Relationship between sectoral exports and economic growth A time series analysis for Vietnamese fishery sector 1997-2008

For the long run estimation, a double increase in its fishery exports value would raise the GDP by 7%; This has a great economic meaning in developing process of the economy.. BILATERAL

VIETNAM- THE NETHERLANDS PROJECT FOR M.A ON DEVELOPMENT ECONOMICS

RELATIONSHIP BETWEEN SECTORAL EXPORTS AND ECONOMIC GROWTH-

A TIME SERIES ANALYSIS FOR

VIETNAMESE FISHERY SECTOR

1997 - 2008 BQ GIAO DVC £JAO TAO

MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT

HO CHI MINH CITY, DECEMBER 2009

CERTIFICATION

"I certify that the substance of this thesis has not already been submitted for any degree and has not been currently submitted for any other degree

all sources used have been acknowledged in this thesis."

NGUYEN ANH TRAM

Date: 16/12/2009

ACKNOWLEDGMENTS

No man is an island, entire of itself- John Donne

The work of this thesis represents the concerted efforts of many individuals One of the features is collaboration and certainly it required many acts of collaboration by quite a few people in order to come to fruition

Firstly, I am heartily thankful to my supervisor, Dr Nguyen Minh Due, whose encouragement, supervision, and support from the preliminary to the concluding level enabled me to develop an understanding ofthe subject

Secondly, I would like to thank Prof Karen Jansen, Dr Nguyen Trong Hoai, and Dr Tran Tien Khai for serving on my thesis committee, valuable suggestions, invaluable encouragement, insightful comments, and hard questions

I thank my friends, thirdly, for the stimulating discussions, and for all the help and fun we have had during the master course Besides, I also give many thanks to all project teachers and staffs in Ho Chi Minh City

Further, I would like to express my sincere gratitude to my parents for patiently putting up with a daughter who could never get enough of school

Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the project

ABSTRACT

Numerous studies in literature have tried to test the relationship between exports, especially sectoral exports, and economic growth This paper examines the relationship with evidence from fisheries exports of Vietnam during 1997 to 2008 The contribution of fishery sector in Vietnamese Gross Domestic Products (GDP) may be mathematically calculated with statistical figures However, the effects of fishery exports on the economic growth are yet to be thoroughly studied in an econometric approach Descriptive and time series analyses in this thesis present positive effect of fishery exports on the Vietnamese economic growth in long run The modern econometric approach with stationary and co-integration tests and vector error correction models used in this study also allows forecasting a persistence of the effects of fishery exports on Vietnamese GDP despite of different seasonal phase business For the long run estimation, a double increase in its fishery exports value would raise the GDP by 7%; This has a great economic meaning in developing process of the economy In reverse side, Vietnamese fishery exports would increase

by 5.2% with 10% increase in its GDP Confirming the· role of fishery exports in economic growth, it is necessary for the sector to improve its competitive capacity Firstly, it should continue to obey international standards, keep negotiating to get benefits from existing regulations, improve domestic institutional management to attract more foreign investment Particularly, the stakeholders of Vietnamese fishery exports should concern some main problems such as product's quality, marketing strategy, production cost, trade barrier and tariff as well

Gross National Product General Statistical Office Information & Communication Technology Ordinary Least Squares

States Bank of Vietnam The United States Dollars Vector Error Correction Modeling World Trade Organization

TABLE OF CONTENTS

LIST OF TABLES vii

LIST OF FIGURES viii

Chapter 1 INTRODUCTION ···o••··· 1

1.1 PROBLEM STATEMENT • • • 1

1.2 SCOPE OF THE STUDY 3

1.3 RESEARCH OBJECTIVES 3

1.4 RESEARCH QUESTIONS • •.•.• • • • 4

1.5 RESEARCH HYPOTHESIS 4

1.6 METHODOLOGY AND DATA COLLECTION 4

1 7 THE STRUCTURE OF THE THESIS 5

Chapter 2 LITERATURE REVIEW 6

2.1 THE RELATIONSHIP BETWEEN ECONOMIC GROWTH AND TRADE 6

2.2 THEORETICAL AND EMPIRICAL BACKGROUNDS OF SECTORAL EXPORTS 8

2.3 WHY FISHERY SECTOR WAS CHOSEN FOR THIS STUDY? 11

2.4 AN OVERVIEW OF VIETNAM FISHERY SECTOR 15

2.5 BILATERAL TRADE AGREEMENT, THE UNITED STATES ANTI-DUMPING MEASURES AND VIETNAM FISHERY EXPORTS IN THE PERIOD 1997- 2008 18

2.6 THE EXCHANGE RATE REGIME AND VIETNAM FISHERY EXPORTS 1997-2008 19

2.7 CPI (CONSUMER PRICE INDEX) AND VIETNAM FISHERY EXPORTS 1997- 2008 20

2.8 DEFINITIONS •.•.• ; •.• •.• •.•.•.• • • • 21

2.8.1 Fishery production : 21

2.8.2 Export 21

2.8.3 Export growth 21

2.8.4 Economic Growth 21

2.8.5 Consumer Price Index- CPI 22

2.8.6 Antidumping measurement 23

Bilateral Trade Agreement (BTA) 24

2.9 EMPIRICAL ESTIMATION RELATED TO EFFECTS OF FISHERY EXPORTS ON ECONOMIC GROWTH 26

2.9.1 Dependent variable 26

2.9.2 Independent variables 26

2.9.2.1 Fishery Exports 26

2.9.2.2 Labor 27

2.9.2.3 Exchange rate 27

2.9.2.4 Consumer Price Index 28

Chapter 3 METHODOLOGY 29

3.1 MODEL SPECIFICATIONS • • • • •.•.• • • •.• •.• •.•• • 29

3.2 DATA DESCRIPTION ; 31

3.3 DATA FOR VARIABLES 31

3.4 DUMMY VARIABLES 32

Chapter 4 RESULTS AND DISCUSSION 33

4.1 DESCRIPTIVE ANALYSIS • •.••.• , • • • 33

4.2 ECONOMETRIC ANALYSIS • •.• • •.• • ••.•.•• 37

4.2.1 Stationary testing of real variables 37

4.2.1.1 Unit root tests for log(YGNP) : 37

4.2.1.2 Unit root tests for log (REXR) 38

4.2.1.3 Unit root test for log (XGNP) 39

4.2.2 Two stage least square regression 39

Chapter 5 CONCLUSIONS AND SUGGESTIONS 47

REFERENCES 49

LIST OF TABLES

Table 1.1 Total Imports And Exports Of Vietnam In U.S Dollars 1

Table 2.1 Estimate Of Overseas Filipino Workers (December 2004) •••••••• •.•••••• 9

