PRACTICE FOR TRANSLATION 3

1. Economic Growth

In less than three decades since the launch of Ðổi Mới (economic
renovation), Vietnam has built an impressive record of fast, stable, and inclusive
economic growth. First, GDP growth per capita has averaged 5.5 percent a year
since 1990 (figure 2.2a), yielding a three-and-a-half-fold increase in average
income. Worldwide, only China recorded faster rates of per capita growth over this
period. Second, growth has been remarkably stable, with volatility declining
markedly (figure 2.2b) and becoming among the lowest in the world. Had
Vietnam’s growth been as volatile as Thailand’s, it would have been 1 percentage
point lower each year. Third, growth has been highly inclusive. Per capita income
of the bottom 40 percent has grown by 9 percent annually since the early 1990s,
outpacing income growth of the top 60 percent, thereby ensuring shared prosperity
and significant reductions in poverty.

The strong growth record has been underpinned by rapid accumulation of

factors of production, with the labor force almost doubling in size and the capital
stock growing six- fold in real terms since 1990. Growth has also been reinforced
by impressive gains in human capital and a strong initial burst of TFP growth. The
rapid increase in the labor force reflects favorable demographics. The share of the
working-age population (15–60 years) in the total population has shot up from 53
percent in 1985 to close to 68 percent. This demographic dividend coincided with
economic liberalization and a rising demand for labor, enabling productive
absorption of the labor force increase. That translated into higher GDP growth. The
reduction in the dependency ratio also helped increase the national savings rate—
from 3 percent in 1990 to more than 30 percent now—which, in turn, helped fi
nance a major surge in investment expenditure. Economic growth has brought
economic transformations and modernization, manifest in four mutually
reinforcing ways.

1. Structural transformation has shifted resources from agriculture to

manufacturing and services.

2. Outward orientation of the economy has lodged Vietnam more deeply in

GVCs.

3. Transition from a centrally planned and state-dominated economy to a

market- oriented system has allowed the private sector taking an increasing role.

4. Spatial transformation has shifted population from rural to urban areas.

Spatial transformation is discussed in chapter 4. The other three are briefly

described below. Growth and economic transformations were rooted in a sequence
of reforms after the onset of Ðổi Mới (chapter 1) to remove market distortions,
stabilize macroeconomic conditions, leverage the forces of global integration
better, and deepen human capital development.

2. Accelerated Structural Transformation

As national incomes rise, the employment and GDP shares of agriculture fall
and those of industry and services grow. These trends have been seen with
empirical regularity in developing countries and are grounded in sound economic
theory (Lewis 1954; Fei and Ranis 1964; Chenery 1979). This pattern has
characterized East Asia, including Vietnam, especially well. As in the rest of the
region, structural transformation in Vietnam has been an outcome and a facilitator
of economic growth. While responding to the different opportunities generated by
economic development and modernization across sectors, the process has
reinforced economic growth by reallocating resources from the more traditional,
less productive sectors (such as crop cultivation and informal trading activity) to
the more productive sectors (such as modern manufacturing and services).

Large-scale sectoral shifts have been at play in Vietnam since at least 1990
( figure 2.3). The shift out of agriculture has been dramatic, with the sector’s share
in GDP falling from more than 40 percent in the late 1980s to less than 20 percent
in recent years. That decline has been mirrored by a rise in services and industry
shares. These sectoral GDP trends have been broadly matched by sectoral trends in
employment.