Just how quickly has the Vietnamese capital stock grown over the past decade?

We use a detailed growth accounting method to estimate the annual growth rate of the aggregate Vietnamese capital stock over the period 1996-2005. Our results show that the rate was likely to have been in the vicinity of 7-8 % per annum. This is approximately 2 percentage points lower than estimates appearing in some previous studies.

ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? James A Giesecke and Tran Hoang Nhi ABSTRACT We use a detailed growth accounting method to estimate the annual growth rate of the aggregate Vietnamese capital stock over the period 1996-2005 Our results show that the rate was likely to have been in the vicinity of 7-8 % per annum This is approximately percentage points lower than estimates appearing in some previous studies Key words: Vietnamese capital growth rate, growth accounting, TFP growth Introduction A number of such studies have been undertaken The Solow growth accounting equation (equation 1) is often used to estimate movements in total factor productivity (TFP) gdpRFC = S Ll + S K k + S N n + a (1) for Vietnam (Tran Tho Dat 2004, Tang Van Khien 2005, Le Viet Anh 2006) A difficulty with applying (1) to the Vietnamese case is that, to date, the General Statistics Office (GSO) has not published estimates of k Equation (1) thus presents the growth In such exercises, official statistical data on: accounting researcher with one equation, but two (a) percentage rates of change in real GDP at factor cost ( gdpRFC ), employment (l), capital stocks (k) and land (n); and, unknowns To solve this problem, researchers studying (b)shares of payments to labour (SL), capital (SK) and land (SN) in GDP at factor cost are used to calculate movements in TFP (a) vicinity of 10 per cent1 In this paper, we argue that the Vietnamese case must supply their own k estimates These estimates tend to be high - in the these estimates may be too high, perhaps by as much as 2-3 percentage points per annum James A Giesecke and Tran Hoang Nhi, Centre of Policy Studies, Monash University, Australia Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com Vietnam Economic management review 31 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? In this paper we provide annual estimates of the rate of growth of the aggregate Vietnamese capital stock over the period 1996-2005, using a detailed growth accounting framework Our approach takes into account not only changes in aggregate inputs of labour and land, but also the effects of movements of these factors between sectors of the economy Since GSO publishes data for real gross domestic production (GDP) at market prices, but not real GDP at factor cost, we must also account for movements in indirect taxes We argue that the growth rate of the aggregate capital stock can only be in the vicinity of 10% if the rate of TFP growth is implausibly low (in the vicinity of 0.0 to 0.5 % per annum) If, as we suspect, annual TFP growth has been about 1.5 % per annum, then the average capital growth rate over the past decade has been about 7.5% per annum Methodology We begin with equation (2), the definition of nominal GDP at market prices: GDP MP = GDP FC + ITAX (2) where: GDP MP is nominal GDP at market prices; GDP FC is nominal GDP at factor cost; and ITAX is nominal collections of indirect tax revenue We re-write (2) in terms of real variables and price indices as follows: MP FC PGDP GDPRMP = PGDP GDPRFC + å i X i PT i i (3) where: GDPRMP is real GDP at market prices; MP PGDP is the GDP at market prices deflator; FC PGDP is the GDP at factor cost deflator; Xi is the quantity of activity i that is subject to indirect taxation; 32 Ti is the rate of indirect taxation on activity i; and, Pi is the price of activity i An example of activity i might be sales of imported five-seat-automobiles to households According to the tax code in 2005, such a transaction attracts tariff at the rate at 100%, special consumption tax (SCT) at the rate of 80% and value added tax (VAT) at the rate of 10% Dixon and Rimmer (2002, pp 187-188 and 230-232) show that if the levels variables in (3) are interpreted as Divisia indexes, then (3) and its components have the percentage change forms: MP FC GDP MP ( pGDP + gdpRMP ) = GDP FC ( pGDP + gdpRFC ) + å i X i PT i ( xi + pi + ti ) (4) MP GDPFC FC ITAX i pGDP = SGDPMP pGDP + SGDPMP ( pi + ti ) å i SITAX (5) GDPFC ITAX i gdpRMP = SGDPMP gdpRFC + SGDP åi SITAX xi (6) MP where pGDP is the percentage change in the MP GDP at market prices deflator; gdpR is the percentage change in real GDP at market FC prices; pGDP is the percentage change in the GDP FC at factor cost deflator; gdpR is the percentage change in real GDP at factor cost; xi is the percentage change in the quantity of activity i that is subject to indirect taxation; pi is the percentage change in the