Table 2.2 Vietnam Exports Of Tra And Basa Fish (Tons) 24

Table 4.1 Descriptive Statistical Spreadsheet Of All Variables 36

Table 4.2 Covariance Matrix Spreadsheet Of All Variables 36

Table 4.3 Correlation Matrix Spreadsheet Of All Variables 36

TABLE 4.4A DF-GLS UNIT ROOT TEST FOR LOG (YGNP) 38

TABLE 4.4B ADF UNIT ROOT TEST FOR LOG (YGNP) 38

TABLE4.5ADF-GLS UNITROOTTESTFORLOG(REXR) 38

TABLE 4.5B ADF UNIT ROOT TEST ON LOG (REXR) 38

TABLE 4.6A DF-GLS UNIT ROOT TEST FOR LOG (XGNP) ;·; 39

TABLE 4.6B ADF UNIT ROOT TEST FOR LOG (XGNP) 39

Table 4 7 OLS of Log(YGNP) 40

Table 4.8 The Regression Result For Equation 8 In The Second Stage ••••••••••••••• 41 Table 4.9 First Difference Regression For Log(YGNP) •••••••••••••••••••••••••••••••••••••••••• 42 Table 4.10 First Difference Regression For Log(XGNP) 42

Table 4.11 Johansen Cointegration Test Summary 43 Table 4.12 Vector Error Correction Estimates •••••••••••••••••••••••••••••••••••••••••••••••••••••• 44

LIST OF FIGURES

Figure 2.1 Reported Aquaculture Production In China (From 1950) •••••••.•.•••••••• 10 Figure 2.2 Vietnam's Oil Production And Consumption, 1998- 2008* • ••••.•••••• 11 Figure 2.3 Top Asia - Pacific Oil Producers, 2006* 12 Figure 2.4 Vietnam's Primary Fishery Export Products In 2006 (Value Basis) 14 Figure 2.5 Vietnam's Fishery Products Export Market, 2006 (Value Basis) ••••••• 17 Figure 2.6 Time Line Of Standard US Antidumping Investigation ••••••••••••••••••••• 23 Figure 2 7 Monthly Exports Of Frozen Fish Fillets To The US, ••• • •.•••••• • ••••• 24 Figure 2.8 Values (US$ Millions), Rates Of Growth (Percentages), And Shares

In Total Exports (Percentages) Of Vietnam's Exports To The U.S, 2000-2006 • 25 Figure 4.1 GDP In Vietnam, 1997 - 2008 (Quarterly) 33 Figure 4.2 Fishery Exports In Vietnam, 1997 - 2008 (Quarterly) 34 Figure 4.3 Exchange Rate VND/USD, 1997 - 2008 (Quarterly) •••••••••••••••.•.•••••••••• 34 Figure 4.4 Vietnam Consumer Price Index, 1997 - 2008 (Quarterly) •••••••••••••••••• 35 Figure 4.5 Us Consumer Price Index, 1997- 2008 (Quarterly) 35

Chapter 1 INTRODUCTION

1.1 Problem statement

World trade has been expanded more and more, with global exports growing from $84 billion USD in 1953 to $6,272 billion USD in 2002 (HM Treasury, 2004) The figures demonstrate an increasing economical interdependence in the world nowadays relative to fifty years ago However, the most prominent role in the increase

is of developing countries and emerging markets; exports from developing countries

as a whole accounted for 29 percent of world trade in 2001

Economic theory and empirical evidence also showed that economies with trade more tend to grow faster Therefore, the fact that international trade or exports are always promoted by the Vietnam government is not an exception Prior to the collapse of the Soviet Union, most of Vietnam's trade was with the former Soviet Union and Eastern European countries Since 1991, the country's trade has diversified significantly It has also expanded dramatically, reflecting a globalization process of the Vietnamese economy In 1999, its openness (exports plus imports divided by GDP) reached the level of 84.5 percent and now (2009) about 170 percent, a useful indicator for an increasing global integration of a country

Table 1.1 Total imports and exports of Vietnam in U.S dollars

Source: United Nations Monthly Bulletin of Statistics (September, 2000)

Although Vietnam has consistently had trade deficits, the amount has narrowed with the boom in Vietnamese exports For example, in 1989 exports were only 73.7 percent of imports In 1999, exports had risen to be 98.9 percent of imports

In the period from 1997 to 2007, Vietnamese economy is prosperous in the context of global integration; especially Vietnam joined APEC at the end of 1998 and signed the bilateral trade agreement with the United States in 2001 Since the milestones,

Vietnam's exports has continuously grown, leading to a remarkable increase in its international trade and openness

However, the global economy began to have the indicators of a crisis from the early months of 2008 It was caused by regression of the real estate market in America, and created a serious financial crisis in the United States The crisis spread out over the world, from Europe, Latin America, Middle East, Russia, to Asia and Vietnam as well Although Vietnam has been affected by the crisis later than the others, it stills has faced some problems because of its wide economic openness

An obvious effect of the global crisis is speedy decline of the world's import demand That means Vietnam's exports in coming years will be suffer because Vietnam's economy is likely to follow an export-oriented growth In Vietnam's export structure, although crude oil still stand on the first position in export revenues, labor intensive products such as agricultural and fishery products are very important exported products of the country In these products, fisheries are prominent because fish resources represent natural capital and are a potential source of sustainable wealth for Vietnam This wealth provides the opportunity for such resources to make an ongoing contribution to economic growth, poverty alleviation and people livelihoods

as well (Due, 2008a, 2009a) Fishery exports also make significant contributions to the national economy through the generation of foreign exchange derived from international trade Exports of fishery products have grown rapidly during last ten years In fact, the aquatic products once contributed approximate 10% of whole national export revenues (Due, 2009a)

