journal of Applied Input-Output Analysis, Vol. 13 &14, 2008

Inter-sectoral Interdependence and Growth in Vietnam: A Comparative
Analysis with Indonesia and Malaysia"
byTakahiro Akita* and Chu Thi Trung HaiT

Abstract

This study examines the sources of growth in Vietnam employing a categorized growthfactor decomposition method. It conducts a comparative analysis of Vietnam, Indonesia andMalaysia. The major source ofVietnam's growth was export expansion. The secondary sec
tor played a key role, contributing not only to the sector itself but also the primary and ter
tiary sectors. Malaysia's growth pattern was similar to Vietnam's; export expansion was themain driver and the secondary sector led output growth. However, heavy industries played amore important role than light industries. Indonesia exhibits a different growth pattern than
Vietnam and Malaysia.

Keywords: Interdependence, Output Growth, Structural Changes, Southeast Asia, Vietnam, Input-Output Analysis
JEL classification: 014, 053

Inter-sectoral Interdependence and Growth in Vietnam: A
Comparative Analysis with Indonesia and Malaysia

1

Introduction

The Vietnamese economy's achievements in the 1990s are unambiguously impressive.

Professor of International Development, Graduate School of International Relations, International
University of Japan, 777 Kokusai-cho, Minami Uonuma, Niigata 949-7277, Japan. E-mail: akita@iuj.
ac.jp; Tel and fax: Japan-25-779-1414'Economics Researcher, Public Policy Training Program, Asian Development Bank, Vietnam, 2nd
Floor, Hanoi Lake View Building, 28 Thanh Nien Road, Hanoi, Vietnam. E-mail: chuhau@gmail.
com; Tel: Vietnam-844 715 1017

The authors are grateful to the Japan Society for the Promotion of Science (Grant-in-Aid for Scien
tific Research No. 18530216) for its financial support and two anonymous referees for their helpfulcomments. The authors would also like to thank Mohd Zahid Abdullah for providing Malaysian
input-output tables for 1987 and 1991.

62 Journal of Applied Input-Output Analysis, Vol. 13 &14, 2008

Due to a comprehensive market-oriented reform program known as doi moi (renova
tion) introduced in 1986, the Vietnamese government managed to transform an econ

omy characterized by highly centralized planning, stagnation, and macroeconomic instability in the mid-1980s to amixed economy with reasonably stable pnces and strong

growth adecade later. GDP grew at an average annual rate of over 8% between 1990

and 1997. Exports expanded more quickly, in both volume and variety, and inflows offoreign goods, technology, and investment capital played an important role in the mod
ernization of the economy (Kokko, 1998). While all sectors contributed to the overall
growth, the industrial sector1 was the main driver of GDP growth, as it expanded at an
average annual rate of 13-14% from 1993-1997.

Because almost a decade has passed since ambitious objective was set at the 8th
Party Congress in 1996 and only 15 years are left for the Vietnamese economy to become fully industrialized by 2020, this study examines the Vietnamese economy's pro
gress and assesses whether it is on track to becoming fully industrialized. The twomost important aspects that need to be considered are structural changes and thesources of growth. Clearly, structural changes in the form of a shift away from agricul
ture towards industry will be required if the economy is to become industrialized. Fur
thermore, the sources of industrial growth must be strengthened and diversified if theindustrial sector is to sustain a high growth rate and to expand its share in the economy.

The literature on the Vietnamese economy until now has tended to focus on the
supply response to reform policies. Most studies have examined overall economic
growth and have attempted to interpret and explain the key factors driving the econ
omy's growth performance at the macro-level2. Structural changes have been discussed
on an ad hoc basis but have not been the exclusive focus of any previous study. A descriptive analysis of the Vietnamese economy's growth and structure from 1975-1998
by Vo (2000) found a definite shift of the economy from agriculture towards nonagricultural sectors. Tarp et al. (2002) used the social accounting matrix for Vietnam in2000 to examine the structure of the economy at that particular point in time.
There have been several studies on industrial development. Le and Tran (1999)
discussed the accomplishments and difficulties of Vietnam's industrial sector from 1986
-1999. They provided an overview of the industrial sector's growth and the contributing
domestic and external factors during this period. Vo's study (2002) covered a similar
period though it focused on the growth of each industry.
The interactions between the three sectors of an economy (the primary, secondary,and tertiary sectors3) play an important role in the output growth of each industry,
which should also be considered in analyzing the process of industrialization. Theory
and empirical evidence suggest strong dynamic interactions among these three sectors.
While the industry sector includes manufacturing, mining, and construction, it mainly refers to manu
facturing activities especially when industrialization is concerned.
See, for example, van Arkadie and Mallon (2003) and Dodsworth et al. (1996)

The primary sector includes agriculture and mining. The secondary sector refers to all manufacturingindustries and is thus interchangeable with "the manufacturing sector". The tertiary sector consists ofall services activities, including construction. Therefore, the secondary sector in this paper differsfrom the industrial sector. A detailed sector classification is given in table 2.1.

Expansion in one sector is expected to have some effect on the growth of the other two^rs However, .he extern ,„ which the growth of each sector car, shmtate g^T*omy. As the Vietnamese government pursues industrialization and the secondary sector
increases mrelative importance, it is imperative to examine the expected impact ofsuch structural changes on the output growth of each industry as well as the overall

growth of the economy.

The economic transformation and growth in Vietnam can also be usefully com

pared with that of the dynamic ASEAN countries (DACs), which here refer to Indone
sia, Malaysia, the Philippines, Singapore, and Thailand. Since adopting doi moi, theVietnamese government has shown strong interest in the economic policies and experi

ences of the DACs. The Vietnamese government's goals of rapid industrialization andhigh economic growth are similar to the principal economic objectives of the DACs
(Gates, 2000). However, Vietnam is comparatively a latecomer to the industrialization
process among ASEAN countries, and thus, its policymakers can learn from the successes and failures of the DACs.

