Global Journal of HUMAN SOCIAL SCIENCES
Sociology,
Economics & Political Science
Volume 12 Issue 9 Version 1.0 June 2012
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-460x & Print ISSN: 0975-587X

Vietnamese Economic Structural Change and Policy Implications
By Bui Trinh, Kiyoshi Kobayashi, Pham Le Hoa & Nguyen Viet Phong
Kyoto University
Abstract - This paper has attempted to compare some macro indicators of Vietnamese economy
such as supply size, demand size, incremental capital – output ratio, (ICOR), total factor
productivity (TFP), saving, output multipliers and import multipliers between two stages 20002005 and 2006-2010.

Keywords : Economic, GDP, ICOR, TFP, Trade deficit, Vietnam.
GJHSS-C Classification : FOR Code: 160510, 160505

Vietnamese Economic Structural Change and Policy Implications
Strictly as per the compliance and regulations of:© 2012. Bui Trinh, Kiyoshi Kobayashi, Pham Le Hoa & Nguyen Viet Phong. This is a research/review paper, distributed under theterms of the Creative Commons Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/bync/3.0/), permitting all non-commercial use, distribution, and reproduction in any medium, provided the original work is properly
cited.

Vietnamese Economic Structural Change andPolicy Implications
indicators of Vietnamese economy such as supply size,
demand size, incremental capital – output ratio, (ICOR), totalfactor productivity (TFP), saving, output multipliers and importmultipliers between two stages 2000-2005 and 2006-2010.

Keywords : Economic, GDP, ICOR, TFP, Trade deficit,
Vietnam.

N

I.

Introduction

ormally, when analyzing the short-term and longterm economic growth, Keynesian’s and Solow’s
theory are brought forward as a testament to theanalysis and forecast of any economy. Keynes's theory
explains and analyzes the economy in a short time
without being interested in a far future; besides theKeynesian multipliers (Keynes-Leontief) sometimes
contain risks, while doing the research of inter-region for
instance, there are some cases (regions) of the State
investment expenditure does not increase total demandadequately, when Keynesian multiplier is less than one
which means an increase in one unit of investment will
not get one unit in return from the supply side.
When analyzing long - term economic
growth, most countries around the world follow theSolow growth model which was developed based on
production functions. According to this method, thefundamental contribution for economic growth consistsof the contribution of labor, capital and operating
surplus. This surplus is considered as a total factor
productivity (TFP). it is not only including changes in thetechnological process but also other factors such as
management methods, results of policies and errors
occurred by input data. If input data which is unadequately provided will results in un interpretation. A
research conducted by Professor James Riedel pointed
out that in some cases, the Solow model can not figureout a whole picture of the growth origin, it is because of
the different understanding about a change of eachdependent factor of labor, capital and TFP. It is easy to
see that the role of technological change is difficult toseparate with the role of investment. He also pointed out
Author α : Centre for sustainable development policy studies ofVietnam. E-mail : buitrinhcan@gmail.com.
Author σ : Kyoto University.
E-mail : kobayashi.kiyoshi.6n@kyoto-u.ac.jp
Author ρ : Vietnam Private consultant.
E-mail : hoatrinhbui@gmail.com
Author Ѡ : Vietnam General Statistics Office.
E-mail : phonggsovn@yahoo.com

this is not true with the case of China. Bui Trinh andNguyen Quang Thai also calculated Total Factor
Productivity for three ownership sectors are the State,non-state, foreign invested sector, of which thecontribution of TFP on the growth of state-owned sector
is the largesse seems to be absurd and it is made surethat the research team does not fully believe it.
Through many researches and statistics
showed that Vietnam's economic growth in recent years
mainly depends on the contribution of capital factor. So
a question to be raised is where sources taken from toinvest. For many countries, the primary source forinvestment comes from savings. Each family or nation
should know how much money they can save and how
to use that sum. Under System of National Accounts(SNA), saving is the surplus of National Disposable
Income (NDI) after being used for final consumption.
Thus, it is clearly seen that the main resource
for investment comes from saving. If a country which
has experienced a low ratio between saving andinvestment for many years, it is necessary for them toreview their macro-economic policy and economic
structure. This seems a paradox for the Keynes ‘s shortterm growth theory.
II.

