How Vietnam Became An Economic Miracle?
Summary
TLDRVietnam's remarkable economic transformation since the 1986 doi moi reforms is highlighted, showcasing its shift from a war-torn, impoverished nation to a leading exporter with a four-fold GDP per capita increase. Key factors include trade liberalization, investment in human capital, and an emerging middle class. However, challenges such as automation, potential tariffs, and rapid aging of the population pose threats to its continued growth.
Takeaways
- 📈 Vietnam's GDP per capita has increased from $95 in 1990 to over $2,700, despite a 25% population growth.
- 💡 Post-Vietnam War economic infrastructure was severely damaged, leading to a period of poverty and communism-driven stagnation.
- 🛠️ The 1986 'Doi Moi' reforms marked a shift from a planned economy to one open to international trade, starting with agricultural reforms.
- 🌾 Agricultural reforms allowed individual farming for profit, leading to a significant boost in agricultural production.
- 📉 The dong was devalued, and state-owned enterprises were reduced to encourage private businesses and stabilize the economy.
- 🔼 Vietnam's export growth has been remarkable, tripling in the last decade and accounting for over 100% of GDP.
- 🏭 Foreign investment, particularly from companies like Apple, Samsung, and Nike, has been attracted by Vietnam's economic policies.
- 🔄 Vietnam's export similarity index with China is high, indicating a strong overlap in export sectors, making it an attractive substitute for foreign investors.
- 📚 Investment in human capital has been significant, with Vietnam ranking high in international testing and improving its human capital index.
- 🌐 Vietnam has aggressively pursued trade liberalization, signing numerous free trade agreements to boost its economy.
- 👥 The country has a high participation rate in the workforce, with a notable increase in women's participation, indicating broader economic opportunities.
- 🚫 Despite progress, Vietnam faces challenges such as automation threatening its cheap labor advantage, a rapidly aging population, and potential trade disputes.
Q & A
What was Vietnam's GDP per capita in 1990 and how much did it increase by in 30 years?
-In 1990, Vietnam's GDP per capita was 95, and over the course of 30 years, it increased to over 2,700.
How did Vietnam's population change during the 30-year period mentioned in the script?
-Vietnam's population grew by a quarter during the 30-year period.
What was the impact of the doi moi reforms on Vietnam's economy?
-The doi moi reforms in 1986 were a game changer for Vietnam's economy, focusing on dismantling a planned economy and opening up to international trade, which led to a broad-based economic transformation.
How did the reforms affect the agricultural sector in Vietnam?
-The reforms moved away from collectivization towards individual farming for profit, where farmers were free to set their own prices and keep any profits, leading to a dramatic improvement in agricultural production.
What was the significance of the enterprise law introduced in 2000 in Vietnam?
-The enterprise law of 2000 encouraged the registration of new household enterprises, transitioning them from the informal sector to the formal one and promoting private businesses.
How has Vietnam's export sector evolved over the last decade according to the script?
-Vietnam's exports have tripled over the last decade, accounting for over a hundred percent of GDP, with the country becoming a leading exporter in the region.
What is the role of Samsung in Vietnam's export economy?
-Samsung alone accounts for almost a quarter of Vietnam's exports, highlighting the company's significant impact on the country's export economy.
Why has Vietnam become an attractive destination for foreign investors?
-Vietnam has become attractive due to its commitment to free trade, investment in human capital, an emerging middle class, and its position as a relatively cheaper manufacturing base.
What challenges does Vietnam face in maintaining its export-oriented success?
-Challenges include increasing automation, the threat of tariffs, and having one of the fastest aging populations globally, which could affect its development path.
How has Vietnam's human capital investment contributed to its economic growth?
-Vietnam's investment in human capital, as evidenced by high rankings in international testing and an increased human capital index, has helped create a skilled workforce that contributes to its economic growth.
What is the significance of Vietnam's high participation rate of women in the workplace?
-The high participation rate of women in Vietnam's workforce, which is over a quarter more than the global average, indicates broader-based economic opportunities and reflects the increased prevalence of women in the workplace.
Outlines
📈 Economic Transformation of Vietnam
This paragraph outlines Vietnam's remarkable economic growth since 1990, highlighting its GDP per capita increase from $95 to over $2,700. Despite a population increase, the country experienced a significant reduction in poverty and has become a leading exporter, with Samsung accounting for a quarter of its exports. The script delves into Vietnam's post-Vietnam War economic challenges and the 1986 'Doi Moi' reforms, which transitioned the country from a planned economy to an open market system, focusing initially on agriculture and later expanding to other sectors. The reforms led to the stabilization of the Vietnamese currency, the dong, and the reduction of state-owned enterprises, fostering private businesses and contributing to the country's economic rise.