price of activity i; ti is the percentage change in the rate of indirect taxation of activity i) For growth accounting, (6) is the key equation ITAX i We focus first on the indirect tax term, SGDP å i SITAX xi Movements in this term contribute to real GDP movements via allocative efficiency effects arising from the wedge that indirect taxes drive between values in use and values in supply for the activities i that are indirectly taxed We not have data on the billions of transactions that constitute i Instead, we simplify by defining three broad sets of activities that are the major bases for Vietnamese indirect taxation, and a residual The three broad activities are: (1) real private consumption, which Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? is subject to Special Consumption Tax (SCT) and much of the incidence of Value Added Tax (VAT); (2) imports, which are subject to tariffs; and (3) natural resource extraction (mainly crude oil and gas), which is subject to natural resource tax While this list represents only four taxes in over a dozen types of Vietnamese indirect taxation, they constitute a large share of total indirect taxation, starting at 63% of indirect tax revenue in 1996, rising to 96% by 2005 (see Table 3) We define the percentage changes in the indirect tax bases as follows: (1) for VAT and SCT, cR, the percentage change in real private consumption; (2) for tariff revenue, mR, the percentage change in import volumes; (3) for natural resource tax, xRMining VEMR to use quantity weights Movements in l have been defined as the percentage change in the number of persons This underestimates the growth in effective Vietnamese employment, by failing to account for movement of labour from low wage to high wage activities Movements in k are either assumed, or estimated via the perpetual inventory method However the perpetual inventory method implicitly weights movements in sector-specific capital using asset value weights This might over-estimate growth in the (rental weighted) capital stock, if Vietnamese investment is used inefficiently or directed towards sectors with relatively low rates of return2 The capital growth rate in any particular year can be calculated based on (8) as: , the percentage change in mining output; and (4) for all other indirect taxes, gdpRMP , the percentage change in real GDP k =[ GDPFC L GDPFC N GDPFC é gdpRMP - SGDPMP ù SGDPFC l - SGDPMP SGDPFC n - SGDPMP a ] ê ú GDPFC K ITAX VAT + SCT TARF NRT Mining Other MP SGDPMP SGDPFC êë -SGDPMP éë S ITAX cR + SITAX mR + S ITAX xR + S ITAX gdpR ùû úû (9) On this basis, we assume that: Our aim is o calculate k To this using (9), åS + SCT TARF NRT Mining Other x = SVAT cR + SITAX mR + S ITAX xR + S ITAX gdpRMP ITAX i i ITAX i (7) we need values for the year-on-year movements in the percentage change variables and annual values for the shares on the right-hand-side of the Substituting (1) and (7) into (6) provides: equation We explain in Section our calculations gdp = S MP R GDPFC GDPMP éë S L GDPFC l +S K GDPFC k+S N GDPFC n + a ùû + ITAX + SCT TARF NRT Mining Other éë S VAT SGDPMP cR + S ITAX mR + S ITAX xR + S ITAX gdp RMP ùû ITAX (8) In equation (8), the percentage change variables l, k and n, have precise meanings In particular, l is wage-bill weighted percentage changes in employment categories, k is rental weighted percentage changes in types of physical capital, and n is rental weighted percentage changes in parcels of land Unfortunately, in implementing equations like (8) for Vietnamese growth accounting exercises, researchers have not always defined these variables using the appropriate factor payment weights Rather, they have tended Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com of these variables and shares Data 3.1 Factor payment shares in GDP at factor cost ( S ,S ,S ) L GDPFC K GDPFC N GDPFC Table reports factor payment shares in GDP at factor cost for the year 1996-2005 As we explain in Part of the Appendix, we calculate factor shares for 1996, 2000, 2003, and 2005 using IO and SAM data (GSO 1999, 2003, Jensen and Tarp 2007, Ministry of Finance (MOF) 2007), and GTAP 6.0 database (Dimaranan 2006) Values for intervening years are interpolated assuming linear growth Vietnam Economic management review 33 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? Table 1: Factor payment shares in GDP at factor cost, 1996-2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Labour (S Capital (S Land ( S ) 0.56 0.56 0.55 0.55 0.55 0.55 0.54 0.54 0.54 0.54 0.55 ) 0.32 0.32 0.33 0.33 0.34 0.34 0.34 0.34 0.35 0.35 0.34 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.12 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 L GDPFC K GDPFC N GDPFC ) Total Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) 3.2 Factor payment and indirect tax shares in GDP at market prices (S and S ) GDPFC GDPMP ITAX GDPMP GSO