UNIVERSITY OF ECONOMICS ISS-INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM-NETHERLANDS PROGRAMME FOR MASTER’S DEGREE IN DEVELOPMENT ECONOMICS THE DETERMINANTS OF ECONOMIC GROWTH: A CASE STUDY OF SIX SOUTHEAST ASIAN COUNTRIES SUPERVISOR : DR. NGUYỄN MINH ĐỨC PRESENTED BY : NGUYỄN KIỀU GIANG MDE-K16 HO CHI MINH CITY, DECEMBER 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGMENT I’ve experienced the great time in this course with acquire academic knowledge, open-mind to approach new things, and be straightforward to express ideas. I’ve guided by open-mind lecturers who always encourage us to express our opinions and discuss it. This is really quality and extensive course.
We’re encouraged to be ourselves and be self-confident to discuss ideas, it’s really meaningful thing. Sincerely, I would like to take this opportunity to express my honest thanks to the Vietnam-Netherlands Master Program for Economics of Development for the interesting and extensive curriculum, as well as sincere thanks to all of people who engage in this course such as management board of this program, lecturers, tutors. To fulfill this course, I’ve received the help and support from many people such as director and vice director of this program, lecturers, tutors, my supervisor, classmates, friends, course administrators, librarians of MDE & Fulbright, and other people who give me the instructions, comments, advices, supports, sympathies, and encouragement during the course process. Without these things, I could not fulfill the Thesis and finish the course.
First of all, I would like to express my gratitude to my supervisor – Dr. Nguyen Minh Duc, who always remind me to finish the Thesis timely and make me determine to finish the Thesis with high effort, very patient and sympathy with me for delaying the time of submitting Thesis, spent his valuable time to help me, give comments and correct the Thesis mistake by mistake. From bottom of my heart, I sincerely thank him for all. I would like to express my special thank to Dr Nguyen Trong Hoai - Director of the Program, Vice Principal of UEH.
He fosters us to study and finish the course actively and efficiently, take care of us step by step. And special thanks to Dr Pham Khanh Nam steps with us to overcome obstacles in thesis process honestly, give us the valuable advices and encouragement to finish the thesis. i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Thanks to TRD board defense give me valuable comments and advices to continue this topic. Thanks to Dr Phan Minh Ngoc supplies me materials at my TRD time.
Thanks to Dr Le Dinh Truc gives me valuable comments and advice on panel technique in Eview. And thanks to tutor Phung Thanh Binh for helping us honestly in the course. Thanks to all classmates in MDE-K16, all of you support me unconditionally with discussions, talks, shared materials, team working playing, and other. Thanks to friends Thu Huyen and Thanh Tien, your sharing materials are very useful for me.
Hope all of you fulfill this course and get success in your life. Lastly, I would like to thank to my dear family, warm friends that supports and sympathies with me for spending most time on studying this course. Thanks all for all, hope you will be happy and successful in life. I pledge to take full responsibilities for mistakes, errors, omissions and shortcomings of the study.
ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABTRACT This study based on the neoclassical growth theory, an extended version of this model. As common trend, Cobb-Douglas production function is used to evaluate the robustness of determinants of economic growth in a dataset of six Southeast Asian countries from 1993 to 2009. The fixed effect model (FEM) is used to estimate this model. The results indicate that the most important source of economic growth of these countries is capital accumulation and labor.
Keywords: Economic growth, determinants, Capital, Labor, Population growth, Government expenditure, Southeast Asian countries, Neoclassical Model, Cobb- Douglas production function, FEM. iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENT CHAPTER 1: INTRODUCTION .2 Research structure CHAPTER 2: RESEARCH OBJECTIVES & RESEARCH QUESTIONS .4 Research contribution CHAPTER 3: LITERATURE REVIEW .1 Concept and Definitions.2 Traditional methods of examine determinants of economic growth 13 3.3 Measurement indicator group of development and growth .4 Overview of economic development theory .1 Classify theories by time. 15 Classical theory Neoclassical model Endogenous Theory 3.2 Classify theory by four main classes. 21 Linear stages of growth theory Structural change theory International dependence theory Neoclassical counter revolution theory 3.1 Production function Cobb-Douglas .2 Harrod-Domar Growth Model.3 Neoclassical model-Solow model.
30 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Development and growth of Vietnam and Southeast Asia .2 Review the empirical studies. 33 CHAPTER 4: RESEARCH METHODOLOGY .1 Model 1- Traditional neoclassical model .2 Model 2- Extend neoclassical model .3 FEM is selection for estimation .1 Dependent variable: GDP per capita .3 Data Description - Data collection – Data analysis. 50 CHAPTER 5: DATA ANALYSIS AND DISCUSSION .1 Descriptive Statistics Analysis .1 Whether FEM or REM is more suitable .2 Model 1 – Traditional model .3 Model 2 - The Extened Neoclassical Model .3 The limitations of data, and modeling techniques. 61 CHAPTER 6: CONCLUSION AND POLICY RECOMMENDATION .2 Managerial Implications and Policies .3 Limitations and future research.