🌐 Vietnam's Global Trade Integration
The second paragraph discusses Vietnam's strategy to become an export powerhouse, emphasizing its export similarity index with China and the shared export sectors that have contributed to its economic awakening. The script explains Vietnam's aggressive pursuit of trade liberalization through various pro-trade agreements, starting with the 1987 Foreign Investment Law, leading to its membership in ASEAN and the World Trade Organization. The paragraph also highlights Vietnam's investment in human capital, its high PISA scores, and the increasing productivity of its population, as well as the potential impact of an emerging middle class and high female workforce participation on its economy.
🚀 Challenges and Future Prospects for Vietnam
The final paragraph addresses the challenges Vietnam faces in sustaining its economic growth, including the threat of automation to its comparative advantage in cheap labor and the stark divide between the formal and informal economy. It also touches on the issue of foreign direct investment being somewhat separate from the local economy and the negative attention Vietnam has received for its trade surplus with the U.S. The paragraph further discusses the demographic challenge of an aging population, which is growing faster than in other countries, and the need for Vietnam to manage this transition effectively. The script concludes by reflecting on Vietnam's progress and questioning whether it can continue its export-oriented success and follow the development path of other nations.
Mindmap
Keywords
💡GDP per capita
💡Poverty rate
💡Exports
💡Economic development
💡Doi Moi
💡State-owned enterprises
💡Private businesses
💡Trade liberalization
💡Human capital
💡Middle class
💡Aging population
Highlights
Vietnam's GDP per capita has increased from $95 in 1990 to over $2,700, despite a population growth of a quarter.
The country experienced a four-fold increase in GDP per capita, with a significant drop in poverty rates from 60% to less than 5%.
Samsung accounts for nearly a quarter of Vietnam's exports, highlighting the nation's economic reliance on a single company.
Vietnam's economy has become a model for economic development, with significant gains across various indicators.
The country was one of the poorest in the world post-Vietnam War, with an economy based on communist five-year plans and collectivized agriculture.
The 1986 doi moi reforms marked a pivotal shift from a planned economy to an open market system, focusing initially on agriculture.
Agricultural reforms led to individual farming for profit, significantly boosting agricultural production.
Vietnam's currency, the dong, was devalued, and state-owned enterprises were scaled down to stabilize the economy.
The country encouraged private businesses and transitioned informal sector enterprises to the formal economy.
Vietnam's export growth has been exponential, with exports accounting for over 100% of GDP.
The country has become a leading exporter, particularly in clothing and electronics, attracting major global brands.
Vietnam's export similarity index with China is high, indicating a strong overlap in export sectors.
The country has pursued aggressive trade liberalization, signing numerous free trade agreements.
Vietnam has invested heavily in human capital, outperforming many developed economies in international testing.
The nation has a high participation rate, with a significant number of women in the workforce, indicating broader economic opportunities.
Vietnam faces challenges such as automation, which threatens its comparative advantage in cheap labor.
The country has a rapidly aging population, which could impact its demographic dividend and economic growth.
Vietnam's success has been built on reforms, free trade, investment in human capital, and an emerging middle class.
The country's future economic development may be hindered by automation, tariffs, and an aging population.
Transcripts
this is a chart of vietnam's gdp per
capita
since 1990. over the course of 30 years
it went from 95 to over 2
700 despite its population growing by a
quarter
even after accounting for inflation and
local purchasing power
vietnam experienced a four-fold increase
over this same period
the poverty rate has dropped from 60 to
less than five
with the nation becoming a leading
exporter and interestingly
samsung alone accounts for almost a
quarter of the country's exports
as a result vietnam's economy has become
the poster child for economic
development
making massive gains on almost every
indicator
though how did this previously war-torn
country turn it all around
in the space of 30 years being the only
major southeast asian economy to avoid a
recession in 2020.
