Tài liệu Export-the departminant of economic growth in asean developing countries 1986-2001, the case of vn

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM- THE NETHERLANDS PROJECT ON DEVELOPMENT ECONOMICS EXPORTS - THE DETERMINANT OF ECONOMIC GROWTH IN ASEAN DEVELOPING COUNTRIES 1986-2001, THE CASE OF VIETNAM A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DECREE OF MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY HAVANDUNG HO CHI MINH CITY, 2003 CERTIFICATION I certify that the substance of this dissertation has not already been submitted for any degree and is not being currently submitted for any other degrees. I certify that to the best of my knowledge any help received in preparing this dissertation, and all sources used, have been acknowledged in this dissertation. Ha Van Dung Date: ....................... . 11 ACKNOWLEDGEMENTS First of all, I would like to express my sincere and grateful appreciation to my academic supervisor MA Nguyen Huu Loc for his guiding me during every step in my study, especially during my time of writing thesis. I would also like to express my grateful thanks to all professors, lecturers in Vietnam - the Netherlands Project, especially Dr. Youdi Schipper, Dr. Gabrielle Berman, and Dr. Karel Jansen for their precious lectures and assistance during the period of writing thesis proposal. Furthermore, I would like to thank all the staffs of the project, especially the librarian Ms. Dang Kim Chi, and the project secretary Ms. Dinh Anh Nguyet. I would like to express my sincere thanks to all of my classmates in class 8, who have helped me a lots with their encouragements, collaboration, and ideas during my study as well as during the time I do my thesis. Above all, I am indebted to my grandmother, my parents and my daughters, who have given me a lot of encouragement, sympathy, and support during my study. 11l ABSTRACT In recent years, Vietnam has gained impressive growth from the renovation in 1986. The average growth of more than 7.5 percent has ranked Vietnam into the fastest growth group in the world. This is a result of the process of transition from centrally planned economy to market economy. The key element of this success is the openness of the economy and trade has expanded its role in stimulating growth in Vietnam. In deed, exports have been contributing to economic growth, and Vietnamese exports are quite similar to those of five other ASEAN developing countries including Malaysia, Indonesia, the Philippines and Thailand. Thus, it is useful to investigate the relationship between exports and economic growth in these countries through the findings of determinants of economic growth. By using both descriptive and econometric method, the study examines the determinants of growth with an emphasis on the role of exports on economic growth in the ASEAN-5 developing countries during the period of 1986-2001. The econometric method is based on the neoclassical model, using panel data of five countries during sixteen years. The empirical findings reveal that capital; labor force, export growth, spending on education, and external debts are determinants of growth. In which, external debt and spending on education have negative effect on growth while the rest has positive impact on economic growth. In relation with the role of exports, the study has found that exports have positive effect on economic growth in these countries, and this result is consistent with those in previous studies. It also suggests that the opened-door policy in these countries has been effective and it should be considered carefully in order to contribute more to economic growth. IV TABLE OF CONTENTS C ertifi cation Acknowledgements Abstract Tables of contents Lists oftables Lists of figures Acronyms CHAPTER 1: INTRODUCTION I.l. Problem statement ...................................................................................................... 1 !.2. Overall objectives ....................................................................................................... 3 !.3. Scope and limitation of the study ............................................................................... 3 !.4. Methodology and data ................................................................................................ 4 !.5. Structure of the thesis ................................................................................................. 4 CHAPTER II: LITERATURE REVIEW ILl Definitions .................................................................................................................. 6 1!.2. Literature review ....................................................................................................... 7 11.2.1. Growth theories ............................................................................................. 7 1!.2.1.1. Keys ian Growth .................................................................................... 7 11.2.1.2. The neoclassical growth model ............................................................ 10 11.2.1.3. The endogenous growth theory ............................................................ 13 11.2.2. The traditional theory of international trade and development.. ................... 17 11.2.3. Effects of Exports on Growth ....................................................................... 19 v II.3. Empirical Studies ...................................................................................................... 