Liberalisation, incentives and Vietnamese agricultural growth

Abstract

This paper uses a dynamic model to analyse the effects of liberalisation on the longrun output and transitional growth of the Vietnamese rice sector during the period of reform from 1981 to the present. In particular, the paper attempts to allow for the incentive effects which can result if liberalisation induces individuals to work harder and use land more efficiently. Each new stage of liberalisation is shown to result in a higher steady-state level of physical capital and rice output. It is shown that, even with an assumed zero rate of growth in the ‘Solow residual’ component of total factor productivity, liberalisation may increase the long-run production of rice output by an order of two times its initial value. The analysis also predicts a significantly higher transitional growth rate of rice output for the more pervasive second stage of liberalisation than that for the first stage, suggesting that incentives and open markets matter greatly.