Future policy directions for doi moi in Vietnam

During the 1980s Vietnam experienced a radical process of industrial and service sector liberalization, known as doi moi. The process was initiated by the government as a means for managing the collapse in overseas financial support occasioned by the demise of its principal supporter, the former Soviet Union. In this paper we focus on the currency and state owned enterprise (SOE) aspects of doi moi. The paper has several aims. First, we examine the effectiveness of the currency policy introduced under doi moi through which the Vietnamese government has attempted to stabilize the VNDong with the overall aim of reversing the dollarization process and restoring confidence in the domestic currency. Second, we discuss possible capital markets instruments which may now be suitable for government financing, such as the suitability of commodity indexed bonds, a debt conversion program and establishment of a private development trust fund. Third, we consider the macroeconomic implications of Vietnam's accession to ASEAN. Lastly, we make a number of recommendations for future macroeconomic policy in Vietnam.     

Do trade agreements increase Vietnam's exports to RCEP markets?

The paper reviews recent developments in trade relations between Vietnam and members of the Regional Comprehensive Economic Partnership (RCEP) agreement, and analyses the impacts on Vietnam's exports of tariff reductions in RCEP trading partners. The margin of tariff preferences is adopted as a proxy for the degree of trade liberalisation and a gravity model is used to assess the impacts of the tariff preferences under the AFTA and ASEAN+1 FTAs on Vietnam's major exports. The results show that the effects of tariff preferences differ between the types of preferences and products. The FTA tariff preferences do not exert a stimulating effect on the export of agricultural products but they have positive effects on several manufacturing exports such as garments and footwear.     

IMPACTS OF TRADE LIBERALIZATION ON EMPLOYMENT IN VIETNAM: A SYSTEM GENERALIZED METHOD OF MOMENTS ESTIMATION

Using a system generalized method of moments model, the present paper investigates the impacts of trade liberalization on employment in Vietnam from 1999 to 2004. The results show that the increase in industrial output increased labor demand, whereas the increasing wage rate led to a decline in the employment level. The impact of export expansion on derived labor demand was positive and statistically significant, indicating that the higher level of exports than previously presented employment opportunities for the country's large labor surplus. As far as imports are concerned, empirical observations indicate that imports did not necessarily negatively impact Vietnam's employment level.     

Sources of Growth and Structural Change in the Vietnamese Economy, 1996–2003: A Computable General Equilibrium Analysis*

We use the MONASH‐VN model, a dynamic computable general equilibrium model of the Vietnamese economy, to investigate Vietnam's rapid growth and structural change over the period 1996 to 2003. We do this in two steps. First, we estimate changes in variables representing production technologies, consumer preferences, government policy and other structural features of the economy. Movements in these structural and policy variables are then used to explain the recent history of Vietnam's rapid growth and structural change. We find the most important sources of growth and change to be technical improvements, favorable shifts in foreign demand for Vietnamese goods and employment growth. Other important factors include movement in household preferences away from primary products and towards manufactures and services, expansion in agricultural land supply, and tax reform.     

Dietary Diversity,Food Security and Undernourishment: The Vietnamese Evidence*

As is widely known, Vietnam experienced a rise in living standards and a decline in expenditure poverty during the first half of the 1990s. This paper extends this knowledge by providing evidence on the Vietnamese experience of food security, undernourishment and poverty from the late 1990s to the early part of the new millennium. The results suggest that poor households did not experience increases in food consumption, calorie intake and dietary diversity of the same magnitude as non‐poor households. Nevertheless, Vietnam experienced impressive reductions in both calorie deprivation and expenditure poverty at the turn of the century. Non‐poor households, in particular, experienced spectacular increases in calorie intake and dietary diversity during the period 1997/1998–2004. This paper also reports regression results which point to the role of urbanization and improvement in education levels in promoting dietary diversity and nutrient intake. The present study finds evidence of sharp regional differences in calorie intake and calorie costs, which suggests that the authorities should set provincial poverty lines, contrary to the current practice adopted by Vietnam's General Statistical Office.     

