Impact of changing population structure on economic growth of vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY TRAN NGOC HAI LINH IMPACT OF CHANGING POPULATION STRUCTURES ON ECONOMIC GROWTH OF VIETNAM MASTER'S THESIS PUBLIC POLICY..

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

TRAN NGOC HAI LINH

IMPACT OF CHANGING POPULATION STRUCTURES ON ECONOMIC GROWTH

OF VIETNAM

MASTER'S THESIS

PUBLIC POLICY

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

TRAN NGOC HAI LINH

IMPACT OF CHANGING POPULATION STRUCTURES ON ECONOMIC GROWTH

Hanoi, 2020

TABLE OF CONTENT

LIST OF FIGURES i

LIST OF TABLES ii

LIST OF ABBREVIATIONS iii

ACKNOWLEDGEMENTS iv

CHAPTER 1: INTRODUCTION 1

1.1 Research background 1

1.2 Problem statement 6

1.3 Purpose of the study 6

1.4 Research questions 6

1.5 Research method 7

1.6 Significance of the study 7

1.7 Thesis’ structure: 7

CHAPTER 2: LITERATURE REVIEW 9

2.1 International literature on the impacts of changing population structures on economic growth: 9

2.2 Vietnamese literature on the impacts of changing population structures on economic growth in Vietnam: 13

2.3 Research gap 15

2.4 Conclusion 17

CHAPTER 3: METHODOLOGY 18

3.1 Overall Quantitative Analysis and the Econometrics 18

3.2 Regression Model 19

3.3 Index calculation 24

3.4 Expected signs of Variables 24

3.5 Hypothesis 25

3.6 Conclusion 25

CHAPTER 4 DATA 27

4.1 Data collection 27

4.2 Data Descriptive 27

4.3 Conclusion 28

CHAPTER 5: ESTIMATION RESULT 29 5.1 Impact of changing on working-age population on GRDP per

capita: 30

5.2 Impact of other factors on GRDP per capita: 31

5.3 Conclusion: 32

CHAPTER 6: POLICY RECOMMENDATIONS 34

6.1 Policy recommendations: 34

6.2 Limitations: 35

6.3 Conclusion 36

REFERECES 37

LIST OF FIGURES

Page

Figure 2.1: An example of life-cycle surplus 14

Table 2.1 Bloom and Williamson (1998)’s variables 10

Table 2.3 Compare and contrast to previous research papers 16

Table 3.1 Independent and Dependent Variables’ definition and source 20

5 GOV Government of the Socialist Republic of Viet

Nam

6 GRDP Gross Regional Domestic Product

7 GSO General Statistics Office of Vietnam

multiplier

10 NCC North Central and Central coastal

13 PCI Provincial Competitiveness Index

ACKNOWLEDGEMENTS

After two years of hard-studying in Vietnam Japan University, finally, I could finish

my thesis successfully Firstly, I would like to give the sincerest thanks to my supervisors, Prof Moges Abu Girma and Dr Vu Hoang Linh Moges-sensei had supported me when I was an internship in Japan, while Dr Linh has helped me a lot when I went back Hanoi to continue writing my thesis The most difficulty I have to deal with is that I have no experience in doing academic research, especially quantitative methods, how and where to collect the data, as well as testing the model But Dr Linh has guided me step by step to overcome these challenges Without both supervisor's guidance and their support, I could not do my thesis successfully

Secondly, I would like to say thanks to Dr Nguyen Thuy Anh, Dr Dang Quang Vinh, Prof Naohisa Okamoto, Ms Nguyen Thu Ha, and Ms Pham Lan Huong, who from the office of MPP of VJU They always support and encourage me when

I study in VJU

Last but not least, I would like to thank all the staffs of Tsukuba University who supported MPP 3rd intake students during the internship in Japan They were willing to help us in every situation from the first day we came until the last minute

we left Japan They bring us a lot of joyful moments and unforgettable memories, not only in term of studying experience but also the lifestyle and discovering the culture of Japan

I might add that two years studying in VJU, including the three months' internship

in Japan, is the most fabulous time in my life Thanks to the Vietnamese government and the Japanese government has brought this lucky chance for me to obtain a Master of Public Policy's course in VJU

CHAPTER 1: INTRODUCTION

1.1 Research background

1.1.1 Vietnamese population’s overview

Vietnam is a developing country with 94,6 million people, and around 55,3 million people in working-age1 This number accounted for 58,5% of the total population

