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 VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS STRUCTURAL TRANSFORMATION AND ECONOMIC GROWTH OF ASIAN DEVELOPING COUNTRIES AND VIETNAM Summary version By TRAN THIEN TAI Academic Supervisor: Dr TRAN TIEN KHAI HO CHI MINH CITY, NOVEMBER 2012 ABSTRACT This paper investigates the structural transformation and growth of some developing Asian countries and Vietnam, using data extracted from World Development Indicator and Global Finance Development of World Bank from 1985 to 2010 The paper uses polynomial model regression and description statistics method Findings from the paper includes: (1) except Korea and Malaysia, others Asian developing countries are all in the first phase of structural transformation Agriculture sector trends to decrease once GDP per capita increases Industry sector trends to increase once GDP per capita increases Service sector increases once GDP per capita increases; (2) the threshold of structural transformation from the first phase to the second phase is when GDP per capita equals US$ 6,600 per person At that level, sectoral share of agriculture, industry, and services reach 7%, 45% and 48% respectively; (3) Asian developing countries including Vietnam are not all followed the same process and are not homogeneity of structural transformation; (4) compared to Malaysia, Thailand and the Philippines, the share of agriculture in GDP of Vietnam is still high and is the highest in the four countries The share of services in GDP of Vietnam is always the lowest in the four studied countries; (5) the rate of labor distribution in the agricultural sector of Vietnam is high compared to Malaysia, Thailand, and the Philippines and in the opposite direction, the rate of labor in services of Vietnam is low compared to Malaysia, Thailand, and the Philippines; (6) labor productivity in all three sectors of Vietnam are lower than Malaysia, Thailand, and the Philippines but the most inefficient is agricultural sector, followed by the service and industrial Key Words: structural transformation, GDP per capita, growth, Asian developing countries, Vietnam TABLE OF CONTENT CHAPTER 1: INTRODUCTION CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical review 2.2 Empirical studies 2.3 Conceptual framework CHAPTER 3: RESEARCH METHOLODOGY 11 3.1 Data 11 3.2 Research methodology 11 CHAPTER 4: EMPIRICAL ANALYSIS OF STRUCTRUAL TRANSFORMATION AND GROWTH 13 4.1 Overview of economic growth of Asian developing countries in period 1985 -2010 13 4.2 Experimental study result of structural transformation Asian developing countries during 1985-2010 16 4.2.1 Result of statistics descriptive model 16 4.2.2 Result of economestric model 21 4.2.3 Structural transformation and labor productivity of Vietnam and acomparision with Malaysia, Thailand and the Philippines 27 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 34 5.1 Conclusions 34 5.2 Recommendations 34 REFERENCES 36 CHAPTER 1: INTRODUCTION Some empirical studies show structural transformation process is accompanied with economic growth of developed countries By history record, Kuznets (1971) in Economic of Nations emphasizes that there are six characteristics that every developed country manifested in the process of economic growth One of them is the high rate of structural transformation of the economy Chenery (1979) in Structural Change and Development Policy examines the pattern of development of some developing countries after World War II period The empirical study identifies several characteristic features of development process One of them is the shift away from agricultural to industrial production Asian developing countries, including Vietnam, are under developing process Therefore, they maintain sustainable growth in the last two decades and played a key role in economic growth of the world It is useful to analyze what is the structural transformation process of Asian developing countries including Vietnam? My paper tries to achieve three main objectives: (1) to analyze structural transformation process1 of some Asian developing countries, including China, India, Indonesia, Korea, Malaysia, Nepal, the Philippines, Sri Lanka, Thailand and Vietnam, during 1985-2010; (2) to analyze labor productivity of between Vietnam and Malaysia, Thailand and the Philippines; (3) to implicate ways to improve structural transformation process of Vietnam Therefore, the main questions of this paper research are: (1) how is the structural transformation process of Asian developing countries? (2) is the structural transformation process of Asian developing countries homogenous? (3) what are the differences of structural 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 in chapter four The paper is continued with following chapters Chapter two recalls the literature review including the theories and empirical studies of structural transformation in the world and Vietnam Chapter three describes the dataset and research methodology Chapter four analyzes the structural transformation process of Asian developing countries and the comparison of structural transformation and labor productivity of Vietnam versus Malaysia, Thailand and the Philippines Base on the main findings identified in chapter four, chapter five will come out with