Improving tfp of viet nam in the comparison with Asean countries

Nội dung text: Improving tfp of viet nam in the comparison with Asean countries

1. IMPROVING TFP OF VIET NAM IN THE COMPARISON WITH ASEAN COUNTRIES Vu Hong Van vuhongvan881@gmail.com Thainguyen University of Technology Abstract As a developing country, Vietnam has to face pressure and impact of globalization. Vietnam is now focusing on issues of competitiveness and productivity through micro-economic reform programs after having a reasonable level of macro- economic stability over the past thirty years. Pursuing productivity increase is a long- term process, aimed at effectively competitive thought. The most important thing in the effort to improve labor productivity is to build a collaborative environment of improvement among stakeholders and make effective thought become a working culture in each business. Economic growth is due to an increase in labor, capital and the rest is based on increased total factor productivity (TFP). In particular, the factors that increase TFP are to allocate and use the right resources, a fair business environment, promote innovation, develop education and infrastructure which are factors reflect the quality of growth. Increasing TFP includes increasing system quality, increasing labor productivity and increasing capital quality. In which, the increase in labor quality is an important factor to increase labor productivity to contribute to TFP. The paper studies TFP in Vietnam in relation to TFP of regional countries, thereby proposing some solutions to increase Vietnam's competitiveness through TFP increase. Keywords: productivity, industry, TFP, Vietnam. 1.I ntroduction TFP has been regarded as a key driver of economic growth, explains the growth of output that does not derive from the number of inputs used, but from the levels of technology efficiency (innovation), management and quality of inputs exploited in production (Syverson, 2011), and Van Beveren, 2012. Therefore, governments, especially in developing countries, have made great efforts in implementing economic reforms to stimulate productivity. Syverson (2011) also indicated the determinants of firm-level TFP such as: managerial experience/talent, quality of inputs, information technology and R&D, learning-by-doing, production innovation, firm’s relative size, firm’s vertical and horizontal linkage, etc. 284
2. Isaksson (2007) emphasizes the crucial impacts of better institutions on TFP, especially its benefits for the effectiveness of capital formation and resource allocation. The study also referred to other factors that influence TFP such as infrastructure, human capital, financial development, etc. Clarifying the concepts of economic governance which includes both legislation and institution, Dixit (2009) highlighted the more important roles of policy application by institutions over government laws for productivity growth. In general, a firm’s TFP depends on characteristics of the firm itself and on characteristics of its external environment that affect its economic performance (Alvaro and Guasch, 2005; Uma et. al., 2005). Relevant characteristics of the firm may include its size, age, ownership, location and various proxies for its innovativeness or the quality of its management (Trung et. al., 2009). Concerning the determinants of TFP, Huang and Zhang (2016) examined the effect of ownership and trade on firm productivity in Vietnam. Doan et al. (2014) investigated the association between trade liberalization and the productivity growth of Vietnamese enterprises. Pham (2015) focused on the causality between export participation and firm productivity. In the paper of Firouzi (2010), factors affecting labor productivity positively are: the percent of labor with high education, capital intensity, R&D activity, firm size, export status, firm ownership status and wage. The positive relationship indicates that firms with high ratio of labors with college or higher diploma will have higher labor productivity. The same result with Papadogonas and Voulgaris’s findings as an increase in capital, investment in R&D activity and firms being exporters will lead to gain in labor productivity. Firms owned by state perform lower labor productivity compares to firms with other legal status. Unexpectedly, factor that has negative impact on labor productivity is the ratio of spending on employment training and industrial expenses, which means the more capital invested in training labors, the lower labor productivity received. This is contrary to the human capital studies and it can only be explained by considering the efficiency of training program. The phenomenon reflects the weakness of firms in investing in human capital when the quality does not match with capital expenditure. The paper studies productivity and TFP in Vietnam in relation to these of regional countries, thereby proposing some solutions to increase Vietnam's competitiveness through TFP increase. 2. Method The paper employed mix method as collected method and analyzed method in this study, the data collected from GSO, Vietnam Institute of Productivity, ILO, APO, 285