Methodology

Based on the Vietnam input-output tables,
2003 (updated) and 2007, in order to compare factors of
supply size, demand size and intermediate input ratio of
2 stages, we have assumed the input-output table of2003 presenting for 2000-2005 stage and the inputoutput table of 2007 presenting for 2006-2010. The
ICOR, TFP and saving of two stages was also
compared.
More over, the Leontief system was used forcomparing economic structure change of two stages.
The basic equations include:∂X = ((I-Ad)-1.∂Yd
F = Σ (I-Ad)-1.Yd ÷ (ΣYd) = (ΣX) ÷ (ΣYd)∂M = m. (I-Ad)-1.∂Yd

where: X is gross output vector, Ad is coefficient matrixof domestic intermediate consumption, Yd is matrix ofdomestic final demand, F is an output requirement
induced by domestic final demand (Yd), M is import; (÷)
presents division each element of the two
matrix (vector) respectively.
© 2012 Global Journals Inc. (US)7

Global Journal of Human Social Science ( DC ) Volume XII Issue IX Version I

Abstract - This paper has attempted to compare some macro

June 2012

Bui Trinh α, Kiyoshi Kobayashi σ, Pham Le Hoa ρ & Nguyen Viet Phong ѠVietnamese Economic Structural Change and Policy İmplications

III.

Analysis of Vietnam Economic
Situation

June 2012a) Identifying Viet Nam’s economic situation

Global Journal of Human Social Science ( CD ) Volume XII Issue IX Version I

82

In recent years, most of government policy
experts and advisors have focused on the currency
issue in order to prevent the increase in price, without
considering other factors. Even the resolution of inflation
is just the emergence of the problem. The main reasonof the inflation is due to the inefficiency of production
and investment and sharp decrease in TFP. The ICOR
coefficient is continuously increasing, from 5 during
2000-2005 to 7 for the period 2006-2010. While thecontribution of TFP to GDP was 22% during 2000-2005
reduced to 10% for the period 2006-2010 (some othercalculations showed that the contribution of total factor
productivity growth is only about 1%). Besides, if
calculating the ratio between value added and gross

output from the period 2000 till now, this ratio is getting
smaller. In the year of 2000, producing 10 units of gross
output would create more than 4 units of value added
while in the current period, producing 19 units of gross
output would only generate less than 3 units of value
added. Therefore, an amount of money is used to invest
but a little quantity of goods is made in return, which will
break the cash-goods relation contributing to theincrease in cost of domestically produced goods. Also,
accumulation of internal economy through indicators tospend (saving) falling. The accumulation in the internal
economy accounts for about 36% of GDP for the period
2000-2005, it is less than 30% for the period 2006 2010 while annual investment increasingly highproportion of GDP, this shows the growing debt thatborrowers use the money as an inefficient huge risks in
the long term.

Table 1 : Some macro comparison of the period 2000-2005 and 2006-2010.

Total resources (supply)
Domestic product
ImportTotal demandIntermediate demand
Final demand
Consumption (C + G)
Investment/Saving
ExportIndex of Intermediate cost /Gross output
Index of value added/ Gross output
ICOR
The contribution of total factor productivity (TFP)
on growth
Saving / GDP ratio
GDP growth
Investment / GDP ratio

2006-2010
%
100
73.82
26.18
100
45.32
54.68
21.28
12.25
21.15
62
38
7,43
2,3

2000-2005
%
100
79.25
20.75
100
42.99
57.01
26.42
10.75
19.85
54
46
4,89
23

28
6,5
41

36
7,5
38,5

To reinforce the argument above, the researchteam calculated the output requirement for one unit
increase in final demand (including final consumption(C, G), cumulative gross capital formation and export).

