Young, 1995) maintain that the East Asian miracle is mainly due to capital accumulation and that technological progress is limited, others (e.g., Freeman, 1995; Krauger et al., 2000; Nelson and Pack, 1999; Pack and Page, 1994; Rodrik, 1997; World Bank, 1993: 56) argue that technological progress, particularly labor-saving technological change, fuelled the extraordinary economic growth that has constituted the “Asian miracle”. Rodrik (1997) explicitly pointed out that the low TFP growth rates found in most studies are problematic, because they failed to incorporate biased technological progress in their calculations. As shown in Figure 4, in the past decade, real rent to capital by sector increased almost at the same rate as the real wage, with the market interest rate, as a proxy for the opportunity cost of capital, changing more irregularly in Vietnam. As input prices change altogether, the ratio has stayed almost constant until 2006, as shown in Figure 5. The wage-rental ratio increased by about 10% from 2000 to 2008, yet the labor-capital ratio decreased more than two times faster, by about 35% during the same time period. As shown in Figure 5, both labor and capital productivities improved, indicating the presence of technological progress during the time period. Moreover, labor productivity grew at a higher rate, suggesting the possibility of technological change. [Insert Figure 4 and Figure 5 about here] Figure 6 to Figure 8 exhibit changes in input prices and input intensities for the agriculture, manufacturing, and service sectors. For both the agriculture and manufacturing sectors, wages climbed faster than the return to capital, partially due to higher marginal labor productivity. Both labor and capital per unit of output decline, suggesting the existence of technological progress in the agriculture and manufacturing sectors. Furthermore, production became more during the course of development, consistent with labor-augmenting technological change or institutional bias. Only for the service sector, returns to capital grew faster than wages, and factor intensity did not alter significantly during the period from 2000-2008. Different from the agriculture and manufacturing sectors, the service sector started with a much higher level of capital intensity in its production, and the transformation in input intensity is less dramatic. [Insert Figure 6 to Figure 8 about here]
averages over the current year and the prior year. Only the accounting approach using actual cost share data is applied in calculating TFPG, because the translog production function cannot be econometrically estimated due to too few observations and hence lack of degrees of freedom. Table 8 presents the results for this approach. If the economic activities obey a translog production function and the technological progress is Hicks neutral, then the entire economy would have an average 4% annual productivity growth for the period from 2000 to 2008. Only four sectors, namely mining and quarrying (#3), electricity, gas and water supply (#5), real estate (#12), and activities of Party (#17), experience decreases in total factor productivity on average over this time period. The rates of decline exceed 1% for the latter two sectors. Service sectors tend to have relatively high productivity growth rates, and several of the service sectors show more than 6% productivity growth. The productivity in the manufacturing sector grows at 3% annually on average, 2% lower than the agriculture and forestry sector. As shown in the second column of Table 8, TFP growth rates derived from a translog production function are almost identical to those based on a Cobb-Douglas production function using the accounting approach, indicating that translog production does not offer a significant improvement over Cobb-Douglas production function in estimating TFPG. The input cost shares in Vietnam do not vary greatly over time for most economic sectors. These results calls into question the adequacy of a translog production function, if it is parameterized as in Young’s method. [Insert Table 8 about here] 4.2. CES production function The CES production function has been a challenge for researchers studying growth accounting. Diamond and McFadden (1965) proposed the “Impossibility Theorem”, stating that there is no way of identifying the elasticity of substitution if technological progress is biased. For the following years, the CES function has been consistently avoided in most work on growth accounting, with some exceptions of attempts to challenge the impossibility. Sato (1970) and recently Cantore et al. (2009) touched on this issue. Even though neither Sato nor Cantore et al.
