The roles of capital and technological progress in Vietnam's economic growth

Purpose - The purpose of this paper is to measure the contribution of capital formation, labor, and technological progress to the growth of the Vietnamese economy, the impact of economic reforms (doi moi) since the end of 1986, and the rates of returns to capital and labor. Design/methodologyapproach - Cobb‐Douglas production functions are built for Vietnam's economy and then estimated using annual data for 1975‐2005. Findings - The two major findings are that: technological progress was statistically absent in the growth of the Vietnamese economy throughout the period studied; and the most important source of economic growth is capital accumulation, accounting for between 84 percent and 89 percent of Vietnamese economic growth throughout the period 1975‐2005, and between 85 percent and 90 percent in the reform period (1986‐2005). Originality/value - This paper is the first of its kind in the Vietnamese literature that successfully sheds light on, among other things, the roles of capital and technological progress in the Vietnamese economy during the period 1975‐2005. It also makes clear that Vietnam's economic growth has been fueled mainly by foreign funds and, thus, the continued heavy reliance of the economy on this financial source will make its growth unsustainable. In order to achieve sustainable growth in the coming decades, Vietnam must shift to rely more on productivity growth, which has been absent so far, and less on factor accumulation growth.