Technical Change in Vietnamese Enterprises in Agricultural Sector

TERM PROJECT/ RURAL DEVELOPMENT

TECHNICAL CHANGE IN VIETNAMESE ENTERPRISES IN AGRICULTURAL SECTOR: 2000-2007 Time period

Introduction

An economic growing rate of a state finally depends on the growing of capital accretion, the productiveness of population, and proficient advancement. The way of proficient advancement could be disintegrated into a combination of labor-saving and capital-using ( or capital-saving ) . Technical alteration is labor-saving if labour productiveness additions. Technical alteration is capital-saving ( or capital-using ) if capital productiveness additions ( or decreases ) . Foley and Michl ( 1999 ) found that labour productiveness rises and capital productiveness falls across both developed and developing economic systems. Marquetti ( 2003 ) provided an empirical grounds that Marx-biased proficient alteration, i.e. , increasing labour productiveness and diminishing capital productiveness, seemed to be an inevitable economic development in the long-run. However, he farther noted that it was interrupted by periods in which both labour and capital productivenesss increased ( called Hicks-neutral proficient alteration ) .

In this paper, I investigate the way of proficient advancement in Vietnamese endeavors in agricultural sector during 2000-2007. Specifically, look intoing whether it was Marx-biased or Hicks-neutral or others.

The specific aims of the survey as followers:

to place the proficient alteration forms of Vietnamese endeavors in agricultural sector.

to recognize whether agricultural sector is still a profitable sector for investing.

to acknowledge the distribution of income between the labour and the capital.

From the above historical experiences, I would anticipate that the proficient alteration form in Vietnam ‘s agricultural sector during 2000-2007 was a combination of labor-saving and capital utilizing. i.e. , labour productiveness rises and capital productivenesss falls, which is called Marx-biased proficient alteration.

The remainder of the paper is constructed as follows. Section 2 is devoted to reexamine the theoretical model and empirical surveies which are used to reply the research job and discourse the different forms of proficient alteration. Section 3 introduces the information beginnings and analytical methods which are conducted to analyse the information. Section 4 discusses the findings. Section 5 offers some decisions.

LITERATURE REVIEW

Theoretical model

Neoclassic theoretical account uses a model to analyze the way of proficient alteration by presuming the being of a well behaved sum production map that summarizes the permutation possibilities of capital to labour in a sector or economic system ( Ferguson, 1968 ) . The neoclassical attack is considered as a standard attack. However, this attack is being controversial specifically to those who raised the job during the Cambridge arguments ( Cohen and Harcourt, 2003 ) and those who are refering the rectification of the collection conditions ( Felipe and Fisher, 2003 and 2006 ) .

The Cambridge arguments questioned about the thought of the word “ capital ” which is used in aggregative production map of neoclassical attack. Neoclassic attack merely defines the capital is the market value of a immense scope of different “ physical capital goods ” . And this attack predicts that a lessening in pay rate will take to a lessening in value of capital per worker or more employment because more labour is employed. However, depending on the precise construction of the houses ‘ cost of production, the monetary values of all these physical capital goods can be changed when the pay rate alterations. Therefore there is no warrant that a lower pay rate will take to more employment as the neoclassical expected.

Neoclassic attack uses an collection production map which is aggregated from the microeconomic production maps under really rigorous conditions has raised another job every bit good. These so rigorous conditions make one who concerns about all practical intents, can conceive of that this neoclassical collection production map does non be ( see Felipe and Fisher, 2003 and 2006 ) .

Therefore, alternatively of utilizing neoclassical attack, I follow the classical theoretical account developed by Sraffa ( 1960 ) . The theoretical account provides the manner to analyse the way of proficient alteration, which is known as the existent wage-profit rate agenda. Let ‘s get downing with how the agenda is derived.

Get downing with the income accounting individuality:

( 1 )

Where, Yn is entire nominal ( net ) value added ; Wn and i??n are entire pay measure ( or compensation of employees ) and entire net incomes ( or runing excess ) severally in nominal footings ; L is the figure of workers ; K is the value of capital stock in changeless monetary value ; is the nominal pay rate ; is the nominal net income rate.

In the existent footings, equation ( 1 ) could be rewritten:

( 2 )

Where, is the existent pay measure ( Personal computer is the consumer monetary value index ) ; is the existent net income ( Ps is the manufacturer monetary value index ) ; is the existent pay rate ; is the existent net income rate ; as the existent value added.