to answer this we need to take a look at
what happened to vietnam's economy
after the war no economic video on
vietnam's meteoric rise can avoid
the vietnam war or the american war as
they call it in hanoi
this frames the whole context of where
the country is today
and most importantly how it got here by
1975
the nation's economic infrastructure had
been destroyed
by war and at that stage you would be
forgiven for thinking that vietnam's
economy
would take off in the post-war period
like so many other economies had done
before
unfortunately for vietnam though the
country was one of the poorest
on the planet with communist five-year
plans fixed pricing
and a focus on collectivised agriculture
not exactly spurring
a great economic awakening for a long
period moscow was vietnam's largest
trading partner with the fully fledged
communist nation
joining comic-con not to be confused
with a convention hall filled with
superheroes
comic-con or the council for mutual
economic assistance was basically an
economic organization
to facilitate trade amongst like-minded
communist nations
like cuba or east germany however by the
mid-80s
vietnam's stagnant economy was barely
scraping by
it had become clear that full-blown
communism wasn't living up to the
expectations and so a new plan
was launched one which would prove
fundamental to vietnam's economic rise
why doi moy was a game changer putting
my horrendous pronunciation to one side
the 1986 doi moy reforms or renovation
was a broad-based economic
transformation focused on dismantling a
planned economy
and opening up a closed system to
international trade
the original focus was on agriculture
and this makes perfect sense
considering a staggering 70 of the
workforce
worked in the fields despite the nation
still being a significant recipient of
food aid
the reforms moved away from
collectivization and towards
individual farming for a profit where
farmers were free to set their own price
and keep any profits which quickly led
to a dramatic improvement in
agricultural production
however the reforms didn't stop at
agriculture as stabilizing the economy
took center stage the vietnamese
currency the dong
was devalued and budget deficits were
brought into line
at the same time inefficient government
monopolies or state-owned enterprises
were scaled down
from over 12 000 in 1989 to less than
600 in 2016
through multiple rounds of restructuring
sell-offs and mergers
this all went hand in hand with reforms
to encourage private businesses
all the way down to the household level
fast forwarding to the year 2000
a new enterprise law encouraged
registration of these new household
enterprises
from the informal sector to the formal
one now
it's important to see this process as
one built up over time
as a transformation as opposed to a
single event which enabled employment in
agriculture and state-owned enterprises
to decline
as private employment took off from
virtually zero
a key outcome of this whole process of
reform has been the seemingly
unstoppable rise
of vietnam's exports which as this graph
shows
basically tripled over the last decade
with exports accounting for over a
hundred percent of gdp
something which can occur before you
balance exports
against a nation's imports the
exponential rise in exports
has seen the likes of apple samsung and
nike set up shop in the southeast asian
nation
becoming the region's largest exporter
of clothing and the second largest
exporter of electronics
after singapore though how exactly did
vietnam
go from one of the poorest economies on
the planet to an exporting rising star
economists often state that vietnam's
exporting prowess
is a result of a shift in global
production away from
china and whilst this trend is true it
doesn't tell us why
vietnam why not any of the other
seemingly competing nations
on china's doorstep an oversimplified
answer to this
would be that foreign investors are
incorporating vietnam into their china
plus one strategy as they've come to
realize that their so-called global
supply chain
is largely china-centric and hence
vulnerable to unpredictable scenarios
whether that be trade wars or the great
decoupling
of the us and china this is usually
topped off with a statement about firms
seeking to combat rising costs
after all average manufacturing wages
have tripled in the world's second
largest economy over the last decade
whilst vietnam's remains a fraction of
the price
but whilst this is all true it's well
just a bit cut and paced
so what are the key factors to vietnam's
economic awakening
a great way to look at why vietnam is
such a good substitute for china
is to consider the export similarity
index
this index allows us to measure how much
overlap there is
between two countries exports going from
zero to 100
the higher the percentage the greater
the export similarity
as such a high score implies it will be
relatively easier for the substitute
country to pick up the exports of the
country being compared
so in a comparison of asian countries to
china on this index
vietnam ranks first why may this be the
case
well if we look at the top 10 exports of
both countries
they share seven of ten sectors
including electrical machinery
computers clothing and furniture so
the fact that both countries have had
great years for exports defying the
global downturn
is less of a surprise as we mentioned in
our why
china avoided recession video the global
change to home working has created a
search for new computers
electricals and furniture which just
like china has been
great news for vietnam as exports grew
by over 10
in q3 alone but the similarity in
exports alone
whilst important to understanding the
trend still doesn't explain the full
why as mentioned earlier vietnam's
reform process which started back in the
mid-80s was a gradual one
if you go through the legislation over
the years trade liberalization
stands out as a key theme and the
vietnamese have pursued this
aggressively
if you were to consider a timeline of
pro-trade agreements one of the first
things vietnam did was
to create the foreign investment law in
1987.
