A.

Topic:
Students are required to analyze Vietnamese economy in the last twenty years in terms
of following aspects:
● Economic growth
● Export – oriented economy
● Trade policies
● Trade relations
● Foreign direct investment
Based on the above analysis, students propose some recommendations to improve the
competitive capability and position of Vietnam in the world market.

Answer
I. Introduction
Over the past two decades, Vietnam has undergone a transformative journey in
its economic landscape, marked by significant changes in economic growth, the
adoption of an export-oriented approach, the formulation of trade policies, the
cultivation of trade relations, and the influx of foreign direct investment (FDI). This
period has witnessed the nation's emergence as a key player in the global market, with
advancements in various sectors shaping its economic trajectory. In light of this, we
will comprehensively analyze the Vietnamese economy, delving into critical
dimensions such as economic growth, the evolution toward an export-oriented
economy, trade policies, trade relations, and the role of foreign direct investment.
Through this analysis, we will also draw insightful conclusions and propose strategic
recommendations aimed at fortifying Vietnam's competitive capability and enhancing
its position on the world stage. The examination of these key facets is a reflection of
Vietnam's dynamic journey in adapting to the complexities of the global economic
landscape.
II. Vietnam’s economic growth
According to IMF data, as of 2021 the GDP of Vietnam has more than doubled,
reaching over 366 billion US dollars, compared to 147.2 billion US dollars in 2010.
Besides, the growth in GDP per capita is particularly noteworthy. In 2010, Vietnam's
GDP per capita was only 2,028 US dollars, but by 2021, it had surpassed the
Philippines, reaching more than 3,750 US dollars. Furthermore, Vietnam has achieved
significant economic breakthroughs by the end of 2022, with a GDP growth rate of
8.02%. Total exports have also increased to 371.8 billion USD, making Vietnam one
of the largest developing countries in terms of exports.

The Rybczynski theorem states that if the prices of goods and factors remain
constant, an increase in the endowment of a factor will result in a more significant
expansion of the sector that uses that factor more intensively and it also will contract
the other sector. Additionally, growth in capital or technological improvements
generally increases welfare and real per capita income.
Vietnam's economy has undergone a transformation from a traditional to a
modern economy. This shift has also led to a movement of labor from traditional
sectors like agriculture and textiles to high-value-added industries, specifically in
manufacturing and exporting industrial products. These industries include electronics,
automobiles, machinery, and luxury consumer goods, leading to a considerable
change in total export turnover.
The data presented in Figure 2 shows that since 2012, the highest proportion of
total export turnover has consistently been from textiles and garments, while the
electronics, computers, and components industry only accounted for 4.8% of the total
exports. However, since 2016, there has been a noticeable increase in the total export
turnover of electronics, computers, and components, always remaining above 10%. As
of 2022, these exports ranked second among eight product groups with a turnover of
over 10 billion USD in Vietnam.

Besides the achievements achieved in the industrialization of rural agriculture,

many difficulties and limitations still exist. Although the rate of poor people and poor
households tends to decrease, the standard of living is still low. The handicraft
industry is still weak with slow development, limited diversity, low value, and low
quantity. Handicraft industries face difficulties in terms of input and output. Capital is
self-owned, making it challenging to borrow money due to several obstacles. Despite
some progress, the industry still faces challenges and limitations. Initially, to improve
agriculture, we need to develop production forces, promote agricultural restructuring
towards large-scale, safe high-tech applications, encourage land concentration, and
introduce mechanization and modern production processes for sustainable, productive,
and competitive products.
Developing industrial parks in rural areas, linking economic interests between
producers and purchasers, trading in agricultural products, developing infrastructure,
and prioritizing the irrigation system is crucial for the socialist development of all
sectors of the economy. Additionally, supporting the consumption of agricultural
products, developing a rural electricity network system, and planning for
industrialization and modernization are essential tasks.
 Promote research, application, and transfer of science and technology to serve
production, considering this as the most important breakthrough to promote
agricultural and rural economic development.

III. Export – oriented economy

Heckscher – Ohlin's theory of relative advantage: The Heckscher-Ohlin model
is an economic theory that proposes that countries export what they can most
efficiently and plentifully produce.
According to the General Department of Customs, Vietnam is considered a
country with a surplus of labor. And the textile, footwear and electronics industries are
considered labor-intensive industries. Therefore, the fact that Vietnam has exported
many of these products in recent times is completely consistent with reality. And this
also proves that Herscher Olin's theory up to now is correct in many cases in Vietnam.

