Obviously, by shifting investment capital from agriculture to industry, the government will increase the total national output. However, in reality, the government has shown that such investment is not effective. Specifically, in 2009, the government's investment in Industry was 1.6 times higher than Agriculture as shown in the table above. The high level of investment in industry, especially heavy industry, only proves the dynamic efficiency hypothesis, which explains that although short-term output with the above investment level may be low, this will create a springboard for long-term growth. However, this hypothesis is both inefficient and unfair. Moreover, the long-term output from the above investment level is completely uncertain in Vietnam. When investing in Industry, the Government is often influenced by a group of interests rather than dynamic efficiency (Dollar: 2002). The consequence of this policy is that industrial (or urban) development will create waste for the whole economy, and agriculture (or rural areas) will bear most of this inefficient allocation.
3.3.2.3.Investment between light industry and heavy industry
Currently, due to the characteristics of our country's economy, the agricultural sector still plays a leading role, specifically the world's leading pepper exporter, the second in rice exporter and the third in coffee exporter... if the Government's investment shifts from industry to agriculture, total output or economic growth will increase. However, empirical evidence in the world proves that sooner or later the agricultural sector will encounter its limitations, so the policy of shifting from industry to agriculture cannot be considered a long-term economic growth policy. According to the theory of Lewis's two-sector economic model, long-term growth is only achieved if there is a continuous shift of surplus rural agricultural labor to urban industrial labor. This labor shift has the following three advantages:
- Firstly, due to the shift of labor, the amount of labor in rural areas decreases while land and capital remain relatively the same, which leads to each laborer in rural areas having more land as well as more capital.
more to operate. Therefore, labor productivity will increase, and this will also cause per capita income in rural areas to increase.
- The movement of labor from rural to urban areas will limit wage increases in urban areas, it will reduce input costs for manufacturing industries. According to Lewis, this is essential for sustainable capital accumulation and will promote economic growth.
- The continuous absorption of labor into industrial production will create efficient use of capital and limit the increase of ICOR.
However, in reality, during the period from 2005 to 2010, while the annual growth rate of industrial output was 8.4%, the growth rate of labor in this sector was only 2.3% (General Statistics Office). Despite rapid growth, the industrial sector failed to absorb surplus labor from the agricultural sector.
The main reason for the above growth results is that industrial growth focuses on capital-intensive products rather than on labor-intensive products. The Government's investment strategy focuses mainly on heavy industry rather than light industry. Table 3.13 illustrates the government's investment in industrial projects implemented in the period 2000-2010. All projects are invested in heavy industry and use a lot of capital, accounting for approximately 40% of the total government investment in the industrial sector. Light industries such as textiles, footwear, etc., which use a lot of labor, have very limited investment.
It is clear that the Government's focus on heavy industry makes the use of capital in this sector less efficient, increasing the ICOR. Most of the workers in urban areas benefit from this investment. They are equipped with more capital, more technology, so their labor productivity is higher and their wages are higher. On the contrary, farmers who cannot move to industrial production may face problems of land limitation and
lack of capital, leading to low labor productivity and low income. When workers in rural areas cannot switch to high-productivity jobs in the area
Table 3.13. Major Industrial Projects in Vietnam in the period 2000-2010
Field
Project Number | Total investment capital (trillion VND) | |
Top Industrial Projects | ||
Gas and fuel | 2 | 17.02 |
Chemistry and fertilizers | 5 | 10.35 |
Steel | 6 | 47.81 |
Cement | 10 | 19.85 |
Total | 23 | 95.03 |
Total Investment in Industry | 215.12 |
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Source: Public Investment Program 2000-2010 (June 2011)
industry, causing total economic output to fall. With about 70% of the workforce in rural areas, this decline is huge.
Therefore, the Vietnamese Government should be cautious with its investment policy focusing on heavy industry, because Vietnam's competitive advantage is abundant labor, not abundant capital. Both the World Bank and the United Nations Development Program have warned the Vietnamese Government about this issue, saying that such a policy will only slow down economic growth and widen the urban-rural gap (WB 1999, UNDP 2012).
3.3.2.4.Investment of foreign invested sector (FDI)
As of 2010, our country has attracted 194.57 billion USD in foreign investment capital, of which agricultural production is only over one billion (Le Du Phong, 2012).
