1985

37.60

18.24

13.60

3.36

13.70

2.81

10.69

1986

37.69

18.69

13.94

3.42

13.23

2.71

10.33

1987

35.68

19.90

14.90

3.23

13.09

2.67

10.53

1988

34.42

18.42

14.31

3.41

15.15

3.17

11.12

1989

35.96

17.32

12.27

3.46

15.44

3.11

12.44

1990

35.38

17.20

11.19

3.51

15.75

3.15

13.82

1991

34.01

18.41

11.62

3.47

15.53

3.16

13.80

1992

33.45

18.63

11.93

3.54

15.14

3.09

14.23

1993

32.18

19.35

12.20

3.88

14.86

3.05

14.48

1994

30.82

20.10

12.39

4.27

14.93

3.00

14.49

1995

29.45

20.88

12.82

4.39

15.12

3.01

14.34

1996

28.08

21.72

13.30

4.65

15.16

2.95

14.14

1997

26.97

22.61

13.82

4.77

14.93

2.95

13.94

1998

26.22

23.63

14.30

4.45

14.64

2.88

13.87

1999

26.15

24.46

14.64

4.32

14.17

2.90

13.35

2000

25.45

25.21

15.20

4.32

13.96

2.86

12.99

2001

24.43

25.78

15.78

4.54

13.92

2.84

12.71

2002

23.64

26.16

16.36

4.67

13.87

2.83

12.48

2003

22.71

26.78

16.93

4.79

13.71

2.76

12.32

2004

21.91

27.38

17.34

4.82

13.66

2.76

12.12

2005

20.92

27.78

18.00

4.90

13.76

2.78

11.87

Source:UnitedNations

website(http://unstats.un.org/unsd/snaama/SelectionCountry.asp;accessed

April1,2007)

Table IV.Sectoral share in GDP inthe doi moi period(constant 1990 VNDprices, percent)

JES35,2

206


8/20

3. Capital stock and total productivityBecause a production function framework is adopted to analyze the effects of changesand shocks on the Vietnamese economy, it is crucial to have data on capital stock thatis not readily available from the existing sources. In this paper we estimate capitalstock in year t (or Kt) from the following function:

Kt Kt21 It; 1

where Kt21 is the capital stock in the previous year and It is the net increase in capitalstock in year t. The data on investment from the General Statistical Office and theUnited Nations sources is, by definition, It. We thus need to compute only the capitalstock in the initial year, 1975, (denoted by K75) from the following function:

K75 k75*Y75; 2

where k75 is the capital-output ratio (COR) and Y75 is the level of GDP in 1975.To estimate k75, we assume that Vietnams COR in 1975 was equal to that of China

in the early 1970s. The rationale is that the Chinese economy was also an agrarian,centrally planned economy, with agriculture accounting for around 40 percent of GDPin the early 1970s, on a par with that in Vietnam (see Table II). Therefore, the natureand structure of the Vietnamese economy at least through doi moi were similar to alarge extent to those of the Chinese economy in the early 1970s. Since the COR estimatefor China in the early 1970s was around 2, as estimated in Wang and Yao (2003), weassign this value to k75 in equation (2) and obtain the first series of capital stock data(denoted by K2 in Table VI) from equation (1) for the period 1975-2003.

Year/period Consumption Gross capital formation Exports less imports

1975-1987 98.98 13.00 210.061988 98.44 12.07 212.73

1989 98.10 10.352

9.211990 97.09 14.36 29.241991 94.97 12.40 24.401992 91.12 16.05 23.301993 87.98 21.86 28.031994 84.85 22.92 28.831995 83.14 24.50 28.551996 82.83 25.59 28.721997 80.97 25.88 26.961998 79.88 27.56 27.641999 77.61 26.62 24.352000 75.04 27.45 22.852001 73.47 28.45 23.17

2002 73.70 29.942

5.932003 74.11 31.21 28.382004 73.75 32.03 27.272005 71.42 31.90 23.19

Source: United Nations web site (http://unstats.un.org/unsd/snaama/SelectionCountry.asp; accessedApril 1, 2007)

Table V.GDP by type of

expenditure percentagedistribution (constant

1990 VND prices)


207


9/20

However, realizing the possible inaccuracy of the initial estimate, we also estimate arange of possible values of the initial capital stock based on the experience of otherdeveloping countries (see, for example, the case of Indonesia examined in Sundrum,1986, and King and Levine, 1994, and the case of Slovenia in Mrkaic, 2002), and use thisrange to estimate our production functions. More specifically, we assign two other

smaller and greater values, namely 1 and 3, to k75 and obtain two additional series ofcapital stock data denoted by K1 and K3, as reported in Table VI. As such, K1 and K3can be considered as the lower and upper bounds, respectively, of the capital stock.

It should be noted that K3 is very unlikely to be appropriate for the case of theVietnamese economy, as it is constructed based on k75 bearing a value of 3 in 1975,which seems to be too high for a developing economy based heavily on agriculture and,most notably, just escaping from a sabotaging war like Vietnam in 1975. Nevertheless,K3 can still be useful and, thus, worth being considered here in that significant

Value GrowthYear K1 K2 K3 K1 K2 K3

1975 73,558 147,117 220,675

1976 83,970 157,529 231,087 14.15 7.08 4.721977 94,547 168,105 241,664 12.60 6.71 4.581978 105,419 178,977 252,536 11.50 6.47 4.501979 116,236 189,794 263,353 10.26 6.04 4.281980 126,362 199,921 273,479 8.71 5.34 3.851981 136,915 210,473 284,032 8.35 5.28 3.861982 148,702 222,260 295,819 8.61 5.60 4.151983 160,557 234,116 307,674 7.97 5.33 4.011984 173,819 247,378 320,936 8.26 5.66 4.311985 188,775 262,333 335,892 8.60 6.05 4.661986 202,501 276,059 349,618 7.27 5.23 4.091987 217,698 291,257 364,815 7.50 5.51 4.351988 233,775 307,334 380,892 7.39 5.52 4.41

1989 248,202 321,760 395,319 6.17 4.69 3.791990 269,246 342,804 416,363 8.48 6.54 5.321991 288,497 362,055 435,614 7.15 5.62 4.621992 315,578 389,137 462,695 9.39 7.48 6.221993 355,435 428,994 502,552 12.63 10.24 8.611994 400,918 474,477 548,035 12.80 10.60 9.051995 454,167 527,726 601,284 13.28 11.22 9.721996 514,993 588,552 662,110 13.39 11.53 10.121997 581,522 655,081 728,639 12.92 11.30 10.051998 656,453 730,012 803,570 12.89 11.44 10.281999 732,283 805,842 879,400 11.55 10.39 9.442000 815,779 889,338 962,896 11.40 10.36 9.492001 908,266 981,825 1,055,383 11.34 10.40 9.612002 1,012,522 1,086,081 1,159,639 11.48 10.62 9.88

2003 1,129,145 1,202,704 1,276,262 11.52 10.74 10.062004 1,258,061 1,331,620 1,405,178 11.42 10.72 10.102005 1,400,789 1,474,347 1,547,906 11.35 10.72 10.16

Note: K1, K2 and K3 represent series of capital stocks constructed based on the initialcapital-to-output ratio in 1975 being 1, 2 and 3, respectively

Table VI.Estimated capital stockvalue and growth (VNDbillion or percent,constant 1994 prices)

JES35,2

208


10/20

technological progress might only be detected when the growth rate of capital stock isnot overwhelmingly large. Put differently, here we have three series of capital stockthat show different (decreasing) rates of growth; the growth rates of capital stock werelargest with K1 (the lower bound), second largest with K2, and smallest with K3 (the

upper bound). This means that the contribution of capital stock to GDP growth wassmallest and the contribution of technological progress was correspondingly largestwith K3 (see more on this point in the conclusion section). If we, say, fail to detectsignificant technological progress even with K3 being used, we can safely concludethat the Vietnamese economy grew without benefiting from technological progressthroughout the studied period.

Plotting log(GDP/labor) against log(capital/labor) as in Figure 1, which isconstructed for K2, the most reasonable value of capital stock, we can see howsignificant changes in total productivity and thus technological progress has been overthe years[7].

The fact that the points in Figure 1 are fairly close to a straight line (except thepoints from 1975-1980, due to the great upheaval of the 1979-1980 economic crisis that

caused a setback in capital formation in this period; see Table I) suggests thatproductivity improved insignificantly throughout most of 1975-2005. This would alsomean that significant technological progress was absentin Vietnam during this period.We shall get back to this issue later.

4. Aggregate production functionsWe begin this section by considering a Cobb-Douglas production function in thefollowing form:

logYt a a logKt blogLt dT1; 3

where the denotation is as before, and T1 is a linear trend included to test theassumption that total productivity increased at a constant rate throughout the period1975-2003. The three series of capital stock built earlier (K1-K3) will be inserted

Figure 1.Capital stock and total

productivity, 1975-2005(For data sources,

see Table I


209


11/20

interchangeably into equation (3) to represent Kt. The annual data on Yt in 1975-2005are obtained from the sources cited in Table I, while the data for labor force are fromthe World Banks World Development Indicators (CD-ROM, various years).

Since we interpret the estimated Cobb-Douglas production functions as long-term

relations among the output and input variables, we adopt the method used in severalstudies of this type, including that of Chow and Lin (2002), and first perform a set ofunit root and co-integration tests for the variables. The unit root tests, reported inTable VII, show that the null hypothesis of unit roots is not rejected for all variablesunder examination at the standard 5 percent level of significance.

We turn to test for co-integration, using the Johansen co-integration test, with theintercept in the co-integration test specifications. Our tests are confined to theregressions reported in Table VIII.