Table 1.1 Total population and 15-64-year-old population’s growth rate from 1990

Source: WDI and UN

Table 1.1 above illustrates the total population and the population aged 15 to year-old and their growth rate from 1990 to 2050 in Vietnam According to Probabilistic Population Projections of United Nations (UN), the growth rate of the total population of Vietnam will slow down It will decline gradually from 10% in

64-1

Statistical Yearbook of Vietnam 2018 - GSO

2020 to 3% in 2040 and reach only 2% in 2050 The growth rate of the population aged 15 to 65-year-old have rapidly decreased from 14% to minus 4% in 2050 It means that the people of Vietnam will experience growth slowly while the number

of the labor force is falling in the next 30 years

There are three critical points in the population policies during the past 40 years, which lead to the dynamic change in the population structure in Vietnam: reducing birth rate and death rate, and focusing on improving people's quality of life These policies had led to the decrease in the Total Fertility Rate while the life expectancy was increasing

Table 1.2 TFR and Percentage of youth people to total population from 1989 to

in 1989 to 23.1% in 2018

On the other hand, Vietnam has rapid population aging, and the aging process in Vietnam is as quick as the process in Japan and China

Table 1.3 Global population aging trend

Country Population Aged 65 and Above (% of Total)

Source: World Population Prospects

“Year” column in Table 1.3 shows the entire year of a country transforms from an aging population to an aged population country According to UNFPA, the so-called “aging population” period is when the proposition of people aged 65+ to the total population accounts for 7% or more And “aged population” period happened when the proposition of 65-year-old or more population reaches 20% to the total population

It takes only 34 years for Vietnam to become a country with aged population in

which the old-age dependency ratio reach 20% Based on the data shown in Table 1.3, Asian countries such as Taiwan, Japan, Singapore, and Vietnam has a quicker process of aging than American and European countries The rapidly aging process will bring an additional burden to the working-age population, which is the primary resource for economic growth

1.1.2 Population policies in Vietnam:

Population policies are legislations, management programs, and other government activities that aim to change or adjust current population trends for the growth and prosperity of the Nation Depending on specific objectives and situation, the Government will issue policies and laws to guide and regulate the process of population development

The Vietnamese Government has soon realized the vital role of the population to the social-economic growth Council of Ministers (now is called Government of the Socialist Republic of Viet Nam - GOV) issued the first population policy of Vietnam – The Decision No 216/CP on 26th December 1961; guiding the childbearing with the aim of mothers' maternal health, for the welfare and harmony

of the family, so that the parenting can be thoughtful, the female procreation is appropriately instructed

Later on, the seventh National Party Congress (from 1991 to 1996) - The Central Committee of the Communist Party of Vietnam considers population activities and family planning are an essential part of National development strategies, as well as

a critical factor in enhancing the life quality of each Vietnamese people, family, and community as a whole

In the next period, several solutions were implemented simultaneously For example, GOV formulated a Population - Family Planning Strategy period from

1993 to 2000 and 2001 to 2010 and 2011 to 2020, and the newest is "Vietnamese

Population Strategy to 2030" The Strategy was issued on 22nd November 2019 in the Decision No 1679/QD-TTg, signed by Prime Minister Nguyen Xuan Phuc The overall goal of this Strategy is maintaining the replacement fertility rate; controlling the sex ratio at birth to natural equilibrium; taking advantage of the golden age population effectively; adapting to population aging; reasonably distributing the population density and improving the quality of population to contribute to rapid and sustainable national development

For effective implementation, the Strategy clarifies eight objectives to be done until

- Objective 3: Control the sex ratio at birth to the natural balance, strive to maintain the age structure at a reasonable level

- Objective 4: Improve the quality of the population

- Objective 5: Distribute the community reasonably and ensure National defense and security

- Objective 6: Complete the construction and operation of the national database on population, accelerate the integration of population factors into the formulation and implementation of socio-economic development plans

- Objective 7: Maximize the golden-age population structure's advantages, creating a strong motivation for the country's rapid and sustainable development

- Objective 8: Adapting to the aging population, promoting health care for the elderly

In addition, although Vietnam has transformed from an emerging country to a middle-income country recently, Vietnam needs to use the labor workforce in an effective and wise way in order to grow faster and to avoid the middle-income trap Therefore, deeply understanding the relations between the changing economically active population structure and economic growth is needed

low-In this thesis, the correlation between population, dependent population, and the Vietnamese economy will be examined with the more updated longitudinal data by utilizing quantitative methods

1.3 Purpose of the study

There are two major purposes of this study

The first purpose is to estimate the impact of population structures’ change on economic growth using quantitative method with provincial data

The second purpose is to propose appropriate policies to utilize human resources effectively, as well as to promote sustainable economic growth in Vietnam

1.4 Research questions

This research is going to answer the two major questions:

1) How does the working-age population structure influence economic growth

in Vietnam? And to what extent?

