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The Vietnamese Socio-economic Development Plan Revisited: Application of the 2003 Merged Model for Vietnam

Jensen, Henning Tarp and Tarp, Finn (2006): The Vietnamese Socio-economic Development Plan Revisited: Application of the 2003 Merged Model for Vietnam. Published in: (2006)

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Abstract

This paper investigates the Vietnamese Socio-economic Development Plan (2006-10) using the 2003 Merged Model for Vietnam, which was developed in Jensen & Tarp (2007). Initialization and calibration of the model is based on a financial 2003 SAM framework and an auxiliary 2002-2003 data set. Furthermore, an auxiliary 2004-2005 data base was used to run the model forward and target 2005 starting values for the 2006-2010 development plan projections. The paper sets out a so-called ‘SEDP Base Scenario’, which is based on constant calibrated Merged Model parameter values. The base scenario turns out to be internally inconsistent, as indicated by divergent behaviour among the four model-specific focal variables. Dynamic (time-dependent) adjustments to parameter values subsequently allows for the derivation of the ‘SEDP Consistent Scenario’. This scenario is internally consistent, in the sense that the model-specific focal variables settle down around sensible growth paths. The necessary parameter adjustments provide an indication of the structural assumptions underlying the SEDP development plan. These assumptions include (i) a strong initial drop in capital factor productivity (increasing capital-output ratio), (ii) a strong continuous drop in government foreign borrowing relative to export earnings, and an accompanying need to increase the government’s reliance on domestic capital markets, (iii) the continuation of a very high import elasticity with respect to GDP throughout the planning period, and (iv) the pursuit of a long run target for official foreign exchange reserves amounting to 9 weeks of imports.

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