This study examines the sources of output growth in Vietnam during 1996-2000
using the 1996 and 2000 national input-output (I-O) tables. It employs a categorized
growth-factor decomposition method, which is an extension of the standard growthfactor decomposition method. In the categorized method, all industries in the I-O tables
are classified into the three sectors: the primary, secondary and tertiary sectors. The
method is able to analyze the effects of the interdependence between the three sectors
on the output growth of each industry in a coherent framework. This study adds to theexisting body of knowledge on Vietnam's economic development as it is the firstsources of growth analysis based on Vietnam's I-O tables.
In addition, this study conducts a comparative analysis on Vietnam from 19962000, Indonesia from 1990-1995 and Malaysia from 1987-1991. These periods arechosen due to the availability of the national I-O tables in the selected countries. Both
Indonesia and Malaysia in their respective periods were far more industrialized than Vi
etnam. Both had also undergone the different phases of structural changes and indus
trial growth. The comparative analysis elucidates useful implications of the develop
ment process for Vietnam.
This paper consists of five sections. Section 2 explains the growth factor decom
position methods. Section 3 presents the findings on structural changes and the resultsof the standard as well as categorized growth factor decomposition analyses in Vietnam
from 1996-2000. Section 4 conducts a comparative analysis of Vietnam, Indonesia andMalaysia. Lastly, section 5 presents the major findings and policy implications.

2

2.1

Method and the Data

MethodThere have been many studies on the sources of output growth based on an I-O frame
work. Most of them used the same decomposition technique developed by Chenery and64 Tonmal of Applied Input-Output Analysis, Vol. 13 &14, 2008

Syrquin (1979) and examined the pattern of economic development in relation to de(2000), Chenery (1980), James and Fujita (1989, 1997), Martin and Holland (1992),

2 - strategies. Among these studies were Akita (1990, Aktta and ta»
Urata (1987), Zakariah and Elameer (1999).

Considering the dynamic interactions between the three basic sectors of the econ

omy - the primary, secondary, and tertiary sectors - this study developed acategorized
growth factor decomposition method as an extension of the standard decomposition

method. In the categorized method, all industries are classified into these three sectors.

The categorized method takes into account the role of interdependence between thethree sectors while examining the sources of output growth of each industry. It can ex

plicitly identify growth factors that originate from within the sector, to which a particu
lar industry belongs, as well as those that come from the other two sectors.
Standard Growth Factor Decomposition Method

The growth-factor decomposition method used in this study is based on the fol
lowing supply-demand balance equation for the national I-O accounts:
X = AX + D + E - M,

(1)

where X, D, E, and M are vectors of gross output, domestic final demand, exports, andimports, respectively, while A is a matrix of technical coefficients. If we let M = m(AX+D), where m is a diagonal matrix of import ratios, then we can rewrite equation(Das

X = p(AX+D)+E(2)

where p is a diagonal matrix of domestic supply ratios (=I-m).
Solving equation (2) for X, we obtain gross domestic outputs necessary to satisfy
a specific level of domestic final demand and exports:
X = B(pD+E)(3)

where B = (I-pA)"1 is termed the domestic Leontief inverse. Equation (3) can be used
to solve for the change in gross outputs, AX = Xt-X0, in terms of changes in domestic
and export demands and changes in the two structural parameters, p and A:

AX = Bt[pt AD+AE+ Ap(AoXo+Do)+pt AAX0]" (4)This is the standard growth factor decomposition equation proposed by Chenery and
Syrquin (1979).

The growth-factor decomposition equation (4) is obtained by using the terminal
year structural parameters, pt, and Bt, and the base year volume weights, X0 and Do. We
can also obtain a decomposition equation based on the base year structural parameters,
p0, and Bo, and the terminal year volume weights, Xt and Dt. To solve an index number
problem, in this study we use the simple average of these two equations.
In sum, the change in the gross output is decomposed into the following four ma
jor factors: (a) Effect of the expansion of domestic final demand (DD); (b) Effect ofexport expansion (EE); (c) Effect of the changes in import ratios (domestic supply ratios) or import substitution (IS); (d) Effect of the changes in technical coefficients (IO).
Output growth due to the expansion of domestic final demand (DD) can be further de-Inter-sectoral Interdependence and Growth inVietnam: A Comparative Analysis with Indonesia and Malaysia

65

composed into four components in terms of domestic final demand sectors: household

consumption expenditure (DD1); government consumption expenditure (DD2); capitalformation (DD3); and changes in inventory (DD4). Thus, equations (4) can be writtenas:AX = (DD1+DD2+DD3+DD4)+EE+IS+ IO.

(5)Categorized Growth-Factor Decomposition Equation in a Three-Sector Economy

Now, we consider an economy whose industries are classified into the three sec
tors: the primary (P), secondary (S), and tertiary (T) sectors. Then the domestic Leontief inverse is thought to be composed of nine sub-matrices. That is,

Bt =

BPP
t

TftPS
i>t

TT|PT
JrJt

BSP

tijSS

uST

t

Jr3t

Jot

BTP

ttjTS

tqTT

t

JOt

JDt

Then equation (4) can be rewritten as:
AXP

BPS
t

-Ot

AXS
AXT

Bf
sr

B?T
Br

rpTADpAE"

pfADs[pTAD7

+

AES
AET

UP!

+

APp(2AoPLXo'+Bop)aps(i;a?lXol+d§)APt(SAotlX0l+DJ)

pSAAPLX0L

pSAASLX0L(6)

pSAATLx!rTherefore, by expanding this equation, we obtain the growth-factor decomposition
equation for each industry in each sector. For example, the equation for the secondary
sector is given by:

AXS =B?s(pfADs+AES+Aps(2ASLX!f+D?)+p?2 AASLX0L)+B?p(ppADp+ AEP+ App(S A0PLXo>Bop)+pP2 AAPLX0L)(7)+B?T(pMDT+ AET+ ApT(S AjLX!r+Dj)+p2 AATLX0L)
We can then identify the following six major factors for the output growth of anindustry in the secondary sector: (a) Effect of the expansion of domestic final demand
within the secondary sector, or the total effects on output of each industry within thesecondary sector of the expansion of domestic final demand in secondary industries(BPpfADS); (b) Effect of export expansion within the secondary sector, or the total ef
fect on output of each industry within the secondary sector of the expansion of exports

in secondary industries (BfsAEs); (c) Effect of the changes in import ratios (or domes
tic supply ratios) within the secondary sector, or the total effect on the output of eachindustry within the secondary sector of the changes in import ratios (or domestic sup-

66

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

ply ratios) in secondary industries ((B?sAps(S AoLXo+D§)); (d) Effect of the changes intechnical coefficients, or the total effect on output of each industry within the secon
dary sector of the changes in technical coefficients associated with the secondary sector(B?sp?2 AASLXo); (e) Total effect on output of each industry within the secondary sec
tor due to the changes in the demands for the primary sector (the terms with Bfp inequation (7)); and (f) Total effect on output of each industry within the secondary sec

tor due to the changes in the demands for the tertiary sector (the terms with BfT inequation (7)).
We can similarly obtain the categorized growth-factor decomposition equations forthe primary and tertiary sectors. The sum of (a), (b), (c), and (d) above is the total ef
fect on the output of each industry within the secondary sector due to the changes inthe demands for the secondary sector (the terms with Bfs in equation (7)), which canbe termed within-sector demand effects. It should be noted that in the same way as thestandard decomposition equation, we can obtain a categorized decomposition equation
based on the base year structural parameters and the terminal year volume weights.
Therefore, we also use the simple average of the two equations in the categorized decomposition analysis.