To prove the above argument, we will look specifically at the statistics of the
General Department of Customs as above, the total value of goods in the 12 months of
2022 increased significantly compared to the same period in 2021: Textile and
garment products increase by 14.7% ($32.75 billion in 2021 to $37.5 billion in 2022);
Shoe products increase by 34.6% ($17.75 billion in 2021 to $23.9 billion in 2022);
Electronic and hardware items increase by 9.26% ($50.8 billion in 2021 to $55.5
billion in 2022), etc.
Over the past two decades (2002-2021), Vietnam's export-oriented economy
has shown positive trends, transitioning from a prolonged trade deficit to a consistent
surplus. Notably, the country rose from the 50th to the 23rd position in global goods
exports according to the World Trade Organization (WTO). However, there is a
disadvantage when we cannot always maintain a continuous state of trade surplus. The
evidence is that we achieved a record surplus of 19.94 billion USD in 2020, but there
was a significant decrease to 3.32 billion USD by the end of 2021, signaling a
potential challenge (according to the Ministry of Finance - 2022). Based on these
limitations, we have a number of recommendations suggesting that the government
emphasize institutional, administrative and digital reforms, especially supporting the
implementation of Digital Customs to enhance competitiveness. national competition,
reduce compliance costs, speed up customs processing and improve overall trade
efficiency.
IV. Trade policies
Vietnam's trade policies have faithfully reflected the principles of the
Comparative Advantage theory (Ricardian Model) over the last two decades.
Initially, the country capitalized on its abundant low-cost labor, fostering growth in
labor-intensive industries such as textiles, footwear, and electronics assembly.
Vietnam strategically diversified its export portfolio over time, expanding into new
industries such as agriculture, machinery, and services while maintaining its focus on
labor-intensive sectors. This diversification reduced reliance risks while broadening
the range of export offerings. Vietnam smartly used its labor advantage while gaining
access to advanced technologies and global markets by actively participating in global
value chains. Concurrently, investments in skill development and technological
advancements enabled the country to shift toward capital-intensive industries and
higher-value products, in line with evolving comparative advantages.
 For instance Wang, Y. (2022) investigated Comparative Advantages of
Manufacturing in Vietnam and Comparison with China. The research indicates
Vietnam's advantages in attracting manufacturing industry including a large and cheap
labor force, a favorable geographical location, preferential foreign investment policies,
and a friendly international trade environment with technological advancements in the
manufacturing industry.
Below is Average salaries of production workers/machine operators (world)

Source: The Reshoring Institute

The average annual salaries of production workers and machine operators in
the 13 comparison countries including the United States.

The Reshoring Institute investigated how manufacturing wages in China have

risen and what this means for businesses in the future. Wages and salaries were
compared for production workers, machine operators, manufacturing supervisors, and
managers. According to the study, China is no longer a low-cost country because
labor costs have risen significantly. According to the study, the lowest-cost countries
are now India, Mexico, and Vietnam.
Tien, N. H., & Anh, D. B. H. (2019) investigate key measures of international
trade policy and highlight the role of international trade in businesses as well as in the
Vietnamese economy.. The paper indicates that The trend of international protection
of international partners has risen, creating numerous barriers for domestic businesses.
With plenty of mechanisms and policies in place to support and remove obstacles
from the government for enterprises of Vietnam's export advantages, such as wood,
footwear, textiles, processing, and processing industries, creating not only helps to
overcome obstacles, but also builds trust in the business community.
Trade barriers, tariffs and FTA : According to International Trade
Administration, Many non-tariff barriers, including quantitative restrictions on
imports, quotas, bans, permit requirements, prior authorization requirements, licensing
requirements, and other restrictions with the same effect, were eliminated by Vietnam
under the 2001 United States-Vietnam Bilateral Trade Agreement (BTA) and through
its accession to the WTO. Nonetheless, many other non-tariff barriers continue to
exist. The United States Mission in Vietnam is currently dealing with trade issues in a
variety of sectors, including defense, transportation, energy, information and
communication technology (ICT), and healthcare. Firms are encouraged to contact the
US Commercial Service in Vietnam if they have any questions or concerns about non-
tariff barriers.
According to the Ministry of Industry and Trade, as part of integration,
Vietnam primarily participated in ASEAN-based free trade agreements (FTAs) with
its partners (beginning with China in 2004 and progressing to the Republic of Korea
(ROK), Japan, Australia, New Zealand, and India). Up to now, Vietnam has 16
affecting FTAs and 3 FTAs are ongoing negotiations.
 Vietnam's Free Trade Agreements (FTAs) provide comparative advantages
over neighboring countries. In comparison to China, Vietnam's emphasis on
electronics and textiles in trade treaties such as VJEPA and VKFTA complements its
manufacturing prowess. Furthermore, Vietnam's EVFTA and UKVFTA target sectors
such as garments and agriculture, demonstrating competitive advantages over
Thailand. Unlike Malaysia, Vietnam's FTAs with the EU and the CPTPP may provide
advantages in the electronics and automotive industries. In comparison to Indonesia,
Vietnam's agreements, particularly the EVFTA and CPTPP, may provide better
market access for seafood, textiles, and apparel, potentially outperforming Indonesia
in these sectors. Similarly, when compared to the Philippines, Vietnam's diverse FTAs
may provide a larger market and lower trade barriers, potentially giving Vietnam a
competitive advantage in electronics, textiles, agriculture, and seafood exports.
V. Trade relations
International economic integration is the process of connection, exchange and
cooperation between a national economy and other national economies or regional and
global economic organizations. So why does a country agree to integrate and
cooperate with other countries and global economic organizations? This leads us to
the Offer curve theory, also known as reciprocity demand curves (J.S. Mill). An offer
curve shows the quantity of one type of product that an agent will export ("offer") for
each quantity of another type of product that it imports