does not publish income side data for GDP GDPFC at market prices Hence we must estimate SGDPMP and ITAX GDPMP S using other sources We this by first calculating the ratio of IMF estimates of Vietnamese indirect tax collections to our estimate of GDP at factor cost (IMF 2003, 2006, 2007) Then we calculate the shares of GDP at factor cost and indirect tax collections in GDP at market prices Table reports our share estimates More details on our approach are provided in Part 2, Appendix Table 2: Income-side GDP shares 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Share of GDPFC in GDPMP ( S ) 0.85 0.87 0.87 0.88 0.89 0.88 0.88 0.87 0.87 0.87 0.87 Share of ITAX in 0.15 0.13 0.13 0.12 0.11 0.12 0.12 0.13 0.13 0.13 0.13 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 GDPFC GDPMP GDPMP ( S Total ITAX GDPMP ) Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007), GTAP 6.0 (Dimaranan 2006), and IMF (2003, 2006, 2007) 3.3 Indirect tax shares Table reports our estimates of the shares of aggregate indirect tax collections represented by 34 VAT +SCT TARF VAT and SCT ( SITAX ), tariffs ( S ITAX ), natural resource Other NRT tax ( SITAX ) and other indirect taxes (S ITAX ) We calculate these shares from IMF government revenue data (IMF 2003, 2006, 2007) Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? ECONOMIC RESEARCH VEMR Table 3: Shares of important taxes in total indirect tax revenues at current prices 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average VAT(a) (S ) Special consumption tax (S ) Natural Resource tax (S ) Tariff (S ) Other taxes (S ) Total 0.25 0.30 0.27 0.36 0.35 0.34 0.39 0.42 0.41 0.41 0.35 0.08 0.12 0.13 0.09 0.11 0.11 0.11 0.12 0.13 0.14 0.11 0.08 0.09 0.07 0.10 0.15 0.15 0.13 0.14 0.18 0.20 0.13 0.23 0.25 0.25 0.24 0.22 0.25 0.24 0.24 0.21 0.19 0.23 0.37 0.25 0.28 0.22 0.17 0.15 0.13 0.09 0.06 0.07 0.18 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 VAT ITAX SCT ITAX NRT ITAX TARF ITAX Other ITAX Notes: (a): Turnover tax prior to 1999 Source: Calculated from IMF (2003, 2006, 2007) 3.4 Real GDP at market prices, real private consumption, import volumes, mining output ( gdp , cR, mR, and x ) Mining R MP R The GSO publishes annual estimates of real GDP at market prices, real private consumption, aggregate imports at constant prices, and mining output at constant prices (GSO 2007) We calculate the annual percentage changes in these series, MP Mining allowing us to evaluate gdpR , cR, mR, and xR Values for these variables are reported in rows - respectively of Table Table 4: Real GDP, private consumption, import volume and output of mining sector at market prices (percentage change from previous year) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Real GDP (gdp ) Real private consumption (cR) 9.3 8.2 5.8 4.8 6.8 6.9 7.1 7.3 7.8 8.4 7.23 9.1 5.9 4.5 2.6 3.1 4.5 7.6 8.0 7.1 7.3 5.94 Import volume (mR) 15.8 16.8 31.6 22.0 31.7 13.3 -3.8 -0.8 14.9 47.0 18.0 Output of mining sector (x ) 5.Weighted average indirect taxes 14.7 14.7 15.3 16.4 11.2 6.4 4.2 8.0 14.4 2.4 10.7 11.1 7.3 4.3 5.9 10.1 13.9 9.6 MP R Mining R 9.9 12.4 9.0 Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com 11.2 Vietnam Economic management review 35 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? l = å j S Ljl j 3.5 Economy-wide growth in labour and land inputs (l and n) GSO does not publish estimates of growth in wage-bill-weighted employment (l) and rentalweighted land use (n) We calculate l and n using data from GSO (2007), Jensen and Tarp (2007) and GTAP 6.0 (Dimaranan 2006) Our estimates for l and n are reported in row 11, Table and row 9, Table We explain our method for calculating these values below 3.5.1 Wage-bill-weighted employment growth (l) Equation (10) defines l, the percentage change in wagebill-weighted employment growth: where SLj is (10) the share of payments to labour in industry j in economy-wide payments to labour, and lj is the percentage change in employment in industry j Hence, to calculate l, we require estimates of SLj and lj Tables and report our estimates To calculate SLj we use industry data on payments to labour obtained from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) Table 5: Wage-bills shares, by industry ( S ) j L 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Agriculture and forestry Fishing Industry Construction Trade Hotels, restaurants Transport, communications Culture, health, education Other services 10 Total 0.29 0.27 0.27 0.25 0.23 0.23 0.22 0.21 0.20 0.20 0.24 0.04 0.31 0.07 0.08 0.04 0.04 0.03 0.26 0.06 0.09 0.03 0.04 0.08 0.08 0.08 0.08 0.09 0.09 0.09 0.09 0.09 0.09 0.08 0.19 0.20 0.21 0.23 0.16 0.15 0.15 0.15 0.15 0.15 1.00 0.99 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.18 1.00 0.03 0.19 0.06 0.10 0.03 0.03 0.03 0.20 0.06 0.09 0.03 0.03 0.03 0.21 0.06 0.09 0.03 0.03 0.03 0.22 0.05 0.08 0.03 0.03 0.03 0.25 0.05 0.11 0.03 0.04 0.04 0.27 0.06 0.10 0.03 0.04 0.04 0.29 0.06 0.09 0.03 0.04 0.04 0.31 0.06 0.08 0.03 0.04 0.04 0.31 0.06 0.08 0.03 0.04 Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) We elaborate on our use of these data in calculating SLj in Part 1(b) of the Appendix Values Note that l is substantially higher than the simple growth rate in total number of persons employed for lj are calculated from GSO employment data (row 10 Table 6) This reflects inter-sectoral for nine broad sectors (GSO 2005, 2007) Row 11 of Table reports our estimates for l using data movements of labour, particularly movements from Table and to implement equation (10) high-paid industries such as manufacturing 36 from low-paid industries such as agriculture, to Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? ECONOMIC RESEARCH VEMR Table 6: Number of employed persons (percentage change on previous year) (lj) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Agriculture and 1.3 1.2 1.1 1.0 0.8 0.2 -0.9 -0.2 -0.4 -0.7 0.3 forestry Fishing 10.1 9.5 7.9 9.4 9.1 9.3 18.4 3.4 5.9 5.5 8.8 Industry 3.5 3.4 3.4 3.5 3.4 6.7 7.0 9.3 6.2 8.5 5.5 Construction 3.4 3.5 3.5 3.4 3.3 19.0 18.2 10.6 13.9 3.9 8.1 Trade 7.0 7.0 7.1 7.0 7.0 5.6 5.4 5.9 5.2 3.5 6.0 Hotels, restaurants 5.0 5.4 5.4 5.5 5.5 3.8 2.2 3.4 2.1 1.6 4.0 Transport, communications 4.1 4.1 4.1 4.1 3.9 5.4 0.3 1.0 0.7 -4.5 2.3 Culture, health, education 2.1 2.1 2.0 2.0 2.0 4.6 5.7 5.8 4.6 4.1 3.5 Other services 3.1 3.2 3.4 3.5 3.6 6.4 9.0 9.2 10.5 20.1 7.1 10 Total employment 2.2 2.2 2.1 2.1 2.0 2.6 2.5 2.7 2.5 2.3 2.3 11 Wagebill weighted 3.3 3.2 3.2 3.2 3.3 5.5 6.0 6.1 5.4 6.4 4.6 employment (l) Source: Employment data in rows - 10 are from GSO (2005, 2007) We calculate the weighted change in employment at row 11 by computing shares from rows 1-9 and multiplying by corresponding percentage changes in rows - of Table (see text for details) 3.5.2 Rental-weighted growth of land use areas (n) Equation (11) defines n, the percentage change in rental-weighted land-use: n = å j S Nj n j (11) where S Nj is the share of payments to land in industry j in economy-wide payments to land, and nj is the percentage change in land use in industry j Clearly, to calculate n, we require estimates of S Nj and nj Tables and report our estimates To calculate S Nj we use industry data on payments to land calculated from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) Table 7: Shares in land rentals, by industry ( S ) j N 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Paddy Raw rubber Coffee bean Sugar cane Other crops Forest Fish farming Total 0.51 0.01 0.02 0.03 0.20 0.02 0.21 1.00 0.51 0.01 0.02 0.03 0.22 0.02 0.18 1.00 0.52 0.02 0.02 0.03 0.23 0.02 0.16 1.00 0.52 0.02 0.03 0.02 0.25 0.02 0.15 1.00 0.52 0.02 0.03 0.02 0.26 0.02 0.13 1.00 0.49 0.02 0.03 0.02 0.26 0.02 0.15 1.00 0.47 0.02 0.03 0.02 0.25 0.02 0.19 1.00 0.46 0.02 0.02 0.02 0.24 0.02 0.22 1.00 0.46 0.02 0.02 0.02 0.24 0.02 0.21 1.00 0.47 0.02 0.02 0.02 0.25 0.02 0.20 1.00 0.49 0.02 0.02 0.02 0.24 0.02 0.18 1.00 Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com Vietnam Economic management review 37 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? We elaborate on our use of these data in calculating S Nj in Parts 1(a) and 1(c) of the Appendix Values for nj are calculated from GSO data on the area of land used in agriculture, forestry and fishing (GSO 2005, 2007) Row of Table reports our estimates for n using data from Table and to implement equation (11) On average, the growth in n is slightly higher than the simple average growth rate in total area used in agriculture (row Table 8) This reflects above-average growth in fish farming and below-average growth in paddy Table 8: Land used in agriculture, forestry and fisheries (percentage change from previous year)(nj) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Paddy 3.5 1.4 3.7 4.0 0.2 Raw rubber -8.7 36.7 9.9 3.4 4.3 Coffee bean 36.4 33.9 8.9 28.9 17.6 Sugar cane 5.4 8.4 10.1 21.6 -12.2 Other crops 4.5 2.9 2.1 3.2 7.3 Forest -3.2 9.3 -6.0 10.3 -14.6 Fish farming 9.9 1.1 4.0 0.0 22.4 Total 4.2 3.5 3.6 4.8 3.1 Rental-weighted land 5.6 3.2 3.6 4.4 4.9 areas (n) -2.3 0.2 0.9 3.1 0.6 -7.6 -3.8 10.1 1.1 8.4 -2.9 -0.4 17.7 5.6 -0.2 2.7 1.8 3.3 -0.7 2.8 -2.3 -2.1 5.2 -4.6 8.8 1.5 2.8 -0.1 3.0 -2.6 -8.7 5.5 1.7 6.1 1.8 2.4 -1.6 6.3 0.1 -6.9 4.6 -3.9 3.5 0.9 1.0 0.8 5.7 10.3 1.7 4.5 -1.7 7.7 2.6 3.3 Source: Land rental data in rows - are from GSO (2005, 2007) We calculate the rent-weighted change in land area at row by computing shares from rows 1-7 and multiplying by corresponding percentage changes in rows - of Table (see text for details) 3.6 Growth in total factor productivity (a) Recall that to calculate k, an independent estimate of a is required We take our preferred estimate for a (1.5 per cent) by placing it at the low-end of the range of findings from