2.2 The Data

The Vietnam General Statistics Office (Vietnam GSO) compiled national
competitive-import type Input-Output (I-O) tables for 1989, 1996 and 2000 based on
producers' prices (Vietnam GSO, 1999, 2003). The first table is, however, very rudi
mentary; thus, the 1996 and 2000 tables were used for the growth factor decomposition
analyses. The 1996 I-O table consists of 97 industries, while the 2000 table has 112 industries. These two tables were transformed into 50-industry tables. The results are,however, presented by using a 15-industry classification, as shown in table 1. It should

be noted that in order to examine real changes over the study period, the original cur
rent price 2000 I-O table was converted into a 1996 constant price table using producer
price indices by industry or GDP deflators by industry when the former are not avail
able.

This study conducts a comparative analysis on Vietnam, Indonesia and Malaysia.
The period of analysis for Indonesia and Malaysia are 1990-1995 and 1987-1991, re
spectively, due to the availability of national I-O tables. The Indonesian Central Bureauof Statistics (Indonesia CBS, 1995, 1998) published the 1990 and 1995 I-O tables,
which are based on producers' prices. The 1990 table consists of 161 industries, whilethe 1995 table includes 172 industries. These I-O tables were transformed into 37-

industry tables, which were then converted into 1983 constant price tables by GDP deflators by industry. In the case of Malaysia, the Malaysian Department of Statistics(Malaysia DS, 1994, 2002) published the 1987 and 1991 I-O tables, which are basedon producers' prices. The 1987 table consists of 60 industries, while the 1991 table has

92 industries. For this study, these tables were transformed into 50-industry tables. The
1991 table was then converted into a 1987 constant price table using GDP deflators byindustry. It should be noted that in the comparative analyses, the results are all presented using the 15-industry classification.

Inter-sectoral Interdependence and Growth in Vietnam: A Comparative Analysis with Indonesia and Malaysia

67

Table 1: Industry Classification
3 Sectors

1 Primary

2 Secondary

15 Industries
1

Agriculture2

Mining3

Food/Beverages/Tobacco

50 Industries

1
2
3
4
5
6
7
8
9

Agriculture Farming
Livestock Breeding
Agriculture Services
Forestry
Fishery
Coal mining
Metal ore mining
Stone and other non-metallic mineral quarrying
Crude oil, natural gas

10

Food Industries

11
12
13
14
15
16
33
34
20

Beverages Industries
Sugar refineries
Coffee processing
Tea processing
Tobacco manufacturing
Processing seafood
Textile products
Leather and leather products
Wood and wood products

4

Textile/Wearing Apparel5

Wood products

6

Paper/Printing/Publishing

19 Paper pulp, paper and paper products
35 Printing & publishing industries

7

Chemical Products

22

8

23
24
25
Non-metallic mineral products 17
18
21

Industrial chemicals

Fertilizers and pesticides
Other chemical products
Rubber and plastic products
Glass and glass products
Ceramic and ceramic products
Building materials industries

9

Iron/Steel/Nonferrous metals

31 Ferrous metals manufactures
32 Nonferrous metals

10Machinery/Equipment

26 Professional and scientific equipment
27 Transportation equipment

28 Machinery and equipment (except electrical)
29 Electrical machinery, equipment & appliances

3 Tertiary

30 Communication and broadcasting equipment
36 Other manufacturing industries
37 Electricity and Gas

11

Other Manufacturing

12

Electricity/Gas/Water

13

Construction

39 Construction

14

Trade

40 Trade & repair work

15

Services

38 Water supply and distribution

41

Hotels and restaurants

42 Transport
43

Communication

44

Tourism

45

Finance

46

Insurance

47

Science and technology

48 Real estate, leasing and consulting services
49

Government and other services

50 Services serving ind., houshd. and community

68

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

3 Structural Changes and Sources of Output Growth in Vietnam
1996-2000

3-1 Structural Changes

Using the 1996 and 2000 I-O tables, this section examines changes in Vietnam's indus
trial structure between 1996 and 2000. The share of agriculture in total output decreased from 21.4% to 15.6%, while the mining industry's output share increased from

4.8% to 8.7%. Therefore, the primary sector as a whole, including agriculture and mining, still played an important role in output. The share of the secondary sector in out
put rose from 34.5% to 39.8%, mainly due to the near doubling of textile and wearing
apparel's share. The industry composition of value-added followed a similar pattern tothat of output.

With regard to industry composition of exports, agriculture declined in relative im
portance, nearly halving its share in total exports. But, the share of mining increased
significantly from 15.3% to 27.6%, reflecting a substantial increase in crude oil ex
ports. On the other hand, the combined share of manufactured exports declined slightly
from 45.2% to 43.6%. Among manufacturing industries, the share of textile and wear
ing apparel increased from 16.0% to 18.9%, which are the results of the government's
efforts to promote exports of labor-intensive products, in which Vietnam has compara
tive advantages.
With regards to the industry composition of imports, machinery and equipment
continued to account for more than a quarter of total imports, despite a slight decreaseduring this period. The large volume of imports of machinery and equipment was pri
marily driven by large FDI inflows and strong post-Asian crisis recovery in domestic

investment during the study period. The second most important import item, chemical
products, experienced a fall in import share, mainly reflecting a decrease in fertilizer
imports. This might be due to additional import restrictions imposed on fertilizers dur
ing the period. In contrast, the textile and wearing apparel industry's import share increased and became the third largest manufacturing industry in imports, after the machinery and equipment industry and the chemical industry. This may be explained byan increase in the importation of textile materials used in the production of textile andwearing apparel exports.
In sum, the changes in the structure of the I-O tables indicate a shift in Vietnam's

economy away from agriculture. The secondary sector grew in relative importance.
However, since the mining industry also expanded at the same time, the primary sector
continued to contribute significantly to the economy.