In the preliminary estimates of equations in Table VIII, it is found that the OLSregressions have very low Durbin-Watson statistics (ranging from 0.2 to 0.6). BothLjung-Box and Breusch-Godfrey Lagrange multiplier tests for serial correlationsuggest that second- and fourth-order serial correlations are present[8]. We adoptnonlinear regression techniques to account for these autocorrelations and obtain theestimated equations as shown in Table VIII[9]. Note that the Durbin-Watson statisticsnow are close to 2 in all but regressions 7-10.

The results of the Johansen co-integration test reported in Table VIII (regressions1-6) under the heading Johansen test show that the following two sets of variables arenot cointegrated at the 5% level of significance:

(1) log(Y ), log(K1), log(L ); and

(2) log(Y/L), log(K3/L).

Therefore, we can conclude that the regressions based on these specificationspresented in Table VIII are non-stationary co-integrated relations, and thus can be

dropped from the table (with the exception of regressions 1, 7, 12, and 17, which arekept in order to test the assumption of constant returns to scale conducted in thefollowing paragraph).

In Table VIII, we also report the p-value for rejecting the assumption that the capitaland labor exponents sum to 1, under the heading CRS test. As reported, thehypothesis that the capital and labor exponents sum to 1 cannot be rejected for all butregressions 16 and 21 at the 5 percent level of significance or greater. Under theassumption of constant returns to scale, the estimates are given in regressions 2, 4, 8,10, 13, 15, 18, and 20. It is confirmed in these regressions that significant technologicalprogress was absent in Vietnam throughout 1975-2005, because the coefficients of T1are not statistically significant even at the 10 percent level (regressions 2 and 4).

Even if we replace T1 with T2, a time trend for the 1989-2005 period (the period of

bold reforms), as in regressions 8-11, based on the assumption that significanttechnological progress was only present in the radical reform period as a result ofreform measures favorable effects, the coefficient of this variable is still insignificant.

log(K1/L ) log( K2/L ) log( K3/L ) log( Y/L ) log( K1) log( K2) log( Y ) log( L)

22.2784 21.717 21.471 22.985 22.278 22.015 23.293 21.009

Table VII.ADF test statistics (withtrend and interceptincluded in test equations)

JES35,2

210


12/20

Coefficienton

Regression

Dependent

variable

K

C

log(K/L)

log(K)

log

(L)

T1

AR(1)

AR(2)

CRS

test

(p-value)

Adjusted

R2

DW-statistic

F-statistic

Johansentest

1

log(Y)

K1

118.194

0.800

2.3

68

-0.071

1.235

-0.504

0.429

0.999

1.939

4,729.03

Notco-integrated

2

0.408

2

0.015

20.3

44

2

0.412

(0.0000)2

0.002

2

log(Y/L)

K1

8.878

0.608

2

0.004

1.236

2

0.487

0.997

1.963

2,256.90

Co-integrated

2

0.750

2

0.003

2

0.757

(0.0000)

(0.0016)

3

log(Y)

K2

164.835

0.778

4.3

88

2

0.105

1.198

2

0.606

0.110

0.999

2.130

5,057.89

Co-integrated

(0.1505)

(0.0001)

(0.0

752)

(0.1420)(0.0000)

(0.0007)

4

log(Y/L)

K2

2

21.421

0.511

0.011

1.238

2

0.534

0.997

2.007

2,275.99

Co-integrated

(0.1436)

(0.0004)

(0.1475)(0.0000)2

0.001

5

log(Y)

K3

149.847

0.738

4.5

85

2

0.098

1.188

2

0.621

0.167

0.997

2.169

1,888.38

Co-integrated

(0.1419)

(0.0000)20.1

17

(0.1261)(0.0000)

(0.0005)

6

log(Y/L)

K3

2

35.433

0.479

0.018

1.243

2

0.545

0.997

2.009

2,239.63

Notco-integrated

(0.0029)

(0.0004)

(0.0035)(0.0000)

(0.0008)

C

log(K/L)

log(K)

log

(L)

T2

AR(1)

AR(4)

7

log(Y)

K1

2

461.629

2

1.286

21.8

51

0.256

0.711

2

0.295

0.169

0.999

1.977

3,218.10

Notco-integrated

2

0.125

2

0.289

20.4

08

2

0.124

0.000

2

0.010

8

log(Y/L)

K1

2

210.938

2

0.661

0.107

0.515

2

0.382

0.998

1.800

1,619.07

Co-integrated

(0.1459)

(0.4004)

(0.1454)(0.0011)

(0.0187)

9

log(Y)

K2

137.534

1.744

21.9

05

2

0.064

0.859

2

0.100

0.778

0.998

1.343

1,594.05

Co-integrated

(0.8055)

(0.5382)

(0.5

032)

(0.8311)(0.1647)

(0.6180)

10

log(Y/L)

K2

216.202

2.021

2

0.110

0.879

2

0.111

0.997

1.371

1,029.01

Co-integrated

(0.4635)

(0.2709)

(0.4629)(0.0476)

(0.4103)

11

log(Y)

K3

200.328

2.208

21.9

17

2

0.099

0.802

2

0.053

0.849

0.999

1.381

1,650.26

Co-integrated

(0.6915)