28 II.3.1. Study of H. Sun and A. Parikh (1996) ........................................................... 28 II.3.2. StudyofY. A. Al-Yousif(1999) ................................................................... 29 II.3.3. Study ofT. Lloyd, 0. Morrissey, and R. Osei (2001) ................................... 31 II.3.4. Study of G. K. Nigugala (1999) ..................................................................... 32 II.3.5. Study ofT. Gylfason (1998) .......................................................................... 33 11.3.6. Study of E. J. Sheeney (1992) ....................................................................... 34 II.3.7. StudyofM. A. B. Sidique and E. A. Selvanathan (1998) ............................. 35 11.4. Conclusions ............................................................................................................... 37 CHAPTER III: AN OVERVIEW OF ECONOMIC PERFORMANCE AND EXPORTS IN ASEAN-5 DEVELOPING COUNTRIES III. I. A background of five ASEAN developing countries ............................................... 39 III.2. Export performance and sources of export growth of ASEAN-5 in recent years .... 40 III.2.1. Economic growth in ASEAN-5 .................................................................... 40 III.2.2. Export Performance of ASEAN-5 in the studying period ........................... 42 III.2.3. Sources of Export Growth ............................................................................ 44 III.3. Vietnamese exports in the studying period .............................................................. 47 III.3.1. Vietnam trade performance after applying 'renovation' policy ................... 47 III.3.2. The commodity composition of exports ...................................................... 50 III.3.3. Main trading partners ofVietnam ................................................................ 52 III.4. Conclusions .............................................................................................................. 55 CHAPTER IV: DETERMINANTS OF ECONOMIC GROWTH IN ASEAN-5 DEVELOPING COUNTRIES IV.1. Methodology ............................................................................................................ 56 Vl IV.2. Descriptive Statistics ............................................................................................... 60 IV.3. Econometric Model ................................................................................................. 62 N .3 .1. Model Specification ..................................................................................... 62 N.3.2. Estimation results ......................................................................................... 66 IV.4. Conclusions ............................................................................................................. 71 CHAPTER V: CONCLUSIONS AND POLICY RECOMMENDATIONS V .1. Conclusions ............................................................................................................... 72 V.2. Policy recommendations ........................................................................................... 75 V.3. Suggestions for further study .................................................................................... 77 Bibliography Vll · LIST OF TABLES Table 2.1: Determinants of economic growth Table 3.1: Growth rate of export in ASEAN-5, 1986-2001 Table 3.3: Vietnam: Commodity composition of exports, 1990-2001 Table 4.1 Description of variables Table 4.2: Test for rank correlation between export growth and GDP growth LIST OF FIGURES Figure 2.1: Employment and foreign exchange effects of export expansion Graph 3.1: GDP growth rate of ASEAN-5 Chart 3.1. Market's share ofVietnamese exports, 1995 Chart 3.3. Market's share ofVietnamese exports, 2001 Vlll ACRONYMS AFTA ASEAN Free Trade Area ASEAN Association of South East Asian Nations ADF Augmented Dickey Fuller CMEA Council for Mutual Economic Assistance FDI Foreign Direct Investment GDP Gross Domestic Products GSO General Statistics Office SUR Seemingly Unrelated Regression us United States USD United States Dollar VECM Vector-Error-Correction Model VND Vietnamese Dong WDI World Development Indicators IX CHAPTER I: INTRODUCTION 1.1. PROBLEM STATEMENT Vietnam had made its unification more than ten years before it started the economic reform to take the economy out of the crisis in 1986 (Hoang, 1996). Vietnam's economic reform or 'doi moi' (innovation) has been done for more than sixteen years and it gets many successes. Gross Domestic Products (GDP) increases more than twice in the past ten years, economic structure changes in the right direction of reducing the ratio of agriculture over GDP and increasing the ratio of industry and service over GDP (Nguyen, 2002). From the beginning of innovation, Vietnam has gained a considerable growth with the average of GDP of 7.55 per cent per year (Vo, 2002). In which, the year 1995 is considered as the most successful for growth performance with the growth rate of GDP reaching 9.5 per cent. Then, there is a bit slowdown in GDP growth rate. It is only 5.8 and 4.8 per cent in 1998 and 1999, respectively. However, it increases in 2000 and 2001 with the growth rate of 6.7 and 6.8 per cent (General Statistic Office (GSO), 2002). As a result of the economic growth, the living standard is improved dramatically (Nguyen, 2002). In accordance with GDP growth, the 2002 World Bank report shows that between 1986 and 2001, exports