2) What should the Vietnamese government do to utilize the population resource effectively?

1.5 Research method

The thesis uses the quantitative approach with provincial data The time scope is from 2011 to 2017 Data of all variables are collected from GSO, except PCI, which

is obtained from VCCI

The secondary data obtained from GSO and VCCI is analyzed by applying the Random Effect model, the relations between GRDP and the change in the working-age population's structure will be explored Inside the model, the working-age population and dependent population were considered as the primary explanatory variable, while other factors such as PCI, life expectance at birth, working hour, FDI, and vice versa are considered as the control variables There are dummy variables in the model to explore the difference between the six areas of Vietnam

1.6 Significance of the study

This thesis contributes two significant points:

Firstly, the thesis uses the most updated database available that were collected from the GSO – a trustworthy Vietnamese data source Hence, the estimation result of this thesis illustrates the most updated situation of the population and the economic growth of Vietnam

Secondly, the previous Vietnamese papers mostly use national-scales data to estimate the population's impact on economic growth, while this thesis uses provincial-scales data for analysis

1.7 Thesis’ structure:

There are six major parts in this thesis: Introduction, Literature review, Methodology, Data, Estimate results, and Policy Recommendations

Chapter 01: Introduction – in this chapter, an overview of the population in Vietnam, population policy, and the necessary information of this thesis, such as research purposes, research questions, research methods, and study’s contributions are introduced briefly

Chapter 02: The literature review concentrates on showing the previous academic works on this topic in the past This chapter is divided into three central parts At first, the international papers in the related subject are briefly described and then move on to Vietnamese papers, which is exploring the relationship between population and economic growth After reviewing the previous documents, both internationally and domestically, I discuss the research gap

Chapter 03: Research Methodology – This chapter discusses the methodology and introduces the model used in the thesis Moreover, the reason for choosing the model and variables, and the explanation of some variables will be described in more details The two hypotheses of this thesis are also discussed

Chapter 04: Data – this chapter focusses on the description of the data collection step by step The data used for analyzing will be described in details

Chapter 05: Estimation result – in which the Random Effect model is used The discussion of the result is divided into two main parts In the first part, the impact of the change in the working-age population on the economic growth based on the correlation coefficient of the primary explanatory variable on the dependent variable after running the model In the second part, I discuss the impact of other factors in the economic growth model

Chapter 06: Policy Recommendations – in this chapter, some policy recommendations will be given The suggestions of these policies are for both the local and the central government

CHAPTER 2: LITERATURE REVIEW

This chapter includes three major parts: reviewing the literature from Vietnamese papers and literature from international articles, which focuses the links between population and economic growth In the 3rd part of this chapter, the research gaps are shown

2.1 International literature on the impacts of changing population structures on economic growth:

Throughout the world, the question of whether or not population growth affects economic growth is raised by both demographers and economists In the past, various points of view regarding the impacts of population growth on development have appeared Coale & Hoover (1958) believe that an increase in the population harms growth While Simon (1981) – one of the optimists, believes that a population increase leads to positive economic growth

However, the change in the population age structure due to demographic transition has various social and economic implications Several studies explore the vital role

of changing population structure on economic growth by cross-country data The first paper that should be mentioned is the paper of David E Bloom and Jeffrey G Williamson (1998) The paper estimates the impact of demographic variables on economic growth, and the results show that future demographic change will tend to depress growth rates in East Asia, while it will promote more rapid economic growth in Southeast and South Asia This model is considered the first model, in which the demographic variables was taken into account

̃ ( ) This formulation focuses on both the total population and the working-age population

Table 2.1 Bloom and Williamson (1998)’s variables

1 ̃ Growth rate of real GDP per capita in 1965-90

N: total population, L: the number of workers, y: output per worker and ̃ : output per capita

2 ( ) Income per worker at time

+ Average death rate, 1967-87 + Average infant death rate, 1967-87 + Average noninfant death rate, 1967-87 + Log life expectancy, 1960

- Education:

+ Log years of secondary schooling, 1965 (average years of secondary school for population age 25 or older)

- Economy:

+ Log GDP per capita as a ratio of U.S GDP per

Order Variable Calculation method

capita, 1965 + Government savings as a share of GDP, 1970-90

+ Ratio of coastline to land area + Quality of institutions (index of quality of governmental institutions)