(0.4407)

(0.5

087)

(0.7159)(0.2131)

(0.8309)

C

log(K/L)

log(K)

log

(L)

T1

AR(1)

AR(2)

12

log(Y)

K1

1.298

0.583

0.3

12

0.002

1.232

2

0.481

0.838

0.999

1.963

4,573.79

Notco-integrated

(0.7941)

(0.0010)

(0.6

411)

(0.9055)(0.0000)

(0.0021)

13

log(Y/L)

K1

0.279

0.551

0.000

1.227

2

0.472

0.997

1.946

2,246.56

Co-integrated

(0.0003)

(0.0000)

(0.9801)(0.0000)

(0.0011)

14

log(Y)

K2

2

4.044

0.529

0.8

81

0.000

1.231

2

0.534

0.156

0.999

2.008

4,695.25

Co-integrated

(0.1367)

(0.0001)

(0.0

324)

(0.9924)(0.0000)

(0.0010)

(continued)

Table VIII.Cobb-Douglas production

functions


211


13/20

Coefficienton

Regression

Dependent

variable

K

C

log(K/L)

log(K)

log

(L)

T1

AR(1)

AR(2)

CRS

test

(p-value)

Adjusted

R2

DW-statistic

F-statistic

Johansentest

15

log(Y/L)

K2

2

0.217

0.690

0.013

1.295

2

0.604

0.997

2.000

2,071.77

Co-integrated

(0.0053)

(0.0000)

(0.4709)(0.0000)

(0.0002)

16

log(Y)

K3

2

6.915

0.514

1.1

67

2

0.002

1.236

2

0.549

0.004

0.999

2.009

4,664.40

Co-integrated

(0.0017)

(0.0000)

(0.0

011)

(0.9352)(0.0000)

(0.0009)

17

log(Y)

K1

1.042

0.576

0.3

45

1.232

2

0.480

0.863

0.999

1.957

5,962.11

Notco-integrated

(0.8138)

(0.0004)

(0.5

654)

(0.0000)

(0.0017)

18

log(Y/L)

K1

0.278

0.551

1.227

2

0.472

0.997

1.946

3,120.14

Co-integrated

(0.0002)

(0.0000)

(0.0000)

(0.0008)

19

log(Y)

K2

2

4.056

0.529

0.8

82

1.232

2

0.534

0.110

0.999

2.007

6,124.22

Co-integrated

(0.0926)

(0.0000)

(0.0

181)

(0.0000)

(0.0008)

20

log(Y/L)

K2

2

0.238

0.700

1.323

2

0.615

0.997

1.934

2,819.15

Co-integrated

(0.0020)

(0.0000)

(0.0000)

(0.0001)

21

log(Y)

K3

2

6.837

0.517

1.1

56

1.235

2

0.550

0.001

0.999

2.016

6,082.27

Co-integrated

(0.0005)

(0.0000)

(0.0

004)

(0.0000)

(0.0007)

Notes:Figuresinparentheses

arep-values.AR(1),AR(2)andAR(4)representthevaluesofserialcorrelationcoefficientsundersecond-andfourth-orderserialcorrelationprocesses.T1is

atimetrendforthe1975-2005period.T2isatimetrendforthe1989-2005period.D

Misadummyfordoimoi,takingavalue

of0from1975to1988and1from1989to2005

.CRStestisthe

testforthehypothesisthatthecapitalandlaborexponentssumto1.TheJohansentestisthetestforco-integration

Table VIII.

JES35,2

212


14/20

This suggests that doi moidid not induce significant technological changes and totalproductivity improvement. Note further that a higher order of serial correlation (four) ispresent, and AR(2) is therefore replaced by AR(4) in these regressions.

To confirm the possible effects ofdoi moion the economy, we introduceDM, a dummy

that takes a value of 0 for 1975-1988 and 1 for 1989-2005, into the regression analysis. Theresults, reported in regressions 12-16, also indicate that doi moidid not have the expectedeffects on GDP in terms of growth generation when other factors are controlled for, as thecoefficient of DM is not statistically significant in all of these regressions.

This is also consistent with the finding in the previous regressions that doi moididnot cause a significant change in technological progress that would lead to improvedproductivity in the economy. We therefore proceed to regressions 18-21, which includeno time trend, and obtain estimates of coefficients of capital and labor, among otherthings, in order to compute the marginal productivity of capital and labor as shown inTable IX. Note that the assumption of constant returns to scale holds for K1 and K2,but not K3. We shall therefore use the coefficients of capital and labor as given inregressions 18, 20, and 21 for computations in Table IX.

The estimates of marginal productivity of capital show a steady decline throughoutthe studied period[10]. Both the absence of technological progress and increased capitalstock could be the major factors working towards reducing capital productivity. Notealso that the marginal productivity of capital has reached a fairly low level recently.This implies that Vietnam is using capital at a level close to its long-term equilibrium.In other words, the country has very limited room for absorbing more capital from bothdomestic and foreign sources, if other things remain unchanged[11].

On the other hand, the marginal productivity of labor shows different trendsthroughout the period studied, depending on the value of the initial capital stock underexamination. With K1, we observe that the marginal productivity of labor steadilydecreased in the whole period. In contrast, with K2 and K3, this index decreased until1982 and then increased slightly through the early 1990s or so, before decreasinglysteadily in the years after that. Perhaps changes in the general wage rate followingseveral significant basic wage rate adjustments by the government were the mainfactor behind the increases in the marginal productivity of labor.

Table IX also reports the deviations of actual GDP from the estimates by regressions18, 20, and 21 shown in Table VIII as fractions of the latter[12]. With a few exceptions,the economy underperformed throughout the 1980s and the early 1990s, and the loss ofGDP was quite considerable in several years, particularly in the early 1980s. Totalproductivity only improved slightly after 1992 or so, most notably in the mid-1990s, butdeteriorated again from 1999 onwards. This finding is consistent with the observation inFigure 1 that the slope of the points from 1999 onwards is slightly smaller than the slopeof the points before 1999. Once again, the marginal effect of doi moi on productivity

improvement and the absence of technological changes are confirmed.In Table X, we consider the three periods 1975-1986, 1986-2005 and 1975-2005, andshow the following decomposition of the GDP growth rate[13]:

EstimatedgY a*gK b*gL;

or:

S K L; 4


213


15/20

where the gs are the exponential growth rates computed from the cited sources (forGDP and labor) and Table VI (for capital), and the coefficients of capital and labor are

derived from regressions 18, 20, and 21 of Table VI.As shown in Table X, the great importance of capital to GDP growth (contributing

between 83 percent and 90 percent% to GDP growth) is confirmed if K1 and K2

(regressions 18 and 20) are taken into consideration. The role of capital is less

significant (generating over 44 percent of GDP growth in the three periods) if K3 isused (regression 21).

As emphasized earlier, the 1975 capital-output ratio (k75 ) bearing the value of 3seems to be inappropriate for Vietnam; we are inclined to accept that K1 and K2 are

Marginal value of productof capital

Marginal value of productof labor

Percentage deviations ofGDP

Year K1 K2 K3 K1 K2 K3 K1 K2 K3

1975 0.551 0.350 0.172 0.449 0.150 0.385 30.9 12.5 14.81976 0.514 0.348 0.175 0.418 0.149 0.391 28.0 13.3 16.11977 0.465 0.332 0.171 0.378 0.142 0.382 21.1 9.6 12.71978 0.429 0.321 0.168 0.349 0.137 0.376 16.2 7.2 10.51979 0.382 0.297 0.158 0.311 0.127 0.354 6.9 0.3 3.41980 0.335 0.269 0.145 0.272 0.115 0.324 23.7 28.5 25.81981 0.321 0.265 0.145 0.261 0.114 0.325 25.1 28.8 26.41982 0.322 0.273 0.152 0.262 0.117 0.339 22.5 25.2 23.11983 0.316 0.276 0.155 0.257 0.118 0.346 21.7 23.6 21.81984 0.317 0.283 0.161 0.258 0.121 0.360 0.9 20.2 1.31985 0.310 0.283 0.163 0.252 0.121 0.365 1.1 0.9 1.81986 0.297 0.277 0.161 0.242 0.119 0.361 21.2 20.6 20.81987 0.287 0.272 0.160 0.233 0.116 0.359 22.8 21.7 22.7

1988 0.283 0.273 0.163 0.230 0.117 0.3642

2.22

0.42

2.21989 0.279 0.273 0.164 0.227 0.117 0.367 22.1 0.2 22.51990 0.270 0.270 0.164 0.220 0.115 0.366 22.6 0.0 22.81991 0.267 0.270 0.166 0.217 0.116 0.371 21.9 1.1 22.51992 0.265 0.273 0.170 0.216 0.117 0.379 0.4 2 3.7 20.11993 0.254 0.268 0.169 0.207 0.115 0.377 0.6 4.0 0.81994 0.246 0.264 0.168 0.200 0.113 0.377 1.3 4.7 2.01995 0.237 0.260 0.168 0.193 0.111 0.376 2.5 5.7 3.61996 0.229 0.254 0.167 0.186 0.109 0.373 3.5 6.3 4.81997 0.219 0.247 0.164 0.178 0.106 0.367 3.6 5.9 5.11998 0.205 0.235 0.157 0.167 0.100 0.352 1.4 3.1 2.81999 0.193 0.223 0.151 0.157 0.095 0.337 21.1 0.1 20.12000 0.185 0.216 0.147 0.150 0.092 0.329 21.5 20.9 20.82001 0.178 0.209 0.143 0.144 0.089 0.320 21.6 21.8 21.2

2002 0.171 0.202 0.140 0.139 0.086 0.3122

1.82

2.72

1.72003 0.164 0.196 0.136 0.134 0.084 0.305 21.5 23.3 21.72004 0.159 0.191 0.133 0.129 0.082 0.298 21.0 23.5 21.72005 0.155 0.187 0.131 0.126 0.080 0.294 0.3 23.2 21.1