[23]. Large agricultural production areas such as the Mekong Delta and the Central Highlands have very low rates of attracting foreign investment. Of that 194.57 billion USD:
+ Southeast region accounts for 45.5%
+ North Central and Central Coast regions account for 26.5%
+ Mekong Delta region accounts for 4.9%
+ Red River Delta accounts for 20.1%
+ Northern midlands and mountainous areas 1.3%
+ Central Highlands only has 0.4%
Table 3.14: Foreign investment capital for agriculture (unit: %)
Year
Investment in agriculture | |
2005 | 0.75 |
2006 | 1.41 |
2007 | 0.28 |
2008 | 0.35 |
2009 | 0.59 |
2010 | 0.18 |
Source: Ministry of Planning and Investment (2012) and [23].
Regarding attracting foreign direct investment, from the beginning of the year to December 21, 2010, the whole country had 969 new projects with a total registered capital of 17.2 billion USD, an increase of 2.5% compared to 2009; 269 projects registered to increase investment capital with a total registered capital increase of 1.4 billion USD, equal to 23.5% compared to the same period in 2009. In total, both newly registered and increased capital, as of December 21, 2010, foreign investors had registered to invest 18.6 billion USD in Vietnam, equal to 82.2% compared to the same period in 2009. Among the fields attracting foreign investment capital in Vietnam this year, the real estate business sector took the lead with a registered capital of 6.8 billion USD, including 6.7 billion USD of newly registered capital.
(27 projects) and 0.1 billion USD in additional capital (6 projects), accounting for 36.8% of the total registered investment capital in Vietnam. The processing and manufacturing industry sector reached 5 billion USD, including 4 billion USD in newly registered capital (385 projects) and 1 billion USD in additional capital (199 projects), ranking second in terms of registered capital (accounting for 27.3%) but first in terms of the number of newly registered projects and projects with increased investment capital. The third sector was the production and distribution of electricity, gas and water with a total newly registered and additional capital of nearly 3 billion USD (6 projects), of which 2.9 billion USD was newly registered capital, accounting for 15.9% of the total registered investment capital in 2010.
Among the 51 countries and territories with newly registered investment projects this year, Singapore is the largest investor with 4,350.2 million USD, accounting for 25.2% of the total newly registered capital; followed by the Netherlands with 2,364 million USD, accounting for 13.7%; Japan with 2,040.1 million USD, accounting for 11.8%; South Korea with 2,038.8 million USD, accounting for 11.8%; the United States with 1,833.4 million USD, accounting for 10.6%; Taiwan with 1,180.6 million USD, accounting for 6.9%; and the British Virgin Islands with 726.3 million USD, accounting for 4.2%.
Among the foreign direct investment projects licensed in 2010, the notable large projects are: Nam Hoi An Development Company Limited Project (Nam Hoi An Resort) invested by Singaporean investors in Quang Nam with registered capital of 4 billion USD; AES-TKV Mong Duong Power Company Limited (BOT Mong Duong 2 Thermal Power) building a thermal power plant in Quang Ninh worth 2.1 billion USD; Kobelco Vietnam Sponge Iron Company Project producing steel billets in Nghe An worth 1 billion USD; Skybridge Dragon Sea Company Limited of the United States, aiming to build and operate a conference and exhibition center, trade center, and real estate business in Ba Ria-Vung Tau with capital of 902.5 million USD.
Accumulated over the years up to December 21, 2010, the whole country has 12.2 thousand valid projects with a total registered capital of 192.9 billion USD. Foreign investors have invested in 18/21 sectors in the national economic sector classification system, in which the processing and manufacturing industry still attracts the most foreign investment capital, with 7,305 projects, a total registered capital of 93.97 billion USD, accounting for 59.8% of the number of projects and 49% of the registered capital in Vietnam. Investment in
Real estate business ranked second in attracting foreign investment with 348 projects, total registered capital of 47.99 billion USD, accounting for 2.8% of the number of projects and 25% of the total registered capital in Vietnam. Next are the fields of construction, accommodation and food services, production, distribution of electricity, gas, water, and air conditioning.
92 countries and territories have investment projects in Vietnam, of which Taiwan is the number 1 investor with over 2,146 valid projects, total registered capital of 22.8 billion USD. South Korea ranks second with over 2,650 valid projects, total registered capital of 22.1 billion USD. Next is Singapore with 21.7 billion USD, Japan with 20.8 billion USD and Malaysia with 18.3 billion USD.