previous studies (1.7 - 3.4 %) Many studies on Vietnam's economic progress over the last decade have attributed the economy's strong growth to high rates of technical progress (see, for example, Van Arkadie and Mallon 2003, Tran Nam Binh and Pham Do Chi 2003, Tran Tho Dat 2004, Tran Hoang Nhi 2007, Vu Quoc Ngu 2002) This is consistent with the strong focus of policy on microeconomic reform Over the past decade, such policies have been directed 38 at state enterprise reform, public administration reform, private sector development, further removal of barriers to international trade, and encouragement of foreign direct investment These developments have improved the functioning of market mechanisms, increased domestic competition and competition for international markets, and increased productive and allocative efficiency High levels of FDI are also likely to have contributed to productivity growth via diffusion of foreign technology and management practices Previous studies have estimated Vietnam's economy-wide TFP growth over the past decade to have been in the range of 1.7 to 3.4% per annum (Tran Tho Dat 2004, Le Viet Anh 2006, Tran Hoang Nhi 2007) Sectoral studies have also estimated high rates of TFP growth For example, Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? Tang Van Khien (2005) estimated annual TFP growth in manufacturing to be 1.6% over 19962003 Vu Quoc Ngu (2002) annual TFP growth in state owned enterprises to be 5.37% over the period 1990-1998 For our calculations, we adopt a conservative value of 1.5 % as our preferred estimate for TFP growth However we also provide Table 10 to show the sensitivity of our k estimate to different values for a Estimated results Table brings together our estimates for the ECONOMIC RESEARCH VEMR right-hand-side terms of Equation (9) Row of Table reports the resulting estimates for k The path of these estimates appears plausible: in 1996 and 1997 we see high capital growth rates, reflecting high levels of FDI; over 1998 and 1999 we see low levels of capital growth as this FDI dried up in the face of the Asian financial crisis; consistent with observations that Vietnam recovered quickly from this crisis3, a relatively stable capital growth rate of approximately 7% per annum is established from 2000 to 2005 The annual average capital growth rate over the whole period is 7.5% Table 9: Right-hand-side components of equation (9) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average Real GDP ( gdp ) Wage-weighted employment (l) Rental-weighted land use (n) Weighted indirect taxes ( S å S x ) Total factor productivity (a) Share of GDPFC in GDPMP ( S ) Labour share in GDPFC ( S ) Capital share in GDPFC (S ) Land share in GDPFC (S ) 10 Hence, growth rate of capital stock (k) MP R ITAX GDP i i ITAX 9.34 8.15 5.76 4.77 6.79 6.89 7.08 7.34 7.79 8.44 3.28 3.20 3.20 3.24 3.35 5.52 6.02 6.12 5.42 6.44 7.23 4.57 5.56 3.19 3.60 4.39 4.91 1.78 3.29 2.75 2.45 1.05 3.29 11.1 9.94 12.4 8.98 11.2 7.31 4.33 5.85 10.1 13.9 9.49 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 0.85 0.87 0.87 0.88 0.89 0.88 0.88 0.87 0.87 0.87 0.87 0.56 0.56 0.55 0.55 0.55 0.55 0.54 0.54 0.54 0.54 0.55 0.32 0.32 0.33 0.33 0.34 0.34 0.34 0.34 0.35 0.35 0.34 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.12 15.8 13.1 3.29 1.10 6.86 6.26 6.81 7.09 7.84 7.12 7.45 i GDPFC GDPMP L GDPFC K GDPFC N GDPFC Since there is uncertainty about the value of Table 10 shows that the high capital growth rates TFP growth, we undertake sensitivity analysis that have appeared in some previous studies, that is around the value of a Table 10 reports the results of annual capital growth in the range of 9-11%, imply applying equation (9) using alternative values for a rates of TFP growth that are implausibly low Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com Vietnam Economic management review 39 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? Table 10: Sensitivity analysis: Capital growth rates under alternative TFP growth assumptions TFP growth rate (a) 0.0 11.9 Annual average (1996-2005) capital growth rate (k) 0.5 10.4 1.0 8.9 1.5 7.5 1.7 6.9 2.0 6.0 2.5 4.5 Source: GSO (2005, 2007) Our capital growth estimates are approximately Our paper suggests that these estimates may have 2-3 percentage points lower than those in some been too high, and that the true figure is previous studies Our estimates are lower for two probably in the vicinity of 7.5 % for the period main reasons: 1996-2005 Application of the growth accounting The absence of official capital stock data is a framework requires inputs of wage-bill-weighted result of the more general limitation that the GSO movements in employment, not total hours The does not publish yearly supply-side estimates of former has grown more quickly than the latter as the components of real GDP at market prices As labour has moved from agriculture