Notes: Calculations based on the results of regressions 18, 20, and 21 as given in Table VIII. Marginalproductivity is measured in VND/VND a year (capital) and VND million/person per year (labor), using1990 VND prices. Marginal productivity of capital and labor are computed from the followingequations: marginal productivity of capital aY=K, marginal productivity of labor bY=L

Table IX.Marginal productivityand percentagedeviations of GDP

JES35,2

214


16/20

more reasonable for representing capital stock in the Vietnamese economy in theperiod studied. If so, this implies that, as also shown in Table X, the contribution oflabor was relatively small in Vietnam and became even smaller in the reform periodthan in the previous period. Besides the reason that the labor force grew at a decreasingrate (Table I), the modest contribution of labor to GDP growth was also due to therelatively small exponent of labor in the production function (ranging from 0.3 to 0.45,deriving from regressions 18 and 20; Table VIII), and the exponent of labor shows adownward trend in general (Table IX). The rationale for the low estimates of laborexponents is that the elasticity of output with respect to labor was low because labor isabundant in the country[14]. It is argued that the ratio of capital to labor will increaseand labor will not be in such abundance. However, the fact is that the abundance of

labor has persisted in Vietnam after nearly two decades of rapid growth from 1987.This is reflected in the finding on high underemployment and unemployment rates inthe country, particularly in rural areas (see, for example, Haughton et al., 2001).

5. ConclusionsIn this paper we have estimated different production functions for Vietnam at theaggregate level using official annual data on real GDP, labor force, and gross capitalformation, and assuming different initial values of capital stock. We have shown in thispaper that, with some exceptions, Cobb-Douglas production functions with constantreturns and constant capital and labor exponents can explain the data on GDP growthin Vietnam in 1975-2005. The statistics of the estimated production functions haverevealed several interesting first-hand pieces of information and policy implicationsconcerning the Vietnamese economy that can be summarized as follows.

Capital formation was the major source of economic growth in the countrythroughout the study period, particularly in the reform period. The capital exponentranges from 0.55 to 0.7. Capital contributed between 84 percent and 89 percent andbetween 85 percent and 90 percent to GDP growth in 1975-2005 and 1986-2005,respectively.

Significant technological progress was statistically absent in the growth of theVietnamese economy from 1975 to 2005. The conclusion that there was no significant

Sources of growth(exponential rates)

Contributionto growth(percent)

Regression number (Table VIII) Sample period K L S K L

18 1975-1986 0.0532 0.0108 0.0640 83.1 16.91986-2005 0.0591 0.0106 0.0697 84.7 15.31975-2005 0.0569 0.0107 0.0676 84.2 15.8

20 1975-1986 0.0412 0.0072 0.0485 85.1 14.91986-2005 0.0646 0.0071 0.0717 90.1 9.91975-2005 0.0559 0.0072 0.0631 88.7 11.3

21 1975-1986 0.0221 0.0279 0.0500 44.2 55.81986-2005 0.0421 0.0274 0.0695 60.6 39.41975-2005 0.0347 0.0276 0.0623 55.7 44.3

Note: K, capital; L, labor; S, sum of estimates

Table X.Sources of and

contribution to GDPgrowth for different

sample periods


215


17/20

technological progress, even in the presence of high growth of capital formation as seenin the reform period, is itself interesting.

Since the absence of technological progress in Vietnam in 1975-2005 is a majorconclusion of this paper, and that conclusion is reached by a regression analysis using

the Cobb-Douglas production function with an exponential trend included, we need tolook at the data differently and check the robustness of this conclusion. It is very likelythat official data on capital formation may have been overestimated due to the lowdepreciation rates employed. Overestimation of capital stock growth would lead to theunderestimation of technological progress. However, this possibility is irrelevant inthis paper because we have tried three different initial values of capital stock thatcorrespond to three decreasing sets of rates of capital accumulation (Table VI), and theconclusion regarding the absence of technological progress remained unchanged.

On the other hand, because of the high correlation between the capital stock and thetrend variables, it might be difficult to sort out their relative importance in explainingthe growth of GDP in time-series analysis. Nevertheless, our time-series data dideliminate the trend variable as insignificant while maintaining the significance of thecapital stock variable.

One may want to ask why technological progress was absent in Vietnam from 1975to 2005. As reviewed earlier, in the pre-reform period the government tried to build aSoviet-style, centrally planned, self-sufficient economic system in the country. But it isan accepted fact that such a system has often been associated with inefficiency andlack of incentives for firms to innovate or adopt new technologies from abroad. Inaddition, the country was isolated from the international community due to its invasionof Cambodia in 1978. Therefore, it is obvious that technological progress was absent inthis period in Vietnam.