Royal paternalism and the moral economy in the reign of Edward II: the response to the Great Famine

This article contains the first systematic discussion of Edward II's response to the famine of 1315–17, the most severe of the middle ages. While there had been earlier famines, that of 1315–17 produced the earliest surviving evidence of official attempts at remedial actions. Those included the enforcement of traditional regulatory measures such as the assizes of ale and weights and measures, and efforts to regulate brewing by preventing the use of wheat and limiting the amount of barley used. In addition, the government acted to encourage the import of grain and imposed prohibitions on export that were explicitly justified by scarcity and high prices. English bishops were urged to encourage those who were hoarding grain to hold only enough for themselves and their families and sell the rest. While it is unclear whether government actions had much effect, it is difficult to imagine under fourteenth‐century conditions that any government had the means or measures to respond effectively to famine. Nonetheless, some of the measures taken by Edward II's government, especially export prohibition and attempts to persuade or compel those with supplies of grain to sell it, had a long future ahead of them.     

Laissez‐faire,the Irish famine,and British financial crisis

The decision in 1847 to cut Treasury spending on public relief efforts during the Irish famine is generally attributed by economic historians to the pervasive influence of ‘laissez‐faire’ ideas on the Whig government of Lord John Russell. This article draws on the papers of political leaders and contemporary financial information to argue that economic reasons were the trigger for the change in policy. Robert Peel and Charles Wood's macroeconomic policies of the 1840s, including the gold standard, the Bank Charter Act, and corn law repeal, left the Whigs unable to borrow to finance relief efforts in Ireland without panicking markets. The scaling back of public assistance programmes that resulted from this—and which increased mortality at the height of the Irish famine—was the unintended result of Peel and Wood's economic policies, in the context of the Whig government's parliamentary weakness.     

Modelling value-added tax in the presence of multi-production and differentiated exemptions

We develop a framework for economy-wide modelling of value-added tax systems. Our framework models a number of complexities of VAT systems as implemented by tax agencies. In particular, we model multiple rates, multiple exemptions, multiple degrees of refundability across commodity users, and multi-product enterprises. We use our framework to model what is arguably South East Asia's most complex VAT system: that of Vietnam. We analyse the macroeconomic, industrial and distributional effects of simplifying Vietnam's complex VAT system. We simplify the system via a budget-neutral movement to one rate and removal of discretionary exemptions. This generates an aggregate welfare gain, but adverse distributional effects. Adverse distributional effects can be greatly ameliorated, at small cost to the aggregate welfare gain, via exclusion of paddy and rice from the VAT simplification program.     

Foreign Multinationals and Local Firms in Vietnam's Economic Transition*

This paper compares the economic performance of foreign multinational corporations (MNC) and local firms in Vietnam, distinguishing between two distinct types of local firms: state‐owned enterprises (SOE) and non‐SOE. Between the mid‐1990s and 2000, foreign MNC in Vietnam's economy grew very rapidly, but their growth has been much slower thereafter. Consistent with the theoretical suggestion that MNC possess relatively large amounts of firm‐specific assets related to production technology, marketing networks and management know‐how, these comparisons suggest that foreign MNC were generally larger and had higher labor productivity, capital intensity, wage levels, investment propensities and trade propensities than non‐MNC. On the other hand, foreign MNC tended to have relatively low capital productivity and wage shares of value added, while results regarding profitability were mixed. In general, these differentials tended to be relatively small between foreign MNC and SOE, and SOE tended to be larger than foreign MNC in terms of employment. Correspondingly, comparisons of foreign MNC with non‐MNC generally revealed more consistent differences, largely because the local private sector is still very underdeveloped in Vietnam.     