3. WB, related to labour productivity and TFP of Vietnam and Asean countries. After that, the article keeps going analyze growth rate, make comparison between Vietnam and other countries in Asia, assess their limitation and their cause and finally give some policy implementation in order to improve TFP of Vietnam. These policies implementation focus on shift economic growth model from wide growth to deep growth, learning success of Singapore, enhancing national competitive capacity and then it is essential that to assure labour productivity growth rate higher than salary growth rate. 3. Situation of TFP in Vietnam compared with Asean countries In recent years, the Vietnamese economy hashigh growth but revealed internal weaknesses. Economic growth is still relatively high but tends to slow down. The reason is that our country's growth model has some shortcomings. Growth is mainly due to increasing investment capital, the contribution of TFP to growth is low; labor productivity is still quite far from the regional countries (Table 1). The fact shows that the growth in width is narrowing, even some factors have been exploited, but the motivation of growth in depth (efficient use of resource, labor productivity, TFP have not improved much. Therefore, Vietnam needs to switch to a growth model based on productivity, quality and efficiency, in which the center is to improve labor productivity to increase the competitiveness of the economy and bring the country to fast and sustainable growth in the future. In accordance with 2017 prices, productivity is estimated to be VND 93.2 million per worker (US$4,159), an increase of VND 10 million compared to 2016. Vietnam's labor productivity is only 1/18th of Singapore, 1/16th of Malaysia and 1/3 of Thailand and China. there remains a big gap in labor productivity between Vietnam and regional countries. Vietnam’s labour productivity currently stands behind almost all countries in Southeast Asia, including Laos. In 2016, the average productivity of a Vietnamese employee reached $9,894 per person, equalling 7 per cent of Singapore, 17.6 per cent of Malaysia, and 36.5 per cent of Thailand. The number of employed laborers in Vietnam increased from 53.3 million in 2016 to 53.7 million in 2017. Employed laborers in agriculture, forestry, fishery decreased from 22.3 million in 2016 to 21.6 million in 2017, while industry and construction saw an increase from 13.2 million in 2016 to 13.8 million in 2017. Services also witnessed a growth from 17.8 million in 2016 to 18.3 million in 2017. Workforce between the ages of 15 and 39 years currently accounts for nearly half of the total labor force in Vietnam. The share of trained workers within working age in 2017 was estimated at 21.5 percent, higher than 20.6 percent in 2016. Urban areas accounted for around 32 percent of the employed laborers in reality, 70 per cent of 286
4. equipment, machinery, and infrastructure in Vietnamese workshops are backward, which hinders productivity Figure 1: Growth rate of Vietnam’s labor productivity, the period 2006 – 2017 Table 1: Labour productivity of Asian countries in 2017 Productivity Compare to Productivity Compare to Nation (1000 USD) Vietnam Nation (1000 USD) Vietnam (VN = 1) (VN = 1) Singapore 132,8 12,1 Thailand 29,9 2,7 Taiwan 99,2 9,0 Indonesia 25,7 2,3 Japan 74,2 6,7 China 26,8 2,4 South Korea 72,7 6,6 Philippines 19,4 1,8 Malaysia 59,1 5,4 Vietnam 11,0 1,0 Source: Total Economy Database (Labor productivity is calculated in GDP according to purchasing power equivalent at fixed price in 2011/number of employees) 287
5. Table 2: Productivity increase rate period 2005-2015 of Asia countries Productivity Productivity Nation Nation increase rate (%) increase rate (%) China 7,2 Thailand 3,1 Myanmar 6,0 Malaysia 1,8 Cambodia 5,5 South Korea 1,3 Vietnam 4,7 Taiwan 1,2 Indonesia 4,1 Singapore 0,7 Philippines 4,1 Japan 0,3 Source: Total Economy Database Table 3: Labour productivity on hour the year 2016 1000 1000 Nation Times Nation Times $/hour $/hour Singapore 58,8 12,5 Thailand 13,1 2,8 Taiwan 47,5 10,1 Indonesia 12,4 2,6 Japan 42,9 9,1 Philippines 9,2 2,0 South Korea 33,6 7,1 Vietnam 4,7 1,0 Malaysia 26,2 5,6 Cambodia 2,4 0,5 (GDP according to purchasing power equivalent at fixed price in 2011/hour) Increasing TFP is related to the application of technological innovation, improvement of management methods and workers’ skills Increasing capital and labor can bring economic growth in short-term, suitable with the first stage of industrialization. Increasing TFP is the source of long-term growth, focusing on quality of growth and sustainable development. The trend shows that economic growth is gradually based on quality increase, instead of mainly due to increasing the number of inputs as the previous period. In 2016-2017 alone, TFP increased by 2.4%, contributing about 37.5% to economic growth. Based on data from the General Statistics Office in 2017, GDP is increased by 6.81%, capital by 7.7%, labor by 0.75%, growth rate of TFP by 2.63%, contribution of TFP increase to GDP growth of about 39.5%. In the period 2011- 2017, TFP increase was 1.95%, contribution of TFP increase to GDP increase by 32.2% (Table 4). 288
