Investment, trade, and economic development: Lessons from Vietnam
Abstract
As a developing nation in the process of undergoing successful and relatively equitable development, Vietnam is recognized as an example of the potential opportunities afforded by a successful trade driven development strategy. Improved understanding of the linkages between trade, growth, and poverty reduction in Vietnam would yield important lessons which could be applied to other developing nations. Using a new, stylized, single country CGE model of Vietnam, this analysis examines these linkages in Vietnam's economy. Due to their potential to affect both overall and propoor economic growth, the role of the state, the impact of trade liberalization, and the role of the agricultural sector are specifically examined. The model developed for this analysis employs simple functional forms and makes heavy use of accounting identities in developing a dynamic growth component. Production functions are Leontief and demand is represented by a linear expenditure system. Armington functions are eliminated in favor of a small country model where only net trade and not bilateral flows are predicted. Comparing baseline results for this model against Vietnam's actual economic performance indicates that the model does well in simulating the behavior of this economy. Over the five years simulated there was a 94 percent correlation between predicted and actual trade outcomes. Baseline results were relatively robust to sensitivity testing. Overall, results strongly suggest that with better knowledge of the patterns of investment, much better predictions of trade patterns are possible. Model results highlight the role of the state in both investment allocations and savings mobilization in Vietnam, and the importance of capital accumulation to Vietnam's success. WTO accession commitments, which required tariff and institutional reform, bring important market access opportunities that are likely to influence Vietnamese investment decisions. Finally, in the case of Vietnam, the agricultural sector was found to be a strong and necessary component of pro-poor economic growth. Future development strategies must continue to include this sector. This work has shown that investment decisions lie behind, and can be used to predict, both sectoral output changes and change in trade patterns. Understanding the link between trade and development then requires going beyond tariffs and rests on the ability capture the role that broader trade policy plays in shaping investment decisions.
Degree
Ph.D.
Advisors
Tyner, Purdue University.
Subject Area
Agricultural economics
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