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Growth and real business cycles in Vietnam and the Asean-5. Does the trend shock matter?

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  • Pham, Binh Thai
  • Sala, Hector
  • Silva, José I.

Abstract

We examine Vietnam’s economy in comparison with its closest trade partners. We show that capital accumulation has been the primary growth engine since the start of its transition to the pro-market economy in 1986 – the Doi Moi. We also show that the cyclical behavior of its macro aggregates is similar to that of its ASEAN-5 peers and other developing countries. We extend the standard small open economy RBC model by considering habit persistence and government consumption, which allows a close match of the moments of the growth variables. At the business cycle frequency, transitory productivity shocks account for approximately one-half of Vietnam’s output variance, while country risk and non-transitory productivity shocks account to close to one-fifth each. Regarding the Solow residual’s volatility, we find that the trend component merely accounts for 12 % of this variance in Vietnam, while in Thailand it is only 6 %. These findings refute the “the cycle is the trend” hypothesis in Aguiar and Gopinath (2007) and align with the hypotheses in García-Cicco et al. (2010) and Rhee (2017), where the stationary component is overwhelmingly dominant. We claim that technological progress and productivity-enhancing measures are fundamental for Vietnam’s economy to sustain high growth.

Suggested Citation

  • Pham, Binh Thai & Sala, Hector & Silva, José I., 2020. "Growth and real business cycles in Vietnam and the Asean-5. Does the trend shock matter?," Economic Systems, Elsevier, vol. 44(1).
  • Handle: RePEc:eee:ecosys:v:44:y:2020:i:1:s0939362518303297
    DOI: 10.1016/j.ecosys.2019.100730
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    Cited by:

    1. Van Nguyen, Phuong, 2020. "The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model," Dynare Working Papers 56, CEPREMAP.
    2. Pham, Thai-Binh & Sala, Hector, 2019. "The macroeconomic effects of oil price and risk-premium shocks on Vietnam: Evidence from an over-identifying SVAR analysis," MPRA Paper 96873, University Library of Munich, Germany, revised 05 Jul 2019.

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    More about this item

    Keywords

    Vietnam; ASEAN; DSGE; Real business cycles; Trend shock; Growth;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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