For simplicity, let's say the market has only 2 countries, A and B. When the
two foreign trade curves of two countries A and B meet, the international trade ratio
and transaction level will be determined at the equilibrium point (E). At t (Trade
ratio), country A is willing to export 60 products X in exchange for 50 imports of
product Y, while country B is willing to export 50 products Y in exchange for 60
imported X products. And because the set of all of a country's desired imports and
exports at different terms of trade is different, each country will export its own
intensive product and import the deficit product from another country to satisfy the
need. This leads to actions of integration and cooperation. This is true in the case of
Vietnam as thanks to world economic integration, it has contributed significantly to
helping Vietnam achieve many important achievements in economic development,
expanding export markets, and consolidating the market. tradition, creating conditions
for Vietnamese businesses to have the opportunity to participate in potential markets
around the world, as well as helping Vietnamese consumers to access a rich source of
quality goods at affordable prices. both reasonable…
Integration includes 4 types:
● Free Trade Areas (FTAs)
● Customs Unions (CUs)
● Common Markets
● Economic and/or Monetary Union
Vietnam has integrated into the international economy at a high level. As of
August 2023, Vietnam has signed 16 FTAs (including 8 FTAs signed as an ASEAN
member and 8 FTAs signed as an independent party) and is currently negotiating 3
FTAs. Currently, Vietnam is not an official member of any customs union, common
market or economic union in the world, but it also has valuable cooperation with these
alliances: Vietnam is Active member of many important international and regional
organizations such as: United Nations Organization (UN), World Trade Organization
(WTO), Association of Southeast Asian Nations (ASEAN), Forum Asia-Pacific
economic cooperation (APEC), etc. Furthermore, on December 15, 2014, Vietnam
and the Customs Union of Russia-Belarus-Kazakhstan signed a Memorandum of
Agreement on the conclusion of negotiations on the Vietnam-Customs Union Free
Trade Agreement (VCUFTA).
Besides the positive aspects, joining the FTA and expanding integration also
brings many big challenges: the competitiveness of Vietnamese businesses is still
weak (support capital, weak infrastructure); Vietnam's legal system is not consistent
with international trade practices as well as strict standards from partners. From there,
we have suggestions to help Vietnamese businesses improve efficiency when deciding
to participate in world integration: businesses need to focus on product quality and
capture information to meet customer needs. FTA and regional partners; The state
needs to have policies to support domestic businesses as well as build and improve the
legal system and policies, creating a healthy and transparent business environment to
well implement commitments when joining FTAs and world organizations.
VI. FDI
FDI - Foreign Direct Investment - refers to an organization or individual from
one country investing money, assets or other resources and participating in the
management and operations of a business or project in another country in which they
invest. FDI has a lot of advantages for both parties. It can aid in the development of
the economy, provide employment, supply investment capital, and transmit
knowledge and technology to the receiving nation. One of the main foundations of
foreign direct investment is the Theory of Marginal Profit Differentials by Mac
Dougal-Kempt, 1960: which states that FDI flows from a country with low marginal
profit (a country with excess capital) to a country with has high marginal profits (a
country lacking capital). This situation will lead to the movement of capital flows
from places of surplus to places of scarcity in order to maximize profits. Therefore,
Vietnam is considered a country with high marginal profits and needs to make efforts
to attract investment capital from other large countries with excess capital potential.
Thus, in relation to our nation, 108 nations and territories have invested in
Vietnam, with Singapore leading the way with a total of almost 4.65 billion USD in
investments, or more than 18% of all the capital invested in Vietnam. Other countries
that have invested include Korea, Hong Kong, China, Japan, and so on. Therefore, in
the past 20 years, FDI capital flows into Vietnam increased sharply from 1.4 billion
USD in 2002 to 17.9 billion USD in 2022 (according to WorldBank data). This is
because Vietnam has favorable conditions such as geographical location, rich
resources, stable politics, abundant labor source, etc. But Vietnam is still a developing
country, without much self-sufficient capital to strongly develop and upgrade
infrastructure as well as a strong business model. This is completely consistent with
the Marginal Profit Differentials theory outlined above
A. Depend on the purpose of investment, FDI is divided into two types:
● Invest horizontally: is the act of a business seeking to increase profits overseas
by making foreign direct investment in the manufacturing sector, where it has a
competitive edge.
● Invest vertically: The goal is to take use of the receiving country's natural
resources and inexpensive inputs like labor and land. In developing nations,
this is another very typical type of foreign direct investment.
B. Depend on the form of ownership, FDI often takes the following forms:
● Form of joint venture enterprise
● Enterprise with 100% foreign investment capital
● Form of business cooperation based on business cooperation contract
There are also contracts related to construction, business and transfer contracts
(BOT, BTO, BT).
Over the past 20 years, Vietnam has renewed the Investment Code
twice, allowing different forms of foreign direct investment to operate.
However, the basic forms are listed above.And as of October 2023, there are
38,622 enterprises still investing in Vietnam with 2 main types of FDI
enterprises operating: Enterprises with 100% foreign capital and Joint venture
enterprises with domestic units with foreign investors.
Attracting foreign investment capital in recent years has seen many
improvements, however, there are still some issues that need attention:
although Vietnam's investment environment and competitiveness have
improved. , however, it still does not fully meet the requirements of
international investors. In addition, shortcomings in the investment
environment such as cumbersome administrative procedures, weak
infrastructure and supporting industries, rising inflation, etc.
And in the coming time, we need to focus on implementing a number of
solutions to create attraction for FDI capital into Vietnam: Firstly, Vietnam
continues its policy of selectively attracting FDI investment, with a
 development strategy consistent with the country's general economy and
society. Secondly, propose policies and scenarios to deal with challenges from
home and abroad. Finally, improve efficiency and innovate domestic and
international investment promotion methods as well as continue to reform
administrative procedures, streamline the apparatus, clearly define the
responsibilities of each department, each stage, especially especially in fields
related to business licensing, work permits, visa management, customs
procedures, taxes, etc.

VII. Conclusion
In conclusion, Vietnam's economic trajectory over the past two decades reflects
remarkable growth and adaptability on the global stage. Economic growth, driven by a
strategic shift to an export-oriented economy, has positioned Vietnam as a substantial
player in international trade, supported by well-crafted policies and evolving relations.
Foreign direct investment has been pivotal, injecting vitality into key sectors and
fostering technological advancements. As Vietnam stands at the crossroads of
continued development, strategic recommendations emerge to fortify its competitive
capability and elevate its global standing. To fortify Vietnam's competitive capability
and elevate its global standing. We need to promote diversification, encourage
innovation, and invest in research to create high-value products that meet the
increasing demands of the global market. Moreover, we should also actively
participate in trade agreements, both regional and global, to reduce dependence on
specific markets. By implementing these strategic recommendations, Vietnam can not
only sustain its impressive economic growth but also position itself as a dynamic and
adaptive player on the world stage.
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