FDI has been present in 63/63 provinces and centrally-run cities, of which Ho Chi Minh City is still the place attracting the most FDI with over 3,500 valid projects, registered capital of 29.9 billion USD, accounting for 29% of the total number of projects and 16.4% of the total registered capital of the country. Ba Ria - Vung Tau ranked second with registered capital of 26.3 billion USD, accounting for 14.2% of the total registered capital of the country. Followed by Hanoi, Dong Nai, Binh Duong, Ninh Thuan, Ha Tinh, Phu Yen, Thanh Hoa, and Hai Phong. These 10 provinces and cities attracting the largest FDI accounted for 75.6% of the total registered capital of the country (145.9 billion USD) (according to the Foreign Investment Department, Ministry of Planning and Investment 2011).
3.3.2.5. Infrastructure investment allocation
Because the State's policy mechanism focuses on developing urban areas more than rural areas and other weak areas, especially the allocation of infrastructure investment. While the infrastructure in urban areas is relatively good, that in rural areas is still weak. Although the infrastructure of communes and villages is increasingly improved. In 2010, there were still 2.8% of communes without car roads to the commune people's committee (in 2008 this figure was 3%), the rate of villages/hamlets with access to car roads made of cement concrete or asphalt concrete reached 51.1% in 2010 (corresponding to 46% in 2008). The rate of villages/hamlets with daily markets is 26.7%, market sessions is 10.4% and post offices is 25.3% (DTMSDC 2010)[29]. Although on the national agenda, rural electrification remains a moot point, according to the survey.
In 2010, 9% of households in the Northern Midlands and Mountains still did not have access to electricity. Many households in the Mekong Delta, Northeast and Central Highlands still did not have access to electricity.
Regarding clean water, while nearly 100% of urban residents have access to clean water, this figure for rural areas is 87.4%, of which only 10.5% have access to tap water, while in urban areas the proportion of households using tap water is 68.3% (DTMSDC2010) [29]. Using unsanitary water sources is the main cause of the higher infant mortality rate in rural areas than in urban areas, specifically accounting for 15% of the total mortality rate (UNDP 2012). In general, infrastructure conditions in rural areas are lower than in urban areas. There are also a number of other reasons such as the State only focuses on developing heavy industries that use a lot of capital, while paying little attention to developing light industries such as textiles and garments... these are industries that take advantage of Vietnam.
Chapter conclusion: This chapter has analyzed qualitatively as well as quantitatively the factors affecting rural-urban income inequality. Pointing out the causes and levels of factors affecting rural-urban income inequality, specifically the integration variable through four channels: goods, capital, labor and information technology, represented and measured by four variables: export/GDP, FDI/GDP, natural logarithm of foreign deposits (representing the international labor mobility factor), the variable of the proportion of households using the internet and some other variables such as the natural logarithm of average GDP, the education level of the household head and the results show that the integration variables have a very close relationship to the level of income inequality between rural and urban areas in Vietnam except for the deposit variable, and at the same time explaining why there is such a relationship with explanations, at the same time the results of this chapter also serve as the basis for recommendations and policies in the next chapter.
CHAPTER 4
SOME POLICY SUGGESTIONS TO REDUCE RURAL-URBAN INCOME INEQUALITY IN VIETNAM
4.1. Summary of results achieved in the previous chapter
In the previous chapter, the thesis analyzed the current situation of rural-urban income inequality in Vietnam. In general, the income gap between these two regions exists in most criteria. However, in each period, this trend is decreasing, especially in 2010 compared to 2008. On the other hand, in the quantitative analysis, the impact of international integration on rural-urban income inequality in Vietnam was assessed by calculating the Theil T index of 60 provinces from 2002 to 2010. After calculating, it was found that integration variables such as export/GDP, FDI/GDP, and the number of internet users have a relatively close relationship to the rural-urban income gap. In particular, when separating the provinces into groups with deep, medium and weak integration levels, the results are quite interesting: the deep integration groups have regression results that coincide with the national regression, while the groups of provinces with medium and weak integration have integration variables as well as some other variables showing household characteristics that are not statistically significant. Through this, we can see that integration has had an impact on rural-urban income inequality in Vietnam in recent years, although the level of impact is different.
4.2. Orientation of inequality reduction issues in the coming years
From the results achieved in economic growth, combined with solving the problem of social justice from the beginning, the general goal of Vietnam's society by 2020 is: In Vietnam, there will be no more households living in poverty, Vietnamese people will have a prosperous life, have a fair level of cultural enjoyment and be on par with other countries in the region and in the world.
To achieve this general goal, the specific goals to strive for in the coming years: