Just how quickly has the Vietnamese capital stock grown over the past decade ?

31Vietnam Economic management reviewVolume 2 - Number 2 - 2008
ECONOMIC RESEARCH 
1. Introduction
The Solow growth accounting equation
(equation 1) is often used to estimate 
movements in total factor productivity (TFP).
A number of such studies have been undertaken
for Vietnam (Tran Tho Dat 2004, Tang Van Khien
2005, Le Viet Anh 2006). A difficulty with applying
(1) to the Vietnamese case is that, to date, the
General Statistics Office (GSO) has not published
estimates of k. Equation (1) thus presents the growth
accounting researcher with one equation, but two
unknowns. To solve this problem, researchers studying
the Vietnamese case must supply their own k
estimates. These estimates tend to be high - in the
vicinity of 10 per cent1. In this paper, we argue that
these estimates may be too high, perhaps by as much
as 2-3 percentage points per annum. 
Just how quickly has the Vietnamese capital stock grown
over the past decade?
James A. Giesecke and 
Tran Hoang Nhi
James A. Giesecke and Tran Hoang Nhi, Centre of Policy Studies, Monash University, Australia.
ABSTRACT
We use a detailed growth accounting method to estimate the annual growth rate of the aggregate
Vietnamese capital stock over the period 1996-2005. Our results show that the rate was likely to
have been in the vicinity of 7-8 % per annum. This is approximately 2 percentage points lower
than estimates appearing in some previous studies. 
Key words: Vietnamese capital growth rate, growth accounting, TFP growth.
FC
R L K Ngdp S l S k S n a= + + + (1)
In such exercises, official statistical data on:
(a) percentage rates of change in real GDP at 
factor cost ( ), employment (l), capital stocks (k)
and land (n); and,
(b)shares of payments to labour (SL), 
capital (SK) and land (SN) in GDP at factor cost are
used to calculate movements in TFP (a).
FC
Rgdp
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where is the percentage change in the
GDP at market prices deflator; is the 
percentage change in real GDP at market 
prices; is the percentage change in the GDP
at factor cost deflator; is the percentage change
in real GDP at factor cost; xi is the percentage
change in the quantity of activity i that is subject to
indirect taxation; pi is the percentage change in the
price of activity i; ti is the percentage change in the
rate of indirect taxation of activity i). 
For growth accounting, (6) is the key equation.
We focus first on the indirect tax term, .
Movements in this term contribute to real GDP
movements via allocative efficiency effects arising
from the wedge that indirect taxes drive between 
values in use and values in supply for the activities
i that are indirectly taxed. We do not have data on
the billions of transactions that constitute i.
Instead, we simplify by defining three broad sets of
activities that are the major bases for Vietnamese
indirect taxation, and a residual. The three broad
activities are: (1) real private consumption, which
where: 
is nominal GDP at market prices; 
is nominal GDP at factor cost; and
is nominal collections of indirect tax 
revenue. 
We re-write (2) in terms of real variables and
price indices as follows:
VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
32 Vietnam Economic management review Volume 2 - Number 2 - 2008
In this paper we provide annual estimates of
the rate of growth of the aggregate Vietnamese 
capital stock over the period 1996-2005, using a
detailed growth accounting framework. Our
approach takes into account not only changes in
aggregate inputs of labour and land, but also the
effects of movements of these factors between 
sectors of the economy. Since GSO publishes data
for real gross domestic production (GDP) at market
prices, but not real GDP at factor cost, we must also
account for movements in indirect taxes. We argue
that the growth rate of the aggregate capital stock
can only be in the vicinity of 10% if the rate of TFP
growth is implausibly low (in the vicinity of 0.0 to
0.5 % per annum). If, as we suspect, annual TFP
growth has been about 1.5 % per annum, then the
average capital growth rate over the past decade has
been about 7.5% per annum. 
2. Methodology
We begin with equation (2), the definition of
nominal GDP at market prices:
is the rate of indirect taxation on activity
i; and, 
is the price of activity i. 
An example of activity i might be sales of
imported five-seat-automobiles to households.