to manufacturing we discussed in Sections and in the Appendix, We take into account changes in indirect this also presented challenges for our calculations, taxes As evident from rows and of Table 9, real which we overcame by going to other data sources indirect taxes have grown at a faster rate than real such as Jensen and Tarp (2007), IMF (2003, 2006, GDP at market prices for most years of the study 2007) and GTAP (Dimaranan 2006) Future GSO period Hence, for most years, growth in real GDP estimates of the components of income-side GDP at factor cost has been lower than growth in real will be very valuable This would greatly assist GDP at market prices This presents an issue when researchers interested in studying supply-side structural researchers use GSO estimates of growth in real features of Vietnam's economic development GDP at market prices to inform values for real GDP at factor cost ( gdpRFC ) in growth accounting Appendixes applications of equation (1) Conclusion Calculation of factor payments for the period 1996-2005 Growth accounting equations like (1) are There are four main sources of Vietnamese typically used to calculate TFP growth from sectoral-level factor payment data for the study published data on such variables as growth in real period They include three sets of input-output (IO) GDP, employment and capital stocks A difficulty data for the years 1996, 2000, 2003 and 2005 (GSO in applying such an equation to Vietnam is the 1999, 2003, MOF 2007), and a social accounting absence of official data on growth in capital stocks matrix (SAM) for 2003 (Jensen and Tarp 2007) Of Hence researchers applying (1) to estimate TFP these, only the SAM has payment data for all three have needed to produce independent estimates for k factors of production: labour, capital and land These estimates have been in the range of 8.5 - 11 % The input-output tables contain only data on 40 Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? ECONOMIC RESEARCH VEMR payments to labour and capital We explain below industries in the available IO tables provides the how we (a) calculate factor payment shares in the economy-wide factor payments data for the years years for which we have data (1996, 2000, 2003 and 1996, 2000, 2003 and 2005, which we highlight in 2005) and (b) estimate factor shares for the Table A1 We explain in Parts 1(b) and 1(c) below intervening years how we calculate factor payments for the intervening (a) Calculating factor payments in 1996, 2000, 2003 and 2005 years Our first task is to calculate payments to land 1(b) Sectoral shares in economy-wide payments to labour Such payments are not explicitly recognised in the From the IO data for 1996, 2000, 2003 and 1996, 2000 and 2005 databases 2005 we know sector-specific payments to labour The main users of "land" (which we shall We reproduce these in Table A2, highlighting the define to include agricultural land, water surface years for which we have independent estimates Our and returns to sub-soil assets) are agriculture, aim is to calculate sector-specific wagebills for the forestry, fishing, and mining In the initial IO data, remaining years (1997-1999, 2001, 2002, and returns to land are spread among payments to 2004) We this in four steps First, we estimate labour and capital Hence, factor payments in these sector-specific wage rates for 1996, 2000, 2003 sectors need to be reallocated to all three factors: and 2005 by dividing the known sectoral wage-bills labour, capital and land for these years by the known sectoral employment SAM 2003 has data for land rentals in agricultural and forestry sectors We use these 2003 factor payment shares to split total factor payment in the IO data for 1996, 2000 and 2005 Overall, land accounts for about 28% of factor payment in agricultural and forestry sectors numbers for these years (GSO 2005, 2007) Second, we calculate year-on-year percentage changes in sector-specific wage rates for 19971999, 2001, 2002 and 2004 by assuming that sector-specific wage rates grow smoothly between years for which we have wage-bill and employment data (1997-1999, 2001, 2002, and 2004) Third, we However, SAM 2003 does not contain calculate year-on-year percentage changes in estimates for the rental values of water rights used sectoral employment for all years between 1996 in fish farming, or returns to owners of natural and 2005 using employment data from GSO (2005) resource concessions in mining industries For and GSO (2007) Finally, we calculate sector-specific these industries, we use factor payment shares wage-bills for 1997-1999, 2001, 2002 and 2004 by from the GTAP 6.0 database for Vietnam Overall, applying our estimates of year-on-year percentage natural resources account for about 41 percent of changes in employment and wage rates to the know total factor payments in the fishery and mining wagebill data for 1996, 