The limitations of existing measures of initial condition 133

As previously noted, the measures of initial advantages developed by the PCI researchers are valuable for identifying general trends, but may not be exact enough for a province-by- province analysis. Looking at specific provinces can raise questions of exactness. For example, in Figure 6.1 of ‘Development Level (Human Capital)’ Thai Binh is ranked first. Thai Binh is an agricultural province in the Red River Delta region (see also Re-assessment of initial advantages for individual provinces for Thai Binh’s conditions in this chapter). While acknowledging Thai Binh’s achievements in terms of primary and secondary

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education, it is hard to accept that Thai Binh is better than Ha Noi and much better than HCM City in terms of Human Capital.

The PCI research result shown in Figure 6.3 ‘Ranking Quality of Infrastructure/Urbanization by province/city’ also has limitations. In terms of urbanization level as an initial advantage, it is not convincing when Ha Noi is lower than Da Nang, Hai Phong (the second development centre and the biggest sea port of the North with a long history) is lower than Binh Duong, Dong Nai and Quang Ninh (the emerging provinces), and even lower than Tay Ninh, a semi- mountainous province with no special advantages. Similar issues can be found in the case of Hai Duong, a rather developed province in the Red River Delta, which is far lower on this measure than Quang Tri, a poor province in the middle of the country.

The indicator of advantage in terms of access to markets (Figure 6.5: ‘Ranking proximity to markets by province/city’), also raises similar questions. For example, Hung Yen and Thai Binh leaving all the metropolitan cities (Ha Noi, HCM City, Hai Phong and Da Nang, Can Tho) far behind is hardly realistic. Recently, Thai Binh is still called ‘an isolated island’ since it is surrounded by the big rivers and the sea. Although the link between Thai Binh and other provinces has been much improved, it is not really convenient so far (see also Re-assessment of initial advantages for individual provinces for Thai Binh’s conditions). Hung Yen is just a small province without any special position (see also Re-assessment of initial advantages for Hung Yen’s conditions). Another example is Soc Trang, being able to access markets better than Hai Duong. Soc Trang is located 231 kms from HCM City and its transport facilities are not really convenient, whereas Hai Duong is located on the strategic national transport network, linking Ha Noi to Hai Phong port, with easy access to Ha Noi, only about an hour and a half by both road and railway.

These inaccuracies can be explained by the reasons presented in the following section.

7.2.1 Limitations of the PCI research method

i) The PCI researchers used quantitative methods in their research. Quantitative methods tend to skip over the specific characteristics of cases, e.g. special advantages of Ha Noi and HCM City. This results in Thai Binh being ranked higher than Ha Noi in terms of Development Level (Human Capital) (Figure 6.1).

ii) In the PCI research, some key factors such as the national road system were not taken into account. The national roads are critical as they connect a province to the rest of the country and to overseas. They are especially important for provinces with a limited provincial market. Moreover, the investment in the national system has come from the national budget. Thus it is really an important initial advantage. Overlooking such key factors might lead to unconvincing results, e.g. Vinh Phuc is ranked above Ha Tay under Quality of Infrastructure/Urbanization (Figure 6.3) (see the material below and in Chapter 9).

iii) The PCI research took the two factors of Average percentage of population living in urban areas (1995-2002) and Agricultural output/GDP 2002 into consideration to build the Quality of Infrastructure/Urbanization indicator. Both are likely to measure the same factor, implying double-counting which impacts most on typically agricultural provinces like Thai Binh, a province with only 5.8% of its population in urban regions. This is a reason why Thai Binh is ranked last in Quality of Infrastructure/Urbanization (Figure 6.3).

iv) The level and quality of school education is supposed to be an important factor for private sector development. This assumption is widely acknowledged and, in general, is applicable to Vietnam. However, it is necessary to add that in practice Vietnamese education programs have been deficient in providing students with practical skills and knowledge, i.e. its application is not high. Moreover, labour can move easily from one province to another. Hence, the advantages of a high quality of education in terms of employment are not likely to be high as supposed. On the other hand, since some vital factors, for example national roads in provinces, are not taken into consideration, the weight of education in the PCI research’s Level of Development is very high (Table 6.1). Also the Level of Development plays the main role in explaining initial conditions, accounting for 35.7% of the total cumulative variance explained out of the total of 67.1% explained by the three factors, with the other two factors (Quality of Infrastructure /Urbanization and Distance from Large Markets) making up less than half of the explained variance (see Table 6.1). Consequently, a province with a high percentage of primary and secondary graduates is seen to possess great initial advantages. Taken together with the weakness of Vietnamese education in

terms of application implies that there may be considerable bias in some cases in the estimate of initial advantages.

v) The PCI research used ‘average retail sales as percentage of GDP’ to measure the size of the intra-provincial market. With gaps of GDP between provinces, the percentage of GDP does not express the exact size of intra-provincial markets. This size depends more on absolute GDP. In some poor provinces, the retail sales percentage of GDP might be high (since people have to use almost all their incomes for their basic needs), but that does not mean the size of intra-provincial market in these provinces is large.

7.2.2 Problems in collecting data and accurateness of data

It is commonly acknowledged that the Vietnamese statistical data system is inadequate for the purpose of research and making policy. Researchers have often experienced problems with collecting necessary data. In addition, even statistical data collected by the Government’s professional agencies has not fully achieved the necessary exactness. Mr. Bui Ba Cuong, the Head of Department of Accounting Systems of the Vietnamese General Statistical Office, admitted that the statistical methodology is not yet of a high standard and the implementation is not good enough because of a lack of supervision and verification (Tu Giang 2008).

Given these problems and limitations, it is necessary to reassess initial comparative advantages. The national roads and other specific factors will be taken into account in evaluating the impact of the PCI on PIO in provinces, and the data need to be cross-checked from various sources.

Particularly, the section below will assess the following factors:

 Transportation system, particularly the national transportation. As a common rule seen in industrialized economies, industrialization often starts at the large metropolitan centre and then spreads out to the immediate surroundings, before spreading further to more outlying districts through the transport system. Vietnam is at the beginning of a period of industrialization and has also started this trend. As a

result, the national road system17 and, more importantly, its ability to promote business activity in a particular province, is a key focus in assessing transport advantages, while the provincial and district transport systems are not exclusive.  Position advantages (partly evaluated in the PCI research), including natural position

advantages, as well as position advantages deriving from national development strategies planned by the central government. Investments from the central government for infrastructure systems and other support are based on this planning. Proximity to the capital Ha Noi is seen as a great advantage. Ha Noi draws together all the political, cultural and socio-economic aspects of the country. As the second biggest market in the country, it is also the hub for marketing, information and technology transfer. Provinces near Ha Noi tend to have the benefit of the infrastructure advantages invested in by the central government and the advantages of forming natural business clusters based on or as a result of the government’s planning. Ha Noi and the other two angles of the Growth Triangle (Hai Phong and Quang Ninh) would have an impact directly on the economic structure and growth of the provinces in the Triangle.

 Land foundation, that is the availability of low cost land which can be transferred for the use of industries and businesses, is also an important factor.

 Special features of individual provinces, if any, may also be relevant.