ECONOMIC DEVELOPMENT UNDER REFORM AND WORLD INTEGRATION AND THE MAIN FACTORS INFLUENCING THE ECONOMIC GROWTH IN VIETNAM

The purpose of this paper was to give an overview of economic development under reform and world integration and to evaluate the main factors influencing the growth of the Vietnamese economy during the reform period (1990-2008 (2009)). Based on statistical data on the Vietnamese economy in the period of 1990-2008 (2009), this study analyzed the factors affecting economic growth. The policy changes, economic development, poverty rates and living standards of Vietnamese population are analyzed over the reform period using qualitative methods. The results of this study show that economic growth under reform and world integration has reduced the poverty rate and increased living standards of population in Vietnam. An evaluation of the factors influencing economic growth is made using a quantitative model of total factor productivity (TFP) and another econometric model. The findings from this quantitative analysis show that the growth of the Vietnamese economy was determined by two factors: (1) capital investments, including foreign direct investment (FDI) and (2) the growth of exports. The results of these qualitative and quantitative analyses lay the foundation for policy recommendations for Vietnam Government to develop economy in the future


Imports and Exports
Total factor productivity (TFP) Cobb-Douglas function

PROCESS IN VIETNAM
After the sixth congress of Vietnam Communist Party in 1986, Vietnamese economic policy underwent a complete change. The new economic policy changed from a command, planned economy to a free-market, multi-sectored one. This period of change and new economic policies is called the renovation process (-Doi moi‖ in Vietnamese), and refers to the transition from a command-planned economy to the current, free-market one. In this process Vietnamese Government had to create: Since 1992, the Vietnamese Government began projects for converting state owned enterprises (SOEs), including the privatization, incorporation, or liquidation of a number of SOEs. This program is a part of the government's overall program to shift the Vietnamese economy from a command system to a free-market system. The Law on State Enterprises issued in April 1995 sharply distinguishes between enterprises with public service functions and those operating on a commercial basis in a market economy.
It also provides the legal framework for establishing state corporations. Today, we can see the initial results from the implementation of such pilot corporatization and equalization, which establish the institution and create the other necessary conditions for this work's execution on a large scale.

Land Rights
State polices gave autonomy to farm and household business to make their own production and consumption decisions. Combined with polices transferring long-term rights to use land to each farm and household, these have had a positive impact on living and production standards. As a result, for example, agriculture productivity has increased and the living standards of farmers have improved. They have also promoted a renovation of the operations of agricultural co-operatives and the development of new types of cooperatives. Since 1993, a new law on land was established, enabling Vietnamese people to buy and can sell their land use rights (land continues to be owned by the federal government, people only own land use right, and before Vietnamese people couldn't buy or sell a land).

Membership in International Organizations
After 20 years of interruption, Vietnam resumed its relationship with such multilateral

INTEGRATION OVER 20 YEARS IN VIETNAM
Economic reform in Vietnam means transforming public sector and developing private sector and free-market. One way to measure this transformation process is to examine the ownership of both large and small business enterprises ( Similarly, foreign direct-investment projects have increased from more than 1,000 companies in 1995 to 4,220 now. Starting with a few thousand household businesses at the beginning period of renovation process, there are now hundreds of thousands of nonagricultural productive household businesses and micro-enterprises. A second way to measure the impact of this transformation process is to measure Vietnam's gross domestic product (Chart 1). Economic reform and the transition to a market economy have led to strong economic growth. The Vietnamese economy has enjoyed growth and stability for more than 20 years during this time of transition. For example, gross domestic product (GDP) of Vietnam was only growing by 2.44% in 1985 before reform, but this has now increased to 4.45% per year in the period at the beginning of renovation (1986)(1987)(1988)(1989)(1990), and has enjoyed an average growth rate of 7.44% per year in the period from 1991 to 2009. GDP per capita also has also increased after economic reform (from 105 USD in 1990 to 1,109USD in 2009)-see Chart 1 below. Similarly, the industrial and construction sector has achieved a high and stable growth rate, averaging 11.3% per year in the period 1990-2009. The average growth rate of the service sector was 7.16% per year and the average growth rate of agriculture sector was 4.2% per year during 1990 to 2009. 1 9 8 5 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 Investment capital has increased strongly as the Vietnamese economy has opened its economy to the world during its integration process. As result, foreign direct investment (FDI) has been increasing (see Chart 6). Increase in FDI has been speeding up export and import strongly in past years (see Chart 6 below)
The main import goods are machines, oils and some industrial inputs, and high-quality consumption goods. In 1990, the state's sector played a leading role in exportation and importation but its role has decreased steadily in the past 10 years. Export value structure The relationship between export and GDP growth can be analyzed to determine the influence of export to economic growth using the following formula:

An Empirical Models
The author analyzed the relationship between capital and economic growth using the Cobb-Douglas production function: Where Y is output (GDP), K is capital, L is labor and A is -knowledge‖ or the -effectiveness of labor‖ or total factor productivity (TFP) [ The translog Cobb-Douglas production function is given by: The outputs from this model using SPSS program may be found in Appendix. Table 2 shows the results of this model with α= K , and β= L .  [3, p. 38] where G GDP is GDP growth rate, G A is contribution of total factor productivity to economic growth; G K is capital (K) growth rate,  K is regression coefficient of capital (K); G L is growth rate of labor and  L is the regression coefficient of labor (L).
The capital growth rate is defined by calculating the average growth rate of capital investment and subtracting the depreciation rate. The depreciation rate in Vietnam ranges from 10% to 30% for machinery, and ranges from 2%-3% for buildings. A

Human capital
Human capital is long regarded as a determinant of economic growth (Mankiw (1992), Barro and Sala-i-Martin (2004), and Benhabib and Spiegel (1994)). Human capital also affects growth through its interaction with FDI. A number of proxies have been used to measure human capital. This study uses the number of university and college enrolment per thousand persons as a proxy for human capital in Vietnam.