6. Table 4: Increase rate of GDP, capital, labour, TFP and contribution of factors to GDP increase of Vietnam (2011-2017) Contribution to GDP GDP Capital Labor TFP increase (%) Year increase increase increase increase Capital Labor TFP rate (%) rate(%) rate (%) rate (%) increase increase increase 2011 6,24 9,26 2,66 0,85 60,6 25,4 14,0 2012 5,25 7,24 2,13 1,06 54,7 24,7 20,7 2013 5,42 6,77 1,53 1,71 50,9 16,9 32,2 2014 5,98 6,84 1,03 2,15 54,2 9,2 36,6 2015 6,68 7,15 0,18 3,10 51,3 1,5 47,3 2016 6,21 7,45 0,84 2,16 57,3 7,3 35,5 2017 6,81 7,70 0,75 2,63 54,7 5,8 39,5 averg 2011 - 6,08 7,48 1,30 1,95 54,8 13,0 32,2 2017 averg 2016 - 6,51 7,58 0,80 2,40 56,0 6,5 37,5 2017 Source: Vietnam Institute of Productivity based on statistics Considering the longer period, in 15 years ago Figure 2 shows that the growth rate of capital and labor is slowing, while TFP has a faster growth rate. Overall, Vietnam's economic growth is relying heavily on quality, instead of increasing the amount of capital and labor. In the coming period, TFP increase will have higher speed and sustainable contribution to GDP growth. Figure2: Increase rate of GDP, capital, labour and TFP period 2002 – 2017 Source: Vietnam Institute of Productivity After a period of rapid capital increase from 2002-2010 with an average growth rate of 12% per year since 2011, the growth rate of capital has slowed, an 289
7. average increase of about 7.4% per year. Labor also increased slowly. GDP achieved a high growth rate from 2002-2007 with an average of about 8% per year and slowed since 2008, after the global economic crisis and due to the impact of real-estate market in 2011. Since 2013, GDP growth has tended to increase again. In 2017, GDP increased by 6.81% compared to 2016, higher than its of 2016 and, also a successful growth in difficult conditions due to the impact of economic world’s fluctuations. The upward trend of TFP is one of the factors contributing to the overall and stable growth of GDP. During the period 2002-2010, TFP's contribution to economic growth was relatively low, although GDP still had a high growth rate. In particular, in 2008-2009, economic growth was entirely based on increased inputs of capital and labor without the contribution of TFP increase. Since 2010, when the growth rate of capital and labor slowed, the increase in TFP has played a greater role in economic growth. The contribution of TFP increase to economic growth is gradually increasing in the recent period, indicates that inputs of capital and labor are being used more effectively in producing outputs. This is a positive change of the economy in the direction of focusing on growth quality such as improving labor quality, capital quality, applying technical advances and focusing resources on fields with higher economic efficiency. The growth rate of developed countries has slowed, Japan has an averaged increase of 1% per year in the period of 2011-2016, Taiwan 2.3% and South Korea 2.9% per year. Thailand also has a slow growth rate during this period. Malaysia, Indonesia, Cambodia, Vietnam, Philippines and China still maintain high growth rates. Singapore and Malaysia reduced TFP during this period, Japan, South Korea and Taiwan had slow growth in TFP. Vietnam, the Philippines and China are countries with high GDP growth and rapid TFP increase. High growth rate of TFP shows that technical science, technology, skills, labor skills, and management skills are clearly improved. The contribution of TFP increase to Vietnam's GDP increase is 31% in the period 2011-2016, which is relatively high compared to Asian countries. However, the contribution of labor quality increase is quite low compared to other countries. Labor quality is an important factor in the growth. Increasing the labor quality contributes 30% to increase GDP in Japan. Table 5: Increase rate of capital, labour and TFP of Vietnam and Asia countries the period 2011 - 2016 290
8. Non-ICT Labour Labour Nation ICT capital TFP capital quantity quality Singapore 11,5 5,0 2,3 0,9 -0,7 Taiwan 3,4 2,3 0,4 0,8 0,6 Japan 1,3 1,0 0,0 0,5 0,2 Korea 5,4 3,7 0,8 0,1 0,6 Malaysia 6,5 6,3 2,2 0,9 -0,1 Thailand 3,7 2,9 -1,0 1,4 1,1 Indonesia 10,1 5,2 1,1 1,6 1,1 Philippines 9,1 5,2 2,0 1,0 1,6 China 4,4 11,4 0,3 0,5 2,5 Vietnam 19,2 6,2 0,3 0,5 1,5 Cambodia 13,4 9,0 1,3 0,8 0,9 Source: Total Economy Database Increased labor productivity means the value created by an enterprise, an industry or the whole economy calculated on a labor higher. The increase in labor productivity is due in part to increased capital equipment on labor and partly due to TFP increase. In particular, the growth rate of average capital equipment on labor in the period of 2011 - 2017 is about 6.1%, while TFP increases more slowly but is increasing steadily with a growth rate of about 2% per year, indicating the use of input resources more effectively (Figure 3). Figure 3: Increase rate of capital equipment on labour, TFP and productivity the period 2011 – 2017 Figure 4: Contribution of factors’ increase to productivity increase period 2011-2017 291