2000, 2003 and 2005 Table sectors A1 reports the resulting sectoral wage-bills The factor sectoral shares in economy-wide labour payments payments data for agriculture, forestry, fishing, and reported in Table in the main body of the paper mining with the factor payments data for all other are calculated from Table A1 Combining our newly created Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com Vietnam Economic management review 41 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? Table A1: Wage bills, by industry (VND billion, current prices) 1996 Agriculture and forestry Fishing Industry Construction Trade Hotels, restaurants Transport, communications Culture, health, education Other services 10 Total 1997 1998 1999 2000 2001 2002 2003 2004 2005 37,292 40,278 43,480 46,868 48,708 51,855 54,955 58,629 67,142 76,637 3,987 4,254 4,471 4,766 6,966 8,148 25,325 29,634 34,664 40,584 52,661 63,275 8,131 8,593 9,080 9,588 11,212 13,341 12,926 13,536 14,185 14,852 22,326 21,779 3,340 3,984 4,753 5,673 6,840 7,164 4,365 4,738 5,144 5,581 7,645 8,434 10,305 74,267 15,109 21,476 7,508 11,388 89,043 16,016 21,274 7,963 12,646 102,199 21,360 26,419 10,718 13,995 119,736 25,997 32,278 14,359 9,289 10,299 13,151 15,933 9,951 11,370 12,986 14,832 18,104 19,969 22,249 24,803 28,946 33,625 25,301 29,789 35,115 41,463 32,851 36,004 39,566 43,582 48,568 58,824 130,616 146,176 163,879 184,208 207,312 229,969 254,724 282,997 331,149 391,384 Note: Highlighted columns show the values for which there are data The remaining columns are extrapolated by the authors Source: Authors' calculations from GSO (1999, 2003, 2005, 2007), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) 1(c) Primary factor payments for the years 1997-1999, 2001, 2002 and 2004 outlined in Part 1(b) above Payments to capital Table A2 presents our factor payment estimates As discussed above, data for the years 1996, 2000, 2003 and 2005 come either directly or indirectly from independent IO sources (GSO 1999, 2003, MOF 2007, Jensen and Tarp 2007, Dimaranan 2006) Wage-bill data for the intervening years come from our calculations independent data sources (1997, 1998, 1999, 2001, and land for the years for which we not have 2002 and 2004) are calculated by assuming smooth growth rates between the years for which we have factor payment estimates We use the values in Table A2 to calculate the factor shares appearing in Table Table A2: Factor payment at current prices (VND billion) Labour Capital Land GDPFC 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 130,616 73,526 28,312 232,453 146,176 84,352 31,580 262,109 163,879 96,773 35,226 295,878 184,208 111,022 39,292 334,522 207,312 127,370 43,828 378,510 229,969 142,737 48,705 421,411 254,724 159,959 54,123 468,807 282,997 179,259 60,145 522,402 331,149 212,278 68,764 612,191 391,384 251,379 78,618 721,381 Notes: Highlighted columns show the values for which there are data The remaining columns are extrapolated by the authors Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP 6.0 (Dimaranan 2006) 42 Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? ECONOMIC RESEARCH VEMR Indirect tax shares and GDP income-side shares See, for example, Fforde (2001), Van Arkadie and Mallon Data on the collections of major indirect taxes for all years of the study period are available from IMF government revenue data (IMF 2003, 2006, 2007) We use the IMF classification of indirect taxes in all cases except natural resource tax Whereas IMF considers revenue from natural resources a non-tax revenue, we treat it as an indirect tax, since it is levied on mining sector output With this adjustment, we use the IMF data to calculate the indirect tax shares reported in Table taken into account, the difference between our k estimates Our final task is to calculate the shares of GDP at factor cost and indirect taxes in income-side GDPFC ITAX GDP ( SGDPMP and SGDPMP respectively) As discussed above, we know annual values for indirect tax collections ( ITAX ) from IMF data From our calculations outlined in Part 1(c) of this Appendix we know annual values for GDP at factor cost GDPFC ( GDPFC ) We calculate annual values for SGDPMP and ITAX SGDPMP by applying the following formulae: GDPFC S GDPMP = GDPFC GDPFC + ITAX ITAX S GDPMP = ITAX GDPFC + ITAX We report values for Table r GDPFC SGDPMP Indeed, if the high TFP rates used in the previous studies are and those of previous studies is even higher For example, if annual TFP growth is 1.9% for the period 1996-2002 (as estimated in Le Viet Anh 2006) then our estimate for k for the same period is 6.3 %, not the 10% assumed by Anh If annual TFP growth is 3.4% for the period 1996-2000 (as in Tran Tho Dat 2004) then our estimate for k for the same period is 2.1 %, not the 8.5 % assumed by Dat Hertel and Tsigas (2002) consider natural resources in fishery and mining as the fixed factors