Tran, Nhi ORCID: 0000-0001-9156-4845 (2007) MONASH-VN: Development of a dynamic CGE model for the Vietnamese economy and analysis of structural changes during 1996-2003. PhD thesis, Monash University.

Abstract

This thesis is concerned with the construction and application of MONASH-VN (hereafter MVN), a large-scale dynamic computable general equilibrium (CGE) model of Vietnam. The model is designed to provide the capacity for not only detailed analysis of economic policies but also forecasts and analyses of economic history. After constructing the model, I use it to conduct an analysis of the structural changes in the Vietnamese economy over the period 1996-2003. This was a period of rapid growth of around seven percent per annum, despite adverse shocks such as the Asian economic crisis in the late 1990s. MVN’s theoretical structure is based on that of the MONASH model of the Australian economy (Dixon and Rimmer 2002). It has a detailed disaggregation of industries and factors of production, a detailed representation of technologies and preferences, taxes and margins, and a detailed representation of government accounts, balance of payment accounts, and net foreign liabilities. The dynamic features include the inter-temporal links between flow and stock variables for physical capital accumulation, for debt and savings, and a wage-employment adjustment mechanism. The MVN model captures the structure and characteristics of the Vietnamese economy via the calibration of the model using the Vietnamese input-output tables, the adoption of appropriate substitution elasticities and the representation of features which are pertinent to the Vietnamese economy, such as particular types of taxes and transfers, and types of transactions with the rest of the world specific to Vietnam. In particular, it includes many equations which allow the use of statistical data reported by Vietnamese statistical agency at different aggregation and reliability levels. I carry out two major simulations with MVN to analyse in detail the structural changes in the Vietnamese economy over the period 1996-2003. The first is the historical simulation, in which observed changes in economic variables (such as changes in GDP, industries outputs, labour and capital stocks, household consumption, imports and exports) are imposed on the model, and changes in structural variables (such as technologies and preferences) are calculated endogenously. The second simulation is the decomposition simulation, in which the contributions of those structural changes to the economic performance of the economy over the period under study are evaluated. Simulation results show that there have been significant structural changes in the Vietnamese economy over the period. The most important change is technical improvement in using primary factors and other inputs in most sectors. Overall, technical improvement accounted for 34 percent of the growth in real GDP over the period. The second important structural change is the favourable shifts in foreign preferences for Vietnamese exports and the improvement of the terms of trade, which contributed about 23 percent to the growth in real GDP. Employment growth also contributed strongly to the growth in real GDP (17 percent). Other sources of growth in real GDP include changes in household preferences toward manufactured goods and services and away from primary products; the increase in land area for primary industries, the decrease in barriers to international trade; the shift in preferences of all users toward domestically-produced goods and away from imported goods; the increase in the marginal propensity to save; and the increase in the investment-capital ratios. All of those factors help explain the strong performance of the Vietnamese economy during the period under study. This type of analysis provides much richer insights into structural changes in the economy than the standard growth accounting framework. The results of the simulations can be used to evaluate the effectiveness of economic policies or to inform forecasts into the future.

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