According to the tax code in 2005, such a transaction
attracts tariff at the rate at 100%, special consumption
tax (SCT) at the rate of 80% and value added tax
(VAT) at the rate of 10%. Dixon and Rimmer
(2002, pp. 187-188 and 230-232) show that if the
levels variables in (3) are interpreted as Divisia
indexes, then (3) and its components have the 
percentage change forms:
MP FCGDP GDP ITAX= + (2)
. .MP MP FC FCGDP R GDP R i i iiP GDP P GDP X PT= + å (3)
MPGDP
FCGDP
ITAX
where: 
is real GDP at market prices;
is the GDP at market prices deflator; 
is the GDP at factor cost deflator;
is the quantity of activity i that is subject
to indirect taxation; 
MP
RGDP
MP
GDPP
FC
GDPP
iX
iT
iP
( ) ( ) ( )MP MP MP FC FC FCGDP R GDP R i i i i iiGDP p gdp GDP p gdp X PT x p t+ = + + + +å (4)
( )MP GDPFC FC ITAX iGDP GDPMP GDP GDPMP ITAX i iip S p S S p t= + +å (5)
. .MP GDPFC FC ITAX iR GDPMP R GDP ITAX iigdp S gdp S S x= + å (6)
MP
GDPp
FC
GDPp
FC
Rgdp
.ITAX iGDP ITAX iiS S xå
MP
Rgdp
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VEMRECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
33Vietnam Economic management reviewVolume 2 - Number 2 - 2008
is subject to Special Consumption Tax (SCT) and
much of the incidence of Value Added Tax (VAT);
(2) imports, which are subject to tariffs; and (3)
natural resource extraction (ma ...  1996-2005
There are four main sources of Vietnamese 
sectoral-level factor payment data for the study 
period. They include three sets of input-output (IO)
data for the years 1996, 2000, 2003 and 2005 (GSO
1999, 2003, MOF 2007), and a social accounting
matrix (SAM) for 2003 (Jensen and Tarp 2007). Of
these, only the SAM has payment data for all three
factors of production: labour, capital and land. 
The input-output tables contain only data on 
Table 10: Sensitivity analysis: Capital growth rates under alternative TFP growth assumptions
2.0
6.0
1.7
6.9
1.5
7.5
1.0
8.9
0.5
10.4
0.0
11.9
2.5
4.5
TFP growth rate (a)
Annual average (1996-2005) 
capital growth rate (k) 
Source: GSO (2005, 2007).
FC
Rgdp
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VEMRECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
payments to labour and capital. We explain below
how we (a) calculate factor payment shares in the
years for which we have data (1996, 2000, 2003 and
2005) and (b) estimate factor shares for the 
intervening years. 
1 (a). Calculating factor payments in
1996, 2000, 2003 and 2005
Our first task is to calculate payments to land.
Such payments are not explicitly recognised in the
1996, 2000 and 2005 databases. 
The main users of "land" (which we shall
define to include agricultural land, water surface
and returns to sub-soil assets) are agriculture,
forestry, fishing, and mining. In the initial IO data,
returns to land are spread among payments to
labour and capital. Hence, factor payments in these
sectors need to be reallocated to all three factors:
labour, capital and land. 
SAM 2003 has data for land rentals in 
agricultural and forestry sectors. We use these 2003
factor payment shares to split total factor payment
in the IO data for 1996, 2000 and 2005. Overall,
land accounts for about 28% of factor payment in 
agricultural and forestry sectors. 
However, SAM 2003 does not contain 
estimates for the rental values of water rights used
in fish farming, or returns to owners of natural
resource concessions in mining industries. For
these industries, we use factor payment shares
from the GTAP 6.0 database for Vietnam . Overall,
natural resources account for about 41 percent of
total factor payments in the fishery and mining 
sectors.
Combining our newly created factor 
payments data for agriculture, forestry, fishing, and
mining with the factor payments data for all other
industries in the available IO tables provides the
economy-wide factor payments data for the years
1996, 2000, 2003 and 2005, which we highlight in
Table A1. We explain in Parts 1(b) and 1(c) below
how we calculate factor payments for the intervening
years. 
1(b). Sectoral shares in economy-wide
payments to labour
From the IO data for 1996, 2000, 2003 and
2005 we know sector-specific payments to labour.