3.2 Standard Growth Factor Decomposition Analysis
Table 2 presents the results of the standard growth-factor decomposition analysis, withall entries expressed as percentages of total national output growth.4 During 1996-2000,
Vietnam's output growth was driven mainly by export expansion (EE), accounting for56.3% of total output growth. The industries most affected by export expansion wereInter-sectoral Interdependence and Growth in Vietnam: AComparative Analysis with Indonesia and Malaysia 69
Table 2: Sources of Output Growth, 1996-2000

Standard Growth Factor Decomposition Analysis(as Percentage of Total Output Growth)(in %)

Industry/Sector

IS

10

DD1

DD2

DD3

1 Agriculture

3.1

-1.4

-0.5

0.0

1.0

3.2

5.3

3.3

2 Mining

-0.1

-1.1

0.1

0.0

0.9

15.9

15.6

29.6

Primary

2.9

-2.5

-0.4

0.0

1.9

19.1

21.0

9.7

1.3

0.8

5.4

0.0

1.0

EE

Total

G. Rate3 Food/Beverages/Tobacco
4 Textile/Wearing Apparel
5 Wood products

3.4

11.9

9.5

1.2

1.3

2.8

0.0

0.0

11.2

16.6

30.5

-0.1

-1.5

0.0

0.0

0.3

0.1

-1.1

-7,7

6 Paper/Printing/Publishing

0.1

-0.3

1.0

0.0

0.1

0.2

1.1

9.2

7

2.0

0.3

1.3

0.0

0.7

1.0

5.4

21.7

8 Non-metallic mineral products

0.5

0.0

0.0

0.0

1.8

0.2

2.5

10.1

9

2.1

-0.8

0.1

0.0

1.0

1.4

3.8

33.9

10 Machinery/Equipment

1.4

1.3

0.0

0.0

1.7

4.9

9.3

32.9

11 Other Manufacturing-1.8

0.7

-0.6

0.0

-0.1

1.5

-0.4

-3.7

6.8

1.8

10.1

0.0

6.5

23.9

49.1

12 Electricity/Gas/Water

-1.6

0.7

0.4

0.0

0.4

1.2

1.0

5.2

13

Construction

0.0

-0.9

0.0

0.0

9.3

0.1

8.6

10.6

14

Trade

-6.0

5.9

4.4

0.0

1.6

7.5

13.4

16.3

Chemical Products

Iron/Steel/Nonferrous metals

Secondary

15

15.9

Services

-2.0

-1.5

5.4

-0.2

0.8

4.5

7.1

5.2

Tertiary

-9.6

4.2

10.2

-0.2

12.1

13.3

30.0

9.4

Total

0.1

3.5

19.9

-0.2

20.5

56.3

100.0

mining, particularly crude oil and natural gas, the textile and wearing apparel, andtrade. In total, the secondary sector's export expansion accounted for almost a quarterof total output growth.
To a much lesser extent, capital formation (DD3) was the second largest source of

output growth at 20.5%.5 As expected, the construction industry accounted for the larg
est share of this effect at 9.3% of total growth. In contrast, the secondary sector's capi
tal formation accounted for only 6.5% of total growth. The increase in household con

sumption (DD1) was the third largest contributor to output growth at 19.9%. The in
dustries that accounted for much of this effect were food, beverages and tobacco, serv
ices, trade, and textile and wearing apparel.

In the aggregate, import substitution (IS) had virtually no effect on output growth.
However, the secondary sector accounted for the largest positive effect at 6.8% of total
growth. This is reflective of the fact that government protection of certain manufactur
ing industries, e.g., automobile, fertilizer, iron, and steel, resulted in an increase in do
mestic production and a concurrent decrease in imports in these industries. Finally,
4 The analysis was conducted using the I-O tables for 50 industries; but the results are presented for
15 industries.

5 In the growth factor decomposition analysis for Vietnam, capital formation (DD3) includes changes
in inventory.

70

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008changes in the technical coefficients (10) were not a major source of growth, indicatingthat there was little change in production structure as represented by I-O coefficients.
The secondary sector as a whole accounted for almost half of total growth, which
was much larger than its output share; almost half of its growth was brought about by

the expansion of exports. This clearly indicates that export expansion in the secondary
sector played a pivotal role inVietnam's growth during the study period. Among manu
facturing industries, the textile and wearing apparel industry and the machinery andequipment industry grew very rapidly. Together, they accounted for a quarter of total
growth, and their growth was driven by export expansion. The chemical industry andthe iron, steel, and nonferrous metal industry also grew very rapidly, but the main

source of their growth was the effect of import substitution. The food, beverage, andtobacco industry grew at a much slower rate, but it accounted for 11.9% of total
growth due to its preponderant share of total output.
The mining industry also grew very rapidly. Export expansion was solely respon
sible for this industry's significant contribution to output growth. On the other hand,
agriculture's contribution was negligible, which is in contrast to its output share. The
effects of import substitution and export expansion contributed equally to the agricul
tural industry's growth.

3.3 Inter-sectoral Interdependence and Sources of Output Growth: A Categorized Growth Factor Decomposition Analysis
Based on equation (6), tables 3 and 4 present the results of the categorized growth fac
tor decomposition analysis. In table 3, each entry is shown as a percentage share of Vi

etnam's total output growth, while in table 4, each entry is shown as a percentage shareof the growth of each industry or each sector.
In table 3, the primary sector column presents the total (direct and indirect) effects
on output of each industry due to demand changes in the primary sector. It is the sumof the four effects originating in the primary sector. Similarly, the secondary and terti
ary sectors' columns present the total (direct and indirect) effects on output of each industry due to demand changes in the secondary and tertiary sectors, respectively.
The secondary sector played a key role in the total output growth. In total, 51.6%

of total growth was induced by the effects of demand changes in the secondary sector.
Of this amount, the secondary sector induced growth in the primary and tertiary sectors
by 3.6% and 4.1%, respectively, of total growth. The secondary sector's contribution at
51.6% was much larger than its share of output, which was 39.8% in 2000.

On the other hand, only 18.2% of total output growth was induced by demandchanges in the primary sector, and its contribution to the growth of the secondary andtertiary sectors was merely 0.0% and 2.0%, respectively, of total growth. The primarysector's contribution was much smaller than its output share (24% in 2000). The terti

ary sector's contribution to total growth at 30.2% was also smaller than its output share(35.9%). However, the tertiary sector induced significant growth in the secondary sec
tor at 5.1% of total growth, thus indicating that the tertiary sector had strong backward
linkages with the secondary sector.