which constrain the price supply response of these sectors With given econometric estimates of the supply elasticities for these sectors, they back-solve for the implicit natural resource payment shares These form the basis of the factor shares for these industries appearing in the GTAP 6.0 database References: n n and and (2003) ITAX SGDPMP in Notes: n n The estimate for k for the whole economy is 10% per annum in Le Viet Anh (2006) for the period 1996-2002, and 10-11 percent for the period 2000-2004 in Dapice (2004) Tran Tho Dat (2004) estimates it to be 8.5%, but for the period 1996-2000, when Vietnam was affected by the Asian financial crisis For the manufacturing sector, Tang Van n Khien (2005) estimates k at 14.4% per annum for the period 1996-2003 It has been argued by some researchers that this is indeed the case See, for example, Dapice (2004) and CIEM (2003) Volume - Number - 2008 PDF created with pdfFactory trial version www.pdffactory.com n Central Institute for Economic Management (2003), Vietnam Economy in 2002, National Political Publisher, Hanoi Dapice, D (2004), "Celebration and reflection: Vietnam's economy enters a new era", John F Kennedy School of Government, Harvard University, Cambridge, [http://www.fetp.edu.vn/home.cfm, accessed November 2007] Dimaranan, B V (2006), Global Trade, Assistance, and Production: The GTAP Data Base, Centre for Global Trade Analysis, Purdue University, West Lafayette Forde, A (c 2001), "Light within the ASEAN gloom? The Vietnamese economy since the first Asian Economic Crisis (1997) and in the light of the 2001 downturn", Paper for the Vietnam Updates 2001: Governance in Vietnam: The Role of Organizations, Faculty of Arts and Social Sciences, National University of Singapore General Statistics Office of Vietnam (1999), The Vietnamese Input - Output Tables for 1996, Statistical Publishing House, Hanoi General Statistics Office of Vietnam (2003), The Vietnamese Input-Output Tables for 2000, Statistical Publishing House, Hanoi Vietnam Economic management review 43 VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? Statistics Office of Vietnam (2005) "Statistical data", [http://www.gso.gov.vn, accessed February 2005] n General Statistics Office of Vietnam (2007) "Statistical data", [http://www.gso.gov.vn, accessed November 2007] n International Monetary Fund (2003), "Vietnam: Statistical Appendix", IMF Country Report No 03/382, International Monetary Fund, Washington, D.C [http://www.imf.org/external/pubs/ft/scr/2003/cr03382.pdf, accessed April 2005] n International Monetary Fund (2006), "Vietnam: Statistical Appendix", IMF Country Report No 06/423, International Monetary Fund, Washington, D.C., retrieved August 2007, [http://www.imf.org/external/pubs/ft/scr/2006/cr 06423.pdf, accessed August 2007] n International Monetary Fund (2007), "Vietnam: Statistical Appendix", IMF Country Report 07/386, International Monetary Fund, Washington, D.C [http://www.imf.org/external/pubs/ft/scr/2007/cr07386.pdf, accessed January 2008] n Jensen, H T and F Tarp (2007), "A Vietnam Social Accounting Matrix (SAM) for the Year 2003", Discussion paper, PRG1.06.02, Central Institute of Economic Management, Hanoi n Le, Viet Anh (2006), FDI-Growth Nexus in n 44 General Vietnam Forum of International Development Studies, 31 (Feb 2006), pp 45-63 n Ministry of Finance (MOF) (2007), "Inputoutput tables for the year 2005", unpublished data, Policy Advisory Group, Ministry of Finance, Hanoi n Tran, Hoang Nhi (2007), MONASH-VN: Development of a dynamic CGE model for the Vietnamese economy and analysis of structural changes during 1996-2003, Unpublished PhD thesis, Centre of Policy Studies, Monash University, Melbourne n Tran, Tho Dat (2004), "Total Factor Productivity Growth: Survey Report - Vietnam", National Report, APO (Asian Productivity Organization), Tokyo [http://www.apo-tokyo.org/00ebooks/IS-04_TFPGrowth/13_Vietnam_TFP.pdf, accessed January 2006] n Van Arkadie, B and R Mallon (2003), Vietnam: A transition tiger?, Asia Pacific Press, Canberra n Vu, Quoc Ngu (2002), "The State-Owned Enterprise Reform in Vietnam: Process and Achievements", Visiting Researchers Series, No 4(2002), ISEAS (Institute of Southeast Asian Studies): 27, Singapore Vietnam Economic management review PDF created with pdfFactory trial version www.pdffactory.com Volume - Number - 2008 ... RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? In this paper we provide annual estimates of the rate of growth of the aggregate Vietnamese capital stock over the. .. ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade? We elaborate on our use of these data in calculating S Nj in Parts 1(a) and 1(c) of the Appendix Values... Number - 2008 Just how quickly has the Vietnamese capital stock grown over the past decade? ECONOMIC RESEARCH VEMR payments to labour and capital We explain below industries in the available