In the reform period, one may argue that technological progress must have beenpresent in the country, given, among other things, a large influx of FDI and an export

boom, which are two main channels conducive to technological innovation. But aspointed out by Phan et al. (2003), who examine the causal relationship between exportexpansion and long-term growth in Vietnam in 1975-2002, the expected gains ofdynamic effects, including accelerated technological progress, from export expansionhave been very limited in Vietnam. This is because of problems in, for example, exportstructure, trade and industrial policies, linkage between export promotion andindustrialization, as well as the inefficient allocation of resources to the export sector.

On the effects of FDI on technological progress, Foster and McCarty (2001) andespecially Phan (2004), who uses a rich set of foreign project-level data from 1988 to2001 in his analysis, show that a large portion of FDI has been attracted to industriesthat are heavily protected and/or promoted by tariff and tax policies. Firms operatingin these industries are frequently domestic market seekers, internationally

uncompetitive, and not exposed to the option of renovation or death. These aremost likely the reasons for the finding in Phan (2004) and Phan and Ramstetter (2004)that foreign firms were not clearly more productive and efficient than local firms inVietnam in the last decade. It is concluded in this context that the role of FDI inaccelerating technological progress is fairly limited.

It is also important to note that SOEs remained significant in many industries untilrecently, despite the governments efforts to restructure and privatize this sector. Phanand Ramstetter (2004) show that SOEs accounted for nearly 40 percent of GDP, 50

JES35,2

216


18/20

percent of industrial sales, and 52 percent of national fixed assets in 2000. Moreimportantly, as pointed out by UNIDO and DSI (1999) and the International MonetaryFund (1999), more than half of SOEs are loss makers because they are badly managed,inefficient, non-productive, and uncompetitive. The existence of most SOEs relies on

government protection and subsidies in some form. Their existence is, as pointed outby UNIDO and DSI (1999), dragging down the economy. One can therefore hardly seewhere significant technological progress has come from in this situation.

The country relied heavily on foreign funds to finance its capital formationthroughout the study period, especially in the pre-reform period. Although this reliancereduced significantly in the reform period, it still stood at a high and worrying level(see Table I). More seriously, there is no sign to suggest that this reliance has decreasedconsistently until recently. Since the costs of these funds must be repaid some day, themarginal productivity of capital has almost reached its long-term equilibrium, and theeconomys efficiency and productivity have not been improved significantly, thecontinued heavy reliance of the economy on foreign funds will undoubtedly put a brakeon the growth of income very soon.

Another significant finding is the small exponent for labor, in the range 0.3-0.45,which can be interpreted as resulting from the large supply of labor relatively to capitalstock. Because there is no evidence to this point that the elasticity of output withrespect to labor has increased substantially, it is implied that labor is still abundant inVietnam.

We conclude this paper by drawing another implication regarding Vietnamsgrowth prospects in the coming decade. Because of the rapid expansion of the capitalbase, the relative importance of factor accumulation may be declining (the law ofdiminishing returns). Furthermore, the potential to further increase factor inputs islimited, especially after one considers a decreasing rate of labor force growth and theconstraints in natural resources. It is therefore crucial for Vietnam to rely more on

productivity growth instead of factor accumulation growth at present if it is to achievehigh and sustainable growth again in the near future[15].

Notes

1. See, for example, Hoa (1997), Luoc (1996), and Binh and Chi (2003), as well as various countryreports prepared by international organizations such as the International Monetary Fund,the Asian Development Bank, and the World Bank.

2. See the sources cited in Table I.

3. It should be emphasized that construction showed a negative growth in 1981-1982 but it didnot affect the whole economys growth considerably because its share in GDP was relativelysmall (slightly higher than 6 percent).

4. For example, it was reported that by the late 1970s, from 20 percent to 30 percent of the riceeaten in Vietnam, and most vital commodities (such as petroleum, chemical fertilizer, andtransportation system) were being supplied by the Soviet Union (Pike, 1987). For more onthis issue, see Tho (1992), Luoc (1996), and Kimura (1987).

5. Calculations in this paragraph are based on the UN data cited in Table I.

6. Not reported in Table V.

7. IfK1 or K3 is used, the observed trend is similar.

8. The regression results are not reported here due to limitations of space.


217


19/20

9. We used the Eviews 4 software package to conduct all tests and estimations in this section.

10. Marginal productivity of capital and labor are computed from the following equations:marginal productivity of capital aY=K, marginal productivity of labor bY=L.

11. Absorption constraints include underdeveloped institutional arrangements, legal system,

and shortage of skillful technical workers and researchers, among many others.

12. To obtain the estimated GDP, we feed, for example, the coefficients obtained in regression 18of Table VIII (namely, c(1)-c(4)) into the following Eviews equation: estimatedY c1 c2*logK1=L AR1 c3; AR2 c4.

13. Note that because the coefficient on the trend variable is statistically not different from zero,it is not included in this equation.

14. Theoretically, in the extreme case, excessive surplus labor may yield zero marginal output.

15. It is beyond the scope of this study to discuss measures that enhance productivity growth.

References

Chow, G. and Lin, A.-L. (2002), Accounting for economic growth in Taiwan and Mainland China:a comparative analysis, Journal of Comparative Economics, Vol. 30, pp. 507-30.