Rewrite equation ( 2 ) in footings of per worker:

( 3 )

Where, is labour productiveness ; is the capital-labor ratio.

If we denote as capital productiveness, equation ( 3 ) becomes:

( 4 )

Equation ( 4 ) peers:

( 5 )

Equation ( 5 ) is the existent wage-profit rate agenda as stated above. The agenda indicates that there ‘s being the tradeoff between the existent pay rates and the existent net income rates, given capital and labour productiveness. The way of proficient alteration will be analyzed by utilizing this agenda.

The incline of the existent wage-profit agenda, , is the negative of the ratio of labour productiveness ( Y ) and capital productiveness ( I? ) . Furthermore, we know that and, so the incline of the existent wage-profit agenda is really the capital-labor ratio, . A alteration in this incline or a displacement of this agenda is an index of the way of proficient alteration.

There are four forms of proficient alteration:

Harrod-neutral proficient alteration: labour salvaging ( ) and neither capital salvaging nor utilizing ( ) . Where, and are the growing rate of labour productiveness and capital productiveness severally. The existent wage-profit rate agenda becomes steeper. The horizontal intercept remains unchanged, while the perpendicular intercept moves outwards.

Hicks-neutral proficient alteration: labor-saving and capital-saving are equal ( ) . The incline of the curve remains unchanged, and both horizontal and perpendicular intercepts shifts outwards.

Solow-neutral proficient alteration: Neither labor-saving nor utilizing ( ) and capital economy ( ) . The curve becomes flatter. The horizontal intercept moves outwards, while the perpendicular intercept is unchanged.

Marx-biased proficient alteration: labor-saving ( ) and capital-using ( ) . The curve turns to steeper. The horizontal intercept moves inwards, while the perpendicular intercept moves outwards.

Empirical Study

Foley and Michl ( 1999 ) and Marquetti ( 2003 ) used the Penn World Table ( PWT ) informations to analyze the universe theoretical accounts of proficient alteration. They found that labour productiveness rises and capital productiveness falls across both developed and developing economic systems. Marquetti ( 2003 ) provided an empirical grounds that the development of capitalist economic systems typically, but non universally, comes after a theoretical account of a combination of labor-saving and capital-using proficient alteration, which is called Marx-biased proficient alteration. He farther commented that proficient alteration in industrialised economic systems is Marx-biased in the long tally. But there are some periods that both capital productiveness and labour productiveness augmented, i.e. , during these periods, proficient alteration is Hicks-neutral. Felipe and Kumar ( 2010 ) employed information for India ‘s organized fabrication sector during the period 1980-2007 to analyze the proficient alteration in fabrication sector in India. They found that proficient alteration was Marx biased during 1980s and 1990s ; and Hicks impersonal after the twelvemonth 2000. This determination was consistent with suggestion from historical experience that Hicks impersonal may merely be a passage stage before Marx biased returns as a proficient alteration form in the long-run tendency.

DATA ANALYSIS METHOD

The information, named, “ The endeavors in Vietnam 9 old ages at the beginning of century 21 ” , from General Statistics Office ( GSO ) is collected and used to analyse the way of proficient alteration. This information set provides really rich information about Vietnamese endeavors, specifically in agribusiness sector, during 2000 to 2007 that back uping my analysis.

The analysis method that I apply in this paper to analyse the information is chiefly geometrical analysis. By pulling the histograms of the existent wage-profit rate agenda allows me to place the proficient alteration forms of Vietnamese endeavors in agribusiness in general and in each part of Vietnam during periods 2000-2008. This analysing method besides empowers me to recognize the clip tendencies of Labor Productivity, Capital Productivity, Capital-to-Labor Ratio, Real Net income Rate, Share of Profits in Net Value Added, Share of Labor in Net Value Added, aˆ¦ etc. In general, geometrical analysis helps me to reply all research inquiries stated above.

Discussion

The below tabular array 1 defines variables which are applied in my analysis.

Table 1: Variables definition and beginnings.

Variables

Explanation

Entire figure of employee ( L )

It is entire of individuals enterprise utilizations and wages pay or wage.

Beginning: General Statistics Office ( GSO )

Nominal labour compensation/total pay measure ( Wn )

Compensation of employees. It is entire net incomes that employees gain by take parting in concern or production procedure of the endeavor.