Otherwise, income multiplier effects can potentially "trickle up" to the national economy ensuring that fisheries can support national economic growth through contributions to GDP Although the Vietnamese fishery sector contributes to national GDP typically varied by 2.5-4.0 percent, it also generates a wide range of tax

revenues, contributing to the national budget Moreover, the major share of fishery exports have strong backward linkages with the other sectors both in terms of primary and value added commodities

Unfortunately, with high fluctuation of prices and the 2008 global crisis, global demand for fishery products may decline, and in its tum fishery exports may affect Vietnamese GDP growth rate because the country relies much upon exports for economic growth

Therefore, there exist some questions to study such as how fishery exports effect Vietnam's economic growth in recent yeats and whether the effect is positive

To get answers, the research will start by estimating an econometric model in which fishery exports revenue is the interested explanatory variable and real GDP is the dependent variable Some other controlling variables are included, such as exchange rate, CPI, CPI of the US, labor force, and dummy variables representing for annual quarters, 2001 Bilateral Trade Agreement between the US and Vietnam, 2003 anti-dumping tariff levied on Vietnamese catfish exported to the US Furthermore, this study will employ the econometric results to figure out some suggesting for national economic development policies The authorities may also use these results to refine, buttress, or in some ·cases, change their qualitative and subjective judgments in planning policies and strategies of development

1.2 Scope of the study

The first part of the study provides a brief and clear statement of the status and trends in the fishery exports in Vietnam, the major issues and challenges, focusing on fishery export data of a period 1997 - 2008 alongside with a short review of previous studies, investigation and the expectations

The second part and also the main part of the study will be devoted to examine the relationship between fishery exports and economic growth of Vietnam It will also suggest priorities and projected resource requirements, and the ways in which the suggestion might be practicized as Vietnam continues its journey in the future

1.3 Research objectives

Although there is lack of empirical studies on a clear relationship between fishery exports and economic growth, Vietnamese government has tried in practice to promote fishery export growth to boost up its economy This thesis, therefore, examines the fishery export patterns of Vietnam's economy to figure out its effects on the economic growth based on time series data in the period 1997 to 2008 to give some recommendations to improve and adjust fishery export policies in particular and trade policies in general Through these adjusted and improved policies, the government can help the economy overcomes the global crisis in short run as well as stimulates stability economic growth in long run in Vietnam In short, specific objectives of this thesis are to examine: (1) the relationship between fishery exports and economic growth, and (2) the persistence of the effects of exports during different

1.4 Research questions

With the mentioned objectives, this thesis would provide evidence to answer two following questions:

1 Has Vietnam's economic growth been affected by fishery exports?

2 Has the persistence of the effects of fishery exports different phases of the seasonal business?

Obviously, fishery exports and economic groWth have a relationship However, it is not clear that how Vietnam's economic growth over the decade had been affected by sectoral exports like fisheries In literature, effect of sectoral exports

on economic growth had been documented by Awokuse (2003) for Canada case, Anh

(2008) for Vietnam case, and Thompson (2009) for Greece case

1.5 Research hypothesis

The hypotheses for this research, therefore, include:

1 A causality relationship between the fishery export and economic growth

2 Effects of fishery exports on the economic growth in the duration of 1997-2008 1.6 Methodology and data collection

Because time series data of socio economic data is usually non-stationary in its level value, it is necessary for the research to check the stationarity of the variables in the first step The aim of this step is to verify whether the series had a stationary trend, and if it is non-stationary, orders of integration need to be established To check the stationarity, all the variables are firstly examined through graphical inspection of their time series plots All the series are then transformed into logarithms and rates of growth of all the variables are approximated by first differences of the logarithms of the corresponding variable value of quarters of years in the period The Dickey-Fuller (DF) and the augmented Dickey-Fuller (ADF) tests are applied for testing the level of integration of the variables These tests are to determine whether the variables follow

a stationary trend If the series are non-stationary, the research can not go further in the use of classical methods of estimation such as OLS because it causes the spurious relationships and thus the results would be meaningless In case the series are non-stationary around their averages, the traditional suggestion was to differentiate the series because this transformation may lead to stationary in the series Thus, the research can apply conventional econometrics (Granger and Newbold, 1974) Cointegration test is applied in the fifth step The test is used to estimate the long-run

necessary only to estimate a dynamic model, and check whether the residuals from the regression are stationary Lastly, the research estimates an error correction model after using two-step OLS procedure, which provides information about the short-term dynamic responses of the variables The method is straightforward and involves regressions using stationary time series

The data used in this study is quarterly and cover the period of 1997:1 to 2008:4 It is obtained from Vietnamese General Statistics Office for values of its GDP, CPI, and labor force Data of exchange rate, fishery exports is collected from websites of www.oanda.com and www.fistenet.gov.vn, respectively, while CPI values of the US are collected from the website of U.S Department of Labor, Bureau of Labor Statistics, Washington, D.C 20212(ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt) The Eviews software will be used for econometric regression in this research This software is a widely used econometrics program, so it can provide more efficient and reliable results

1.7 The structure of the thesis

The thesis includes five chapters:

Chapter 1 - Introduction

Chapter 2- Literature review

Chapter 3 - Methodology

Chapter 4 - Results and discussions

Chapter 5 - Conclusions and suggestions

Chapter two reviews some theoretical frameworks of growth and trade Throughout these this paper will clarify why sectoral export is very important for economic growth, especially, fishery exports In addition, the chapter also analyzes some related empirical research extracting the relationship between sectoral export and economic growth

Chapter three introduces models based on these the model specifications of this study will be built, together with data sources and some treatments as well as calculations of data

