UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE RELATIONSHIP BETWEEN AGRICULTURAL TRADE AND PRODUCTIVITY IN VIETNAM CASE A thesis submitted in partial fulfillment of requirements for degree of Master of Arts in Development Economics By NGUYEN HOANG DIEP Academic supervisor Dr. TRAN TIEN KHAI HO CHI MINH CITY, JANUARY 2015 TIEU LUAN MOI download : skknchat@gmail.com [Type text] ACKNOWLEDGEMENT So many persons that I want to say thanks to them. I write these acknowledgments to express my gratitude to them who helped me directly and indirectly to finish this thesis. First of all, Dr.
Tran Tien Khai who is my supervisor, he helped me to complete my ideas. Furthermore, he also gave me advices to writing logical for this thesis, and already gave his hands when I needed. The other person that is Dr. Tran Khanh Nam, who gave me advice from beginning when I wrote the thesis design.
In addition, he provided me the VARHS data set to apply in my thesis. Important to me is to thank the Vietnam-Netherlands program and all of people and lecturers who supported and gave me their knowledge. Finally yet importantly, with all my respect for my parents who gave me a change to study in this program. They have encouraged me to continue my studying.
2 TIEU LUAN MOI download : skknchat@gmail.com [Type text] ABBREVIATION FAOSTAT The Food and Agricultural Organization Corporate Statistical Database VARHS The Vietnam Access to Resources Household Survey TFP The Total Factor Productivity OLS The Ordinary Least Square GDP Gross Domestic Product DF Dickey-Fuller Test 3 TIEU LUAN MOI download : skknchat@gmail.com [Type text] ABSTRACT This thesis tries to find out whether trade has an effect on agricultural productivity in Vietnam case. There are two models to estimate relationship between trade and productivity including national-level model and farm-level model. The time series data of nine agricultural commodities, which is taken from FAOSTAT, is used in national-level model. Farm-level model uses cross section data from VARHS 2010 including 1449 farm household in nine provinces.
In both models, yield refers as agricultural productivity. The both models support for a strong positive relationship between trade and yield. The result also indicates that the land, irrigation, human capital, cost of production might be necessary for improve productivity. Key words: Agricultural productivity, international trade, cross-section, time series.
4 TIEU LUAN MOI download : skknchat@gmail.com [Type text] TABLE OF CONTENT Page ACKNOWLEDGEMENT. 4 TABLE OF CONTENT. 5 LIST OF TABLE .7 LIST OF FIGURE. 11 Chapter 2: LITERATURE REVIEW.
19 Chapter 3: RESEARCH METHODOLOGY. Agricultural productivity measurement. The tradability index. The national level model.
The farm level model. Test for multicollinearity. Test for heteroscedastiscity. Test for autocorrelation.
Test for stationary.31 Chapter 4: RESULT AND DISCUSSION. 32 5 TIEU LUAN MOI download : skknchat@gmail. Overview Vietnam agricultural trade. Agricultural production in Vietnam.
The product tradability index and national level response. The farm tradability index and farm level response. 53 6 TIEU LUAN MOI download : skknchat@gmail.com [Type text] LIST OF TABLE Page Table 3.1: The description of each variable and expected sign.1: Production quantity of selected crops 33 Table 4.2: Annual growth rate of quantity of selected crops 33 Table 4.3: Evolution of crop production value per ha 33 Table 4.4: Water use in Vietnam in 2005.5: The mechanization rate in agricultural production activities 36 Table 4.6: Labor force in Vietnam by resident region in selected years (thousand people) 36 Table 4.7: Structure of employed population by industrial sector 2000-2013 (percentage) 37 Table 4.8: The ADF test result for yield of nine commodities.9: The ADF test result of tradable index of nine commodities.10: Results of national-level analyses (dependent variable = yield per each commodity between 1961-2010) 41 Table 4.11: Summary statistics of variables in farm level model.12: The correlation among coefficients in farm level model 43 Table 4.13: The correlation result of each variable (VIF, TOL=1/VIF) 43 Table 4.14: Production function result of the farm-level analyses (dependent variable = yield of an important crop in a farm) 44 7 TIEU LUAN MOI download : skknchat@gmail.com [Type text] LIST OF FIGURE Page Figure 2.1: The linkage between agricultural productivity and international trade.1: The value of agricultural production.2: The land of annual and perennial crops 1990-2012 in Vietnam 34 Figure 4.3: Export value of main agricultural commodities since 1990-2011.4: The import value of main agricultural commodities in Vietnam during period 1990-2011 39 Figure 4.5: The relationship between maize yield and tradable index over time 42 8 TIEU LUAN MOI download : skknchat@gmail.com [Type text] Chapter 1 INTRODUCTION 1.1 Problem statement Trade helps people, regions, and countries exchange what they have and what they need. In food security side, world population might be reach at 9 billion people in 2050; the question is asked how to meet this great demand of food with limited producers, scare land and water resources.
The answer is productivity, and open trade may encourage farmers to increase quantity of agricultural products to meet a requirement of food in the world. The core of role of agriculture can summary in three issues: “raising productivity, providing market, and generating saving for economic diversification” (Johnson, 2009). However, traditional farmers have suspicions about commercialization process that generate new demand, output or more competition. An increase agricultural productivity has attracted many economists studying about role of it in development economics in years (Matsuyama, 1992; Machicado et al.
In addition, agricultural productivity has an essential role in industrialization and development economics. That means country improves its productivity with using less labors in agriculture, and access labors in agriculture transfer into manufacturing. Furthermore, when producers in agriculture sector increase their incomes thanks to efficient production, demand for manufacturing increases to meet more demand. On the other hand, some argue that agricultural productivity has a negative relationship with industrialization.