Beginning: General Statistics Office ( GSO )

Consumer monetary value index ( Pw )

( Year 2000 = 100 )

Consumer monetary value index

Beginning: World Bank ( WB )

Nominal pay rate ( wn )

Nominal labour compensation divided by entire figure of employees ( wn=Wn/L )

Real pay rate ( wr )

Nominal pay rate deflated by Pw ( wr=wn/Pw )

Nominal operating surplus/profits ( I n )

Net income before revenue enhancements ( Billion VND ) . It is sum of addition before paying revenue enhancement ( net income before paying revenue enhancement ) from concern, fiscal and other activities of endeavor during a twelvemonth. It is entire net income of endeavor.

Beginning: General Statistics Office ( GSO )

Deflator for capital stock ( Ps )

( Year 2000 = 100 )

Producer ‘s monetary value index of agricultural, forestry and fishing merchandises ( Year 1995 = 100 ) .

Beginning: General Statistics Office ( GSO )

Real capital stock ( K )

Nominal fixed capital/Fixed plus and long-run investing deflated by Ps ( K=Nominal fixed capital/Ps ) . Fixed plus and long-run investing is obtained from GSO. It is entire staying values of fixed assets, value of under building undertakings, sum of paying security, sum of long-run consigning and other long-run fiscal investing sum of the endeavor.

Nominal ex-post net income rate ( radon )

Nominal operating excess divided by existent capital stock

( rn = I n/K )

Real operating excess ( I R )

Nominal operating excess deflated by Ps ( I R = I n/Ps )

Real ex-post net income rate ( rr )

Nominal ex-post net income rate deflated by Ps ( rr = rn/Ps )

Real value added ( Yr )

The amount of existent rewards and existent operating excess ( Yr= Wn/Pw+ I n/Ps )

Labor productiveness ( Y )

Real value added divided by entire figure of workers ( y = Yr/L )

Labor portion ( Sl )

Share of the existent wage-bill ( labour compensation ) in existent end product ( value added ) ( Sl =wrL/Yr )

Capital productiveness ( I? )

Real value added divided by existent capital stock ( I? = Yr/K )

Capital portion ( Sk )

Share of capital in existent end product ( value added ) ( Sk = rrK/Yr = I r/Yr )

Figure 1 indicates the existent wage-profit rate agendas of Vietnamese endeavors in agricultural sector from 2000 to 2007. The figure displays the tradeoff between the existent pay rate and the net income rate. During this period, both the perpendicular and horizontal intercepts about shifted outward ( except 2001, the horizontal intercept shifted inward ) . It means that during this period, both capital productiveness and labour productiveness increased. Although they did non increase by the same fraction. Therefore, we can state that proficient alteration during 2000-2007 period is Hicks-neutral.

Figure 1: Real Wage-Profit Rate Schedule of Vietnamese endeavors in agribusiness

We know that the incline of the existent wage-profit rate agenda reveals the way of proficient alteration, as stated above. It is the consequence of an association of alterations in labour productiveness ( Y ) and capital productiveness ( I? ) , and in capital-labor ratio ( K ) . To exemplify the alterations in these three variables ( Y, I? , and K ) , the below figure 2 is exhibited. From this figure, we see that during 2000-2007 period, both labour and capital productivenesss were increased while the capital-labor ratio remained about changeless. This tendency is mirrored in figure 1 with a about parallel outward switching of the existent wage-profit rate agenda ( Hicks-neutral proficient alteration ) .

Figure 2: Labor productiveness, capital productiveness, and capital-labor ratio

It is necessary to compare the form of proficient alteration in Vietnamese endeavors in agribusiness with the empirical consequences. Foley and Michl ( 1999 ) and Marquetti ( 2003 ) stated that the increasing in labour productiveness and the decreasing in capital productiveness experience both developed and developing economic systems. Marquetti ( 2003 ) provided empirical grounds that Marx-biased proficient alteration seems to be the common tendency in development way. Furthermore, he reminded that there were bing of periods that interrupted the long-run tendency of Marx-biased. In these periods, both labour and capital productivenesss increased. In other words, Hicks-neutral was the proficient alteration in these periods. These empirical consequences were for the whole economic system for a long period. In my paper, the consequence is for agricultural sector merely, non for a whole economic system. It seems that the natural of proficient alteration in Vietnamese endeavors in agribusiness during 200-2007 was non conform to the international form in the long-term ( Marx-biased form ) . It may be a ephemeral stage before following the long-run tendency as Marquetti ( 2003 ) has noted.