Chapter four is the most important part, in which empirical results will be presented through descriptive analysis and econometric analysis

Chapter five concerns conclusions and from these try to point out suggestions that will help fishery exports grow in quantity and quality sides;

Chapter 2 LITERATURE REVIEW

2.1 The relationship between economic growth and trade

The relationship between economic growth and trade was focused by many economists when trade comes into being With the development of trade, it has been the debate of academic economic research because of its impact on economic growth The emergence of trade and its development, to a certain extent, were closely related with economic growth In a way, trade indeed promotes economic growth of a country:

According to theory, there are links between trade and economic growth and these were discussed for over two centuries But, controversy still persists regarding their real effects Adam Smith with the classical school thought can be traced as the initial wave of favorable arguments with respect to trade Next, this work was subsequently enriched by David Ricardo with comparative advantage, Torrens, James Mill and John Stuart Mill in the first part of the nineteenth century They believed that trade promoted economic growth in two ways or trade improved the optimal distribution of resources and productivity consequentially and then stimulated the economic growth; on the other hand, one country could gain raw materials and equipments which it could not produce Those provided the material basis for economic development These theories interpreted the relationship in some respects but ignored that the international environment is complex and ruleless Since then, the justification for free trade and the various and indisputable benefits that international specialization brings to the productivity of nations have been widely discussed and are well documented in the economic literature (Bhagwati, 1978; Krueger, 1978)

Next, Lewis as the representative of the structural school developed the dual economy model theory For this theory, a developing economy is parted into capitalist part (the industry sector) and non-capitalist part (the traditional agricultural sector) The capitalist sector was bound to promote the growth of the economy through absorbing and accumulating surplus labor from non-capitalist sector If the capitalist part produced the exporting goods and the traditional part produced the importing goods, trade would undoubtedly expand the market and demand of products in capitalist part and reduce the wages of labor Then it would further increase the profit and accumulation of the part and promote economic growth (Chen, 2009)

In addition, Corden (1972) with his theory of trade protection represented for the effect school Corden recognized that trade of a country would affect macroeconomic side from 5 aspects: the revenue effect, the effect of capital accumulation, the substitution effect, the income distribution effect and the effect of the weighted elements This means that the impact of trade on economic growth was strengthened gradually as the development of economy with cumulation of the above effects

Lastly, the work of Romer (1986) and Lucas (1988) began a new wave of research on economic growth, and it was called endogenous growth theory The endogenous growth theory proposed a variety channels through which steady-state growth is reached endogenously This theory pointed out that the growth of developed countries would be attributed to the improvement of productivity Based on this fact, the theory made a series of models to study the relationship among international trade, technological progress and economic growth These models have focused on different variables, such as degree of openness, real exchange rate, tariffs, terms of trade and export performance, to verify the hypothesis that open economies grow more rapidly than those are closed (Edwards, 1998) They viewed that trade could promote economic growth through technology spillover and external stimulation The owners

of advanced technologies, whether they had intention or no intention, would gradually make other countries learn these technologies through trade Trade gives more frequent exchange of information and increased competition, which forced every country to develop new technologies and products The mutual promotion relations between trade and technical change could ensure a long-term economic growth

Moreover, although the theoretical literature has frequently focused on the relationship between trade and economic growth, the interesting phenomenon is that 'empirical examinations have typically examined the relationship between exports and growth' (Levine and Renelt, 1992, p.953) Besides, the role of export performance in the economic growth process was examined in studies in the late 1960s In these studies, total exports were pointed out that there are direct or indirect effects to output via some elements Definitely, these studies were based on things which trade theorists originally conceived of a national economy and national markets

2.2 Theoretical and empirical backgrounds of sectoral exports

In reality, somewhere on the periphery of things, there were also some industries enjoying an international comparative advantage, recently That sector could produce world class commodities for a modest export sector This sector communicated and traded with buyers in other countries Now the national economy has gone far down the path of integration with other countries through trade markets There is no single, peripheral trade sector Trade sectors intermingle extensively with all the other sectors of the national economy Markets are not national, they are global The modem theory of trade has been designed as well as proponed by Paul Krugman, the leader in this school Therefore, trade trend of countries, today, are try

to develop key industry for export in order to get gain or economic growth In other hand, this trend is also called sectoral export

Obviously, sectoral exporting is economic development strategy of many countries Tourism service exports in Greece are an example Greece, with its thousands-year culture and birthplace of philosophy, is famous tourist hotspots include the capital Athens, the northern Chalkidiki peninsula, the Ionian island of Corfu and the island resorts of Myconos, Santorini, Paros and Crete For these reasons, Greece is one of the best places in tourism and an important percentage of the country's income comes from tourism Thompson (2009) studied effects of the exchange rate and Euro switch on tourism revenue in Greece This paper indicated the Euro switch had a large positive impact on Greek tourism revenue, and tourism revenue should increase as more countries adopt the Euro currency In addition, strategic devaluation of a fixed exchange rate is ill advised, and appreciation of a flexible exchange rate may raise tourism revenue as in Greece

Otherwise, the Philippines is the paradigmatic example of a state that deliberat ely constructed state policy for its exports of workers abroad Yang (2004), in an important household survey, has demonstrated that Philippine families with migrant members abroad fared considerably better than family member without migrants

Table 2.1 Estimate of Overseas Filipino Workers (December 2004)

-Population of Philippines (2004): 84.6 million

-Value of Remittances (2004): $ 8.6 Billion

- GDP of the Philippines (2004): $85.1 Billion

The numbers here are striking Out of a total population of 84 million, approximately 8.1 million are working abroad roughly one in ten Filipinos The other striking figure is the seven billion dollars of remittance income generated by these workers, or roughly 10% of the Gross Domestic Product (GDP) of the Philippines This means that the Philippines have succeeded in developing a large scale labor export regime that provides significant level of remittances to the Philippine economy In addition to the unrequited nature of remittance transfers, remittances are seen as a particularly stable form of external finance (Ratha, 2003; Kapur, 2004), and can even increase during a crisis The logic is simple enough so that the Philippines try to keep labor exports as more as possible