Field (1978) and Wright (1979) indicate labor force can be a main fight between manufacturing and agriculture sector because of comparative advantage. When agriculture has low productivity, manufacturing has an abundant supply of labor with cheap wage. Matsuyama (1991) shows explanation about these conflicting debates may be relative to opened economy. He debates that in closed economy an increase agricultural productivity might make agricultural labors shift to manufacturing and contribute to economic growth.
However, in open economy “high productivity and output in the agriculture sector may, without offsetting changes in relative price, 9 TIEU LUAN MOI download : skknchat@gmail.com [Type text] squeeze out the manufacturing sector and the economy will de-industrialize over time, and in some case, achieve a lower welfare level.” From Doi Moi 1980, Vietnam agriculture has improved from production and especially exporting (Nguyen, 1998). Agriculture sector shifts from self-sufficient to commercialization to supply both domestic and export markets. Vietnam became the second biggest rice exporter in the world, and production of coffee, pepper, rubber, cashew nut, fruit and vegetable have increased in quantity and export value. During 1980-1990, agricultural export value increased from 339 US$ million to 2,404 US$ million, and total value of trade increased 3.
Quantity of export rice went rapidly up from 1 million tons in 1990 to 3 million tons in 1997. Coffee increased from 90,000 tons to 404,000 tons, cashew increased 27,400 tons to 99,000 tons. When Vietnam joined World Trade Organization (WTO), the agricultural export coffee went up 1,256,400 tons, and 178,500 tons for cashew nut, respectively. These evidences may support for advantage effects of opening trade in agricultural Vietnam.
Furthermore, the question is asked that how trade affects productivity in individual farm household. Correspondingly, this study tends to analyze the linkage between agricultural trade and productivity in Vietnam, contributes to debate above and tries to answer whether international trade (import and export) in agricultural commodities is related to agricultural productivity at national and farm level. This paper applies the product tradable index measurement to represent international trade. In order to analysis of productivity, country and farm level analyses are implemented with time series and cross-section analysis in Vietnam.2 Research objective This thesis concentrates on studying and evaluating effect of trade on agricultural productivity in Vietnam.
Some questions, which this thesis tries to answer: whether international trade increases agricultural productivity in Vietnam? In order to answer these questions, this thesis uses two different levels of analysis from overview to detail to understand clearly how trade influences agricultural productivity. 10 TIEU LUAN MOI download : skknchat@gmail.com [Type text] i) To evaluate the effects of international trade on some main commodities’ productivity at national level, and ii) To analyze the relationship between trade and agricultural productivity at farm household level.3 Thesis structure Thesis includes five chapters. This chapter introduces the effects of trade on agricultural productivity, and research objectives for this thesis. Chapter 2 provides the review of theories and empirical studies relative to effects of trade on agricultural productivity.
Chapter 3 describes the measurement of tradability index, and other control variables may need in farm level model in detail. The econometric model for national level and farm level are also introduced in this chapter. Data for each model and method to estimate each model will be provided. In chapter 4, the overview of Vietnam agriculture will be represented.
The next in this chapter, it shows the results of two models, and discusses how trade influence agricultural productivity in Vietnam. Basing on outcome in chapter 4, chapter 5 summarizes these conclusions and gives the possible future research can support for this thesis. 11 TIEU LUAN MOI download : skknchat@gmail.com [Type text] Chapter 2 LITERATURE REVIEW 2. What is productivity? Productivity is defined as “a measure of how efficiently inputs are combined to produce outputs” (Gray, Jackson, & Zhao, 2011).
Productivity contributes to the economy growth without using additional physical inputs. For agricultural sector, agriculture has an important role in rural areas and for economic growth. Almost the poor people concentrates in rural areas and are farmers. Improved agricultural production will increase food security, farmer’s income, employment, and contributes to GDP at that country.
The challenge for increase agricultural production is the scarce resources such as lack of water, uncultivated land. Therefore, yield refers as an increasing quantity with same cultivated land, combination of effective inputs, applying new technology that may solve this problem (Mundlak, Butzer, & Larson, 2008). Factors affect agricultural productivity There are several methods to increase agricultural productivity. Firstly, increasing output and inputs as well, however, proportionate of increasing output is larger than inputs.
Secondly, an increase output with constant inputs. Thirdly, decreasing output and inputs with inputs decreasing more. Finally, decrease inputs with remain output (Adewuyi, 2006). Using effective inputs lead to increase output method requires technical progress and inputs quality.
For example, applying new technology in production, investment in machinery, applying new technical method, irrigation system, use of fertilizer and pesticides, etc. must be considered to increase productivity. The recent discuss papers emphasize in role of technology and its changes over time (Mundlak, 1992). The concept of technical efficiency rises due to scarce inputs in agricultural production.
The question of technical efficiency is that how farmers utilize given inputs to increase output. According to Farrell (1957) divided productive efficiency 12 TIEU LUAN MOI download : skknchat@gmail.com [Type text] into its technical, allocative and scale components. The level of technical efficiency is measure as a gap between actual and optimal potential production. Allocative (price) efficiency refers as the capacity of farmers to choose inputs in minimize the cost of production.
Scale efficiency is defined that an increasing productivity due to an increasing farm size. Both parametric and non-parametric methods are used to measure productivity efficiency, while the stochastic frontier model is used widely. Odhiambo & Nyangito (2003) had a review of factors determine productivity involving resources inputs, fertilizer use, market access, extension services, farm size, biophysical factors, and land tenure. While the market access ability of farmers must be considered in agricultural process.
The commercialization in agriculture influences on productivity through specialization and intensification.