It is apparent that most of the output growth of each sector was induced by within-sector demand effects.6 Within-sector effects accounted for 76.9%, 89.6%, and 79.4%

Inter-sectoral Interdependence and Growth in Vietnam: AComparative Analysis with Indonesia and Malaysia 71
Table 3: Sources of Output Growth, 1996-2000

Categorized Growth Factor Decomposition Analysis(as Percentage of Total Output Growth)
Industry/Sector

Primary

Secondary

Tertiary

OutputGrowth

1 Agriculture

1.7

3.0

0.5

5.3

2 Mining

14.4

0.5

0.8

15.6

Primary

16.1

3.6

1.3

21.0

3 Food/Beverages/Tobacco
4 Textile/WearingApparel

-0.1

11.5

0.5

11.9

0.0

16.5

0.1

16.6

5 Wood products

0.0

-1.4

0.4

-1.1

6 Paper/Printing/Publishing

0.0

0.7

0.3

1.1

7

Chemical Products

-0.1

4.9

0.6

5.4

8 Non-metallic mineral products

0.0

0.5

1.9

2.5

9

0.0

3.2

0.6

3.8

10 Machinery/Equipment

0.1

8.5

0.6

9.3

11 Other Manufacturing

0.0

-0.5

0.1

-0.4

0.0

43.9

5.1

49.1

0.3

0.7

0.0

1.0

Iron/Steel/Nonferrous metals

Secondary

12 Electricity/Gas/Water
13

Construction

0.1

0.1

8.4

8.6

14

Trade

0.1

1.8

11.5

13.4

15

Services

1.6

1.5

3.9

7.1

Tertiary

2.0

4.1

23.8

30.0

Total

18.2

51.6

30.2

100.0

of the output growth of the primary, secondary, and tertiary sectors, respectively (seetable 4). It is clear from the following that inter-sectoral linkages of the primary andthe tertiary sectors are relatively stronger than those of the secondary sector: 1) in the

primary sector, 17.0% and 6.2% of its output growth were induced by demand effectsof the secondary and tertiary sectors, respectively; 2) in the tertiary sector, 6.8% and13.8% of its output growth were induced by the demand effects of the primary andsecondary sectors, respectively; and 3) in the secondary sector, however, 0.0% and10.4% of its output growth were induced by the demand effects of the primary and ter
tiary sectors, respectively.

Within the primary sector, mining accounted for 15.6% of Vietnam's total output
growth, and most of its growth was induced by within-sector demand effects. Table 5
presents the details of within-sector demand effects, in which each entry is presented asa percentage share of Vietnam's total output growth. The effect of export expansion
within the primary sector is the main driver of the output growth of mining. The mining industry's export ratio increased substantially during the study period from 63.9%
to 87.2%. The mining industry thus appears to have had relatively weak forward link
ages to the secondary and tertiary sectors at that time. If and when stronger linkages
In equation (7), which describes the categorized growth factor decomposition equation for the secon
dary sector, within-sector demand effects are captured by the terms with Bf in equation (7).

72

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

Table 4: Sources of Output Growth, 1996-2000

Categorized Growth Factor Decomposition Analysis(as Percentage of the Output Growth of Each Industry or Each Sector)(in %)

Industry/Sector

SecondaryPrimary

Tertiary

Output Growth

57.0

10.1

100

1 Agriculture

32.9

2 Mining

91.8

3.4

4.8

100

76.9

17.0

6.2

100

Primary

3 Food/Beverages/Tobacco

-0.4

96.6

3.9

100

4 Textile/Wearing Apparel

0.1

99.4

0.6

100

5 Wood products

-2.4

136.2

-33.8

100

6 Paper/Printing/Publishing

2.3

65.1

32.6

100

7

-2.3

92.0

10.3

100

8 Non-metallic mineral products

-1.1

22.2

78.9

100

9

100

Chemical Products

1.1

83.3

15.7

10 Machinery/Equipment

1.4

91.9

6.7

100

11 Other Manufacturing

5.1

126.4

-31.5

100

0.0

89.6

10.4

100

26.4

70.4

3.2

100

Iron/Steel/Nonferrous metals

Secondary
12 Electricity/Gas/Water
13

Construction

0.8

0.6

98.5

100

14

Trade

0.6

13.6

85.7

100

15

Services

23.0

21.9

55.1

100

Tertiary

6.8

13.8

79.4

100

Total

18.2

51.6

30.2

100

are developed with Vietnam's secondary sector through the increased flows of mining
products to processing activities, it is expected that such linkages will generate higher
growth and value-added in the economy.

Agriculture's contribution to Vietnam's total output growth was very small, andmuch of its growth was induced by the effects of demand changes within the secon
dary sector. However, import substitution effects within the primary sector contributed
significantly to the output growth of agriculture. In contrast, the expansion of primaryexports accounted for only 13.4% of agricultural growth. According to the results ofthe standard growth factor decomposition analysis (table 2), more than half of agricul
tural growth is attributed to export expansion. The substantial difference between these

two figures is accounted for by the effects of export expansion in the secondary sector.
Inter-sectoral interdependence thus played a critical role in the growth of agriculture.
Within the secondary sector, textile and wearing apparel had the largest contribu
tion to Vietnam's total output growth at 16.6%, followed by food, beverage and to
bacco and machinery and equipment (See table 3). As indicated in table 4, most of thegrowth of these manufacturing industries was induced by the effects of demandchanges within the secondary sector. Export expansion was the main driver in the tex
tile and wearing apparel industry and the machinery and equipment industry, while theexpansion of domestic final demand was the main driver of output growth in the food,beverage and tobacco industry.

Inter-sectoral Interdependence and Growth in Vietnam: AComparative Analysis with Indonesia and Malaysia 73
Table 5: Within-Sector Sources of Output Growth, 1996-2000(as Percentage of Total Output Growth)
Industry/Sector

IS

IO

DD

EE

Total

1 Agriculture

2.8

-1.4

-0.3

0.7

117

2 Mining

-0.3

-1.0

0.1

15.7

14,4

2.5

-2.5

-0.3

16.4

16.1

Primary Sector

3 Food/Beverages/Tobacco
4 Textile/Wearing Apparel

1.4

0.8

6.2

3.1

11 .5

1.3

1.3

2.8

11.2

16 5

5 Wood products

0.0

-1.5

0.0

0.1

-1 4

6 Paper/Printing/Publishing

0.2

-0.3

0.8

0.0

0 7

7

2.0

0.7

1.5

0.8

4 9

8 Non-metallic mineral products

0.6

0.2

-0.3

0.1

0 5

9

2.2

-0.8

0.5

1.3

3 2

10 Machinery/Equipment

1.8

1.1

1.1

4.6

8 5

11 Other Manufacturing

-1.8

0.7

-0.9

1.4

-0 5

Secondary Sector

7.7

2.1

11.6

22.6

43 9

0 0

Chemical Products

Iron/Steel/Nonferrous metals

12 Electricity/Gas/Water

-1.8

0.6

0.6

0.6

13

Construction

0.0

-0.9

9.4

0.0

8,4

14

Trade

-6.4

5.9

6.0

6.0

11{5

-2.2

-1.4

5.6

2.0

3.9

-10.5

4.1

21.5

8.6

23,8

15

Services

Tertiary Sector

The chemical product industry and the iron and steel industry also recorded large
output growth. Again, most of the output growth of these industries was induced by ef
fects originating in the secondary sector. In contrast with the above top three manufac
turing industries, however, import substitution effects played an important role in thegrowth of these two industries, accounting for 37.8% and 58.7%, respectively, of their
growth.
It should be noted that while the non-metallic mineral products industry accounted

for 2.5% of Vietnam's total output growth, most of its growth was induced by effects

originating in the tertiary sector (see table 4). Within the tertiary sector, the construction industry would have generated significant demand for non-metallic mineral prod
ucts (e.g., cement).

In all, nearly half of the output growth of the secondary sector was induced by export expansion within the sector itself. Because of the inter-sectoral interdependence
noted above, exports in the secondary sector played a significant role in the growth of
not only the secondary sector but also agriculture.

Within the tertiary sector, trade was the largest contributor to Vietnam's output

growth at 13.4%, which was followed by construction and services (see table 3). As
shown in table 4, most of the growth of construction and trade was induced by the ef
fects of demand changes within the tertiary sector. On the other hand, the primary andsecondary sectors contributed 23.0% and 21.9%, respectively, to the growth of services,
indicating that the services industry has strong forward linkages with the primary andsecondary sectors.

74 Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

In sum, the growth pattern observed from 1996-2000 seems to have followed

Petty-Clark's law (Clark, 1940). There was a significant shift in output and demand

from the primary to secondary sector even within a short time period. The secondary
sector accounted for about half of total output growth and much of its growth was induced by the demand effects within the secondary sector. This is despite the fact thatits output share was less than 40% in the period. On the other hand, primary sector's
contribution to total output growth was 21%, but merely 16 percentage points were in
duced by demand changes within the primary sector, which was much smaller than the
sector's output share. The effects ofexport expansion in the secondary sector played an
important role in the output growth of agriculture.

4 A Comparative Analysis with Indonesia and Malaysia
Vietnam had a much smaller GDP than Malaysia and Indonesia: Vietnam's GDP was

35% of Malaysia's and 19% of Indonesia's. Vietnam's GDP per capita was also smallerat 10% of Malaysia's and 50% of Indonesia's. According to the World Bank (2005), in
Vietnam, more than 30% of the population was still living below the national poverty
line in 1998, while comparable figures for Malaysia and Indonesia were approximately
15%.

Indonesia and Malaysia are both natural resource-rich countries. Primary exports
have contributed significantly to these two economies, especially in the early stages ofindustrialization. Vietnam, however, does not have similar levels of natural resources.

Although Vietnam has mineral resources, which have contributed significantly to export
revenue in recent years, its oil reserves on a per capita basis are only a fraction of
those of Indonesia and Malaysia (Riedel, 1999). Vietnam also had the smallest amountof arable land per capita among the three countries. Therefore, while resource-based in
dustries have played an important role in the development of Indonesia and Malaysia,
their roles have been limited in Vietnam.

Vietnam, like Indonesia but unlike Malaysia, has an abundant labor supply, with apopulation of 78 million and a population density of 241 persons per km2 in 2000. Its
population density is, in fact, the highest among all three countries. Vietnam also has arelatively high level of human development. As an example, its adult literacy rate was
the highest among the three countries in 2000. Thus, it has the potential for the devel
opment of labor-intensive industries, especially in the early stages of its economic development.
4.1

Industrial Structure

Table 6 presents the industrial structures of Vietnam from 1996-2000, Malaysia from1987-1991, and Indonesia from 1990-1995 in terms of output and value added. Vietnam had the largest agricultural share in both output and value-added among the three
countries, thus confirming that Vietnam is still a highly agriculture-based economy in2000. However, agriculture's share of economic output decreased markedly in all three
countries during the aforementioned periods, while the secondary sector gained in rela-Table 6: Industrial Structure in Output and Value Added
in %OutputMalaysia

VietnamIndustry/Sector

1996

Value Added

2000

1987

Indonesia

1991

1990

Malaysia

Vietnam

1995

1996

2000

1987

Indonesia

1991

1990

1995

1

Agriculture

21.4

15.6

12.9

9.0

12.2

10.1

31.2

22.2

19.3

15.1

17.6

14.9

2

Mining

4.8

8.7

6.2

4.5

8.9

7.0

6.0

15.6

10.8

8.2

14.0

11.6

Primary Sector

26.2

24.3

19.1

13.4

21.1

17.1

37.2

37.8

30.2

23.3

31.6

26.5

3
4
5
6
7

Oil Refinery
Food/Beverages/Tobacco
Textile/Wearing Apparel
Wood products
Paper/Printing/Publishing

15.4
4.9
2.2
1.4

14.1
9.1
1.0
1.3

10.0
2.2
2.9
1.2

7.6
2.3
2.4
1.3

3.7
10.4
3.5
2.3
1.1

11.7
4.0
2.1
1.3

6.9
2.8
0.8
0.7

7.6
4.5
0.6
1.0

4.6
3.3
1.5
1.9
0.8

3.0
2.4
1.5
1.2
1.1

8

Chemical Products

2.5

3.6

9.1

7.4

3.2

4.5

1.2

3.0

4.6

4.0

1.5

2.3

9

Non-metallic mineral products

3.0

2.8

1.2

1.4

0.7

0.8

2.0

1.8

1.1

1.3

0.4

0.3
0.7

o
o

3

5.4
1.9
1.7
0.6

6.7
2.4
1.2
0.9

10 Metal Products

1.0

2.0

2.6

3.6

1.3

1.2

0.6

0.8

1.3

2.0

0.7

11 Machinery/Equipment

2.5

4.9

8.8

17.8

4.2

4.8

1.1

3.2

4.9

9.8

2.5

3.0

12 Other Manufacturing

1.6

0.9

0.6

1.0

0.1

0.3

1.0

0.5

0.4

0.2

0.1

0.2

Secondary Sector

34.5

39.8

38.5

44.8

33.0

34.4

17.2

22.8

19.7

23.6

19.4

20.7

13 Electricity/Gas/Water

2.5

2.0

2.2

2.2

1.2

0.9

2.4

2.9

2.9

3.2

0.5

0.4

14 Construction

9.8

9.3

6.9

6.9

11.1

11.9

6.4

5.4

3.8

3.4

6.8

8.9

15

Trade

9.1

10.6

9.9

10.7

8.0

13.1

12.8

12.0

11.6

14.6

11.5

16.4

16

Services

17.8

13.9

23.4

21.9

25.6

22.6

24.0

18.9

31.9

31.9

30.1

27.2

Tertiary Sector

39.2

35.9

42.4

41.7

45.9

48.5

45.6

39.2

50.2

53.2

48.9

52.8

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

>

2

LA

76

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

tive importance and exceeded 20% in value added in the terminal year.
Within the secondary sector, light industries (industries 4-7) accounted for agreater share of output and value-added in Vietnam and Indonesia than heavy industries(industries 8-11 for Vietnam; industries 3 and 8-11 for Indonesia). In Vietnam, heavy
industries grew very rapidly during the study period, but the output share of heavy industries was still 13.3% in 2000, which was much smaller than the share of light in

dustries at 25.5%. In Indonesia, despite the inclusion of the oil refining industry, heavy
industries still comprised a smaller segment of the economy in comparison to light in
dustries: heavy industries accounted for 15.0% of total output in 1995, while light in
dustries accounted for 19.1% of total output. On the other hand, in Malaysia, heavy industries' share of total output was much larger than light industries'. In 1987, heavy industries accounted for 21.7% of total output in Malaysia, and this increased markedly
in the study period due mainly to the rapid expansion of the machinery and equipment
industry: by 1991, heavy industries' share of total output had increased to 30.2% of total output, which is in sharp contrast to light industries' 13.6%.

4.2 Inter-sectoral Interdependence and Sources of Output Growth: A Categorized Growth Factor Decomposition Analysis
Tables 7 and 8 present the results of the categorized growth-factor decomposition
analysis, based on equation (6), for Vietnam from 1996-2000, Malaysia from 19871991, and Indonesia from 1990-1995. In these tables, the results are presented in an
aggregated format in order to highlight the roles of inter-sectoral interdependence inthe growth of output among the three sectors: the primary, secondary and tertiary sec
tors.

In Malaysia, 57.4% of total output growth was induced by the effects of demandchanges in the secondary sector, which contributed 1.8% and 6.9% to the growth of the
primary and tertiary sectors, respectively. On the other hand, in Indonesia, only 40.2%

of total output growth was induced by the effects of demand changes in the secondary
sector. However, the secondary sector contributed significantly to the growth of the primary sector. Its contribution to the growth of agriculture was 6.7% of total output
growth, indicating that the secondary sector, especially the food, beverage and tobacco
industry, had very strong backward linkages with agriculture. In contrast, in Malaysia,
the secondary sector had strong backward linkages with the tertiary sector, especiallytrade. Its linkages with the primary sector were very weak.
The contribution of Vietnam's secondary sector to the country's output growth isin between the contribution of Malaysia and Indonesia's secondary sectors to their respective country's output growth. In Vietnam, 51.6% of total output growth was induced by the effects of demand changes in the secondary sector, which contributed
3.6% and 4.1% to the growth of the primary and tertiary sectors, respectively. Whereas
Vietnam's secondary sector had stronger backward linkages with agriculture than Ma
laysia's, it had weaker linkages than Indonesia's. Vietnam's secondary sector contrib
uted little to the growth of the tertiary sector.

In all three countries, the primary sector contributed very little to the output
growth of the other two sectors. However, Vietnam's primary sector seems to have had
relatively strong linkages with the tertiary sector, especially services. Unlike Vietnam

Inter-sectoral Interdependence and Growth inVietnam: A Comparative Analysis with Indonesia and Malaysia

77

Table 7: Sources of Output GrowthCategorized Growth Factor Decomposition Analysis(as Percentage of Total Output Growth)
Country

Malaysia

Indonesia

SectorPrimary

SecondaryPrimary

16.1

3.6

Tertiary

Total

1.3

21.0

Secondary

0.0

43.9

5.1

49.0

Tertiary

2.0

4.1

23.8

29.9

Total

18.2

51.6

30.2

100.0

Primary

2.7

1.8

1.3

5.8

Secondary

0.5

48.7

4.2

53.3

Tertiary

0.3

6.9

33.6

40.8

Total

3.5

57.4

39.1

100.0

Primary

1.8

6.5

3.4

11.7

Secondary

0.0

28.9

7.3

36.2

Tertiary

0.2

4.8

47.0

52.0

Total

2.0

40.2

57.8

100.0

Table 8: Sources of Output GrowthCategorized Growth Factor Decomposition Analysis(as Percentage of the Output Growth of Each Sector)
Country

SectorPrimary
Vietnam

Malaysia

Indonesia

SecondaryPrimary

Tertiary

Total

6.2

100

89.6

10.4

100

13.8

79.4

100

18.2

51.6

30.2

100

46.4

31.2

22.4

100

91.3

7.8

100

0.7

17.0

82.3

100

Total

3.5

57.4

39.1

100

Primary

15.7

55.1

29.2

100

Secondary

0.0

79.8

20.2

100

Tertiary

0.3

9.3

90.4

100

Total

2.0

40.2

57.8

100

76.9

17.0

Secondary

0.0

Tertiary

6.8

Total

Primary

Secondary

0.9

Tertiaryand Malaysia, the tertiary sector played a prominent role in Indonesia. While its growthamounted to 52%, its demand effects brought about 57.8% of total growth, and its con

tribution to the primary and secondary sectors was 3.4% and 7.3%, respectively, of total growth. In Indonesia, the demand effects originating in the tertiary sector generated
57.8% of total output growth, which is much higher than 40.2% generated by the sec
ondary sector's demand effects. In Vietnam, by contrast, only 30.2% of total output
growth was induced by the tertiary sector's demand effects, which was much smaller
than the 51.6% induced by the secondary sector's demand effects. Malaysia's tertiary
sector's contribution to total output growth is in between Vietnam's and Indonesia's.

78

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

According to table 8, in all three countries, most of the growth of the secondary
and tertiary sectors was induced by within-sector demand effects. In Vietnam, most of
the primary sector's growth was also induced by within-sector demand effects. How
ever, this is due to a large within-sector effect in mining, which experienced output

growth driven by the expansion of within-sector export demand. On the other hand,
57% of agriculture's growth was brought about by demand effects from the secondary
sector.