The capital productiveness ( I? ) could be expressed by a relationship with the existent net income rate ( rr ) and the portion of net income in existent value-added ( Sk ) : . This relationship among these three variables ( rr, I? , and Sk ) is shown in figure 3. The portion of net incomes in existent value-added increased over period 2000-2004 from 15 % in 2000 to over 40 % in 2004, although there was a dropping in 2001 ( less than 5 % ) , so strongly recovered in 2002 ( over 25 % ) . After 2004, the net income portion largely remained stable at around 43 % degree. The net income rate increased yearly from less than 5 % in 2000 to somewhat over 15 % in 2007. i.e. , the growing rate of existent net income rate during this period was over 200 % . This made agricultural sector was still a profitable sector, compared with industrial and services sectors where the net income rate were diminishing. The capital productiveness increased from less than 15 % in 2000 to over 35 % in 2007. The figure 35 % here means that with VND1 billion investing of existent capital stock, the house would make VND35 million in end product or existent value-added. While the figure 15 % increased in net income rate means that with VND1 billion investing of existent capital stock, the house would gain VND15 million in existent net income. The VND20 million difference between VND35 million and VND15 million was really came from the existent pay rate. I will do this account more consistent by presenting below portion which related to labour.

Figure 3: Real net income rate, portion of net income in existent value-added, and capital productiveness

Similar to the capital productiveness, the labour productiveness ( Y ) could be expressed a relationship with the existent pay rate ( wr ) and the portion of labour in existent value-added ( Sl ) : . This relationship amongst these three variables ( wr, Y, and Sl ) is diagrammatically expressed by figure 4. The portion of labour in existent value-added decreased over period 2000-2004 from over 80 % in 2000 to less than 60 % in 2004, although a pumping existed in 2001 ( over 95 % ) . After 2004, the labour portion largely remained stable at around 57 % degree. These Numberss were consistent with the additions in net income portion as stated above, from 15 % in 2000 to stable 43 % degree after 2004. The existent pay rate increased during period 2000-2007 from around VND10 million in 2000 to somewhat over VND20 million in 2007. i.e. , the growing rate of existent pay rate during this period is over 100 % . The labour productiveness increased from less than VND10 million in 2000 to over VND35 million in 2007. The figure VND35 million here means that one labour has created VND35 million in end product or existent value-added, in which this labour was compensated VND20 million. So the VND15 million difference between VND35 million and VND20 million was really came from the existent net income rate. Therefore, once more I have consolidated my account as committed above that this VND15 million was really the net income that house was distributed or this was a reflecting of 15 % net income rate in 2007.

Figure 4: Real pay rate, portion of labour in existent value-added, and labour productiveness

Decision

I have investigated the way of proficient alteration in Vietnamese endeavors in agricultural sector during 2000-2007 by using the existent wage-profit rate agenda. I have discovered that Hicks-neutral proficient alteration was the form during this period. It means that both labour productiveness and capital productiveness increased during this period. However, empirical surveies indicates that Hicks-neutral proficient alteration may merely be a passage stage before returning to the Marx-biased proficient alteration in the long tally.

The net income rate has non entered the steady province of worsening as historical experience of many other states. It still enjoyed 15 % additions in 2007, compared with industrial and services sectors where the net income rates were diminishing. It implies that agricultural sector was still profitable for investing.

The portion of capital and the portion of labour in the existent value-added were somewhat every bit segmented ( 57 % to labour and 43 % to capital ) and it seemed to be stable after 2004. It implies that the distribution of income were reasonably shared to both labour and capital. Neither labour nor capital were favored after 2004 in Vietnamese endeavors in agricultural sector.

The restriction of the survey is in the length of informations. The gathered information is available from 2000 to 2008. However, it would be preferred if the long-run information is vailable, e.g. from 1986 to 2007. Furthermore, public presentation of endeavors in Vietnamese economic system as a whole, and in agricultural sector specifically, was dramatically damaged by the universe fiscal convulsion in 2008. Therefore, it is better for me to extinguish twelvemonth 2008 out of the paper.