the main conclusions, policy implications and limitations of this research CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical review According to Begg et al (1995), Gross Domestic Product (GDP) can be measured by the formulation: i gdpi   vaij (1) j 1 Where: gdpi is GDP of a country in year i vaij is value added of sector j in year i j includes three sectors of an economy: agriculture, industry and service Solow (1962) uses the Cobb-Douglas production function to form up Solow growth model q=Akα (2) A is multifactor of productivity or technology progress of an economy k is capital per capita of an economy q is output per capita of an economy Equation (2) explains output per capita will be increased significantly once productivity, efficiency or technology change happens to the economy We all 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 transformation in the following sections of this chapter Lewis (1955) develops the two-sector labour surplus model in 1955 In this model, the underdeveloped economy consists of two sectors which are traditional and modern sectors Traditional sector has a surplus of labour while a limited resource of land Its marginal product of labour (MPL) tends to diminish until MPL equal to zero (MPL=0) The proportion of surplus labour in traditional sector will be transferred to the modern sector and makes the modern sector’s output grown The labour transfer process and employment expansion in modern sector continue happening until all of surplus labour in traditional sector is absorbed The twosector labour surplus model provides a basic theory of structural transformation The structural transformation of the economy can take place with the growth of the modern sector and modern industry (industrial and service sector) without reducing agricultural output According to Perkins et al (2006), the Engel’s law was developed by Ernst Engel in the nineteenth century The law states that when household income increases, the proportion of income spent on food decreases This is one reason to explain the decline of agriculture’s share in total production when the GDP per capita increases Another reason comes from the productivity gains in agriculture due to technological change which promotes the process of liberalization of the labour force and allow them joining in non-agricultural sector such as industry and services Kuznets (1971) finds out that developed countries are following up the same process of structural transformation He distinguishes structural transformation into two different phases The first phase is in the beginning of development process, in which an economy allocates most of its resources to agriculture sector As the economy continues to develop, resources are then re-allocated from agriculture to industrial and service sector In the second phase, resources are re-allocated from both agriculture and industrial to service sector2 2.2 Empirical studies Bah (2008) analyzes structural transformation of developed countries including nine countries, such as Australia, Canada, France, Germany, Italy, Japan, Sweden, United of Kingdom, and the United States, during the period 1870 -2000 Bah finds that: (1) developed countries follow a homogeneity process of structural transformation; (2) the structural transformation of developed countries is well 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 first phase of development and decreases in second phase of development Service sector always increases in the first phase and second phase of development; (3) the 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 phase of development Bah (2009) explores that beside the thing that structural transformation play a positive role in economic growth, Total Factor Productivity (TFP) of each sector also play an important role in economic growth He uses panel data on sector employment share and GDP per capita of the US, represent for developed country, and Korea, Cameroon, Brazil, represent for developing countries, from 1950 to 2000, to analyze sectoral productivity of developed and developing countries He finds out that relative to the US, developing countries are least productive in agriculture, then followed by services and manufacturing Hoang Kieu Trang (1998) analyzes structural change of Vietnam during 19801997 The paper reveals that (1) the growth rate of non-agricultural sector of Vietnam increases higher than GDP growth rate; (2) structural change, including the declining of agriculture, increasing of industry and services, provides positive impact to economic growth Dekle & Vandenbroucke (2006) investigate how structural transformation impact to economic growth of China from 1978 to 2003 They explore three sectors in China’s economy: agriculture, private non-agriculture, and public (government) non-agriculture sectors by using employment by sector and GDP per sector data The paper discloses that there are three main sources of China’s growth from 19782003: (1) high productivity in private non-agriculture sector; (2) reallocation of labor from agriculture sector to non-agriculture sector, (3) reallocation of labor from public non-agriculture sector to private non-agriculture sector Duarte & Restuccia (2010) examine the role of sectoral labor productivity and the reallocation of labor