The model proposed by Bloom & Williamson (1998) is considered as guidance for identifying the primary relationship between population composition and economic change Based on this model, Mikiko (2015) develops a regression equation to explore how the population composition by age group related to real GDP per capita in Japan and to explore how the dependency ratio related to economic change In her equation is:

( ) = ( ) + ( ) + ( ) +

t: the time index

j: a lag value of 0 or 1

Table 2.2 Mikiko (2015)’s variables

1 Growth rate of real GDP per capita in 1965-90

Order Variable Calculation method

Bloom & William (1998) divide the population into three groups such as young population, working-age population, and elderly population, but Mikiko (2015) divides the population into more group (11 groups), hence her research could explore more which age groups are associated with the increase or decrease in economic growth

In some aging and aged countries such as Taiwan, China, Japan, and the U.S., there are various ways that economists consider the impact of population aging on the economy Houang, Lin & Lee (2019) prove that although the aging workforce in Taiwan has influenced economic growth positively, the elderly dependency ratio still poses a significantly negative impact on economic change In another paper focusing on the impact of the aging process on trade balance, Fu (2013) finds that population aging affects the trade balance in a certain extent However, “the influence is conditional and especially different between developed and developing countries.” Besides, Maestas, Mullen & Powell (2016) use the U.S States data from

1980 to 2010 to calculate the influence of aging population on national output per capita Their estimation result is that “a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%” In these papers mentioned above, the data of the population is divided into several age groups for analysis For instance, the elderly population is divided into 60-69, 70-

79, 80-89 and the working-age population is divided into 5-7 age groups This is important because each age-group would contribute to the economic growth in different magnitude and different ways In Vietnam, there is still a limitation for collecting data in this way, especially on the provincial scale

2.2 Vietnamese literature on the impacts of changing population structures

on economic growth in Vietnam:

Economic growth is not only a top concern in every country in the world but also in Vietnam Both research and empirical theory show that population is one of the factors that strongly influence economic growth and is of prime importance to the socio-political situation in each country In Vietnam, in the last decade, the question

of how population change influences economic growth has been raised Tran & Do (2008) used provincial data in the period 2000-2004 and applied the neo-classical growth model with Cobb-Douglas production function to answer the question They found that education contributed to provincial economic growth, and GDP per

capita was higher in the provinces with higher human capital levels Nguyen & Ha (2010) had a more specific result They used data on population growth rate and the proportion of working-age population to total population to estimate the advantage

of the so-called “golden population period” in Vietnam They pointed out that an increase in the working-age population has a significant impact on economic growth From 1999-2009, change in the population’s age structure has contributed 2.29% to the economic growth rate

There are three Vietnamese papers used another method, so-called National Transfer Accounts (NTA) method, to estimate the influences of changing population age structure on Vietnamese economic growth These papers using NTA method are “Effects of population age structure changes on economic growth in Vietnam” of Bui (2012); “Estimating NTA for urban and rural areas in Vietnam” of Giang and Pham (2012) and “Impact of population’s age structure changes on economic growth in Vietnam and policy recommendations” of Giang et al (2015)

Figure 2.1 An example of life-cycle surplus

Source: Giang (2015), using data from VHLSS 2012 and IO Table 2012

The NTA is different from other methods because it focuses on a life-cycle surplus

of a person Figure 2.1 shows an example of a life-cycle surplus in Giang (2015)’s paper The life-cycle surplus of typical Vietnamese starts from age 23 to 53 It means that the population aged 23-53 had income higher than consumption, and they created savings, which in turn could stimulate economic growth Therefore, this age group has a positive relation with economic growth These results are similar among three papers, although these papers using different time scales (VHLSS 2008 and VHLSS 2012) and different area scales (the whole country and urban/rural area) In addition, Bui (2012) finds that population aged 20-54 contributes 2,91% to the growth rate of GDP per capita from 1989-1999, and this figure falls to 2,75% in the period from 1999-2000

In NTA method, the IO table should be in the same year or closest to the VHLSS data There is an updated data for VHLSS which is VHLSS 2016, but there is no update on I/O Table Therefore, there is no room for applying this method

2.3 Research gap

The literature review of Vietnam papers shows that most researches using data before 2010 and the NTA method using data 2012; in other words, the time period

is rather not updated Moreover, the previous papers are using national-level data

In the thesis, the data will be updated with more recent and provincial data In addition, I use panel data with random effect, and taking into account the provincial competitiveness index (PCI) as a control variable to see wherever or not the governance of provincial government involves in improving the outcome per capita

of the province/city Table 2.3 below shows the comparision and contrast of this study to the previous research papers mentioned in this chapter