In Indonesia, agriculture's growth depended heavily on the secondary sector: 94%
of agriculture's growth was brought about by the demand effects from the secondary
sector. However, mining seems to have had very weak forward linkages with the secon
dary sector as its growth was not at all affected by demand effects from the secondary
sector. On the other hand, in Malaysia, more than half of agriculture's growth was

brought about by within-sector effects. However, unlike Indonesia and Vietnam, Malay
sia's mining industry had very strong forward linkages with the secondary and tertiary
sectors; only 30% of its growth was induced by within-sector effects.
Although Indonesia and Malaysia are far more industrialized than Vietnam, theyalso seem to have followed Petty-Clark's law of structural changes. There was a shiftof output and demand from the primary to secondary sector in their respective periods.
In these two countries, much of the primary sector's output growth was induced by thedemand effects from the secondary and tertiary sectors, indicating that their primarysector had much stronger forward linkages with the secondary and tertiary sectors than
Vietnam's. In Indonesia, the tertiary sector is found to have played a very importantrole in output growth, inducing not only its output growth but also the growth of theother sectors.

5 Summary of Findings and Concluding Remarks
Vietnam underwent a structural transformation from agricultural production towards
non-agricultural production between 1996 and 2000. The manufacturing sector's contri
bution to total output and value-added increased by over five percentage points during
this period. However, as the mining industry expanded at the same time, the primarysector's contribution to output continued to be significant.

Exports of textile and wearing apparel grew in relative importance, reflectingsome positive results of the Vietnamese government's efforts to promote exports oflabor-intensive products, in which Vietnam had comparative advantages. The overall
export structure, however, remained heavily dependent on natural resources. Domestic

production relied substantially on imported intermediate inputs, machinery, and equip
ment despite the government's intention to sustain its import substitution policies.
The major source of output growth from 1996-2000 in Vietnam was the expansionof exports, mainly in the mining industry and the textile and wearing apparel industry.
While the effect of the secondary sector's export expansion remained modest, it is notaltogether disappointing, given the adverse impact of the Asian crisis on the demand
for and the competitiveness of Vietnamese exports during this period. However, the na
tional growth's obvious and strong dependence on the export of mining products, par-

Inter-sectoral Interdependence and Growth in Vietnam: AComparative Analysis with Indonesia and Malaysia

79

ticularly crude oil, should be a cause for concern given Vietnam's limited natural resources endowment. To maintain export expansion as the major driver of economic
growth, Vietnam's export base will need to be diversified to include more processed
products.

The effect of the decrease in import ratios, or import substitution, was the major
source of output growth in several heavy industries such as the chemical products industry, the iron, steel and nonferrous metals industry, and the machinery and equipment
industry, which enjoyed strong trade protection under the auspices of the government.
These industries should nevertheless consider exploring other sources of growth sinceprotection measures will be abolished when Vietnam fully complies with its obligations
under the ASEAN Free Trade Area (AFTA) and when it joins the World Trade Organi
zation (WTO) in the future.

According to the categorized growth factor decomposition analysis, the secondary
sector played a key role in Vietnam's output growth; in fact, its demand effects induced
more than half of total growth. As expected, the secondary sector had the greatest po
tential to induce growth in the other two sectors while concurrently generating its own
growth - its combined contribution to the other sectors was about 8% of total output
growth. Therefore, as Vietnam shifts away from primary production towards secondary

production in the process of industrialization, it can expect to achieve higher growthlevels. On the other hand, the tertiary sector's contribution was much smaller than thesecondary sector's, but the tertiary sector contributed significantly to the growth of thesecondary sector, indicating that the former had strong backward linkages with the lat
ter.

Exports in the secondary sector played a significant role in inducing the growth ofboth primary and secondary sectors. Manufactured exports should thus be promoted asa potential catalyst of economic growth. In addition, stronger linkages between the primary sector, particularly the mining industry, and the secondary sector are expected togenerate higher value-added for the economy through the processing of primary products.

The comparative country analysis revealed that although Indonesia from 19901995 and Malaysia from 1987-1991 were far ahead of Vietnam from 1996-2000 interms of industrialization, both countries also underwent some similar structuralchanges. The decline in importance of agriculture was evidenced across all three countries, though from different levels and at different rates. Vietnam, however, remained
the most agriculturally-based economy among the three. The secondary sector did ex

pand its share in all three economies; however the Malaysian secondary sector had thelargest share and, unsurprisingly, recorded the highest level of growth among the three
countries. In contrast, the Indonesian secondary sector comprised the smallest share.

The industry composition of the secondary sector varied among the three countries. As expected, heavy industries had a much larger share than light industries inboth output and value added in Malaysia, which was the most industrialized country
among the three. Malaysia's heavy industries continued to expand due mainly to therapid growth of the machinery and equipment industry. On the other hand, in Vietnam
and Indonesia, which were both at earlier stages of industrialization, the importance oflight industries outweighed heavy industries.

According to the categorized growth factor decomposition analysis, the contribu-

80

Journal of Applied Input-Output Analysis, Vol. 13 & 14, 2008

tion of Vietnam's secondary sector is in between Malaysia's and Indonesia's. In Malay
sia, 57% of total output growth was induced by demand effects from the secondary
sector, which contributed significantly to the growth of the tertiary sector. In contrast,
the secondary sector induced only 40% of total growth in Indonesia, but it contributed
significantly to the growth of agriculture, thus indicating that this sector, especially thefood, beverage and tobacco industry, had very strong backward linkages with agricul
ture. Vietnam's secondary sector had stronger backward linkages with agriculture than
Malaysia's but weaker than Indonesia's. Vietnam's secondary sector contributed rela
tively little to the output growth of the tertiary sector.
In sum, within only four years from 1996-2000, Vietnam had achieved substantial
progress towards industrialization in the following ways: (1) the structure of production

shifted away from agricultural towards non-agricultural activities; and (2) the secondary
sector expanded substantially. As the secondary sector continues to expand during theindustrialization process, it will lead to higher economic growth rates. Finally, as a signof growing international competitiveness and the success of the open door policy, ex
port expansion became the major source of output growth.

As the Vietnamese government continues its policy of rapid modernization and in

dustrialization, policymakers should continue to strengthen export expansion through amore explicit export-oriented industrialization strategy and further diversification of theexport structure to include more manufactured exports, particularly labor-intensive
products. Given the importance of inter-sectoral interdependence in output growth,
linkages between the three sectors of the economy should be strengthened so as to ac
celerate output growth and generate higher value-added.
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Chenery, H. B., and Syrquin, M. (1979). A comparative analysis of industrial growth. In R.
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