Pro-poor growth,poverty and inequality in rural Vietnam

This study explores the effects of Vietnam's transition on the welfare of different ethnic groups in rural Vietnam. It draws on three rounds of national household surveys in 2002, 2004 and 2006. It is first observed that the pace of poverty reduction for minorities surpassed the majority over the period 2002–2006, although poor people were still concentrated in the minority groups throughout the period. Secondly, the disparity in living standards has been widening. In particular, inequality within both the majority and minority groups increased over the period. Thirdly, the study shows that the effect of economic growth on poverty is estimated to have been greater if inequality remained constant. It is also noted that the impacts of economic growth on poverty vary across different ethnic groups. Finally, regression decompositions of within inequality have confirmed that the main driver of inequality is not the same among ethnic groups. Given the diversity across different ethnic groups, we can conclude that government policy aimed at equal access to infrastructure and more equal distribution of assets, such as land, for ethnic minority groups would lead to more equal distribution of consumption and poverty reduction of those groups. Also, consideration of local needs would be necessary in designing and implementing public policies, given the heterogeneous socio-economic circumstances surrounding each ethnic minority group.     

Poverty identification: practice and policy implications in Vietnam

To identify poor households, the government of Vietnam applies a combination of proxy means tests and quick collection of income data. This paper examines how well the government's poverty identification reaches the really poor in Vietnam. It is found that there is a large difference between the poverty rate for provinces and districts reported by the government and the rates estimated using expenditure and income data from independent household surveys. There is also a large difference between the poverty status of households identified by local authorities and the poverty status identified by income or expenditure data. More than 50 per cent of the poor households identified by local authorities are not poor in terms of income or expenditure measures. A better identification approach would be to use only proxy means tests and not income data collected using the simple questionnaire.     

Urban‐biased Policies and the Increasing Rural–Urban Expenditure Gap in Vietnam in the 1990s

There was a significant and widening rural–urban gap during the economic boom in Vietnam in the 1990s. Using an econometric decomposition, we find that differences in individual characteristics such as education, ethnicity and age are the primary explanation for this widening gap, whereas differences in the returns to these characteristics are the primary explanation for the increase in the gap at higher percentiles. We then argue that government investment policies and the manipulation of price incentives were important factors behind the gap. In particular, we argue that government policies created some benefit to urban dwellers at the expense of rural areas, lending support to Lipton's urban‐bias hypothesis, which states that government, under strong political pressure from the urban population, directs resources from rural to urban areas without consideration of efficiency or equity.     

BOOK REVIEWS

Book review in this article: Making Economies More Efficient and More Equitable: Factors Determining Income Distribution edited by Toshiyuki Mizoguchi Direct Foreign Investment in Asia's Developing Economies and Structural Change in the Asia-Pacific Region edited by Eric D. Ramstetter Vietnam's Economic Policy since 1975 by Vo Nhan Tri     

FDI and inequality in Vietnam: An approach with census data

We investigate the effects of inward FDI on income distribution and absolute living standards in Vietnam using census data from 1989 to 2009. We compute the number of employees of foreign establishments in each of Vietnam's provinces for each year, and use that as a measure of local FDI. We estimate the effects of FDI on local households’ living standards as reported in the data, broken down by educational background to allow us to analyze effects on inequality. Estimates based on the repeated cross section indicate that rising FDI in a province is associated with a slight decline in living standards for households there if they do not have a member employed by the foreign enterprises, with only modest gains for households who do have a member employed by the foreign enterprises. These estimates may reflect composition effects, however, since we find large movements of people toward the provinces receiving the FDI. The findings show that measuring the effect of FDI on household welfare is more difficult than measuring the effect of trade policy, and may pose a difficulty for the view of FDI as a general anti-poverty strategy.     

