Tap chi so 2 TA qxp 57Number 2 Spring 2007 VIETNAM ECONOMIC MANAGEMENT REVIEW In the first part of this paper (VEMR, Winter 2006), a brief analysis of economic growth relating to balance of payments d[.]
Economic Growth and Balance of Payments Constraint in Vietnam Pham Sy An ABSTRACT This paper focuses on the question of whether economic growth was constrained by Vietnam's balance of payments during the 1990-2004 period, using the model developed by Thirlwall Based on quarterly and annual data from the period, we found that economic growth was indeed constrained by the country's balance of payments, although deficits in the trade and current account were partly relieved by external inflows of capital such as foreign direct investment, official development assistance, and debt This is evidence that the Vietnamese Government must adopt policies that can relieve the balance of payments and foster economic growth Key words: economic growth, balance of payment, Balance of Payment Constrained Economic Growth Model In the first part of this paper (VEMR, Winter 2006), a brief analysis of economic growth relating to balance of payments during the 1990-2004 period (Section 1), and the development and specification of the Balance of Payments Constrain Economic Growth Model (Section and Subsection 3.1) were provided This part of the paper estimates the growth constrained by the balance of payments in the Vietnamese economy using quarterly data from the 1990-2004 period (Subsection 3.2), and provides conclusions and suggests some policy implications (Section 4) 3.2 Estimation results Using the method of ordinary least squares to estimate coefficients of the equation [27], the result is presented in Table From Table and the estimated income elasticity of demand for imports in the long run (2.42), it is worth noting that all signs and magnitudes of coefficients that are statistically significant are as expected, except the sign of price This is not so surprising because raw materials and intermediate inputs for production have long constituted a large proportion in the structure of Vietnam's merchandise imports, thus it does not depend much on fluctuations of nominal exchange rates as well as real exchange rates Income elasticity of demand for imports is higher than 1, it is theoretically true for developing countries, as they "have to import" intermediate inputs for domestic production and to support growth Theory is again proved by evidence in Vietnam The model does not contract normal "diseases" in econometrics through the LM test for serial correlation, the Jarque Bera test for normality, White's test for heteroscedasticity, Ramsey's RESET test for functional form, and the Pham Sy An is a research fellow at the Vietnam Institute of Economics, Vietnamese Academy of Social Sciences Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 57 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst Table 3: Estimation results from method of ordinary least squares Dependent Variable: IMPORT Method: Least Squares Sample (adjusted): 1991Q2 2004Q4 Included observations: 55 after adjustments Variable Coefficient Std Error t-Statistic Prob C 2.342 1.358 1.724 0.0913* GDP 0.607 0.191 3.175 0.0026*** GDP(-1) -0.342 0.199 -1.721 0.0918* GDP(-2) -0.119 0.216 -0.553 0.5827 GDP(-3) 0.516 0.169 3.041 0.0038*** GDP(-4) 0.606 0.205 2.957 0.0048*** IMPORT(-1) 0.074 0.139 0.532 0.5970 IMPORT(-2) 0.286 0.129 2.215 0.0317** PRICE 0.055 0.242 0.229 0.8194 R-squared 0.933 Mean dependent var 6.116 Adjusted R-squared 0.921 S.D dependent var 20.88 S.E of regression 5.836 Akaike info criterion 6.51 Sum squared resid 1566.734 Schwarz criterion 6.84 Log likelihood -170.150 F-statistic 80.707 Prob (F-statistic) 0.0000 Durbin-Watson stat 2.080 Notes: ***, **, and * denote the statistical significance at the 1%, 5%, and 10% levels, respectively CUSUM test for parameter stability Thus, coefficients of the model are unbiased, efficient, and consistent Using domestic income elasticity of demand for imports estimated and using yearly data collected from International Financial Statistics of IMF, the State Bank of Vietnam and GSO, growth rates from the balance of payments constrained economic growth model y0,y1,y2,y3, and y4 during the 1990-2004 period in Vietnam are estimated to be 8.38%, 6.94%, 8.26%, 8.92%, and 7.09%, respectively Because the