structural change and patterns of development theory and its implications for vietnam

CHAPTER 1: Structural Change and Patterns of Development1.1.Conditions for Economic GrowthPatterns-of-development analysts view increased savings and investment as necessary but not a su

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-*** -ECONOMIC DEVELOPMENT

MID-TERM REPORT

Major: International Business Economics STRUCTURAL CHANGE AND PATTERNS OF DEVELOPMENT THEORY AND ITS IMPLICATIONS FOR VIETNAM

Lecturer: Lê Hằng Mỹ Hạnh

Ho Chi Minh, August 2023

TABLE OF CONTENTS CHAPTER 1: Structural Change and Patterns of Development 4

1.1 Conditions for Economic Growth 4

1.2 Domestic and International Constraints on Development 4

1.3 Limitation of the theory 5

CHAPTER 2: Hollis B Chenery's study 6

2.1 About Hollis B Chenery 6

2.2 About Hollis B Chenery’s study 6

CHAPTER 3: Implications for Vietnam 8

3.1 Diversification of the Economy 8

3.2 Export-Oriented Growth 9

3.3 Investment in Infrastructure 10

3.4 Human Capital Development 10

3.5 Technological Innovation 13

3.6 Inclusive Growth 14

CHAPTER 1: Structural Change and Patterns of Development

1.1 Conditions for Economic Growth

Patterns-of-development analysts view increased savings and investment as necessary but not a sufficient condition for economic growth They recognize that besides the accumulation of physical and human capital, a comprehensive set of changes in the economic structure of a country is required to transition from a traditional economic system to a modern one

These structural changes include:

• The transformation of production methods,

• Changes in the composition of consumer demand,

• Alterations in international trade patterns,

• Resource utilization,

• Urbanization,

• The growth and distribution of a country's population

1.2 Domestic and International Constraints on Development

Empirical analysts of structural change emphasize both domestic and international constraints on development

Domestic constraints encompass economic factors such as:

• A country's resource endowment,

• Physical size,

• Population size

• Additionally, institutional constraints, including government policies and objectives, influence the development trajectory of a nation

International constraints on development refer to the external factors that impact a country's progress These constraints include:

• Access to external capital,

• Advanced technology,

• Participation in international trade

However, it is important to note that international constraints distinguish the development path of currently developing countries from that of already

industrialized countries

Developing countries have the potential to transition at an accelerated pace if they can tap into the opportunities presented by industrialized nations These

opportunities include access to:

• Capital,

• Technology,

• Manufactured imports,

• Export markets

1.3 Limitation of the theory

One limitation of this approach is that it focuses on patterns rather than theory, which can lead to incorrect conclusions about causality

For example, policymakers in developing countries may neglect the vital

agricultural sector based on the observation of declining labor force share in agriculture in developed countries Similarly, policymakers may prioritize the development of advanced university systems before addressing basic literacy, leading to inequities among the people

CHAPTER 2: Hollis B Chenery's study

2.1 About Hollis B Chenery

Hollis Burnley Chenery (January 6, 1918 – September 1, 1994) was an American economist well known for his pioneering contribution in the field

of development economics

One of Hollis Chenery's outstanding studies relates to "Structural Change and Patterns of Development." This research focuses on understanding the process of economic development of countries and how changes in economic structures affect this process

2.2 About Hollis B Chenery’s study

Objective:

The primary objective of Hollis B Chenery's study on Structural Change and Patterns of Development was to investigate and understand the relationship between changes in the economic structure of developing countries and the patterns of their economic development Chenery sought to uncover how shifts in sectors like agriculture, industry, and services impact a nation's

growth trajectory, income distribution, and overall well-being His aim was

to provide insights that could guide policymakers in formulating effective strategies for sustainable and equitable development

Content:

Chenery's study delved into 05 key aspects: Stages of Economic Development, Structural Transformation, Sectoral Contributions, Income Distribution, Policy Implications

Stages of Economic Development: Chenery proposed a framework

that divided the process of economic development into 04 stages, each characterized by different economic structures He identified the initial stage

as the agriculture stage, then a stage of rapid industrialization and eventually

a mature stage with a dominant services sector

Structural Transformation: Chenery analyzed the dynamics of

structural change within economies, focusing on the role of investments, technological advancements, and human capital development He examined how these factors influence the shift from low-productivity sectors to higher-productivity sectors and contribute to economic growth

Sectoral Contributions: The study examined how different sectors

contribute to economic development and how their relative importance changes over time It highlighted the importance of diversification and balanced growth across sectors to ensure sustained progress

Income Distribution: Chenery's research also addressed the

implications of structural change for income distribution He investigated how changes in economic structure can affect the distribution of income and contribute to addressing poverty and inequality

Policy Implications: The study provided policy recommendations for

governments and international organizations for productive structural change These recommendations encompassed investment in infrastructure, education, technology, innovation to drive economic diversification and growth

Significance:

Chenery's study holds significant importance in the field of development economics:

Policy Guidance: Chenery's insights provided valuable guidance for

policymakers aiming to design effective development strategies His research emphasized the importance of investing in human capital and facilitating structural transformation for sustained economic growth

Understanding Development Dynamics: The study deepened the

understanding of how economies evolve over time and shed light on the complex relationship between economic structure, sectoral shifts, and patterns of development

Development Discourse: Chenery's work contributed to the broader

discourse on development theories and practices It influenced subsequent research on structural change, economic diversification, and the role of different sectors in development

Influence on Development Theory: Chenery's "Patterns of

Development" model and his insights into structural change became integral

to the broader body of development theory, shaping how economists and policymakers approach development challenges

CHAPTER 3: Implications for Vietnam

3.1 Diversification of the Economy

Implication: Vietnam could aim to diversify its economy away from a heavy reliance on agriculture and towards manufacturing and services sectors.

