The integration of Vietnam in the global economy and its effects for Vietnamese economic development

Hansjörg Herr, Erwin Schweisshelm and Minh Huy Vu Truong

No 44, GLU Working Papers from Global Labour University (GLU)

Abstract: When Vietnam started the Doi Moi (renovation) in the mid-1980s it was a backward agricultural country. Liberalising markets, allowing the establishment of private firms, integrating in the world economy and high FDI inflows stimulated growth and productivity development. However, this first face of development seems to be exploited and Vietnam is in danger to fall in a period of low growth, low productivity increases and no convergence with more developed countries. Vietnam is at the lowest end of global value chains in industrial productions and at the same time depends on the export of natural resources. Market mechanisms are reproducing this type of underdevelopment. The "liberalisation effect" of Doi Moi is exhausted and does not create further sufficient development. Comprehensive industrial policy which is at the present stage poor in Vietnam is needed. Vietnam lacks especially institutions which are able to select, implement, evaluate and modify, when needed, industrial policy. This is the case for horizontal industrial policy and even more for needed more selective industrial policy. Foreign direct investment can support development, but it has to be integrated in industrial policy to increase productivity and create economic clusters with forward- and backward linkages. State-owned companies which must be managed in a good way can also play a key role in building economic clusters. Among other instruments development banks can play role to deliver cheap and sufficient credit for sectors and firms which support development. In addition a good macroeconomic management of the economy is needed. Current account deficits have to be avoided and exchange rate policy has to substitute general tariffs which are no longer allowed, guarantee the competitiveness of the industrial sector and to avoid Dutch Disease effects. Last not least an inclusive growth model is needed to avoid a lack of demand, negative supply side effects and incoherent social developments.

Keywords: economic development; value chains; foreign investment; industrial policy; Viet Nam (search for similar items in EconPapers)
Date: 2016
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