b) Output requirements for final demand

Table 2 implies the output requirement for one
increased unit in each factor of the final use. The results
has shown that the output requirement increased one
unit of final use for the period of 2006-2010 is muchhigher than the period of 2000-2005. For instance, in thelast period, when increasing one unit of final use, theoutput requirement would be 1.49 while in the current
period, it increases by 1.8 times (increase by 22%).
Hence, the average output requirement for one
increased unit in final demand in the current period
would be higher than the previous period of
approximately 14%. These results can be reviewed:© 2012 Global Journals Inc. (US)+ If the domestic production is effective andsustainable, the change of demand would experience a
power of dispersion in production locally for the periodof 2006-2010, and it has even become a turning point
for the economic growth+ If the domestic production is weak andineffective, the increasing of final demand would lead tothe increase in price. Thus, the stimulating in 2009 was a
mistake ?

production.

C
G
I
E

2006-2010
1.80
1.44
1.69
1.53

2000-2005
1.49
1.13
1.61
1.46

Average

1.615

1.4225c) The effect of production’s elements over import

Table 3 shows the index and power ofdispersion on import of 16 industries. Only two industry
groups that have economic spread index and power ofdispersion on import greater than 1, are agriculture

sector and processing agriculture product sector. Mostof the manufacturing sectors have enjoyed the highpower of dispersion on import. The service sector has
both low power of dispersion on import and low spreadindex. A research by the Economics University under
Hanoi National University demonstrates that if increased
production efficiency and restructuring export of 20%
from the industrial sector to the service sector, theeconomic spread index would be higher than the
average rate (> 1) and service sector would be able to
make up 50% of GDP. This raises a reasonable question
to if the economic structure with the following priority
order of industry, service and agriculture is anappropriate structure ?

Table 3 : Output multiplier and power of dispersion on import.
Agriculture
Fishery
Forestry
Mining & quarrying
Food, beverage and tobacco manufactures
Other consumer goods
Industrial material
Capital goods
Electricity, gas and water
Construction
Wholesale and retail trade
Transport services
Post and telecommunication
Finance, insurance, real estate, business services
Other private services
Government services

Output multiplier1.02931.35050.89340.7774

1.4492
1.20931.2644
1.24750.72201.19490.7303
1.04760.77480.75770.81330.73849Power of dispersion on import
0.9643

1.0276

0.99591.00390.9564

1.37541.35951.32790.90111.28840.94061.16190.90900.88530.99590.9169Calculation of the research team (Nguyen Quang Thai, Bui Trinh) green: Good; red: Not good.
The figure 1 shows that in the period of 1989 to
2007, the “import multiplier” increased from 1.26 to 1.34.
It means that the increase of one unit of domestic

demand led to 1.26 unit of import and this went up to
1.34 unit of import for the same increase unit ofdomestic demand.

Figure 1 : Average import spread index per one unit of final demand, 1989-2007.
1.36
1.34
1.32
1.3
1.28
1.26
1.24

Series1

1985 1990 1995 2000 2005 2010

© 2012 Global Journals Inc. (US)Global Journal of Human Social Science ( DC ) Volume XII Issue IX Version I

Table 2 : The effect of final demand elements on

June 2012

Vietnamese Economic Structural Change and Policy İmplications

Vietnamese Economic Structural Change and Policy İmplications

The power of dispersion on import of one sector
is the average of its import multiplier. The sector that has
the power of dispersion on import is less than one will
suffer a power of dispersion lower than the average of
the whole economy and vice versa.
The result shows in Table 2 indicates that thepower of dispersion on import of almost manufacturing,processing and construction industries have increasedby time. Especially, consumer goods production,material manufacturing industry and machinery
manufacturing industry are currently enjoying theincreasing power of dispersion on import.

June 2012

Table 4 : Power of dispersion on import by sectors for one unit of final domestic demand from 1989-2007.