Foster, N. and McCarty, A. (Eds) (2001), Viet Nam in ASEAN: Regional Integration Process andChallenges, UNDP Project, Promoting Viet Nams Integration into ASEAN (VIE/95/015),July, Office of the Government of Viet Nam and the United Nations Development Program,Hanoi.

General Statistical Office (1988), So Lieu Thong Ke Kinh Te Tai Chinh 1955-1986 (StatisticalData: Economics and Finance 1955-1986), Statistical Publishing House, Hanoi.

General Statistical Office (2000), Statistical Data of Vietnam Socio-Economy 1975-2000,Statistical Publishing House, Hanoi.

Haughton, D., Haughton, J. and Nguyen, P. (Eds) (2001), Living Standards during an Economic

Boom, Statistical Publishing House, Hanoi.Hoa, T.V. (Ed.) (1997), Economic Development and Prospects in the ASEAN Foreign Investment

and Growth in Vietnam, Thailand, Indonesia and Malaysia, Macmillan, London.

International Monetary Fund (1999), Vietnam: Selected Issues and Statistical Appendix, IMFCountry Report No. 99/55 and 56, Vol. 56, International Monetary Fund, Washington, DC.

Kim, T.H. (1994), Economy of Vietnam: Reviews and Statistics, Statistical Publishing House,Hanoi.

Kimura, T. (1987), Betonamu No Kokusai Kankei To Keizai Hatten (Vietnams International Relations and Economic Development), Ajia Keizai Kenkyuu Sho, Tokyo.

King, R. and Levine, R. (1994), Capital fundamentalism, economic development, and economicgrowth, Carnegie-Rochester Conference Series on Public Policy, Vol. 40, pp. 2-25.

Luoc, V.D. (Ed.) (1996), Vietnams Industrialization, Modernization and Resources, SocialSciences Publishing House, Hanoi.

Mrkaic, M. (2002), The growth of total productivity in Slovenia, Post-Communist Economies,Vol. 14 No. 4, pp. 445-54.

Phan, M.N. (2004), The roles of foreign direct investment and exports in Vietnamsindustrialization and development, PhD dissertation, Kyushu University, Fukuoka.

Phan, M.N. and Ramstetter, E.D. (2004), Foreign multinationals and local firms in Vietnamseconomic transition, Asian Economic Journal, Vol. 18 No. 4, pp. 371-404.

JES35,2

218


20/20

Phan, M.N., Nguyen, T.P.A. and Phan, T.N. (2003), Exports and long-run growth in Vietnam,1976-2001, ASEAN Economic Bulletin, Vol. 20 No. 3, pp. 211-32.

Sundrum, R.M. (1986), Indonesias rapid economic growth: 1968-81, Bulletin of Indonesian Economic Studies, Vol. 22 No. 3, pp. 35-54.

Tho, T.V. (1992), Betonamu no taigai boeki to gaishi donyu (Vietnams external trade andforeign investment promotion), in Sueo, S. and Tho, T.V. (Eds), Genzai Betonamu Keizai(The Current Vietnamese Economy), Toyo Keizai Shimpousha, Tokyo.

UNIDO and DSI (1999), Vietnam: industrial competitiveness review, prepared jointly byUNIDO and DSI, Development Strategy Institute, Ministry of Planning and Investment,Hanoi.

Wang, Y. and Yao, Y. (2003), Sources of Chinas economic growth 1952-1999: incorporatinghuman capital accumulation, China Economic Review, Vol. 14, pp. 32-52.

Further reading

Binh, T.N. and Pham, D.C. (Eds) (2003), The Vietnamese Economy Awakening the Dormant

Dragon, Routledge Curzon, London.Engle, R.E. and Granger, C.W.J. (1987), Cointegration and error-correction: representation,

estimation, and testing, Econometrica, Vol. 55 No. 2, pp. 251-76.

Freeman, N.J. (2001), Understanding the decline in foreign investor sentiment towards Vietnamduring the 1990s, Asia Pacific Business Review, Vol. 8 No. 1, pp. 1-19.

General Statistical Office (1998), Major Social and Economic Information Obtained from theLarge Scale Surveys in Period of 1990-1996, Statistical Publishing House, Hanoi.

Harvie, C. and Hoa, T.V. (1997), Vietnams Reforms and Economic Growth, Macmillan, London.

Hoa, T.V. (Ed.) (2000), The Social Impact of the Asia Crisis, Palgrave, Basingstoke.

Kokko, A. (1998), Vietnam: ready for doi moi II?, ASEAN Economic Bulletin, Vol. 15 No. 3,pp. 319-28.

Pike, D. (1984), Vietnam and the Soviet Union Anatomy of an Alliance, Westview Press,Boulder, CO.

Corresponding authorPhan Minh Ngoc can be contacted at: [email protected]


219

To purchase reprints of this article please e-mail: [email protected] visit our web site for further details: www.emeraldinsight.com/reprints

Documents

The roles of capital