Subject:
"Economy-wide Effects of Remittances:
A Computable General Equilibrium Assessment from Vietnam"

by
Mr. Nguyen Duc Thanh
(PhD Candidate, GRIPS)

Summary

This time, VDF-Tokyo welcomed again Mr. Nguyen Duc Thanh, a PhD Candidate of GRIPS and a VDF-Tokyo member, to present his research paper about the impacts of foreign remittances on the Vietnamese economy. This is a part of his PhD dissertation at GRIPS.

Along with impressive social and economic development of Vietnam since Doi moi (renovation), Vietnam is now attracting increasing flows of remittances from Vietnamese people who are working and living abroad. To see how such flows of remittances have impacts on the Vietnamese economy, Mr. Thanh conducted a research by using a computable general equilibrium (CGE) model.

Mr. Thanh began the presentation by making an overview of foreign remittances in Vietnam. It was shown clearly that total value of foreign remittances has been increased rapidly, particularly since 2000, in terms of both absolute value and percentage of GDP. Using the estimates from Pfau and Giang (2006), he showed the flows of remittances to Vietnam by sources, regions, and areas, and how they were used among receiving households. It was obvious that flows of remittances were dominated by the countries that had close links with Vietnam. One striking finding was that, in recent years, there was an increasing flow of foreign remittances to the rural areas, which were always thought to have negligible links with foreign factors. There were possible reasons for such finding, including increasing exports of labors in Vietnam.

The presentation was continued with a brief discussion of the previous studies on the impacts of remittances on the whole economy in some countries with different research questions and methods. Mr. Thanh also made an overview of how to construct a CGE model, and then he showed the modified version of CGE model that he would use for Vietnam to pursue the research objective. Using the Social Accounting Matrix (SAM) 2000 of Vietnam, and system of equations adapted from Logren et al. (2000), Mr. Thanh estimated the impacts of foreign remittances on various indicators of the Vietnamese economy when the value of foreign remittances increased by 50 percent or 100 percent in the coming years. The estimated results were shown and discussed with numerous possibilities.

[For more information about the results, please see his draft paper attached to this summary]

Prof. Kenichi Ohno started the discussion section by a question about definitions of a number of indicators, such as foreign remittances and exchange rate. In addition, he provided some comments on the estimated results. Prof. Ohno thought that the estimates were generally acceptable as they showed the predictable directions of changes, but he asked Mr. Thanh to explain whether these estimates were reasonable in the context of Vietnam. He also encouraged Mr. Thanh to develop his model so that it could evaluate the secondary effects of changes in the flows of remittances, and other factors such as ODA flows, and WTO accession. In his response, Mr. Thanh said that data were limited and modeling was simple, so that his simple CGE model could only provide preliminary estimates. He added that the model could show reasonable estimates with gradual changes, and thus sudden changes of the economic factors would need to be considered.

Regarding the model construction, Mr. Khai (VDF-Tokyo & YNU) was interested in the relations of the variables, which were shown in the system of equations. He particularly focused on price adjustment, sectoral changes through labor and capital movements, and relation between home and foreign economies. Mr. Thanh answered by showing the equations that represented these relations.

Going back to the model, Prof. Ohno also raised a question that foreign remittances could lead to a financial bubble through assets, such as land, and he wondered whether the model could take such analysis into account. Mr. Thanh responded that his model followed static, not dynamic, assumptions, so that it did not capture financial flows, and thus financial bubble could not be seen in any estimate of the model.

There were also some related questions about current trends of both domestic and foreign remittances in Vietnam, and some participants were interested in a study that could evaluate the impacts of these flows on the whole economy as well as income inequality in Vietnam.

After the main section for presentation, we had an hour meeting to talk about Vietnam, particularly WTO accession and APEC. VDF-Tokyo members also announced some forthcoming activities, including preparation for VDF-Tokyo Conference in 2007 and VJSE2007.

Abstract (PDF69KB) | Paper (PDF342KB)   

 (By Giang Thanh Long)