growth rate of exports outpaced the net growth rate (of capital inflows minus price of exports), the balance of 58 payments constrained growth rates (y0,y2, and y3) overestimate the real economic growth rate (McCombie and Thirlwall, 1994) Thus, we can ignore these estimated growth rates and pay attention to considering estimated growth rates y1 and y4 These two growth rates are close to the average growth rates in the 1990-2004 period (7.32%) However, the estimated growth rates are lower than the actual rates The reason for this is that the terms of trade or relative prices impacted negatively on the balance of payments constrained real income growth Remember that although the nominal exchange rate was devalued, the real exchange rate appreciated during the 1990-2004 VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com Number Spring 2007 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst period Thus, this adversely affected the balance of payments, and subsequently economic growth Because of the effects of overvaluation in the real exchange rate, real economic growth reduced on average by -0.38% when looking at y1 and -0.23% in terms of y4 per year As predicted by Thirlwall's model, the impact of relative prices on the balance of payments and economic growth are insignificant However, it implies that Vietnam's exchange rate regime needs to be more flexible to avoid overvaluation of the Vietnam dong that will negatively influence the balance of payments and then economic growth In conclusion, the balance of payments constrained economic growth model has strong explanatory power for Vietnam's economic growth in the 1990-2004 period In other words, Thirlwall's law was suitable to Vietnam in the studied period Conclusion implications and policy Returning to the initial equilibrium conditions that create y1 and y4, it is worth noting that the growth rate in Vietnam during the 1990-2004 period had been contributed by "trade deficit" and capital inflows in the form of FDI, debt, and net transfers (dominated by remittances) This means that if the trade deficit had not been financed by capital inflows, the country's economic growth would be severely constrained by the balance of payments Fortunately, the economic reforms in the late 1980s, positive changes in the investment environment in the 1990-2004 period, (macro) economic and political stability, and the strong confidence of foreign investors in Vietnam's economic prospects have attracted significant capital inflows to the country, except during the Asian financial crisis These capital imports partly relaxed the balance of payments constraint on economic growth in the studied period Nevertheless, this is not all Economic growth in the 1990-2004 period was still constrained by the balance of payments and then by aggregate demand To foster economic growth further, the Vietnamese Government should implement "wise" policies that can raise the balance of payments constrained economic growth rate and hence aggregate demand Because economic growth is constrained by the balance of payments in an open economy, policies need to focus on items of both current account and capital account, especially exports that play a vital role in the balance of payments as well as aggregate demand3 Before giving useful and practical advice to the Vietnamese Government, it is necessary to note the inherent weaknesses/problems in Vietnam's balance of payments or, more precisely, problems in the trade balance and capital inflows Problems in the trade balance can be traced to the structure of exports and imports Vietnam exports mainly agricultural products and low value-added commodities, which are vulnerable to changes in price in the world market and technical barriers imposed by developed countries These goods are characterized by low prices and income elasticity of demand Thus, the increase in the value of exports only relies crucially on expanding production that can meet problems of diminishing return to scale Vietnam substantially imports capital and intermediate goods for domestic production and its value of imports is often huge, leading to significant trade deficits Furthermore, a policy of protection in inefficient import-substituting industries in the long run has affected the consumer benefit for that of domestic producers This is pressuring the government into opening up markets further for both consumer goods and heavy industrial products It is unavoidable with Vietnam joining the WTO This will bring about a widening of the gap in the trade deficit to ensure high economic growth Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 59 VEMR ECONOMIC research Problems of capital inflows relate to FDI, debt, and the financial investment portfolio In Vietnam, FDI has had a negative impact on both the capital account and the current account, particularly the trade balance, and thus contains risks and is also vulnerable to the expectations of foreign investors due to possible adverse shocks in the economic and political environments in the country as well as in the region Other capital inflows are very sensitive to small changes in the economic-socio-political environment Thus it contains many risks as well To speed up economic growth up, Vietnam cannot rely everlastingly on large trade deficits and capital inflows It needs to have new policies to deal efficiently with this problem, and should take into account the policy implications in the context of WTO accession In terms of destination, policies should encourage penetrating into new markets to diversify export markets and avoid or mitigate local risks, because exports are one of the most important foreign exchange sources supporting imports The government can this by providing information on domestic and international markets for entrepreneurs to reduce problems of asymmetric information (this is regarded as a new failure of the market that the government must play a considerable role in solving (Stiglitz, 2002)) and stepping up commercial promotion In terms of composition, policies should focus on shifting the export structure towards manufacturing goods with high added value and high income elasticity of demand These manufacturing industries usually have strong backward and forward linkages with other industries in the whole economy To conduct such a shift the government should provide deliberate measures that are suitable to the "rules of game" in the WTO For instance, the government can support domestic entrepreneurs by building "good" soft and hard infrastructures to reduce costs and 60 Economic Growth and Balance of payments contrainst time to enter international markets as well as costs and production time Moreover, the government should adopt more comprehensive and radical measures to develop factor markets such as capital markets, labor markets, and land markets, and an education and training system that is an important input for industries If Vietnam's government concentrates excessively on import-substitution industries by imposing peak- tariffs and non-tariff barriers, these import-substitution industries will not have incentives to innovate technology, improve quality, and reduce price If the government provides a roadmap to open up domestic markets and considers external markets as norms to "examine" the efficiencies of industries and the quality of products, domestic producers will have the motivation to innovate technology, enhance quality and reduce price More importantly, external markets will be an "arena" to eliminate inefficient firms and/or even industries and select the winners, instead of the government doing so In terms of imports, as Vietnam imports virtually all capital and intermediate goods for production and exports, the fear of large deficits in the trade balance and the current account and over-restrictions of imports will hinder the country's economic growth As Nguyen Thi Hong (1999) pointed out, Vietnamese imports were usually lower than the warranted import level Thus, the government can import more to support domestic production and especially export activities without being uneasy about unsustainability in the current account as well as the balance of payments account Moreover, the government should build a roadmap to open up domestic markets to pressure protected industries to enhance their competitiveness In terms of FDI, the government has recently promulgated the Unified Investment Law (2005) This has attracted a significant amount of foreign investment It should be noted that FDI in Vietnam VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com Number Spring 2007 VEMR ECONOMIC research is not only in the form of equity but also entails a significant amount of debt4 Foreign investors seek protection from the government in joint ventures with SOEs instead of looking for "comparative advantage" and exploiting the local market Thus the government should reconsider its existing encouragement mechanisms in attracting FDI and create a level playing field between domestic and foreign investors to enhance competition, and to ensure more efficient resource allocation in the economy Moreover, the government should guarantee in reality a level playing field between domestic and foreign investors to enhance competition and ensure more efficient resource allocation in national economy In terms of debt, it is a necessary financial source to facilitate national development, particularly in developing countries However, debt contains risks and costs Debt use must therefore be prudent Although Vietnam's debt to export ratio has tended to decrease in recent years, the incremental capital output ratio (ICOR) has to a considerable extent increased This circumstance raises many questions of the efficacy of investment, especially investment using debt, in the context of declining concessionary loans and increasing non-concessionary loans Thus, the government should pay adequate attention to allocating capital to more efficient projects and programs in the country r Economic Growth and Balance of payments contrainst exchange), then domestic investment, and could finally decrease aggregate demand Foreign-invested enterprises in Vietnam are often operating in joint ventures with state-owned enterprises According to the Foreign Investment Law, the total investment in one project shall be at least 30% of legal capital and contributed by both sides The Vietnamese side in most cases contributes to minimum legal capital in the form of land use rights (and/or sea and water surface and natural resources) The remainder is borrowed from domestic and foreign financial institutions Most joint ventures seek capital sources from their parent companies and foreign creditors with relatively high interest rates, even 10% or 12% per annum References: n n n n Notes: Quarterly prices of exports and imports are collected from the Ministry of Trade Quarterly imports and gross domestic product are provided by GSO Quarterly nominal exchange rates are collected from the State Bank of Vietnam n n See Appendix for all tests Exports affect not only directly on aggregate demand, but also indirectly on its other components (i.e imports) If exports were in depression in the long term, imports could reduce (due to lack of foreign n Brid J C M (2001) Capital Flows, Interest Payments and the Balance-of Payments Constrained Growth Model: a Theoretical and an Empirical Analysis, Prepared for the Conference an Old and New Growth theories: an Assessment Pisa, Italy, October 5-7 Chatterjee, S (2000) From Cycles to Shocks: Progress in Business Cycle Theory, Federal Reserve Bank of Philadelphia, March/April 2000 Chu Quang Khoi (2003) Sources of Economic Growth, the Case of Vietnam in the Period 1986-2001, Thesis for Masters Degree, MDE Hanoi Dapice, D.O (2002) "Success and Failure: Choosing the Right Path to Export-led Growth, Center for Business and Government," Cambridge Davidson, R and Mackinnon, J G (1993) Estimation and Inference in Econometrics, Oxford University Press, Oxford Dickey, D A., and Fuller, W A (1979) "Distribution of the estimators for autoregressive time series with a unit root," Journal of the American Statistical Association, 74 Elliot, D.R and Rhodd, R (1999) "Explaining Growth Rate Differences in Highly Indebted Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 61 VEMR n n n n n n n n n n n n n 62 ECONOMIC research Countries: an Extension to Thirlwall and Hussain," Applied Economics 31 Ferreira, A L and Canuto, O., (2003) "Thirlwall's Law and Foreign Capital in Brazil," Enero-Febrero de 2003, number 125 Fuller, W A (1976) Introduction to Statistical Time Series, John Wiley & Sons, New York General Statistics Office (1996) Statistical Yearbook 1995 of Vietnam, Statistical Publishing House, Hanoi General Statistics Office (2000) Statistical Yearbook 1999 of Vietnam, Statistical Publishing House, Hanoi General Statistics Office (2005) Statistical Yearbook 2004 of Vietnam, Statistical Publishing House, Hanoi.Harrod, R (1933) International Economics, Cambridge University Press, Cambridge Keyness, J M (1936) The General Theory of Employment, Interest and Money, Macmillan, London Krugman, P (1989) "Differences in Income Elasticities and Trends in Real Exchange Rates," European Economic Review 33, 5: 1031-46 Le Dang Doanh et al (2002) Explaining Growth in Vietnam, CIEM, Paper for East Asian Development Network, Hanoi Le Xuan Sang (2003) "Demand-stimulating Policies after Years: Success, Limitations, and Policy Implications," Economic Studies No 301-302 Liunggren, B (1994) Challenges on Reform Road in Indochina, National Political Publisher, Ha noi Lucas, R E (1988) "On the Mechanics of Economic Development," Journal of Monetary Economics 22, 1: 3-42 McCombie, J and Thirlwall, A P (1994) Economic Growth and the Balance of Payments Constraint, Macmillan, London McCombie, J and Thirlwall, A.P (1997) "The dynamic Harrod Foreign Trade Multiplier and Economic Growth and Balance of payments contrainst n n n n n n n n n the demand oriented approach to economic growth: an evaluation", International Review of Applied Economics, January Nguyen Thi Hong (1999) The Sustainability of the Current Account Deficit in Vietnam (19891998), Thesis of Master Degree, MDE Hanoi Nguyen Van Tau (2002) Effectiveness of demand-stimulating policies: lessons from other countries and experiences of Vietnam in period 1999-2001, MA thesis, VietnamNetherlands Project for Master Program in Development Economics, NEU, Hanoi Romer, R M (1986) "Increasing Returns and Long Run Growth," Journal of Political Economy 94, 5: 1002-37 Stiglitz, J E (2002) "Keynesian Economics and Critique of First Fundamental Theorem of Welfare Economics", in "Market Failure or Success - the New Debate", edited by Tyler Cowen and Eric Crumpton, Edward Elgar, Cheltenham, UK: 41-65 Thirlwall, A P and Hussain, M N (1982) "The Balance of Payments Constraint, Capital Flows and Growth Rate Differences Between Developing Countries", Oxford Economic Paper Thirlwall, A.P (1979) "The Balance of Payments Constrain as an Explanation of International Growth Rate Differences," Banca Nazionale del Lavoro Quarterly Review 128, 791: 45-53 Tran Vo Hung Son and Chau Van Thanh (1998) "Analysis of the Sources of Economic Growth of Vietnam," CAS Discussion Paper No 21, CAS-CIMDA Vietnam Institute of Economics (2002) Vietnam Economy 2002: New Policy Thinking for New Stage of Development (Unpublished), Ha Noi Vogelvang, B (2005) Econometrics - Theory and Applications with EViews, Pearson Education Limited, the United Kingdom VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com Number Spring 2007 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst Appendix 1: Unit root tests for stationary The augmented Dickey-Fuller (ADF) tests are performed for the series: For series y ADF Test Statistic -13.0026 1% Critical Value -3.552666 5% Critical Value -2.914517 10% Critical Value MacKinnon critical values for rejection of hypothesis of a unit root -2.595033 Augmented Dickey-Fuller Test Equation Dependent Variable: D(GDP) Method: Least Squares Sample (Adjusted): 1990:01 2004:04 Included observations: 56 after adjustments Variable Coefficient Std Error t-Statistic Prob GDP(-1) -3.177453 0.244371 -13.00260 0.0000 D(GDP(-1)) 1.384376 0.19488 7.103746 0.0000 D(GDP(-2)) 0.791756 0.094116 8.412571 0.0000 C 3.560245 0.821303 4.334873 0.0001 For series im ADF Test Statistic -6.332664 1% Critical Value -3.552666 5% Critical Value -2.914517 10% Critical Value MacKinnon critical values for rejection of hypothesis of a unit root -2.595033 Augmented Dickey-Fuller Test Equation Dependent Variable: D(IMPORT) Method: Least Squares Sample (Adjusted): 1990:01 2004:04 Included observations: 56 after adjustments Variable Coefficient Std Error t-Statistic Prob IMPORT(-1) -1.813141 0.286316 -6.332664 0.0000 D(IMPORT(-1)) 0.337466 0.234963 1.436252 0.1569 D(IMPORT(-2)) 0.385369 0.127983 3.011096 0.0040 C 11.01980 2.366666 4.656256 0.0000 Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 63 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst For series p ADF Test Statistic -3.854252 1% Critical Value -3.550396 5% Critical Value -2.913549 10% Critical Value MacKinnon critical values for rejection of hypothesis of a unit root -2.594521 Augmented Dickey-Fuller Test Equation Dependent Variable: D(PRICE) Method: Least Squares Sample (Adjusted): 1990:01 2004:04 Included observations: 58 after adjustments Variable Coefficient Std Error t-Statistic Prob PRICE(-1) -0.770439 0.199893 -3.854252 0.0003 D(PRICE(-1)) -0.337722 0.130732 -2.583321 0.0125 C 0.117178 0.465531 -0.251708 0.8022 m(-1) Appendix 2: Granger test Unidirectional causality from to is indicated if the estimated coefficients on the lagged in [3.4] are statistically different from zero as a group (i.e., å ) and the set of estimated coefficients on the lagged in [3.5] is not statistically different from zero (i.e., å ) We run [3.4] and [3.5] and results are as below table: b1i ¹ m(-2) m(-3) i =1 b 3i i =1 Note that figures in parentheses are standard errors and figures in square brackets are t-statistics In [3.4], we test for H0 : b11 = b12 = b13 = b14 = by using Wald test, we find: F(4,46)=7.16 and p_value = 0.0001, so we reject H0 and conclude that y Granger-cause m In [3.5], we test for H0 : b11 = b12 = b13 = b14 = by using Wald test, we find: F(4,46)=0.37 and p_value = 0.8306, so we cannot reject H0 and conclude that m does not "Granger-cause" y m(-4) y(-1) y(-2) y(-3) y(-4) c 64 VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com y 0.015655 (0.104842) [0.149318] -0.039289 (0.102264) [-0.384194] -0.110328 (0.103343) [-1.067595] 0.008021 (0.108614) [0.073845] -0.269511 (0.161235) [-1.671540] -0.093517 (0.157835) [-0.592498] -0.110927 (0.166346) [-0.666846] 0.661392 (0.174304) [3.794476] 1.867240 (1.115159) [1.674417] m -0.001197 (0.147732) [-0.008105] 0.222713 (0.144099) [1.545559] 0.151201 (0.145618) [1.038334] 0.078191 (0.153046) [0.510900] -0.383744 (0.227194) [-1.689057] -0.206953 (0.222403) [-0.930532] 0.201154 (0.234395) [0.858184] 1.030977 (0.245609) [4.197635] 2.536141 (1.571353) [1.613986] Number Spring 2007 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst Appendix 3: LM-test for serial correlation statistic of the BG-test is an LM-test Using the BG-test for null hypothesis of no autocorrelation versus alternative hypothesis of autocorrelation, the null hypothesis cannot be rejected at percent level Breusch (1978) and Godfrey (1978) have developed an autocorrelation test and the test Breusch-Godfrey Serial Correlation LM Test: F-statistic 0.583116 Probability 0.562411 Obs*R-squared 1.420148 Probability 0.491608 Test Equation: Dependent Variable: RESID Method: Least Squares Presample missing value lagged residuals set to zero Variable Coefficient Std Error t-Statistic Prob C -0.187894 1.786510 -0.105174 0.9167 GDP -0.007346 0.193846 -0.037895 0.9699 GDP(-1) -0.198767 0.289232 -0.687222 0.4955 GDP(-2) 0.276129 0.352884 0.782494 0.4381 GDP(-3) -0.073996 0.196448 -0.376671 0.7082 GDP(-4) -0.053948 0.213334 -0.252882 0.8015 IMPORT(-1) 0.236009 0.270443 0.872674 0.3876 IMPORT(-2) -0.191824 0.265061 -0.723695 0.4731 PRICE -0.007770 0.250223 -0.031053 0.9754 RESID(-1) -0.290721 0.309056 -0.940673 0.3520 RESID(-2) 0.211929 0.301274 0.703442 0.4855 R-squared 0.025821 Mean dependent var 9.85E-16 Adjusted R-squared -0.195583 S.D dependent var 5.386428 S.E of regression 5.889668 Akaike info criterion 6.561133 Sum squared resid 1526.280 Schwarz criterion 6.962599 Log likelihood -169.4311 F-statistic 0.116623 Durbin-Watson stat 1.977582 Prob(F-statistic) 0.999520 Appendix 4: Jarque-Bera test for Normality A standard normality test is the Jarque-Bera (JB) test The null hypothesis is the residuals are normality distributed Using the JB test the null hypothesis for normality cannot be rejected at 5% or 1% levels Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 65 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst Series: Residuals Sample 1991Q2 2004Q4 Observations 55 Mean Median Maximum Minimum Std.Dev Skewness Kurtosis Jarque-Bera Probability 9.85e-16 -5 10 -0.103739 14.58805 -8.642608 5.386428 0.470911 2.738351 2.189661 0.334596 15 Appendix 5: White's test for Heteroscedasticity White Heteroskedasticity Test: F-statistic 0.590254 Probability 0.871411 Obs*R-squared 10.94812 Probability 0.812676 Test Equation: Dependent Variable: RESID^2 Method: Least Squares Sample: 1991Q2 2004Q4 Included observations: 55 Variable C GDP GDP^2 GDP(-1) GDP(-1)^2 GDP(-2) GDP(-2)^2 GDP(-3) GDP(-3)^2 GDP(-4) GDP(-4)^2 IMPORT(-1) IMPORT(-1)^2 IMPORT(-2) IMPORT(-2)^2 PRICE PRICE^2 66 Coefficient 26.13976 -0.559958 -0.017627 -0.123204 0.010210 0.069854 0.033477 0.304022 0.018778 0.167674 0.031560 -0.483916 -0.026163 -0.075771 -0.006277 -2.027527 -0.025690 Std Error 24.50904 1.573277 0.059722 1.561962 0.049428 1.817113 0.053036 1.669396 0.050772 1.856380 0.064416 1.175107 0.024257 1.013368 0.022705 1.768567 0.456318 VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com t-Statistic 1.066535 -0.355918 -0.295156 -0.078878 0.206567 0.038442 0.631215 0.182115 0.369855 0.090323 0.489942 -0.411806 -1.078576 -0.074772 -0.276455 -1.146423 -0.056299 Prob 0.2929 0.7239 0.7695 0.9375 0.8375 0.9695 0.5317 0.8565 0.7135 0.9285 0.6270 0.6828 0.2876 0.9408 0.7837 0.2588 0.9554 Number Spring 2007 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst R-squared 0.199057 Mean dependent var 28.48608 Adjusted R-squared -0.138183 S.D dependent var 37.90408 S.E of regression 40.43821 Akaike info criterion 10.48586 Sum squared resid 62139.45 Schwarz criterion 11.10631 Log likelihood -271.3612 F-statistic 0.590254 Durbin-Watson stat 2.619589 Prob (F-statistic) 0.871411 Appendix 6: Ramsey RESET Test Ramsey (1969) has proposed a general test of specification error called RESET (regression specification error test.) The steps involved in RESET can bee seen in Gujarati (1994) The null hypothesis is that model has not specification error By using Ramsey's RESET test for functional form the null hypothesis cannot be rejected at 1% or 5% levels Ramsey RESET Test: F-statistic 1.262906 Probability 0.292881 Log likelihood ratio 3.069969 Probability 0.215459 Std Error t-Statistic 3.022494 1.813876 0.201791 2.986951 0.217722 -2.232633 0.221477 -0.863941 0.214469 3.006537 0.265966 2.551209 0.156403 -0.067954 0.134104 2.256156 0.251965 -0.194708 0.006062 -0.766078 0.000205 -0.461447 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob 0.0765 0.0046 0.0307 0.3923 0.0044 0.0143 0.9461 0.0291 0.8465 0.4477 0.6468 6.116264 20.88659 6.531475 6.932942 65.55637 0.000000 Test Equation: Dependent Variable: IMPORT Method: Least Squares Sample: 1991Q2 2004Q4 Included observations: 55 Variable C GDP GDP(-1) GDP(-2) GDP(-3) GDP(-4) IMPORT(-1) IMPORT(-2) PRICE FITTED^2 FITTED^3 R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Coefficient 5.482427 0.602740 -0.486093 -0.191343 0.644808 0.678535 -0.010628 0.302559 -0.049060 -0.004644 -9.48E-05 0.937104 0.922809 5.802975 1481.679 -168.6156 2.034721 Number Spring 2007 PDF created with pdfFactory trial version www.pdffactory.com VIETNAM ECONOMIC MANAGEMENT REVIEW 67 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst Appendix 7: CUSUM test for stability of the estimated parameters CUSUM test can be used to check the parameter stability The CUSUM statistic is based on cumulative sums of scaled recursive residuals and is plotted against time The expectations of the CUSUM statistics are zero under the null hypothesis of constant parameters In the thesis, the CUSUM statistic is plotted with 5% significance confidence bounds When the graph of the CUSUM statistics revolves around zero within its confidence bounds the null hypothesis of parameter constancy is not rejected Using the CUSUM test the null hypothesis cannot be rejected at 5% level 1.6 1.2 0.8 0.4 0.0 -1 -0.4 -2 95 96 97 98 99 00 01 Recursive C(2) Estimates 02 03 95 04 ± S.E 96 97 98 99 00 01 Recursive C(5) Estimates 2.0 02 03 04 ± S.E 1.6 1.2 1.5 0.8 1.0 0.4 0.5 0.0 0.0 -0.4 -0.5 -0.8 95 96 97 98 99 00 Recursive C(6) Estimates 01 02 03 04 ± S.E Note that we just check the parameter stability for y, y(-3), y(-4) and m(-1) because we only pay attention to elasticity of import with respect to 68 95 96 97 98 99 00 Recursive C(8) Estimates 01 02 03 04 ± S.E income C(2) denotes for y, C(5) for y(-3), C(6) for y(-4) and C(8) for m(-1) VIETNAM ECONOMIC MANAGEMENT REVIEW PDF created with pdfFactory trial version www.pdffactory.com Number Spring 2007 ... Spring 2007 VEMR ECONOMIC research Economic Growth and Balance of payments contrainst period Thus, this adversely affected the balance of payments, and subsequently economic growth Because of. .. negatively influence the balance of payments and then economic growth In conclusion, the balance of payments constrained economic growth model has strong explanatory power for Vietnam''s economic growth. .. (1994) Economic Growth and the Balance of Payments Constraint, Macmillan, London McCombie, J and Thirlwall, A.P (1997) "The dynamic Harrod Foreign Trade Multiplier and Economic Growth and Balance of