71 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com APPENDICES A: Data of GDP, Capital, Population growth, Labor, Government expenditure. 70 B: Descriptive statistics of each country. 77 C: Correlation Matrixes of each country. 82 F: Main Empirical studies Summary.
81 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 3.1: Sources of Growth in East Asia, by Country and Period .1 Estimated Capital-Output ratio some Asian Countries 1980 .2 Range forecast of COR for 6 countries .3 Summary of variable .1 Sample observations - Descriptive statistics - sample: 1993 2009 .2 Correlation on the sample observations .3 Model 1 - A comparison of results with FEM .4 HAUSMAN TEST for MODEL 1 .5 Model 2 - A comparison of results with FEM .6 HAUSMAN TEST for MODEL 1 .7 Estimated results for FEM with tradition model (Model 1) .8 Estimated results for FEM with extended model (Model 2). 60 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 3.1: Population of 1993 of countries .2: Population of 2009 of countries .3: GDP per capita of 1993 of countries .4: GDP per capita of 2009 of countries .1: Conceptual Framework of the study.1: GDP per capita of 6 countries for the period of 1993-2009 .2: Capital per capita GDP per capita for the period of 1993-2009 .1: An overview of determinants of economic growth of countries. 64 viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATIONS COR : Capital output ratio DCs : Developed (high-income) countries FEM : The fixed effects method GCF : Gross Capital Formation GFCF : Gross fixed assets formation GDP : Gross Domestic Product ICOR : Incremental capital output ratio LDCs : Less developing countries LICs : Low-income countries LSDV : The least-squares dummy variable OLS : Ordinary Least Square PCI : Province Competitiveness Index REM : Random Effect Model ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION 1.1 Problem statement The human kind history experienced a very long period of changing and developing process. During a rapid development process since the century of 19th, with an increasing growth in income and standard living, people’s welfare is improved considerably.
In second haft of the 20th century, most countries have doubled their real income per capita when hand over from this generation to the next one. In particular, the rise of East Asian economies so called “Miracle” opens up important turning-point and attracts attentions of policies makers and researchers. However, there are a lot of emerged questions such as: (a) Why are some countries rich, and other poor? How some countries develop very quickly and stably with their citizens enjoying rapid increases in their average incomes, meanwhile others development are very slow or not at all? Commented [m1]: So ambitious to solve in this study; should delete (b) What are the determinants of economic growth and the characteristics that distinguish fast-growing from slower-growing countries? And as can be seen, after thousands years of very slow economic growth, the world economy suddenly experienced an enormous change explosion, but why it did not occur earlier; and why it occurred where it did, this country instead of that country. Commented [m2]: Rewrite into one paragraph Normally, developed and developing countries focus on how to foster economy in balance between fast growth and sustainable development.
As a matter of fact, it’s very challenging question and not easy to find out the unique solution. As there’s no a general answer for growth problems of developing countries, economists suggest some approaches to impulse the growth process. Firstly, that is applying open commodities markets but isolating from international capital market in order to stabilize and increase economic independence. Secondly, developing countries can choose industrialization way by their own policies such as indirect subsidization.
Thirdly, they can combine these policies above depending on specific conditions of 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com each nation. However, the issue here that is developing countries need to consider which best solutions they should choose to benefit economic most. Since 1975, when being reunified, Vietnam had applied a central planning economic system following Soviet model program named “Doi moi” (1) 1986 to open out the world and built a market-based economy. It began to step in a new page of history onwards.
As the result, Vietnam has achieved a high rate of economic growth to get out the list of least developed nations. During the economic reform and growth, capital accumulation and labor played main roles in a finding by Ngoc (2008) found out. That contribution from other factors such as human capital and technological progress are likely to be still limited. This statement is the same for other countries in Southeast Asia.
In order to achieve sustainable growth in coming years, some researches (Ngoc, 2008) suggest that Vietnam should enforce their growth based on a working productivity improvement. Obviously, sustainable development and growth are very important for developing countries, in particular Southeast Asia. The annual higher economic growth is usually a good sign; however it’s not always mean this development is sustainable or at good statement, vice versa it can be a bubble or overheating development. However, the economic growth seems to be an important indicator for evaluating a health of an economy.
Because of importance of economic growth of a nation, my study would like to experiment on the contribution of determinants such as capital, labor, etc… to economic growth of Vietnam and other Southeast Asian countries including Indonesia, Malaysia, the Philippine, Singapore, and Thailand through the period 1993-2009. And I hope this paper can disclose a part of development picture of Vietnam as well as Southeast Asia nations. Consequently, the suggestion for _________________________ (1) Doi moi is the name of policy change from a central planning economic system to market economy in Vietnam in 1986. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com implication policies can be made base on this research result.
In particular, through it, Vietnam can get the lessons for suggestions on the trend that Vietnam should pursue for its long term stable development in coming years.2 Research structure: The content of this study is divided into 6 chapters: Chapter I – Introduction Chapter II – Research objectives and research questions Chapter III – Literature review Chapter IV – Research Methodology Chapter V – Data analysis and discussion Chapter VI – Conclusion and policy recommendation The chapter I is introduction. Chapter II determines the Research Objectives and Research Questions which this study will carry out in next parts.