have increased by an average of around twenty three per cent leading to an expansion in sectors that employ large number of people, combined with a stable macroeconomic environment and reforms for favorable investment climate, it generated exceptional growth in GDP (World Bank, 2002). Not only the total volume of exports increases, the structure of exports has changed as well. Vo (2002) shows that while primary exports have decreased the share in total exports from year to year, manufactured exports have increased from only ten per cent in 1991 to forty per cent in 1999 (Vo, 2002). The Vietnamese economic performance as well as the export performance is so good in the 1 difficult circumstance of collapse of trade relations with Council for Mutual Economic Assistance (CMEA) and the fall of aid from Soviet Bloc. When economists consider the effect of export growth on economic growth, there are two groups of thought. First, Krueger argues that economic growth could be gained when the country experienced growth of export earnings (Krueger, 2000). Other writers such as Feder (1983), Nidugala (1994), Sun and Parikh (1996), Al-Yousif (1999), and Lloyd, Morrissey, and Osei (200 1) also find that there is a positive effect of export growth on economic growth. Additionally, Nidugala finds an interesting point that manufactured exports have significant influence on GDP growth for the case of India. This shows that economic structure also has a role in the development process of India. In contrast, Raul Prebish and Hans Singer argued that not only primary exports face sluggish growth of demand, but over time prices of these commodities will fall in the world market, so they do not agree with an positive effect of exports on economic growth in long run (Gillis and al, 1996). Another author finding the same conclusion is Sheerey with the study of cross-section of 53 countries in the world. After examining the role of exports on economic growth, he concludes that exports have not got the clear role in economic growth (Sheerey, 1992). Siddique and Selvanathan agree with this idea when they do their research for Malaysia and find that their results do not give any evidence to support the export-led economic growth hypothesis. They also indicate that for the case of Malaysia manufactured exports as the same as total exports have no role in economic growth (Siddique and Selvanathan, 1998). In Vietnam, there is a debate on the role of exports on economic growth. While many authors such as Nguyen (1997), Nguyen (2002), and Vo (2002) have suggested a policy with more concentration on exports, Nguyen (2000) shows that imports of machinery have increased from 21.8 percent in 1991 to 28 percent in 1999, and this has contributed in pushing domestic production and thus, growth. So, it is necessary to push this kind of imports (Nguyen, 2000). 2 So, this paper aims at investigating the role of exports on economic growth, and through which to find out what are determinants of economic growth in Vietnam from the year of innovation 1986 to 2001, also reference with other ASEAN developing countries. 1.2. OVERALL OBJECTIVES The study concentrates on economic dimensions of economic growth and exports, as well as other determinants of growth in Vietnam. It is envisaged that this will correlate the export growth rate, investment, human capital, which are necessary conditions for sustainable economic growth. The overall objectives of this study will therefore be to identify and qualify, through economic investigation det~rminants of growth, the relationship between export growth and economic growth, and last suggest trade policies stimulating further economic growth. The study has two specific objectives, with an emphasis on the later one: 1. What are determinants of GDP growth in ASEAN-5 developing countries including Thailand, Malaysia, Indonesia, the Philippines, and Vietnam. 2. Is there a positive effect of the growth rate of exports on the growth rate of GDP in ASEAN developing countries during the period of 1986-2001? 1.3. SCOPE AND LIMITATION OF THE STUDY The year 1986 is considered as the initial year of totally innovative in Vietnam since the innovation in the mid-1986. From 1986, data available is not sufficient enough to econometric model and thus lead to unreliable results. So, to increase the sample size the study chooses additional four ASEAN economies including Thailand, Malaysia, Indonesia, and the Philippines. These countries are chosen because of two reasons. The first reason is that all these countries are located in Southeast Asia and are members of AFTA. The second reason is that the economic background of these countries is quite similar each other. These countries are pursuing regional and international integration with greater openness of the 3 economies as well as trade liberalization. They all first develop by industrialization of importsubstitution strategy and then shifted into export-oriented strategy (Bende-Nabende, 1999). For limitation, since some data are missed and not available, the thesis just focuses on some main determinants of growth. The study also just focuses on visible exports while it ignore invisible exports due to the reason of data constraint. Another limitation is some data are not available, so it will reduce the observations of regression model. 