across sectors to explain the process of structural transformation The authors find that (1) sectoral labor productivity differences across countries are large, both at a point in time and over time In particular, labor productivity differences between developed and developing countries are large in agriculture and services and smaller in industry; (2) over time, productivity gaps between developed and developing countries have been substantially narrowed down in agriculture and industry but not really as much in service sector 2.3 Conceptual framework From theoretical review and empirical studies section in this chapter, structural transformation between sectors happens through out three main factors as figure below The first factor includes technological change, investment and capital (both of physical and human capital) accumulation These three components will affect significantly the productivity of each sector of an economy The second factor is the consequence of the first one By absorbing technological change, investment and capital accumulation, the sectoral productivity will increase and grow continuously The differences in productivity growth of each sector and the differences in productivity level of each sector, such as labor surplus and low productivity in agricultural sector, make the structural transformation of a country happen differently The structural transformation tends to occur from low productivity sectors to high productivity sectors The third factor mentions about the structural transformation happens in the same time of resources reallocation (labor resource and other resources) process The resources will be allocated from lower 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 a deeply analysis (qualitative and quantitative) the impact of these factors to the structural transformation and economic growth Consequently, the structural transformation of a country will make a country’s development and growth This process will be continuously happened to push an economy continuously develop and grow The below figure describes the interaction between structural transformation and economic growth This paper will analyze structural transformation process and GDP per capita growth of Asian developing countries basing on what Kuznets (1971) has realized for developed countries Figure 1: Conceptual framework – structural transformation and growth Source: author’s creation base on theoretical review and empirical studies 10 both agriculture and industry Table below shows regression result for Asia developing countries Table 2: Summary Regression Result for Asia Developing Countries Constant Log(gdp) Log(gdp)^2 Log(gdp)^3 R-squared Agriculture Industry Service 112.29 **** 26.78 -91.19 ** (0.000) (0.396) (0.023) -19.6 **** -7.24 49.28 *** (0.000) (0.587) (0.004) 0.89 **** 2.15 -6.18 *** (0.000) (0.245) (0.009) - -0.13 0.28 *** (0.117) (0.010) 0.47 0.33 0.83 * Significant at 10%; ** Significant at 5%; *** Significant at 1%; **** Significant at 0.1% Note: This table reports the fixed effect regression of equaltion (5) of each sector The data consist of 260 obersvations including 10 countries with 26 observations per country The Pvalue is in parentheses Source: Author’s calculation using panel data from World Bank, 2012 To estimate fixed effect (  i ) of each country, I use Least Square Dummy Variables estimator model (LSDV) I call  is average fixed affect of all ten countries which is identified by regression result in table For example,  =112.29 for agriculture; 26.78 and -91.19 for industry and services respectively Similarly, I call  i is fixed effect of each country estimated by LSDV For each country, I calculate  i =  i -  and I call it is the fixed effect deviation from the mean of each country According to Bah (2008), coefficient distribution such as fixed effect deviation from the mean of each country will help us to determine the extent of heterogeneity between countries Table shows fixed effect deviation from the mean of each country The standard deviation of the fixed effect deviation from the 22 mean in agriculture is 3.92, while these numbers are 6.83 and 5.21 in industry and services respectively After regression, I use Stata to draw scatter plots of output share of each sector with log of GDP per capita to analyze the sectoral transformation process and contribution of each country Figure shows the scatter plots of output share of agriculture versus log of GDP per capita The graph shows the fitted curve with the lower and upper bounds which are lined at two standard deviations of the forecast values Table 3: Fixed Effect Deviation from the Mean Country Agriculture Industry Service Vietnam 1.35 1.15 -2.50 China -3.31 10.85 -7.58 India -0.55 -6.08 6.40 Indonesia -2.59 7.24 -4.77 Korea -1.17 0.60 0.52 Malaysia 1.68 4.66 -5.94 Nepal 10.09 -11.22 1.17 The Philippines -1.56 -2.15 3.61 Sri Lanka -0.95 -7.34 8.13 Thailand -3.05 2.31 0.98 Std Deviation 3.92 6.83 5.21 Note: This table reports the differences of the average fixed effect of all countries with fixed effect of each country The average fixed effect of all country is obtained by regression equation (3) for each sector The fixed effect of each country is obtained by LSDV estimation Source: Author’s calculation using panel data from World Bank, 2012 23 Figure 6: Scatter chart of agriculture output share and Log of GDP per capita Source: Author’s calculation and draw from Stata In general, the transformation process of agriculture of countries decreased with the increasing in GDP per capita Figure shows that when the log of GDP per capita reached 8.8 or higher, equivalent to the GDP per capita of US$ 6,600 per person or more, the proportion of agriculture tend not to reduce further, at which the share of the agricultural sector remained at 7% In summary, we can see three points in the agricultural transformation process: (1) when GDP per capita increases, the agricultural share decrease; (2) when the share of agriculture declined to the level of GDP per capita US$ 6,600, the economy of Asian developing countries will move from the first phase to the second phase of structural transformation as Kuznets mentioned in Chapter 2; (3) at the threshold of converting from the first phase to the second phase of structural transformation, countries maintain an average share of 7% in agriculture as the level at which countries should maintain to ensure food security for their countries 24 Figure 7: Scatter chart of industry output share and Log GDP per capita Source: Author’s calculation and draw from Stata Figure shows the scatter plots of sectoral output share of industry versus log of GDP per capita and it reveals that in the industry we find the following highlights: (1) the share of industry increases when the log of GDP per capita rose to 8.8 or US$ 6,600 This share peaks at 45%, and then gradually decrease as GDP per capita continues to rise Similar to the agricultural sector, we see that at the threshold of GDP per capita of US$ 6.600, there is a shift from the first phase to the second phase of structural transformation; (2) as mentioned in section 4.2.1, the share of industry of countries does not coincide with each other We can see that the share of industry of countries like Nepal is always lower than the fitted curve China has the share of industry higher than the fitted curve, and there are many distribution points out of the upper bound of industry Nearly identical to China are Vietnam and Indonesia, there are always points that are allocated above the fitted curve At the same time, on the opposite side, with varying degrees, Sri Lanka, India and the Philippines have the industrial distribution points constant to GDP per capita, in which the Philippines tend to reduce to GDP per capita 25 Figure 8: Scatter chart of service output share and Log GDP per capita Source: Author’s calculation and draw from Stata In the three sectors, the service sertor has the lowest goodness of fit R-square equals to 0.33 (since the service transformation are not in the same process as mentioned in section 4.2.1) Figure shows the scatter chart of service output share and Log of GDP per capita Figure reveals the highlights of the transformation process of services: (1) the transformation process of services is divided into three periods Period one is in the range of log of GDP per capita less than 7.0, in which the share of services increased by GDP per capita Period two is in the range of log GDP per capita from 7.0 to 8.8, equivalent to the GDP per capita from US$ 1,100 6,600 per person, the share of services is constant (sometimes slightly reduction) at 48% of total GDP This suggests that, in this period, the share of agriculture began to slow down, while the share of industry, which is on the rise to maximum, has completely absorbed the reduction in agriculture Period three is from the log of GDP per capita greater than 8.8, equivalent of US$ 6600 per person, the share of services increased strongly (in this moment, both agriculture and industry are reduced); (2) with the platform of contributing of 48% to the total GDP of the 26 economy, the services moved from the first phase to the second phase of structural transformation at the level of GDP of US$ 6,600 per person; (3) analysis for each country, figure shows at the opposite to industry sector, service sector of China, Indonesia, and Malaysia lie beneath the fitted curve Sri Lanka and India lie above the fitted curve The highlight of the service sector is of Vietnam and The Philippines The distribution points of Vietnam from above the fitted curve, have moved down below the fitted curve when the log of GDP per capita greater than Meanwhile, the service sector of the Philippines from below the fitted curve has shifted upward the curve Figure 9: Structural transformation of Asian developing Countries Source: Author’s calculation and draw from Stata Figure which is a combination of figures 6, 7, and shows us the structural transformation of Asian developing countries 4.2.3 Structural transformation and labor productivity of Vietnam and a comparison with Malaysia, Thailand and the Philippines Although Vietnam maintained a relatively high GDP per capita growth and stability at 5.11% in the period 1985-2010 (Malaysia 3.38%, Thailand 4.41%, the 27 1985 MYS THA 28 PHL 20 10 Source: Author’s calculation and draw from data of World Bank, 2012 2005 2010 2009 2010 2009 2007 30 2008 40 2007 50 2008 60 2006 VNM 2006 2005 PHL 2004 2003 2002 2001 2000 PHL 2004 2003 2002 THA 2001 1999 1998 1997 1996 THA 2000 1999 1998 MYS 1997 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 Industry share (% GDP) MYS 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Service share (% GDP) 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 Agriculture share (% GDP) Philippines 1.33%), but GDP per capita of Vietnam is still lower than Malaysia, Thailand and the Philippines 50 40 30 20 10 VNM 60 50 40 30 20 10 VNM Figure 10: Strutural transformation of Vietnam, Malaysia, Thailand and the Philippines Firgure 10 displays that although the process of economic structural transformation also took place in Vietnam and other countries, but the share of agriculture of Vietnam is always at a higher level than others and the share of the service sector of Vietnam is always lower than other countries The highlight of Vietnam in the industry is from the lowest point of all countries, the share of Vietnam's industry has continued to increase, surpassing the Philippines and very close to Thailand In the aspect of labor allocated to each sector, although the rate of agricultural workers of Vietnam fell from 70% in 1996 to 51% in 2009, but this rate is still very large compared with the rate of agriculture's contribution to GDP was 21% in 2009 70 60 50 40 30 20 10 Agr Ind Ser Figure 11: Sectoral employment share of Vietnan 1996-2009 Source: Author’s calculation and draw from data of World Bank, 2012 29 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Sectoral Employment share Vietnam 80 % Employment in Agriculture sector 80 70 60 50 40 30 20 10 MYS THA PHL 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 VNM % Employment in Industry sector 40 35 30 25 20 15 10 2007 2008 2009 2008 2009 PHL 2006 2005 2004 2003 THA 2007 MYS 2002 2001 2000 1999 1998 1997 1996 VNM % Employment in Service sector 70 60 50 40 30 20 10 MYS THA PHL 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 VNM Figure 12: Sectoral employment share of Vietnam, Malaysia, Thailand and the Philippines Source: Author’s calculation and draw from data of World Bank, 2012 Firgures 12 shows us the sectoral employment of four ASEAN countries Labor ratio in the agricultural sector of Vietnam is at a very high level compared to 30 Malaysia, Thailand and the Philippines In the industrial sector, corresponding to the growth rate of GDP share, the shift of industry workers also follows a similar trend The industry labor rate of Vietnam has surpassed the Philippines and catched up with Thailand Similar to the agricultural sector, but in the opposite direction is the service sector of Vietnam The labor rate of service sector in Vietnam is always lower than the other countries In terms of sectoral labor productivity of the four countries, I calculated the sectoral labor productivity (US$ per person per year) From database I draw a comparison chart on the labor performance of each sector of the four countries as shown in figures 13, 14, and 15 as below From figures we see that labor productivity of Vietnam is less effective than Malaysia, Thailand and the Philippines in all three sectors In industry, labor productivity of Vietnam in 2009 was US$ 3,892 per person per year, while the numbers of Malaysia, Thailand, and the Philippines were US$ 26,637, US$ 15,144, and US$ 9,671 respectively Similarly in the service sector, labor productivity of Vietnam is also lower than other countries So we can say that the labor productivity of Vietnam is less efficient than Malaysia, Thailand and the Philippines in all three sectors Labor productivity in agriculture sector US$ per person per year 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 MYS THA PHL 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 VNM Figure 13: Labor productivity in agriculture sector of Vietnam, Malaysia, Thailand and the Philippines Source: Author’s calculation and draw from data of World Bank, 2012 31 Labor productivity in industry sector US$ per person per year 35,000 30,000 25,000 20,000 15,000 10,000 5,000 MYS THA PHL 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 VNM Figure 14: Labor productivity in industry sector of Vietnam, Malaysia, Thailand and the Philippines Source: Author’s calculation and draw from data of World Bank, 2012 Labor productivity in service sector 16,000 US$ per person per year 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Series1 Series2 Series3 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Series4 Figure 15: Labor productivity in service sector of Vietnam, Malaysia, Thailand and the Philippines Source: Author’s calculation and draw from data of World Bank, 2012 We see all the three sectors of agriculture, industry, and services of Vietnam are less efficient than Malaysia, Thaland and the Philippines One question posed is that in these three sectors in Viet Nam, which sector is the least effective? Table and figure 16 below show us that in these three sectors, agriculture is the least effective, with labor productivity in 2009 was US$ 793 per person per year, 32 followed by the service sector with US$ 2,636 per person per year and the most efficient in the three sectors is the industry with US$ 3,892 per person per year Table 4: Sectoral labor productivity of Vietnam (US$ per person per year) Year Agriculture Industry Service 1996 264 1,860 1,454 1997 279 1,782 1,353 1998 277 1,947 1,222 1999 278 2,047 1,241 2000 283 2,235 1,310 2001 280 2,115 1,348 2002 300 2,119 1,337 2003 336 2,146 1,417 2004 377 2,312 1,533 2005 435 2,657 1,599 2006 507 2,642 1,737 2007 567 3,227 1,998 2008 785 3,811 2,466 2009 793 3,892 2,636 Source: Author’s calculation from data of World Bank, 2012 Sectoral labor productivity of Vietnam 4,500 US$ per person per year 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Agr Ind Ser Figure 16: Sectoral labor productivity of Vietnam Source: Author’s calculation and draw from data of World Bank, 2012 33 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 5.1 Conclusions (1) Except Korea and Malaysia, others Asian developing countries are all in the first phase of structural transformation Agriculture sector trends to decrease once GDP per capita increases Industry sector trends to increase once GDP per capita increases Service sector increases once GDP per capita increases; (2) The threshold of structural transformation from the first phase to the second phase is when GDP per capita equals US$ 6,600 per person At that level, sectoral share of agriculture, industry, and services reach 7%, 45% and 48% repectively; (3) Asian developing countries including Vietnam are not all followed the same process and are not homogeneity of structural transformation; (4) Compared to Malaysia, Thailand and the Philippines, the share of agriculture in GDP of Vietnam is still high and is the highest in the four countries The share of services in GDP of Vietnam is always the lowest in the four studied countries; (5) The rate of labor distribution in the agricultural sector of Vietnam is high compared to Malaysia, Thaland, and the Philippines and in the opposite direction, the rate of labor in services of Vietnam is low compared to Malaysia, Thailand, and the Philippines; (6) Labor productivity in all three sectors of Vietnam are lower than Malaysia, Thailand, and the Philippines but the most inefficient is agricultural sector, followed by the service and industrial sectors 5.2 Recommendations Basing on the findings of this research, I would like to propose the following recommendations to the policy makers of Vietnam: 34 (1) The share of agriculture sector in total GDP of Vietnam is high, the employment share in agriculture is very high and the labor productivity in agriculture is the least efficient, therefore the government should focus and consider on rural development such as selection advantage of crop and livestock in order to improve productivity in agriculture sector therefore release labor from agriculture sector to industry and service sector which are inherently more efficient; (2) Since the industry sector of Vietnam has successfully catched up, the government should consider maintaining the growing of this sector, at the same time continue to promote policies of industrialization, modernization, and equitization to increasingly improve the performance of the industry compared to other countries; (3) Because the service sector of Vietnam is still in low position in comparirion with others ASEAN countries, the government should further expand the market for services, further diversify for its products in services sector; (4) Vietnam's agricultural labor rate is very high, the percentage of workers in the service sector is still low, and the performance of the whole three sectors are still lower than in other countries, therefore the government should research policies to promote the restructuring of labor between sectors and especially to strengthen vocational education policies (human capital investment) to improve labor productivity of Vietnam; (5) Since the GDP per capita of Vietnam is low, the government should encourage enterprises focus and invest on new technology to improve productivity output of all sectors special in agriculture and services; (6) The employment share in agriculture is going to decrease, employment shares in industry and service sectors are going to increase corresponding, and therefore the government should consider migration and urban development policies 35 REFERENCES Bah, E.M (2008) Structural Transformation in Developed and Developing Countries The University of Auckland Working Paper Bah, E.M (2009) A three-sectors Model of Structure Transformation and Economics Development The University of Auckland Working Paper Duncan, A (2007) “Cross-Section and Panel Data Econometrics - L1D025 Lecture An Introduction to panel data analysis” Retrieved October 12, 2012, from http://www.carlospitta.com/Courses/Graduate%20Info/Panel%20Data.pdf Gollin et al (2002) Structural transformation and cross-country income differences American Economic Review: Working Paper Hoang Kieu Trang (1998) Economic reforms and economic structural change in Vietnam Unpublished Master thesis, University of Ho Chi Minh city, Vietnam – Netherland program Nguyen Trong Hoai (2006), Econometrics lecture note Fullbright Economics Teaching Program Perkins, D.H; 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(2) is the structural transformation process of Asian developing countries homogenous? (3) what are the differences of structural. .. structural transformation process of Asian developing countries and the comparison of structural transformation and labor productivity of Vietnam versus Malaysia, Thailand and the Philippines Base on