We reproduce these in Table A2, highlighting the
years for which we have independent estimates. Our
aim is to calculate sector-specific wagebills for the
remaining years (1997-1999, 2001, 2002, and
2004). We do this in four steps. First, we estimate
sector-specific wage rates for 1996, 2000, 2003
and 2005 by dividing the known sectoral wage-bills
for these years by the known sectoral employment
numbers for these years (GSO 2005, 2007).
Second, we calculate year-on-year percentage
changes in sector-specific wage rates for 1997-
1999, 2001, 2002 and 2004 by assuming that 
sector-specific wage rates grow smoothly between
years for which we have wage-bill and employment
data (1997-1999, 2001, 2002, and 2004). Third, we
calculate year-on-year percentage changes in 
sectoral employment for all years between 1996
and 2005 using employment data from GSO (2005)
and GSO (2007). Finally, we calculate sector-specific
wage-bills for 1997-1999, 2001, 2002 and 2004 by
applying our estimates of year-on-year percentage
changes in employment and wage rates to the know
wagebill data for 1996, 2000, 2003 and 2005. Table
A1 reports the resulting sectoral wage-bills. The 
sectoral shares in economy-wide labour payments
reported in Table 5 in the main body of the paper
are calculated from Table A1. 
41Vietnam Economic management reviewVolume 2 - Number 2 - 2008
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VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
42 Vietnam Economic management review Volume 2 - Number 2 - 2008
1(c). Primary factor payments for the
years 1997-1999, 2001, 2002 and 2004
Table A2 presents our factor payment 
estimates. As discussed above, data for the years
1996, 2000, 2003 and 2005 come either directly or
indirectly from independent IO sources (GSO 1999,
2003, MOF 2007, Jensen and Tarp 2007,
Dimaranan 2006). Wage-bill data for the 
intervening years come from our calculations 
outlined in Part 1(b) above. Payments to capital
and land for the years for which we do not have 
independent data sources (1997, 1998, 1999, 2001,
2002 and 2004) are calculated by assuming smooth
growth rates between the years for which we have
factor payment estimates. We use the values in
Table A2 to calculate the factor shares appearing in
Table 1. 
Table A1: Wage bills, by industry (VND billion, current prices)
Note: Highlighted columns show the values for which there are data. The remaining columns are 
extrapolated by the authors. 
Source: Authors' calculations from GSO (1999, 2003,. 2005, 2007), Jensen and Tarp (2007), MOF
(2007) and GTAP 6.0 (Dimaranan 2006). 
Table A2: Factor payment at current prices (VND billion)
Notes: Highlighted columns show the values for which there are data. The remaining columns are 
extrapolated by the authors. 
Source: Authors' calculations from GSO (1999, 2003), Jensen and Tarp (2007), MOF (2007) and GTAP
6.0 (Dimaranan 2006). 
1996
1. Agriculture and
forestry 
2. Fishing 
3. Industry 
4. Construction 
5. Trade 
6. Hotels, 
restaurants 
7. Transport, 
communications 
8. Culture, health, 
education 
9. Other services 
10. Total
37,292 
3,987 
25,325 
8,131 
12,926 
3,340 
4,365 
9,951 
25,301 
130,616 
40,278 
4,254 
29,634 
8,593 
13,536 
3,984 
4,738 
11,370 
29,789 
146,176 
43,480 
4,471 
34,664 
9,080 
14,185 
4,753 
5,144 
12,986 
35,115 
163,879 
46,868 
4,766 
40,584 
9,588 
14,852 
5,673 
5,581 
14,832 
41,463 
184,208 
48,708 
6,966 
52,661 
11,212 
22,326 
6,840 
7,645 
18,104 
32,851 
207,312 
51,855 
8,148 
63,275 
13,341 
21,779 
7,164 
8,434 
19,969 
36,004 
229,969 
58,629 
11,388 
89,043 
16,016 
21,274 
7,963 
10,299 
24,803 
43,582 
282,997 
67,142 
12,646 
102,199 
21,360 
26,419 
10,718 
13,151 
28,946 
48,568 
331,149 
76,637 
13,995 
119,736 
25,997 
32,278 
14,359 
15,933 
33,625 
58,824 
391,384 
54,955 
10,305 
74,267 
15,109 
21,476 
7,508 
9,289 
22,249 
39,566 
254,724 
1997 1998 1999 2000 2001 2002 2003 2004 2005
1996
1. Labour
2. Capital
3. Land
4. GDPFC
130,616 
73,526 
28,312 
232,453 
146,176 
84,352 
31,580 
262,109 
163,879 
96,773 
35,226 
295,878 
184,208 
111,022 
39,292 
334,522 
207,312 
127,370 
43,828 
378,510 
229,969 
142,737 
48,705 
421,411 
282,997 
179,259 
60,145 
522,402 
331,149 
212,278 
68,764 
612,191 
391,384 
251,379 
78,618 
721,381 
254,724 
159,959 
54,123 
468,807 
1997 1998 1999 2000 2001 2002 2003 2004 2005
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VEMRECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
43Vietnam Economic management reviewVolume 2 - Number 2 - 2008
2. Indirect tax shares and GDP
income-side shares
Data on the collections of major indirect taxes
for all years of the study period are available from
IMF government revenue data (IMF 2003, 2006,
2007). We use the IMF classification of indirect
taxes in all cases except natural resource tax.