Besides, China is a giant in fishery exports as well as the largest Asian fish harvester, landing over 41 million tones from capture fisheries and aquaculture in

2000

Years

Source: F AO Fishery Statistics, Aquaculture production

Figure 2.1 Reported aquaculture production in China (from 1950)

In 2003, China registered a total amount of 30.28 million tones of farmed fish, accounting for 64.34 percent of national fishery production (F AO, China fishery) Exports of farmed shrimp, eel, tilapia, shellfish and seaweed have also formed the backbone of Chinese seafood exports, accounting for about 50 percent of national seafood exports in terms of value The rapid development of aquaculture in China has not only contributed to improved food supply, but has also generated employment and income to the Chinese people About 4.3 million rural workers are directly employed

in aquaculture with an annual per capita net income of 8,667 Yuan from 1985 to 2003 (FAO, China fishery)

As the result, sectoral export is very important for developing countries, it can help these countries to grow and develop Vietnam is a developing country and also one of members of WTO Then, sectoral export is focused as strategy Thus, this thesis similarly chose fishery exports as sectoral exports in Vietnam for study

2.3 Why fishery sector was chosen for this study?

Over the course of two decades, Vietnam has emerged as an important regional producer of oil and natural gas in Southeast Asia The country has boosted exploration activities, allowed greater foreign company involvement in the oil and natural gas sectors, and introduced market reforms aimed at strengthening Vietnam's energy industry While these efforts have helped Vietnam expand production of oil and natural gas, domestic consumption of these resources has also increased as a result of rapid economic growth Half of Vietnam's domestic energy consumption comes from oil, with hydropower (20 percent), coal (18 percent), and natural gas (12 percent) supplying the remainder Therefore, net exports of crude oil in Vietnam are not much in future The below graph is demonstrated this thing

Vietnam's Oil Production and Consum1)tion, 1998-2008*

Source: EIA International Energy Annual 2004;

Short-Term Energy Outlook (June 2007)

Year

*2006 is estimate; 2007-2008 are forecasts

Figure 2.2 Vietnam's Oil Production and Consumption, 1998- 2008*

In addition, crude oil, though, is the first important export sector in Vietnam and its contribution percentage or· rate on GDP is largest Crude oil is a primary product, and is exploited from natural resources Crude oil will be rapid exhaustion time by time, so it is not potential export sector in further future Further, crude oil export does not impulse development of processing technology as well as employs products from other industries, and does not create more employment Last, crude oil production of Vietnam is not much, the production level is low than that of other countries in the zone

T Ol) Asia-P,lcific Oil Producers, 2006'·

China 1 - - - · ·-·"'' ;.;."'r: ;:.;''•:"""\W'.=.""'

, ,

·-; ' "' 3,836 Indonesia 1 - - - - -= 1,100

India t """'"'""" _, 847 Malaysia 1 ;,:-<l'::::' 1111 723 :

Australia

Vietnam

Thailand

Brunei

Thousml<l Barrels Per D<lY

Source: EIA Short-Term Energy Outlook (June 2007) *estimate

Figure 2.3 Top Asia - Pacific Oil Producers, 2006*

The above graph indicated that Vietnam is small oil producer in her zone, so crude oil export is not competitive advantage sector compared with that of other countries in Southeast Asia such as Indonesia and Malaysia

For textile and garment industry, the second large export sector, has been existed in Vietnam for at least a century, while traditional handicraft activities such as embroidery, silk weaving have existed for much longer The industry started to export

to countries of the Comecon economic block in 1976 until the end of the 1989s; Former Soviet Union and East European states were Vietnam's main trading partners which accounted for about 90% of total export value of textile and garment The collapse of the socialist system impelled Vietnam to find new markets With its new policy of diversifying foreign economic relations, Vietnam's textile and garment industry carries trade ties with over 30 countries throughout the world, and its businesses have relations with hundreds of overseas companies As the result, from

1993 garment and textile export to EU countries continuously has increased by 23%

in average annually In 1993, Vietnam exported USD 250 million In 1994 Vietnam exported USD 285 million In 1995 and 1996 garment and textile export value is USD

350 and USD 420 million respectively In 1997, export turnover is USD 450 million and so on As above presented Vietnam's textile and garment has achieved a notable success recently However, the industry is facing a number of difficulties, which need

to be surmounted to ensure its continued rapid growth The industry's most pressing problem is its equipment and machinery The out-dated technology has contributed to low production capacity and bad quality product, thereby, deteriorating Vietnamese manufacturers' competitiveness in the international market That is why, unsurprisingly many enterprises enjoying exports quotas, to the EU and other countries do not export the goods directly, but intermediaries This has caused losses

In addition, textile and garment in Vietnam are not much special It is just reprocess work for oversea companies Obviously, products from textile and garment can be made by other countries, not only Vietnam, so this has to stand big pressure from competitiveness of other countries in the similar conditions In addition, profit from garment is not much, and instability because garment faces many challenges such as quotas, tariff barriers, tastes of consumers, and so on

According to the above reasons, crude oil and garment have not advantages to become industries as comparative advantage for Vietnam economy and need to be promoted by the government

Together with crude oil, textile and garments, fishery products are the most important exports in Viet Nam(FAO, 2007) Since 1990s, fishery products have been the third biggest exported commodity According to GSO (2006), its contribution to GDP is approximately equal to that of education and training National accounts, however, do not relay the sector's full importance, as fisheries also make a significant contribution to national food security in a number of APFIC states, although there are concerns that current patterns of production and trade are compromising this contribution Fisheries and aquaculture industries have also absorbed millions labors

of Vietnamese growing population Only in the tra fish aquaculture industry, more than 500,000 labors and 50,000 farming households had been involved in 2003 (Due, 2007) Furthermore, Vietnam, with a coastline of over 3,260 kilometers (km) and more than 3,000 islands and islets scattered offshore, plus up to 2,860 rivers (Report, 2007) and estuaries, has been geographically endowed with ideal conditions for the thriving fishery sector which currently exists For centuries, the Mekong River Delta

in the south and the Red River Delta in the north have been used for wild catch fishing as well as extensive fish farming The Mekong River Delta, one of the most productive fishery zones, covers an area of about 40,000 square km (Report, 2007) In addition, there are about 4,200 square km of rivers, lakes and other natural bodies of

water further inland, which swell to an additional 6,000 square km during periods of seasonal flooding