Global Journal of Human Social Science ( CD ) Volume XII Issue IX Version I

10
2

1989

1996

2000

2007

Agriculture

0.87500.90660.90350.9643

Fishery

1.01410.91061.0086

1.0276

Forestry

0.88770.86870.8774

0.9959Mining & quarrying

1.01100.94930.87031.00390.92640.88290.90350.9564

Other consumer goods

1.0521

1.0513

1.16271.3754

Industrial material

1.1066

1.07181.20861.3595

Capital goods

1.1762

1.37691.3556

1.3279

Electricity, gas and water

1.0726

1.09480.95960.9011

Construction

1.1382

1.13191.2584

1.2884Wholesale and retail trade

0.83940.89001.03150.9406

Transport services

1.13591.09401.04651.1619

Post and telecommunication

0.98330.96590.94540.9090Finance, insurance, real estate andbusiness services

0.98330.89870.93270.8853

Other private services

0.92320.8995

0.94300.9959Government services

0.87500.89790.95410.9169Food, beverage
manufacturesandtobaccoThe results in Figure 2 show the remarkablechange in structure of the import demand amongst
proportions of domestic products demand. Currently,
the accumulation of locally produced products
consumption has the highest stimulation over import,
but not the consumption of domestic products. If
domestic products accumulation increases by one unit,
the import will reach 1.69 units. It means that the
ineffective investment will require the greater import. The
result from a series of research using ICOR (Incremental
Capital Output Ratio) ratio proved that the effectivenessof investment is very low at present. Hence, the low
effectiveness of investment is one of the reasons thatinduce high trade deficit.
Besides, increasing one unit of export productresults in increasing 1.5 units of import which is higher
than the previous period (17%). Meanwhile, theexpenditure for the final consumption of domestic© 2012 Global Journals Inc. (US)products dispersing on import falls off by 1.26
against 1.4 in the last ten years. This above analysis
has proven the considerable increase of power ofdispersion on import of export and domestic products
accumulation. All of these analyses have made people tomore carefully consider the saying “Devaluation ofVietnam dong in order to stimulate export and restraint
import”. In some cases, this solution will benefit othercountries, because export of some sectors are actually
made in favor of other countries.

Vietnamese Economic Structural Change and Policy İmplications

domestic demand factors.

Domestic consumption
Domestic accumulation

Figure 3 presents the export of manufacturing &processing industry stimulated the import quite strongly,of which export of material manufacturing industry
products, of consumer goods producing and machinery
manufacturing industry products enjoyed the highest
power of dispersion on import. So was the export oftransport services.

Figure 3 : Power of dispersion on import induced byexport.

2.5
2
1.5
1
0.5
0

d) Policy implications

Power ofdispersion on
import induced
by export

Throughout the year of 2011, Vietnamese
Government and its bodies conducted the monetary
tightening policy aimed at preventing inflation, without
caring the fate of enterprises (fundamental componentof the economy). Some of enterprises were "dead" andsome were "waiting for death". In the first quarter of
2012, the “waiting for death” enterprises in 2011 aretotally "dead" and other enterprises has been added to
the new list of "waiting for death " in 2012. The “dead”
and “waiting for death” enterprises are usually non-state
enterprises whose value-added contribution to GDP isabout 48%. While state owned and foreign direct
investment enterprises have performed with a very low
investment efficiency. The ICOR of non-state enterprises(2006 - 2011) was about 4, while the ICOR state owned
enterprises was 9.7 and it was even over 10 for FDI
enterprises. What is going to happen if non-state