Table 6. Labor demand growth decomposition by sector, 2000- 2008 Code Activity Labor demand growth rate (%) gLi Relative unit labor use aLi/aL GDP share Si Growth rate of unit labor use (%) gaLi Biased technical change and institutional wage bias (%) Growth rate of GDP shares gSi Structural transformation and state investment bias (%) GDP growth rate (%) gY Agriculture, forestry and fishing -0.44 2.91 0.20 -4.27 -2.48 -3.46 -2.01 2 Energy and natural resources 8.27 0.14 0.08 3.62 0.04 -2.65 -0.03 3 Manufacturing 7.18 0.54 0.22 -3.90 -0.47 3.79 0.46 4 Construction 10.42 0.52 0.09 1.33 0.06 1.79 0.08 5 Infrastructure services 3.18 0.68 0.24 -4.66 -0.75 0.55 0.09 6 Professional services 14.37 0.12 0.07 9.04 0.07 -1.96 -0.02 7 Education and health 4.86 1.31 0.03 -1.16 -0.04 -1.27 -0.05 8 Public services 11.31 0.37 0.05 3.85 0.07 0.16 0.00 9 Other services 7.23 0.74 0.03 1.05 0.02 -1.11 -0.02 10 GDP 2.22 1.00 1.00 -5.07 -3.48 0.00 -1.50 7.57 Table 7. Estimated cost shares and average rates of total factor productivity growth (TFPG) by sector assuming a production function1, 2 Code Activity Accounting Approach Econometric Approach 3 3 Average TFPG 3 3 Average TFPG 1 Agriculture and forestry 0.17 0.83 0.054 -1.19 2.19 0.076 (-0.32) (0.59) (1.20) 2 Fishing 0.32 0.68 0.042 0.73 0.27 0.033 (2.21) (0.83) (1.39)
Code Activity Average unit capital coeff. ak Average unit labor coeff. al Capital efficiency growth rate Labor efficiency growth rate Capital or labor augmenting 13 Public administration and defense; compulsory social security 2.06 1.62 0.0822*** 0.0303** Capital (10.91) (5.32) 14 Education and training 2.58 3.46 0.0698*** 0.0952*** Labor (13.56) (18.12) 15 Health and social work 1.37 2.01 0.0716*** 0.0846*** Labor (9.84) (9.98) 16 Recreational, cultural and sporting activities 3.96 2.08 0.0475*** 0.120*** Labor (8.42) (26.58) 17 Activities of Party and of membership organizations 3.09 8.18 0.0713*** -0.0209 Capital (6.85) (-1.92) 18 Community, social and personal service activities and private household with employed persons 12.11 3.00 0.0188** 0.0292** Labor (4.05) (4.28) 19 GDP 5.16 7.51 0.0200*** 0.0580*** Labor (15.02) (27.63) Notes: 1 Numbers in parentheses are t statistics. 2 * represents p<0.05, ** represents p<0.01, and *** represents p<0.001. 3 For this sector, the efficiency coefficients are individually significant. The difference between the two coefficients is not significantly different from zero.
Table 14. Model selection between conditional labor demand functions from Cobb-Douglas, CES and Leontief production functions based on the root mean squared error (RMSE) method Code Activity RMSE of: Model of best fit Cobb-Douglas CES Leontief 1 Agriculture and forestry 0.026 0.010 0.027 CES 2 Fishing 0.061 0.028 0.058 CES 3 Mining and quarrying 0.101 0.013 0.154 CES 4 Manufacturing 0.019 0.018 0.018 Leontief 5 Electricity, gas and water supply 0.059 0.027 0.074 CES 6 Construction 0.130 0.030 0.122 CES 7 Wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods 0.110 0.007 0.159 CES 8 Hotels, restaurant 0.099 0.007 0.092 CES 9 Transport, storage and communications 0.035 0.010 0.043 CES 10 Financial intermediation 0.132 0.105 0.154 CES 11 Scientific activities and technology 0.051 0.008 0.063 CES 12 Real estate, renting and business activities 0.028 0.021 0.038 CES 13 Public administration and defense; compulsory social security 0.046 0.007 0.044 CES 14 Education and training 0.044 0.022 0.040 CES 15 Health and social work 0.070 0.025 0.066 CES 16 Recreational, cultural and sporting activities 0.039 0.031 0.036 CES 17 Activities of Party and of membership organizations 0.077 0.012 0.084 CES 18 Community, social and personal service activities and private household with employed persons 0.048 0.022 0.053 CES 19 GDP 0.017 0.007 0.016 CES Table 15. Estimation of wage determination equations1, 2 Code Activity Dependent variables: nominal wage real wage real state wage real min wage CPI real min wage real min wage
Table 18. Impact of state investment bias on labor demand from 2003 to 20081 Code Sector Growth rate of output shares gSi relative unit labor use aLi/aL GDP share Si Impact on labor demand (%) 3 Manufacturing Overall 3.65 0.59 0.24 0.51 State -12.49 0.04 0.04 -0.02 Non-state 7.83 0.64 0.19 0.98 4 Construction Overall 0.55 0.61 0.09 0.03 State -12.44 0.39 0.03 -0.15 Non-state 8.71 0.72 0.06 0.37 5 Infrastructure services Overall 1.03 0.75 0.24 0.18 State -9.81 0.10 0.09 -0.09 Non-state 8.51 1.13 0.15 1.46 Note: 1 The values for the overall sectors in this Table are not exactly the same as those in Table 6, because different time periods are considered. In Table 6, the time period is 2000-2008, and the time period for this Table is 2003-2008.