Exports
The endogenous growth theory pioneered by Romer (1986) and Lucas (1988) has provided persuasive evidence for the proposition that an increase in exports as a percentage of GDP has a positive effect on economic growth. Grossman and Helpman (1991) and Barro and Sala-i-Martin (2004) have argued that a more open trade regime leads to a greater ability to absorb technological progress and export goods that stimulates economic growth. Grossman and Helpman (1991) and Rodrik (1992) have pointed out that exports can potentially create growth-accelerating forces.

Government Consumption
Government Consumption has a significant positive impact on economic growth, because this consumption can create more social capital and then has positive impact on economic growth.

Other determinants
The other well-known determinants of economic growth are domestic investment, labor force growth rate and FDI, both of which have been included as determinants of economic growth in Vietnam.
Based on the existing literature, the linkage between FDI and GDP growth in Vietnam is empirically examined by making use of the following equation.  The results of the regression models are presented in Table 4. Table 4 suggests that FDI is an important determinant of economic growth in Vietnam. The estimated coefficient of FDI in Table 6 is significant at 5% level. In other words, one can argue with 95% confidence that increase in FDI in Vietnam increases economic growth. Specifically, it is possible to argue that, other things remaining constant, an increase 1% in the ratio of realized FDI to GDP in Vietnam would contribute to an approximate 0.55% increase in economic growth.
The estimated coefficient of DI in Table 6 is significant at 1% level, implying that an increase 1% in the ratio of realized DI to GDP in Vietnam would contribute to an approximate 3% increase in economic growth.
The estimated coefficient of EX is significant at 5% level. It is possible to argue that, other things remaining constant, an increase 1% in the ratio of export to GDP in Vietnam would contribute to an approximate 0.168% increase in economic growth.
Human capital has a positive and statistically significant impact on economic growth in Vietnam, but the effect is poor. This result can be explained that the quality of human capital in Vietnam is poor. Therefore it is necessary to improve the education to increase the quality of human capital in the future.
The interaction of export and FDI has a positive and statistically significant impact on economic growth in Vietnam. Once again, the result indicates the important role of FDI in export of Vietnam.
The interaction of FDI and human capital has a positive and statistically significant impact on economic growth in Vietnam, but the effect is poor. This result can be explained that the quality of Vietnamese labor force is low and this constraints the benefitting from knowledge spillovers from FDI.
The estimated coefficient of government consumption and growth rate of labor force is not statistically significant.

DEVELOPMENT
Vietnam is in the process of world and regional economic integration. In the context of openness and integration, Vietnam is making major progress in economic development and improving the living standard of its population. As a full WTO member, Vietnam will have a lot of opportunities to expand its exports and attract foreign investment. From the above results of empirical models show that both these factors are expected to encourage economic growth. However, Vietnam also has some major challenges in improving investment environment, including: (1) The process of restructuring SOEs goes slowly. This is to reduce a faith from investors (2) The investment environment is not comprehensive (tax policy is complex, land policy is limited, and there is not an equal -playing field‖ for all kinds of enterprise).
(3) Administrative reform moves very slowly-this is also to limit investment.
To overcome these challenges, the Vietnamese government might consider several changes in its policies. Some possibilities are: (  This hampers private enterprises in expanding business sizes or changing location to a more convenient one. (4) Improve investment opportunities, the business environment, and the "playing field" for all kinds of enterprise. According to the results of enterprise surveys, investment and business environment at the present is still unsound and risky due to unstable policies, unequal application of federal laws, and internal corruption. The government needs to create an equal -playing field‖ for enterprises in all economic sectors by rapidly setting 20 up competition and anti-monopoly laws that apply to all economic sectors, control and prevent unsound competition behaviors like price control or market manipulations.
(5) Reform administrative procedures rapidly and thoroughly in all fields, particularly in the areas of customs and tax. Simplifying procedures for investment licensing, loan borrowing, exporting and importing of goods, and land will increase incentives to improve production and business efficiency of all economic sectors (6) Develop sustainable economic growth to benefit the poor. Economic indicators show that living standards are improving and that the poverty rates are decreasing in the reform period. However, the differential gap among alternate population groups is still high as measured by income or assets. There is also a differential gap in the poverty rates among the different provinces. This means that, although most of society has benefited from the county's economic growth, such disadvantaged groups as the landless, migrant workers, ethnic minority groups, elderly, women, and children have benefited less and the rich have benefited more. Regions with large ethnic minority groups also have high levels of poverty compared to other regions. To address this problem, the government should develop strategies for sustainable economic growth that will (1) benefit the poor, (2) further develop the country's economic infrastructure, (3) support job creation, and (4) develop non-farm employment opportunities in the rural areas of the country.