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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 T.
  • Sala, Hector
  • Silva, José I.

Abstract

We examine Vietnam’s economy together 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 the one 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 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 cycle is the trend” hypothesis in Aguiar and Gopinath (2007), and align to those in García-Cicco, Pancrazi, and Uribe (2010) and Rhee (2017), in which the stationary component is overwhelmingly dominant. We claim that technological progress and productivity-enhancing measures are fundamental for Vietnam's economy to sustain a high growth.

Suggested Citation

  • Pham, Binh T. & Sala, Hector & Silva, José I., 2018. "Growth and real business cycles in Vietnam and the ASEAN-5. Does the trend shock matter?," MPRA Paper 90297, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90297
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    Cited by:

    1. 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.
    2. Phuong V. Nguyen, 2020. "The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(5), pages 1035-1063, October.
    3. Van Nguyen, Phuong, 2020. "The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model," Dynare Working Papers 56, CEPREMAP.
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    5. Hwang, Seolwoong & Kim, Soyoung, 2022. "Real business cycles in emerging countries: Are Asian business cycles different from Latin American business cycles?," Journal of International Money and Finance, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    Vietnam; ASEAN; DSGE; RBC; 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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