9. The contribution of increasing capital on labor to labor productivity increase still accounts for a higher proportion than the contribution of increasing TFP to it, the economy is still attracting investment capital for production development. Capital equipment on labor depends heavily on capital investment, thereby improving the working efficiency of workers and creating products and services with higher added value. Capital Investment create conditions for workers to equip more production tools and add new technology to improve productivity. Increasing capital equippment on labor contributes up to 60% to increase labor productivity, contribution of increasing TFP to labor productivity increase about 40% in this period. The contribution rate of TFP to Vietnam's GDP growth is low, only 11.9% for the 2001-2005 period, -4.5% for the 2006-2010 period and 29% for the 2011-2015 period. Compared with some regional countries in terms of the contribution of TFP to economic growth, in the period 2001-2010 Vietnam reached a very low level of 4.3%, while Korea achieved 51.3%; Malaysia reached 36.2%; Thailand reached 36.1%, China reached 35.2%; India reached 31.1%. The contribution rate of TFP in GDP growth reflects the low level of awareness and management of Vietnamese labor force in the business, which cannot meet the requirements of modern production. 4. Results Why did Vietnam’s TFP remain low compare with others countries? From current situation analyzed above, there are many causes: First of all, labor management is not scientific in businesses and agencies. Management capacity is weak. Most of us are still managing our business by habit and discretion. Secondly, the training system also carries a great deal of theory and lack of training in practical skills and updated professional requirements. 292
10. Thirdly, low labor quality. Vietnamese people are agile but do not persevere and have not the will to strive to reach the peak, soon satisfied with success. In addition, the interaction capability is also limited. Fourthly, financial capacity is the main cause to limit technology innovation. This leads to deep regressions in productivity and quality in competition. Fifthly, unbalanced competition pressure between industries, there is a monopoly in some sectors, not creating equality and healthy competition in the labor market. 5. Discussion Increasing investment in training skilled employees, modernising technology and manufacturing lines, and improving the management capacity of CEOs are the three major factors to increasing labour productivity in Vietnam. Thus, the basis for a productivity focused development strategy is to have a common understanding and agreement among key players (government, business, unions, media and others) on the principles of such a development strategy. These include that improvement in productivity create opportunities for employment growth in the long-term; the government must be prepared to provide support to workers and businesses to overcome short-term problems such as labour surplus in some companies and sectors; government, employers and labour should work together to implement productivity improvement measures; workers must be prepared to accept changes in the scope and requirement of their job, in addition to retraining for productivity improvement; and gains from improved productivity must be distributed fairly among businesses, workers and consumers. To raise efficiency, TFP growth, the paper proposes some solutions to increase Vietnam's competitiveness through TFP increase as bellows. Once there is an agreement on the principles, strong commitment and effective oversight from the highest level of leadership is critical to drive nation-wide efforts to improve labour productivity. It’s essential to ensure strong collaboration among Government, private sector, trade unions, industrial associations, and educational and professional organizations.To translate principles to specific action, it is critical to create institutions, mechanisms and movements to drive and sustain productivity improvements. The establishment of a National Productivity Council could be a good model for Vietnam. Resources need to be spent designing comprehensive and integrated strategies. It is important to take two-pronged approach which includes both sector- specific productivity improvement strategies and economy-wide programmes to support capabilities and enablers such as R&D, SMS productivity roadmap, inclusive growth 293
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