(Luận văn) structural transformation and economic growth of asia developing countries and vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS t to ng hi ep VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS w n lo ad y th ju STRUCTURAL TRANSFORMATION AND yi pl ECONOMIC GROWTH OF ASIAN ua al n DEVELOPING COUNTRIES AND VIETNAM n va ll fu m oi Summary version at nh z By z k jm ht vb TRAN THIEN TAI om Dr TRAN TIEN KHAI l.c gm Academic Supervisor: an Lu n va ey t re HO CHI MINH CITY, NOVEMBER 2012 ABSTRACT t to ng This paper investigates the structural transformation and growth of some hi developing Asian countries and Vietnam, using data extracted from World ep Development Indicator and Global Finance Development of World Bank from 1985 w to 2010 The paper uses polynomial model regression and description statistics n lo method Findings from the paper includes: (1) except Korea and Malaysia, others ad Asian developing countries are all in the first phase of structural transformation y th Agriculture sector trends to decrease once GDP per capita increases Industry sector ju yi trends to increase once GDP per capita increases Service sector increases once pl GDP per capita increases; (2) the threshold of structural transformation from the al n ua first phase to the second phase is when GDP per capita equals US$ 6,600 per n va person At that level, sectoral share of agriculture, industry, and services reach 7%, ll fu 45% and 48% respectively; (3) Asian developing countries including Vietnam are oi m not all followed the same process and are not homogeneity of structural transformation; (4) compared to Malaysia, Thailand and the Philippines, the share nh at of agriculture in GDP of Vietnam is still high and is the highest in the four z countries The share of services in GDP of Vietnam is always the lowest in the four z ht vb studied countries; (5) the rate of labor distribution in the agricultural sector of jm Vietnam is high compared to Malaysia, Thailand, and the Philippines and in the k opposite direction, the rate of labor in services of Vietnam is low compared to gm l.c Malaysia, Thailand, and the Philippines; (6) labor productivity in all three sectors of inefficient is agricultural sector, followed by the service and industrial om Vietnam are lower than Malaysia, Thailand, and the Philippines but the most an Lu n va Key Words: structural transformation, GDP per capita, growth, Asian developing ey t re countries, Vietnam TABLE OF CONTENT t to ng CHAPTER 1: INTRODUCTION hi CHAPTER 2: LITERATURE REVIEW 2.2 Empirical studies Conceptual framework w Theoretical review n ep 2.1 lo 2.3 ad CHAPTER 3: RESEARCH METHOLODOGY 11 Data 11 ju Research methodology 11 yi 3.2 y th 3.1 pl CHAPTER 4: EMPIRICAL ANALYSIS OF STRUCTRUAL al Overview of economic growth of Asian developing countries in period n va 4.1 n ua TRANSFORMATION AND GROWTH 13 Experimental study result of structural transformation Asian developing oi m 4.2 ll fu 1985 -2010 13 countries during 1985-2010 16 nh at 4.2.1 Result of statistics descriptive model 16 z 4.2.2 Result of economestric model 21 z vb 4.2.3 Structural transformation and labor productivity of Vietnam and acomparision ht k jm with Malaysia, Thailand and the Philippines 27 gm CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 34 l.c 5.1 Conclusions 34 om 5.2 Recommendations 34 an Lu REFERENCES 36 n va ey t re CHAPTER 1: INTRODUCTION t to ng Some empirical studies show structural transformation process is hi ep accompanied with economic growth of developed countries By history record, Kuznets (1971) in Economic of Nations emphasizes that there are six characteristics w that every developed country manifested in the process of economic growth One of n lo them is the high rate of structural transformation of the economy Chenery (1979) in ad y th Structural Change and Development Policy examines the pattern of development of ju some developing countries after World War II period The empirical study identifies yi several characteristic features of development process One of them is the shift pl ua al away from agricultural to industrial production n Asian developing countries, including Vietnam, are under developing process n va Therefore, they maintain sustainable growth in the last two decades and played a ll fu key role in economic growth of the world It is useful to analyze what is the oi m structural transformation process of Asian developing countries including Vietnam? nh My paper tries to achieve three main objectives: (1) to analyze structural at transformation process1 of some Asian developing countries, including China, z z India, Indonesia, Korea, Malaysia, Nepal, the Philippines, Sri Lanka, Thailand and vb jm ht Vietnam, during 1985-2010; (2) to analyze labor productivity of between Vietnam and Malaysia, Thailand and the Philippines; (3) to implicate ways to improve k gm structural transformation process of Vietnam Therefore, the main questions of this l.c paper research are: (1) how is the structural transformation process of Asian om developing countries? (2) is the structural transformation process of Asian an Lu developing countries homogenous? (3) what are the differences of structural n ey t re va Structural transformation process is transformation process between sectors in an economy such as the transformation between agriculture, industrial and service sector through time or through development (GDP or GDP per capita) Agriculture sector covers forestry, fishing, hunting and agriculture as a whole; Industrial sector comprise mining, quarrying, manufacturing, construction, electricity, gas, water; Service sector includes all service activities, such as transportation, logistics, communication, whole sale, retail, banking, insurance, real estate, public administration, defense and others services transformation process and labour productivity between Vietnam and Malaysia, Thailand and the Philippines? These questions will be answered upon the analysis t to in chapter four ng hi The paper is continued with following chapters Chapter two recalls the ep literature review including the theories and empirical studies of structural transformation in the world and Vietnam Chapter three describes the dataset and w n lo research methodology Chapter four analyzes the structural transformation process ad of Asian developing countries and the comparison of structural transformation and y th labor productivity of Vietnam versus Malaysia, Thailand and the Philippines Base ju yi on the main findings identified in chapter four, chapter five will come out with the pl main conclusions, policy implications and limitations of this research n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re CHAPTER 2: LITERATURE REVIEW t to ng hi 2.1 Theoretical review ep According to Begg et al (1995), Gross Domestic Product (GDP) can be measured by the formulation: w n i lo gdpi   vaij ad (1) j 1 ju y th Where: yi gdpi is GDP of a country in year i pl ua al vaij is value added of sector j in year i n j includes three sectors of an economy: agriculture, industry and service va n Solow (1962) uses the Cobb-Douglas production function to form up Solow ll fu growth model m (2) oi q=Akα at nh A is multifactor of productivity or technology progress of an economy k is capital per capita of an economy z z q is output per capita of an economy vb jm ht Equation (2) explains output per capita will be increased significantly once productivity, efficiency or technology change happens to the economy We all k l.c gm know that a market economy tends to allocate resources from less efficient areas to more efficient areas Therefore, this model will support this research of structural om transformation in the following sections of this chapter an Lu Lewis (1955) develops the two-sector labour surplus model in 1955 In this model, the underdeveloped economy consists of two sectors which are traditional ey transferred to the modern sector and makes the modern sector’s output grown The t re equal to zero (MPL=0) The proportion of surplus labour in traditional sector will be n resource of land Its marginal product of labour (MPL) tends to diminish until MPL va and modern sectors Traditional sector has a surplus of labour while a limited labour transfer process and employment expansion in modern sector continue happening until all of surplus labour in traditional sector is absorbed The two- t to sector labour surplus model provides a basic theory of structural transformation ng hi The structural transformation of the economy can take place with the growth of the ep modern sector and modern industry (industrial and service sector) without reducing agricultural output w n lo According to Perkins et al (2006), the Engel’s law was developed by Ernst ad Engel in the nineteenth century The law states that when household income y th increases, the proportion of income spent on food decreases This is one reason to ju yi explain the decline of agriculture’s share in total production when the GDP per pl capita increases Another reason comes from the productivity gains in agriculture al n ua due to technological change which promotes the process of liberalization of the n services va labour force and allow them joining in non-agricultural sector such as industry and fu ll Kuznets (1971) finds out that developed countries are following up the same m oi process of structural transformation He distinguishes structural transformation into nh at two different phases The first phase is in the beginning of development process, in z which an economy allocates most of its resources to agriculture sector As the z ht vb economy continues to develop, resources are then re-allocated from agriculture to gm Empirical studies l.c 2.2 k both agriculture and industrial to service sector2 jm industrial and service sector In the second phase, resources are re-allocated from om Bah (2008) analyzes structural transformation of developed countries an Lu including nine countries, such as Australia, Canada, France, Germany, Italy, Japan, Sweden, United of Kingdom, and the United States, during the period 1870 -2000 n ey t re transformation; (2) the structural transformation of developed countries is well va Bah finds that: (1) developed countries follow a homogeneity process of structural This empirical study will be referred in chapter four and chapter five of this research suited to the one Simon Kuznets mentioned in theoretical review Agriculture declines in both first and second phases of development Industry increases in the t to first phase of development and decreases in second phase of development Service ng hi sector always increases in the first phase and second phase of development; (3) the ep threshold between first phase and second phase of development is when GDP per capita reach at 8,100 US$ per person; (4) all developed countries are in the second w n lo phase of development ad Bah (2009) explores that beside the thing that structural transformation play a y th positive role in economic growth, Total Factor Productivity (TFP) of each sector ju yi also play an important role in economic growth He uses panel data on sector pl employment share and GDP per capita of the US, represent for developed country, al n ua and Korea, Cameroon, Brazil, represent for developing countries, from 1950 to va 2000, to analyze sectoral productivity of developed and developing countries He n finds out that relative to the US, developing countries are least productive in fu ll agriculture, then followed by services and manufacturing m oi Hoang Kieu Trang (1998) analyzes structural change of Vietnam during 1980- nh at 1997 The paper reveals that (1) the growth rate of non-agricultural sector of z Vietnam increases higher than GDP growth rate; (2) structural change, including the z ht vb declining of agriculture, increasing of industry and services, provides positive jm impact to economic growth k Dekle & Vandenbroucke (2006) investigate how structural transformation gm impact to economic growth of China from 1978 to 2003 They explore three sectors l.c in China’s economy: agriculture, private non-agriculture, and public (government) om non-agriculture sectors by using employment by sector and GDP per sector data an Lu The paper discloses that there are three main sources of China’s growth from 1978- ey t re public non-agriculture sector to private non-agriculture sector n labor from agriculture sector to non-agriculture sector, (3) reallocation of labor from va 2003: (1) high productivity in private non-agriculture sector; (2) reallocation of Duarte & Restuccia (2010) examine the role of sectoral labor productivity and the reallocation of labor across sectors to explain the process of structural t to transformation The authors find that (1) sectoral labor productivity differences ng hi across countries are large, both at a point in time and over time In particular, labor ep productivity differences between developed and developing countries are large in agriculture and services and smaller in industry; (2) over time, productivity gaps w n lo between developed and developing countries have been substantially narrowed ad down in agriculture and industry but not really as much in service sector y th Conceptual framework ju 2.3 yi From theoretical review and empirical studies section in this chapter, pl ua al structural transformation between sectors happens through out three main factors as n figure below The first factor includes technological change, investment and va capital (both of physical and human capital) accumulation These three components n ll fu will affect significantly the productivity of each sector of an economy The second oi m factor is the consequence of the first one By absorbing technological change, nh investment and capital accumulation, the sectoral productivity will increase and at grow continuously The differences in productivity growth of each sector and the z z differences in productivity level of each sector, such as labor surplus and low vb jm ht productivity in agricultural sector, make the structural transformation of a country happen differently The structural transformation tends to occur from low k gm productivity sectors to high productivity sectors The third factor mentions about the l.c structural transformation happens in the same time of resources reallocation (labor om resource and other resources) process The resources will be allocated from lower an Lu efficient to higher efficient areas In the study of this thesis, I just mention three factors as the sources and causes which impact on the structural transformation, not ey process will be continuously happened to push an economy continuously develop t re transformation of a country will make a country’s development and growth This n structural transformation and economic growth Consequently, the structural va a deeply analysis (qualitative and quantitative) the impact of these factors to the and grow The below figure describes the interaction between structural transformation and economic growth This paper will analyze structural t to transformation process and GDP per capita growth of Asian developing countries ng hi basing on what Kuznets (1971) has realized for developed countries ep w n lo ad ju y th yi pl n ua al n va ll fu oi m Figure 1: Conceptual framework – structural transformation and growth Source: author’s creation base on theoretical review and empirical studies at nh z z k jm ht vb om l.c gm an Lu n va ey t re 10