Whereas IMF considers revenue from natural
resources a non-tax revenue, we treat it as an indirect
tax, since it is levied on mining sector output. With
this adjustment, we use the IMF data to calculate
the indirect tax shares reported in Table 3. 
Our final task is to calculate the shares of
GDP at factor cost and indirect taxes in income-side
GDP ( and respectively). As discussed
above, we know annual values for indirect tax 
collections ( ) from IMF data. From our 
calculations outlined in Part 1(c) of this Appendix
we know annual values for GDP at factor cost 
( ). We calculate annual values for and 
by applying the following formulae: 
3. See, for example, Fforde (2001), Van Arkadie and Mallon
(2003). 
4. Indeed, if the high TFP rates used in the previous studies are
taken into account, the difference between our k estimates
and those of previous studies is even higher. For example, if
annual TFP growth is 1.9% for the period 1996-2002 (as
estimated in Le Viet Anh 2006) then our estimate for k for
the same period is 6.3 %, not the 10% assumed by Anh. If
annual TFP growth is 3.4% for the period 1996-2000 (as in
Tran Tho Dat 2004) then our estimate for k for the same
period is 2.1 %, not the 8.5 % assumed by Dat. 
5. Hertel and Tsigas (2002) consider natural resources in fish-
ery and mining as the fixed factors which constrain the price
supply response of these sectors. With given econometric
estimates of the supply elasticities for these sectors, they
back-solve for the implicit natural resource payment shares.
These form the basis of the factor shares for these industries
appearing in the GTAP 6.0 database. 
References:
n Central Institute for Economic Management
(2003), Vietnam Economy in 2002, National
Political Publisher, Hanoi.
n Dapice, D. (2004), "Celebration and reflection:
Vietnam's economy enters a new era", John F.
Kennedy School of Government, Harvard University,
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accessed November 2007].
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ITAX
GDPMPS
GDPFC
ITAX
GDPMPS
GDPFC
GDPMPS
GDPFC
GDPMPS
ITAX
ITAX
GDPMPS
GDPFC
GDPMPS
GDPFC
GDPMP
GDPFCS
GDPFC ITAX
=
+
ITAX
GDPMP
ITAXS
GDPFC ITAX
=
+
and
We report values for and in 
Table 2. r
Notes:
1. The estimate for k for the whole economy is 10% per annum
in Le Viet Anh (2006) for the period 1996-2002, and 10-11
percent for the period 2000-2004 in Dapice (2004). Tran
Tho Dat (2004) estimates it to be 8.5%, but for the period
1996-2000, when Vietnam was affected by the Asian 
financial crisis. For the manufacturing sector, Tang Van
Khien (2005) estimates k at 14.4% per annum for the period
1996-2003. 
2. It has been argued by some researchers that this is indeed
the case. See, for example, Dapice (2004) and CIEM
(2003). 
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VEMR ECONOMIC RESEARCH Just how quickly has the Vietnamese capital stock grown over the past decade?
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44 Vietnam Economic management review Volume 2 - Number 2 - 2008
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