In this paper, we investigate the effect of physical capital on economic growth using sectoral data for Vietnam. A common problem with this topic is the nonexistence of capital data. Hence, we introduce a new method to obtain the coefficient of capital growth without the need to obtain capital data, we offer theoretical and policy implications for capital growth and economic development in Vietnam. | 2 | Eric Iksoon Im & Tam Bang Vu Physical Capital and Economic Development Physical Capital and Economic Development in Vietnam ERIC IKSOON IM Professor, Doctor of Philosophy in Economics University of Hawaii-Hilo, eim@. TAM BANG VU Associate Professor, Doctor of Philosophy in Economics, University of Hawaii-Hilo tamv@. ABSTRACT In this paper, we investigate the effect of physical capital on economic growth using sectoral data for Vietnam. A common problem with this topic is the nonexistence of capital data. Hence, we introduce a new method to obtain the coefficient of capital growth without the need to obtain capital data. The results show that the effects of capital growth on economic growth for the period 1990-2002 are higher than those of the period 2000-2010. We also find that the effects are very different for individual sectors in the economy. Based on these results, we offer theoretical and policy implications for capital growth and economic development in Vietnam. Keywords: capital growth estimation, rate of return, production function. JED July 2012 | 3 1. INTRODUCTION Physical capital, human capital, and labor are the three most important factors affecting economic development in any nation. This paper focuses on physical capital (henceforth called capital) and output per person in Vietnam. Since Vietnam is a developing country, it is very important to see if capital is used efficiently so that improvement in capital management can be carried out. However, it is not easy to obtain capital data for estimation. Although data about investment are available, “investment” is a flow variable that cannot be used in a production function in lieu of “capital,” which is a stock variable. Researchers are interested in estimating capital stocks for different countries, regions, and industries for various reasons and purposes as discussed in Dadkiah and Zahedi (1990), Hulten and Wykoff (1981), . Hulten (1991), Prucha (1997), Gábor