Vietnam initiated its radical political and economic reforms known as “Đổi mới” in

1986 towards a market-oriented economy after a long time under the centrally-planned system The country maintained rather high GDP growth at about 7 per cent on average in the 1990s despite the Asian Financial Crisis in 1997-1998 The period 2000-2007 witnessed even more impressive growth at 7.5 per cent

The agriculture’s employment declined sharply, accounting for less than a half of total employment in 2013, while the labour share of manufacturing and services

nearly doubled over the same period and urban population exceeded 30 per cent of the total (World Bank 2016)

The manufacturing sector in the latest period 2007-2013 also exhibited declining GDP share though it absorbed more labour These indicate that, while structural change continued to occur, labour productivity of these two sector stagnated

3.2 Export-Oriented Growth

Implication: Emphasizing export-oriented growth could enable Vietnam to leverage its labor-intensive industries and gain a competitive edge in global markets.

After the liberation, from the early years of implementing "đổi mới" and "mở cửa," the resolutions of the Party Congress demonstrated that "export is the spearhead

with decisive significance for many economic targets in this 5-year period

(1986-1990),

Specifically, Directive No 22/2000/CT-TTg dated October 27, 2000, issued by the Prime Minister of the Government, regarding the Strategy for Import and Export of Goods and Services for the period 2001-2010, identified the following objectives:

● Continuing the highest priority for export, accelerating exports in all sectors

● Creating high-quality, value-added, and highly competitive goods for export

● Contributing to employment generation in society, creating foreign currency reserves, and meeting the requirements of industrialization and

modernization

We can see that after 1986, VIetnam has participate in a lot of orgaizations Vietnam normalized its relations with China in 1992 and with the United States in

1995 Vietnam joined the ASEAN bloc in 1995 Currently, Vietnam has established diplomatic relations with 189 countries

3.3 Investment in Infrastructure

Implication: Investment in infrastructure could facilitate economic

development by improving connectivity and reducing logistical constraints.

Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function

Socio-Economic Development Strategy until 2020 and Resolution No 13-NQ/TW dated January 16, 2012, issued by the 11th Central Executive Committee, which focuses on building comprehensive infrastructure and aims to make Vietnam essentially an industrialized country by 2020, with a modern direction From 2012

to 2020, the transportation infrastructure was invested and constructed as follows:

Roads: Vietnam has operationalized 1,041km of expressways, with over 160km

under construction and plans for an additional 654km of east-west north-south expressways

Railways: Efforts have been made to enhance safety, reduce travel time, and

improve passenger transportation services in railways

Aviation: Airports such as Nội Bài, Tân Sơn Nhất, and Đà Nẵng have been

upgraded, while new airports in Phú Quốc and Vân Đồn have been constructed, increasing the total airport capacity to around 90 million passengers per year

Waterways: Vietnam has invested in seaports, including international gateways

like Cái Mép - Thị Vải and Lạch Huyện, capable of accommodating large-tonnage vessels The country has also upgraded ports in Nghi Sơn, Đà Nẵng, and others, increasing the total port capacity to approximately 580 million tons per year

3.4 Human Capital Development

Implication: Prioritizing education and skills development could help

Vietnam's workforce transition to higher-skilled sectors.

Details:

● Vietnam has always prioritized investment in primary and basic literacy education

● The government has implemented policies to attract and support qualified teachers through incentives and continuous professional development

● Targeted public spending on preschool enabled the government to achieve universal preschool education for five-year-old children

● Vietnam has effectively benchmarked its student assessment system against international good practices and used assessment results to improve the system For instance, in response to PISA 2012 results, Vietnam changed the legal framework for large-scale exams to diversify testing methods, improve item quality, and pave the way for competency-based assessment

In 1992, Vietnam agreed on the “Education For All” (EFA) 1993 to 2000 Action Plan, followed by a second EFA for 2003 to 2015

● The core of the first (1993–2000) EFA plan included quality primary education for all, gender equality across all levels of education, and appropriate education and training for all out-of-school young people and adults in need of basic education to promote adult literacy

● The 2003–2015 EFA plan set 5 main goals: moving from quantity to quality, completing universal primary and universal lower secondary education, providing lifelong learning opportunities, mobilizing full participation (all for education), and ensuring effective management and ever better resource utilization

● Public education expenditure increased dramatically By late 1990,

education expenditure accounted for about 15 percent of total public spending and was subsequently increased to 20 percent of annual budget expenditure, where it remains until today The state budget remained the main funding source, with donor support estimated to cover only 10 percent of the total public education budget in the 1990s

In 1992, Vietnam agreed on the “Education For All” (EFA) 1993 to 2000 Action Plan, followed by a second EFA for 2003 to 2015

● The core of the first (1993–2000) EFA plan included quality primary education for all, gender equality across all levels of education, and appropriate education and training for all out-of-school young people and adults in need of basic education to promote adult literacy

● The 2003–2015 EFA plan set 5 main goals: moving from quantity to quality, completing universal primary and universal lower secondary education, providing lifelong learning opportunities, mobilizing full participation (all for education), and ensuring effective management and ever better resource utilization

The two EFA plans and their implementation share the following common elements:

Determination: The EFA strategies and follow-up action plans were well organized

and monitored, with well-coordinated donor support and strong public determination for their implementation The plans were action oriented, time-bound and contained mid-term performance indicators

Quantity with inclusiveness: The contribution of education to poverty alleviation

was given prominence within the government’s poverty and growth strategies Policies included the free supply of textbooks, notebooks, and school supplies for ethnic minority students All communes gained primary and lower-secondary schools in communal or inter-communal areas; and high schools were established in the districts The provinces and districts with many ethnic minority groups were provided with boarding and semi-boarding schools, with free access for children of those groups