Global Journal of Human Social Science ( DC ) Volume XII Issue IX Version I

June

Exportenterprises become bankrupt, insolvent or cannot wait
for extension of production? Production stagnation
would lead to the decrease of total value added of theeconomy. If the income from production reduces, thepurchasing power would also declined, followed by acrisis of demand which is getting serious and hardly tostop..
Through some of the surveys, it is seen that thedifficulties small and medium enterprises haveundergone are not only the high interest rates but also
the following reasons :− Access to capital : It is found difficult. If there is any
chance to access, they have to suffer a higher
interest rate which prevents them for expending
their production. This has definitely affected theeconomy growth.
11−
Transportation : Enterprises have experienced the
difficulties in poor condition of the infrastructure andlots of fees during goods circulation. This has led tothe increase in cost born by buyers and so isconsumer price index. However, the profitability
earned by enterprises has not increased (or in other
word, the value added of the enterprises does notincrease, and inefficient in production).
− Administrative procedures : are found slow andwordy. It prevents enterprises from expanding theirproduction especially opportunities for export. Thisis one of the reasons that make the production
efficiency reduced and intermediate costs of mostenterprises increased. This has led to the increasein product price contributing to the higher consumer
price index (CPI).
− “Extra contribution”: it is provided for government
offices when holidays or anniversaries come. Thiskind of contribution has annoyed businesses. It
motivates their production process or push up the
product price.
The rate of tax on GDP in Vietnam is considered
the highest in the world (25-27%) that is not including
other fees and implicit "inflation tax". This is tounderstand how much Vietnamese enterprises areunder pressure.
Recently the central bank has made an effort tocut down the interest rate to 1% . This is an appropriate
solution because the inflation tends to decrease andliquidity is no longer as intense as the last months of
2011. However, there is a doubt if this is enough toboost the production. Over a long period of tightening
credit increased interest rate leading to stagnatingproduction and bankruptcy of many businesses. All ofthese plus the "inflation tax" have resulted in reduction of
employers’ income followed by the decrease ofpurchasing power (final consumer demand). Being
badly affected by the credit tightening policy and highinterest rate for a long period of time, throughout of 2011
till the first quarter of 2012, in associated with the2012

Figure 2 : Power of dispersion on import induced by© 2012 Global Journals Inc. (US)June 2012

Vietnamese Economic Structural Change and Policy İmplications

Global Journal of Human Social Science ( CD ) Volume XII Issue IX Version I

2
12decrease of purchasing power, many enterprises havefound themselves demotivates to extend theirproduction. Consequently, enterprises in “good health”
do not find the need to borrow money for theirproduction extension and others in “poor health” findhard to get access to the loan. Exclaimed by a businessowner “if the bank goes bankrupt, it will be saved by thegovernment. If an enterprise goes bankrupt, who willsave them then?” .
Thus, there is a question to be considered if
Vietnamese economy can rely on export? This depends
on the economic growth and purchasing power of othercountries in the world. the world’s economic situation is
not bright enough and it is forecasted that the export
situation in 2012 will not be as great as 2011. Knowing
this, enterprises do not dare to make loan from the bankto expand their production. For outsourcing firms, they
do not need loans because they produce by orders. It isadvised that these firms are not encouraged to operatebecause their products will be dispersion on import..
To this effect, all three elements of total
domestic final demand (consumption, investment andexport) to form GDP have been proved to decline
leading to stagnation of production. A big amount ofmoney in the bank has been stagnated too. Inflation
threatens to come back because the money -goods
relationship has been broken again.
IV.

Recommendations

The bank should have the controlled loan policy
for consumers• The government should loosen the loan for real estateby choice.
• The government and local authorities should
simplify administrative procedures and reduce some
hidden fees.
V.

Acknowledgements

We would like to thank Mr. Bui Can, Professor
Nguyen Quang Thai, Dr. Pham Do Chi and Nguyen for
their supports on this research.

References Références Referencias
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applications in economic and environmental
analyzing and forecasting”, HoChiMinh City
Publisher
2. Bui Trinh, Kiyoshi Kobayashi, Vu Trung Dien, (2011)“Economic integration and trade deficit : A Case ofVietnam” Journal of Economic and International
finance, Vol 3(13), pp 669-675, 7, November, 2011
3. Department of Economic and Social Affairs,
Statistics Division (1999)” Handbook of input-output
table compilation and analysis”, series F, Number 4,
New York: United Nations, 1999
© 2012 Global Journals Inc. (US)

4. James Riedel,(2010) "Long-term growth and shortterm" Economic Research Journal No. 5-2010
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