Consequently, the fishery sector plays an important role in the national economy, accounting for about 6.1 percent of Gross Domestic Product (GDP) in 2006 and earning almost $3.4 billion in export revenues Production in the fishery sector grew at an average rate of 10.51% from 1991 to 2000, and 12.14% from 2001 to 2005 (Report, 2007) Much of this growth in production can be attributed to continued expansion in aquaculture, which increased from a 26 percent share of the sector in

2000 to 46 percent in 2006 A strong export market is the· driving force behind the growth in aquaculture, but there is also a growing domestic market as incomes improve and local demand increases The bulk ofVietnam's fishery exports are bound for Japan, Taiwan, South Korea, Hong Kong, the United States and the European Union With a sixteen-fold increase in fishery exports since the 1990's, Vietnam now ranks among the top ten seafood exporters in the world

In fact, Vietnam's fishery product exports have increased considerably since

2000 to become a major income earner and one of Vietnam's major export commodities Aquatic exports earned over $1 billion in 2000, $ 2.2 billion in 2003 and $3.36 billion in 2006 Total export volume for 2006 was 811.5 thousand metric tons, a 29.4% increase over 2005 Catfish and shrimp are by far the largest share of aquatic exports, accounting for over 22% and 44%, respectively, of total export earnings in 2006 Currently Vietnamese fishery products have reached more than 120 countries and territories on five continents Japan and the United States are the two largest export destinations, by country, while European Union nations, as a group, had the largest share of exports by volume and the second largest share by value in 2006 Exports are projected to reach more than $4.0 billion in 2008

Chilled/Frozen Fish

According to statistics, nearly 10% of the population derives their main income from fishery The fishery sector is significant contributor to the economy of Vietnam Vietnam's fisheries sector contributed some 3% to the GDP in 2015 and generated 9-10% of the total Vietnamese export revenues Otherwise, the importance of fish to human populations around the world is undeniable Throughout history, different cultures have used fish protein as a food source, with wild-caught fish providing the bulk of fish-derived protein Further, fishery industry has played an integral role in the economic development of many economies For example, the American colonies were able to develop financial independence with the abundance of cod, and the Vikings of Iceland made a fortune from the wealth offish in·the region Now, centuries later, fish are still key players in the global economy As developing countries have grown and consumers are becoming richer, the demand for fish is shaping the markets for seafood across the globe Global consumption of fish has doubled in the past thirty years, with more than 90% of the developing world contributing to that increase As more countries become dependent on this new staple, more economies have become based around the fisheries as well Thus, world demand of fishery products always exists; this thing is good indicator for promoting fishery industry development strategy in Vietnam Besides, growth in fishery exports helped to use products from backward and forward linkage industries If fishery exports more and more increase, more commodities will be used to serve for this and also to create more jobs, more income Then, this cycle will make increasing in GDP; it means that there is the growth in economy

2.4 An overview of Vietnam fishery sector

The aim of this part is to present some characteristics of fishery sector in Vietnam and to sketch out a dynamic picture of the sector It puts forward some preliminary assessments on comparative advantages of Vietnam fishery sector, on its competitiveness, on production system and marketing channel in general and their operations in the period

Generally, the fishery sector, including marine capture, aquaculture, processing, trade and services, has been defined as one of the national spearhead sectors An increasingly concerted coordination has been established between fishery trade with production and processing It is a safe bet that trade, for the most part in the form of export as in the case of Vietnam, constitutes the final and also vital stage in

maintaining and expanding the markets for the whole fishery sector The recent impressive record of achievements accruing from fishery exports has largely contributed to the national export growth, which can be demonstrated in a number of statistical figures

Though fluctuations on the world market, the total export value in Vietnam has constantly experienced a marked upturn, increasing from $1.351 billion in 1997 to greater than $2 billion in 2002 and reaching $2.74 billion in 2005 (Anh et al, 2006), and so on For the development process, Vietnamese fishery sector have a long-standing history, from the spontaneity in earning a living such as collecting crabs and shellfish, then together with the socio-economic development, boat building appeared; swimming and rowing skills were the basics of fishing The ancient Vietnam moved step by step from inland waters to the sea However, up to the 1950s, the Vietnam fisheries had still been backward and non-mechanical not became a production industry corresponding to the national natural condition and not met the demand of social development During the past 20 years ( 1986 - 2005) of the renovation process, the fisheries sector showed a continuous annual growth, in 5-year plans In 2006, the total fisheries production was 3,695, 927 metric tons (MT), of which 1,694,276 MT came from aqua cultivation; the fisheries export value gained more than US $ 3 billion, and about 4 million laborers were involved in the fisheries sector The sector has become an agri-industrial economy with high rate of growth, increasing scale, thus contributing to stabilization and development of the country

Actually, fishery sector is small and not bulky industry relative to other industries However, annual export value of this industry has increasing trend and exceed 10% (nearly 12%) of Vietnam exports in 2001 Thus, fishery industry can count as real strong point of Vietnam economy as its markets are diverse globally (Figure 2.5) According to statistical figures from Fistenet, fishery industry created approximately 7,100 employments per year from 1997 up to now, this contributed in unemployment rate decrease in Vietnam

Nevertheless, Vietnam's strategy of increasing its fishery exports faced a number of constraints and deficiencies Some of these were common to other commodities from Vietnam The geography and topography of Vietnam makes the country highly vulnerable to natural hazards Each year, natural disasters such as typhoons, storms, floods or drought have severe effects on fishery industry The lack

of awareness and control on the marine fishery capture significantly impacted coastal fishery resources and aquatic biodiversity