BOOK REVIEWS

Book Review in this article: Transforming Agrarian Economies: Opportunities Seized, Opportunities Missed by Thomas P. Tomich, Peter Kilby, and Bruce F. Johnston Vietnam's Rural Transformation edited by Benedict J. Tria Kerkvliet and Doug J. Porter The Indonesian Economy since 1966: Southeast Asia's Emerging Giant by Hal Hill     

THE EMERGENCE AND POLITICAL CONSCIOUSNESS OF THE MIDDLE CLASS IN SINGAPORE

Singapore is an example showing that economic development, the affluence it creates, the emergence of a large middle class do not inevitably lead to liberal democracy. This study examines the present situation and problem of Singapore's middle class. It first describes the emergence and the characteristics of this class. It then examines the political control of the People's Action Party government, which has crushed democratic movements in the bud, and the government's discriminatory policies, such as in education and housing, which favor the growing middle class. Lastly, it discusses new problems that are arising from the middle class's mammonism and resultant political passivity In conclusion, this study foresees that to keep the supply of material goods flowing to the middle class, the government will have to push for even greater economic development, which means that the role of the state in Singapore is likely to become even greater than before.     

Effect of Interest Rate Subsidies on Firm Performance and Investment Behavior during Economic Recession: Evidence from Vietnam

This paper aims to quantitatively evaluate the microeconomic consequences of the 4‐percent interest rate subsidy program, the main component of the Vietnamese Government's economic stimulus package in 2009, which was intended to assist recovery from the global economic and financial recession. Our analyses based on the Provincial Competitive Index 2009 survey and accounting data of firms listed on Vietnam's two stock exchanges show that firms that received subsidized loans were more likely to increase labor, to expand investment and to possess optimistic business plans. However, we find evidence that not all business activity generated by the stimulus led to productivity increases: a non‐trivial proportion of subsidized loans were not used to invest in production or expansion, but for speculative activities such as real estate and stock market trading.     

Taxation,fiscal capacity,and credible commitment in eighteenth-century China: the effects of the formalization and centralization of informal surtaxes†

This article explores a tax reform in eighteenth-century China that formalized county-level informal surtaxes and centralized control over them in the hands of provincial governors, in an effort to strengthen provincial fiscal capacity. The findings show that this reform increased the frequency of famine relief in cases of exceptional disaster relative to other weather conditions. The study shows that the effects were driven by the new fiscal revenues—public funds—at the governors’ discretion, not by the central government's relief actions, bureaucratic control over lower officials, or other concurrent fiscal reforms. Moreover, the reform facilitated intertemporal smoothing and inter-regional risk sharing. However, the effects declined as soon as the central government broke its promise and began to appropriate provincial fiscal revenues. These findings not only provide evidence that fiscal centralization could enhance the provision of public goods in a premodern context, but also highlight that it was the lack of a credible commitment by the central government to the provincial governments that accounted for the short-lived effects of the reform.     

Food availability versus consumption efficiency: causes of the Chinese famine

The Chinese famine of 1958–1961 is characterized not only by its great magnitude but also by the uniqueness of its causes. In this article we present evidence that conventional reasons; including FAD and entitlement failure, fail to offer plausible explanations for the tragedy because of the obvious contradiction between food availability and excessive deaths during the famine period. Our thesis is that the famine is caused by consumption inefficiency, a result of the free food supply in the communal dining system in the famine period. This causal factor is unique and unprecedented in the famine history and theory. Yet the thesis is consistent with a basic economic precept: if property rights for food in a society are not defined, food consumption will be inefficient. This inefficiency mades the previously barely adequate food supply in China inadequate, causing a large-scale famine.     

Does history repeat itself? Economic development and policy convergence in Vietnam and South Korea

With one of the world's fastest rates of economic growth since the 1990s, Vietnam could be seen as Asia's next tiger economy. This study examines whether there has been policy convergence between the older East Asian developmental state model of economic development and that adopted by Vietnam. The economic development trajectories of South Korea and Vietnam are compared to identify similarities and differences. It was found that while policy convergence is evident there is also some divergence between the two countries.