Tea, processed 32 4 Cigarettes and other tobacco products 33 4 Processed seafood and by-products 34 4 Rice, processed 35 4 Other food manufactures 36 4 Glass and glass products 37 4 Ceramics and by-products 38 4 Bricks, tiles 39 4 Cement 40 4 Concrete, mortar and other cement products 41 4 Other building materials 42 4 Paper pulp and paper products and 43 4 Processed wood and wood products 44 4 Basic organic chemicals 45 4 Basic inorganic chemicals 46 4 Chemical fertilizer 47 4 Fertilizer 48 4 Pesticides 49 4 Veterinary medicine 50 4 Health medicine 51 4 Appendix II continued Description of 112 sectors 112-sector code 18-sector code Description of 18 sectors Processed rubber and by-products Manufacturing 52 4 Soap, detergents 53 4
Perfumes and other toilet preparations 54 4 Plastic (including semi-plastic products) 55 4 Other plastic products 56 4 Paint 57 4 Ink, varnish and other painting materials 58 4 Other chemical products 59 4 Health instrument and apparatus 60 4 Precise and optics equipment, meter (all kinds) 61 4 Home appliances and its spare parts 62 4 Motor vehicles, motor bikes and spare parts 63 4 Bicycles and spare parts 64 4 General-purpose machinery 65 4 Other general - purpose machinery 66 4 Other special-purpose machinery 67 4 Automobiles 68 4 Other transport means 69 4 Electrical machinery 70 4 Other electrical machinery and equipment 71 4 Machinery used for broadcasting, television and information activities 72 4 Appendix II continued Description of 112 sectors code code Description of 18 sectors Non-ferrous metals and products Manufacturing 73 4 Ferrous metals and products
(except machinery equipment) 74 4 Weaving of cloths (all kinds) 75 4 Fibber, thread (all kinds) 76 4 Ready-made clothes, sheets (all kinds) 77 4 Carpets 78 4 Weaving and embroidery of textile-based goods (except carpets) 79 4 Products of leather tanneries 80 4 Leather goods 81 4 Animal feeds 82 4 Products of printing activities 83 4 Products of publishing house 84 4 Other physical goods 85 4 Gasoline, lubricants (already refined) 86 4 Electricity, gas 87 5 Electricity, gas and water supply Water 88 5 Civil construction 89 6 Construction Other construction 90 6 Trade 91 7 Wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods Repair of small transport means, motorbikes and personal household appliances 92 7 Hotels 93 8 Hotels, restaurant Restaurants 94 8 Appendix II continued Description of 112 sectors code code Description of 18 sectors Transportation 95 9 Transport, storage and communications Railway transport services 96 9
Water transport services 97 9 Air transport services 98 9 Communication services 99 9 Tourism 100 9 Banking, credit, treasury 101 10 Financial intermediation Lottery 102 10 Insurance 103 10 Science and technology Scientific activities and technology 104 11 Real estate 105 12 Real estate, renting and business activities Real estate business and consultancy services 106 12 State management, defense and compulsory social security Public administration and defense; compulsory social security 107 13 Education and training 108 14 Education and training Health care, social relief Health and social work 109 15 Culture and sport 110 16 Recreational, cultural and sporting activities Association 111 17 Activities of Party and of membership organizations Other services 112 18 Community, social and personal service activities and private household with employed persons