Others

14.50%

USA '19.80%

Source: Report from the Ministry of Fisheries

2'1.60%

Figure 2.5 Vietnam's Fishery Products Export Market, 2006 (value basis)

In addition, deficiencies in management seriously affected the improvement of actions: in 1993 the Vietnamese Government had an insufficient knowledge of the biologic resources available in the marine and aquaculture sectors This had a negative impact on national disease control as well as on its product quality development plans Also, the ban on fishing practices having a negative impact on aquatic resources and the environment was hard to enforce

Moreover, a number of facilities were lacking: the fleet of vessels for the various types of fisheries was insufficient and inefficient, transportation and retailing facilities (i.e., storage, depuration establishments, or "cold chain" facilities, etc.) were underdeveloped, access to credit was difficult, extension services and marketing channels were lacking, and there was low awareness among farmers and processors with respect to hygienic standards, quality tools and chemical monitoring

All these constraints or shortcomings led to very low added value products, which were not competitive on the international markets Furthermore, high levels of food-borne pathogens, with poor water quality and deficient production, processing, marketing and retailing technologies, in particular of meat and vegetable products, caused high levels of food-borne di$eases Next, high levels of toxic residues and the exceeding of maximum residue levels for pesticides were common problems In the early 1990s, no information was available from producers on the quantity of antibiotics used in meat and fish production Specific concerns of the fisheries sector

with respect to their products and their marketability were: maximum residue levels, histamine, heavy metals, including mercury, microbiological requirements and parasites

2.5 Bilateral Trade Agreement, the United States Anti-Dumping Measures and Vietnam fishery exports in the period 1997 - 2008

Since 1986, Vietnam has embarked on a gradual process of transformation from a centrally-planned system into a market-oriented economy with a socialist orientation ("Doi Moi") Reforms are being pursued at the institutional and economic level Legal and regulatory policy frameworks for energy, water, and forestry, as well

as for investment and enterprises, were adopted Vietnam also succeeded in becoming

an integral part of international production and distribution chains Accession to the World Trade Organization in January 2007 deepened the connection between Vietnamese farms and firms and international markets.· Thus, the fishery is a successful sector in capturing significant parts of the high-end markets, despite market defense interventions and other trade remedies such as the antidumping measures introduced by the US

Since 1994, when the U.S lifted the trade embargo against Vietnam, Vietnamese seafood has been exported to the U.S From 1994 to July 2000, even before the Bilateral Trade Agreement (BTA) was issued, the export value of Vietnamese seafood was rising steadily The Vietnam Association of Seafood Exporters and Producers (V ASEP) and individual seafood exporters such as Seaprodex, Agrifish, etc have been among those involved in the U.S market since that time In the year 2000, Vietnam's seafood exports to the U.S increased dramatically, mainly due to the ratification of the U.S.-Vietnam BTA Among Vietnam's seafood export to the U.S., shrimp was the main component and accounted for 74% of the overall value With the ratification of the BTA between the U.S and Vietnam, Vietnamese seafood producers had an opportunity to increase their share in this remarkable market After the BTA, Vietnam's seafood export value increased dramatically to over US$ 2 billion in 2002 and 2003 In 2003, Vietnam's fishery exports to the United States soared to $730.7 million, increasing 18.4 percent over the previous year Fishery exports to the United States in 2006 were valued at $651.8 million, a 3.7 percent increase over the previous year Shrimp exports of 35,414 metric tons accounted for over 65.9% of this amount

Therefore, the United States is considered to be Vietnam's most important market in the future offering new opportunities to exporters in the next ten years as stated in the Vietnamese government strategy on export development during the period 2001-2010 The bilateral share of the U.S in Vietnam's total exports is expected to increase to 15-20% by 2010 Vietnam's tra and basa fish have gained a considerable share of overall U.S seafood imports for these commodities, and American consumers are becoming familiar with them This provides further motivation for Vietnamese producers to boost their exports to the U.S Unfortunately, the decision of the U.S Department of Commerce on June 16, 2003 to place punitive import duties on tra and basa fish entering the U.S market at the rates of 36.84% and 63.88%, respectively, constitute a very serious trade barrier for Vietnamese seafood products

2.6 The exchange rate regime and Vietnam fishery exports 1997 - 2008

From 1997 to 1998, Vietnam had to cope with the impact of the Asian financial crisis While Vietnam was not directly attacked by speculators, VND became overvalued relative to the regional currencies which fell sharply In February

1998, the official central rate itself was devalued from 11,175 to 11,800 VND/USD These adjustments brought the actual exchange rate to 12,980, at the most depreciated end of the revised band In addition, the government of Viet Nam has also implemented foreign exchange controls, export-import controls and controls of commercial credit for imports, in order to avoid debt shocks The government has also controlled more strictly foreign borrowings, including government borrowings and private borrowings, be.cause it relates to debt service capacity of the economy

In February 1999, the SBV (State Bank of Vietnam) introduced a new exchange rate mechanism The central rate was now set daily at the average of Interbank exchange rates on the previous transaction day with a very narrow band of

±0.1% With this mechanism, VND (Vietnam dop.g) started to crawl (depreciate) very slowly towards the present level of around 15,600 (December 2003)

In January 2005, an announcement from the State Bank of Vietnam pointed out that exchange rate depreciation would be limited to 1 percent in 2005 encouraged sustained growth in foreign-currency borrowing Next, in January 2007 the range is widened to plus and minus 0.5%

During these years, the State Bank maintains an artificially high dollar-dong

percent As currencies in surrounding countries have started appreciating again, the Vietnamese Dong in comparison is less overvalued than it was As a result exports are harmed less by the artificial high value of the VND than before

In the end of 2008, the US financial crisis has happened, it caused the US economy is in decline status The economic decline of America has led to a long term devaluation of the dollar If the US enters recession, interest rates will fall and there will be a bigger fall in the dollar This may cause a rise in the Vietnam currency making its exports to US less competitive Otherwise, the widening of the dollar trading band, which was thought would depreciate the· VND and help export companies, has had quite a different effect In principle, a weakened local currency helps exporters as it makes a country's products cheaper and more competitive in the world's market However, things have been going the other way; exporters have to face many problems in their works

