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

Binh T. Pham, Hector Sala and José Silva ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Vietnam; ASEAN; DSGE; RBC; trend shock; growth (search for similar items in EconPapers)
JEL-codes: E0 E13 E3 E32 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac, nep-sea and nep-tra
Date: 2018-11-22
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