1.4. METHODOLOGY AND DATA Both qualitative and quantitative methods are used to analyze, however econometric method is used as the main methodology. The econometric method will be used to analyze the impacts of exports on economic growth in ASEAN developing countries and Vietnam. It will investigate how export growth can affect on economic growth in these countries. Most of data come from CD-Rom named World Development Indicator of the World Bank group. Another source of data is from Statistical Year Books (GSO, various years) as well as in the book named World Development Indicator 2001 and 2002. The World Investment Report 1999 of United Nations Conference on Trade and Development, United Nations, and The World Tables 1995 ofthe World Bank are also used to extract data. These sources are official so, data used are reliable and acceptable for the study. 1.5. STRUCTURE OF THE THESIS Basing on the objective and methodology, the thesis is classified into five chapters. Following introduction, chapter two introduces the literature review. It focuses on the growth theories, trade theories, and effects of exports on economic growth. Then, it also includes some empirical studies, which examine the relationship between export growth and economic growth. 4 Chapter three introduces an overview of economic performance and exports in ASEAN-5 developing countries from 1986. Especially, the case of Vietnam will be examined more carefully in order to have a general picture of Vietnamese economy since applying the 'innovation' policy in mid-1986. Chapter four is the main one with the qualitative and quantitative methods in examining the relation between economic growth and export growth. It consists of methodology, descriptive statistics and the derived model. Then, the estimation results are presented. After that hypotheses testing are done within the model in order to give reliable findings from the regression results and answer the research question. Finally, chapter five will close the thesis with some conclusions and policy implications, basing on the findings in the previous chapter. It also offers some suggestions for further studies. 5 CHAPTER II: LITERATURE REVIEW In order to understand the relation between economic growth and its determinants including exports, it is necessary to examine the theoretical framework. This chapter first introduces the definitions of key concepts and then the literature review will be presented. In the literature review, there are three sub-parts: the first sub-part is composed of growth theories including the Keysian growth, the neoclassical model, and the endogenous growth theory. From these, some determinants of growth are drawn. Then in the second sub-part, theories relating international trade and economic growth are presented, and last, effects of exports on growth will be examined. The third part introduces some previous empirical studies, which examine the determinants of economic growth, including export growth. Finally, conclusion for theories and empirical study will be drawn. 11.1. DEFINITIONS According to Pearce (1996) export is 'a good or service which is produced in one country and sold to and consumed in another. A visible export is a good which is physically tangible and an invisible export is the provision of a service which is consumed by someone from another country' (Pearce, 1996: p145). Then it is the definition of export growth by Krueger (2000) 'Export growth is defined as the long term trend in a country's foreign exchange earnings from goods and non-factor services' (Krueger, 2000: p27). Last, Pearce (1996) states that economic growth is 'typically taken to the mean an increase in real level of net domestic products although the measure will then be sensitive to the way in which domestic product is measured. Thus an economy with a large sector containing battered goods and un-recovered consumption of its own product (e.g. farmers' consumption of their own product) may raise its actual level of domestic product without the recorded level showing an increase' (Pearce, 1996: p120). 6 11.2. LITERATURE REVIEW 11.2.1. Growth theories In the last haft of century, there are three waves of growth theory: firstly, the work of Harrod and Domar (or Keynesian Growth), then neoclassical model of Solow, and last, endogenous growth theory by Romer and Lucas (Ruttan, 2001 ). 11.2.1.1. Keysian Growth The model of Roy Harrod (1939) and Evsey Domar (1946) is built basing upon Keynesian economics. The simple model of economic growth is expressed as following (Todaro, 1994): we denote k as the capital-output ratio, and s is the proportion of saving (S) over national income (Y) S =sY Investment (I) is defined as the change in capital stock (K) I=~K Capital stock is a part of output so K/Y = k or ~K/~ Y = k or ~K = k~ Y Since total national savings equal total investment (S =I) so I= ~K = k~ Y = S = s Y or sY=k~Y So,~ YIY = s/k The simple equation of Harrod-Domar model states that the growth rate of GNP (~ Y/Y) is determined by national savings ratio, s, and the capital-output ratio, k. This implies that an economy have to save and invest as much as possible in order to get high growth rate. The more they can save and invest, the faster they can growth (Todaro, 1994). 7 The Two-Gap Model The two-gap model is quite similar to the Harrod-Domar model but it puts a further assumption that investment program needs an import component in the form of machinery or intermediate goods. So, the economic growth can be limited by two constraints: the total amount of available capital for investment and the amount of foreign exchange for imports (Kasliwal, 1995). dY=K.I (1) From the national income identity Y=C+I+(X-M) (2) S=Y-C (3) M- X= F where F is capital inflows (4) Insert (3) into (2) and combine with (4), it results (M - X) = (I - S) (5) Insert (5) into ( 1) => dY = K.(S +F) and dividing both sides by Y then dY/Y = K.(SN +FlY) or gy = K.(s + FN) (6) The equation (6) shows that domestic and foreign savings determine the growth rate. However, the foreign exchange constraint may be the one problem. To examine this, total imports are split up in imports of capital goods (Mk, proportional to the level of investment) and other imports (Mi, proportional to the level of output) M=Mk+Mi (7) Mi=mj.Y (8) MK =mK.I (9) Insert (9) to (1) then 8 dY=K.MIJmK (10) Assuming furthermore that X = e. Y (11) From (7) and (4) => MK =F +X- Mi orMK =F+ e.Y -mi.Y (12) Dividing both sides of (12) by Y, it gives the result of growth rate: (13) mK The equation (13) sets the growth rate as determined by net export earnings, net receipts of factor services and other current transfer, and foreign savings. The equations (6) and (13) suggest a positive impact of capital and export on growth in the two-gap model. The equation (5) shows the role of foreign capital. Foreign capital will help one country to fulfill the gap between investment and saving of the country. The two-gap model is a useful starting point for the analysis. It is a single and powerful tool to draw attention to some crucial variables determining the relationship among capital, export, and economic growth. It can be used as a quick device to calculate growth while other elements are held constant. It also shows the important role of foreign capital in fostering growth. However, it bases on assumptions of constant parameters, which is unrealistic in the real life. In conclusion, the Harrod-Domar model gives an idea for source of economic growth, which is the saving rate of the economy. However, the model does not always work since the model has used inappropriate or irrelevant assumptions about the necessary structural, institutional, and attitudinal conditions. The model considers all economies with well-integrated commodity and money market, highly developed transport facilities, well-trained and educated labor force, efficient government bureaucracy, etc (Todaro, 1994). Actually, these 9 assumptions are unrealistic even with developed economies. The differences in working conditions, education, national resources have made different growth between among economies. It also neglect to the role of price index in the model So, this theory is considered as one of the most fundamental "tricks" of economic growth but it is not widely applied for real economies. 11.2.1.2. The Neoclassical Growth Model Solow (1956) and Swan (1956) have developed the neoclassical growth model. It is an aggregate, constant-returns-to-scale production function that combines labor and capital (Agenor and Montiel, 1996). Technology improves are assumed as an exogenous rate while savings are assumed to be a fixed fraction of output. The production function is Cobb-Douglas; output per capita y is given by: y=Ak 1-a.O 0, k=sy-5k Where s denotes the propensity to save and~ ~ <1 (2) the rate of depreciation of physical capital. The neoclassical growth model leads to the 'source-of-growth' approach, which uses an aggregate production function to decompose growth into 'contributors' from different sources. These sources can be named as the growth rate of factor inputs weighted by their shares plus a residual. This residual is often called 'technical progress' or the growth rate of total factor productivity (TFP) (Agenor and Montiel, 1996: p513-14). (3) Where Ui is the elasticity of output with respect to input i, and gA is the growth rate of total factor productivity and as a residual. 10 Technological Progress The assumption of constant technology is unrealistic so in 1950s and 1960s, the neoclassical economists amended the basic model and let technology improve over time. The technological improvement is exogenous. To introduce exogenous technological progress into the model, most economists use neutral inventions, which do not save relatively less capital input or relatively less labor input (Barro, 1995). When A and L are integrated, AL means effective labor and is called labor augmenting or Harrod-neutral. The model is then expressed in the new form Y = F(K, AL) (4) _!_-F(~ 1) Or AL- AL' Where FIAL = y*: output per unit of effective labor KlAL = k*: amount of capital per unit of effective labor y* = f(k*) (Romer, 1996: p8) Or in short time, the increase of output is determined by the increase of amount of capital per unit of effective labor. The Harrod-neutral has emphasized the role of capital as the only one determinant in fostering growth in short-run. In the model, Solow has explained the cross-country differences in the growth rate by mainly on transition dynamics and he shows the technical progress as the source of sustained growth. However, the diminishing returns have prevented the model from providing an explanation for the wide variation across countries in either per capita income or growth rate. In addition, since population growth and technological change are assumed exogenous, the model does not give explanation for the mechanisms generating steady-state growth, and therefore there is no evaluation of the mechanisms through which government policies can influence the growth process (Agenor and Montiel, 1996). Moreover, the model assumes unrealistic 11