2.7 CPI (Consumer Price Index) and Vietnam fishery exports 1997-2008

Consumer Price Index relates to inflation, and inflation relates to the value of Vietnamese currency, dong In addition, export sectors also need import machinery and raw materials in order to serve their production Therefore, a question is mentioned that whether the increased value of the dong will benefit the economy and imports will be cheaper when bought in dong and, as a result, lower the Consumer Price Index The answer may be not

In fact, an increase in the value of the dong helps reduce the price for imported machinery and raw materials But with exports, when we· exchange US dollar for dong, the price falls The increase in the value of the dong will impose new risks on

farmers and exporters They may lose both profits and market share Thus, farmers and enterprises carry the burden of high interest rates and expenditures This is now

exacerbated by the risk that may be incurred from the increased value of the dong

In brief, the increase of CPI is not good for exports in general and fishery exports in particular because fishery exports use many primary products or materials from import sources According to Vietnam statistical sources, CPI in 1997, 1998 are relatively higher than that in 2000, 2001, 2002, and 2003 From 2004 to 2008, CPI continuously increased, and CPI value in 2008 is highest value during period from

1997 to 2008 These fluctuations of CPI, perhaps, can be explained by some reasons such as Asian financial crisis in 1997, the BT A was signed in 2001, the consequence

2.8 Definitions

2.8.1 Fishery production

According to GSO (2006), production of fishery refers to total production volume of one or a group of aquatic species harvested or caught in a given period, comprising production of fishery caught and production of aquaculture:

• Production of fishery caught includes production of catches from the sea, and from rivers, streams, lagoons, or ponds

• Production of aquaculture includes all aquatic production from aquaculture 2.8.2 Export

According to Blanchard (1997), export is the purchases of domestic goods and services by foreigners The export of one country is, by definition, the import of another In thinking about what determines Vietnam exports, equivalently, what determines foreign imports? Foreign imports are likely to depend on foreign activity, and on the relative of foreign goods Thus, exports can be written as X = X(Y*, C),

where Y* is income in the rest of the word, or simply foreign income (equivalent foreign output) An increase in foreign income leads to an increase in the foreign demand for all goods, some of which falls on Vietnamese goods, leading to higher Vietnam exports An increase in epsilon - an increase in the relative price of foreign goods in terms of Vietnam goods - makes Vietnamese goods relatively more attractive, leading to an increase in exports

2.8.3 Export growth

Following Krueger (2000), a definition of export growth is 'export growth is defined as the long term trend in a country's foreign exchange earnings from goods and non-factor services' (Krueger, 2000)

2.8.4 Economic Growth

According to World Bank (ICT at a Glance Definitions and Sources), GDP growth shows the annual percentage rate of growth of gross domestic product (GDP)

at market prices based on constant local currency Aggregates are based on constant

2000 dollars GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value

of the products It is calculated without deductions for depreciation of fabricated assets or for depletion and degradation of natural resources

2.8.5 Consumer Price Index - CPI

Consumer price index (CPI) is indicator reflecting the tendency and change in the price of "basket" of selected consumer goods and services in a certain period of time Price of basket of goods and services in base period is set at 100, and in other periods is calculated in percentage as compared to that of base period Basket of goods and services used to measure CPI are popular ones bought by consumers They are revised and updated every 5 years

In addition, weight to calculate CPI is expenditure proportion of each

gathered from the household living standard survey and used for 5 years

Laspeyres formula is utilized to calculate CPI:

Of which:

lp: Consumer price index

Po: Price in base period

qo: Volume of goods and services in base period

Pt: Price in reported period

do: Fixed weight of base period

t: Reported period; 0: Base year

D o-_ qoPo LqoPo

In fact, CPI is measured monthly, with 4 bases: base year, previous month, same month of previous year, and previous December for separated province, city, and the whole country (including index of urban and rural areas, composite index of each province, city, region and the whole country) (GSO, 2006)

Furthermore, the Consumer Price Index uses time-series data to measure changes in comprehensive prices of goods and services purchased by households throughout the country It reflects changes of the cost of purchasing goods and services in a fixed "market basket." It is not designed to measure changes in the living expenses arising from changes in the types, qualities or quantities of the goods and services purchased

2.8.6 Antidumping measurement

What does "dumping" mean? According to Knetter and Prusa (2000), there are two criteria in WTO regulations to define a dumping import as follows:

-First, there must be evidence that the domestic industry has materially injured (e.g.,

a loss or decline in profitability) by foreign imports

- Second, the foreign suppliers must be found to be selling their products at dumping pnces

In addition, a dumping price is a price "less than fair value" (L TFV) The

L TFV criterion can be determined in either of two ways:

(1) By showing that the price charged in the domestic market by the foreign suppliers

is below the price charged for the same product in other markets (i.e., the based" method)

"price-(2) By showing that the price charged in the domestic market is below an estimate of cost plus a normal return (i.e., the "constructed-value" method)

In US, the Department of Commerce (DOC) and the International Trade Commission (lTC) administrate the antidumping laws Each has distinct roles in the antidumping investigation process

Blonigen and Haynes (2002, cited by Due, 2009b) suspect that exporters react

to avoid or reduce the duty by raising their price prior to and during the long process

of investigation (Figure 2.6)

Petition Preliminary

filed lJSITC

First Preliminary Final Final administrative USDOC US DOC· LISJTC review

I· · 1 - - - - + - - - + - - - - + - - - - t · ,

Source: Blonigen and Heynes, 2002

Figure 2.6 Time line of standard US Antidumping Investigation

These duties were applied to frozen fish fillets in January 2003, when the U.S Department of Commerce made a preliminary affirmative determination of dumping The final affirmative determination was made in June 2003, with antidumping duty rates set at essentially the same rate as announced in the preliminary determination (31 to 64 percent) As the below figure shows, the imposition of antidumping duties in January 2003 had a significant negative impact on exports of frozen fish fillets to the United States-the monthly export level fell from over US$1 0 million to below US$2