this enabled foreign owned companies to
enter into its closed domestic market
in 1994 the us ended its trade embargo
on vietnam
paving the way for it to join the asean
free trade area
in 1995 in 2000 it signed a free trade
agreement with the us
and most importantly perhaps it joined
the world trade organization
in 2007 which dramatically lowered
tariffs to a host of countries
more recently it signed the regional
comprehensive economic partnership
an asian-based free trade agreement
covering a third of the global economy
overall vietnam has signed well over a
dozen free trade agreements
being a bit of a champion when it comes
to free trade-based
development economics to help capitalize
on these free trading opportunities
vietnam has invested a lot in its human
capital
which goes against any preconceptions of
vietnam
just being a magnet for cheap labor
according to the pisa standard
international testing which ranks
countries by the exam scores of their 15
year olds
vietnam outcompetes most developed
economies when it comes to reading and
maths
ranking an impressive fourth for science
and
investment in its population isn't just
something based in the classroom
vietnam's human capital index has
increased from 0.66 to 0.69
since 2010. this means that a child born
today will be
69 percent as productive as he or she
could be
if they enjoyed a complete education and
full health
now a score of 69 may not sound great
but this puts vietnam first amongst
all middle-income nations and for
context the highest score in the world
is 88 which is very much an outlier
achieved by singapore and like so many
other developing economies
vietnam is tipped to benefit from an
emerging middle class
something boosted by the nation's very
high participation rate of 80 percent
compared to only 65 percent incomparable
developing countries
this high rate reflects the increased
prevalence of women in the workplace
at over a quarter more than the global
average an encouraging trend which
points to broader-based economic
opportunities
now all of this is good and well with
vietnam making remarkable progress
over the last three decades but it's
still a far away from achieving its
economic goal
of becoming a high-income country by
2045
so what are vietnam's key challenges
a lot of vietnam's recent success has
been based on positioning itself
as a relatively cheaper manufacturing
base this has provided the jobs
necessary to propel the nation's economy
into middle-income status however
vietnam is still at a relatively early
stage
in this transition this expansion in
jobs is threatened by increasing
automation which is set to erode
vietnam's comparative advantage
in cheap labor creating a headache in
more ways than one
because principally vietnam is still an
agricultural based workforce
with just under forty percent working in
agriculture and less than a quarter
of the workforce possessing an
employment contract this stark subdivide
between the formalized
and informalized economy is a trend
which carries through to foreign direct
investment
a common criticism is that it
facilitates economic dualism
in many cases foreign direct investment
is largely void and separate from the
local economy with the bulk of the
benefits yet to merge
into the domestic market and even
vietnam's success in exports
has started to gather negative attention
particularly
from the us as vietnam has the third
highest trade surplus with the states
after china and mexico the u.s treasury
department put the nation
on a list of top 10 currency
manipulators early in 2020
going on to launch a section 301
investigation which is the exact same
process
they used to place tariffs on billions
of dollars of chinese imports
something which if ever happened to
vietnam could seriously dent any plans
to move export-orientated manufacturing
out of china
to service the us market importantly
when it comes to many developing
countries
a common theme is a young population
which will present a demographic
dividend
and for vietnam over the last 30 years
its population has grown by more than 25
percent
but the country actually has one of the
fastest aging populations
on the planet on current trends its
elderly population which is defined as
those over 65
will double from 7 to 14 by 2035
at which point vietnam will officially
be considered an
age society the pace of this change has
economists worried
being five years faster than singapore
so much so
that japan the world's leading expert in
how to handle an aging population
has set up a knowledge sharing platform
with the world bank to help vietnam
manage this transition which will be a
huge undertaking for a country which is
yet to fully tread the development path
so many of its neighbours have done
before it so overall
we've seen that vietnam has made
remarkable progress
over the last three decades from an
extremely low base
especially when you consider that just
under 40 percent of the population
still work in agriculture the reforms of
1986 onwards
cannot be understated initially in
agriculture and then spreading
throughout the rest of the economy
and society at large it would be an
oversimplification to say
that vietnam's success has been built on
an exodus from china without mentioning
what has made the nation
so appealing which includes its
commitment to free trade
investment in human capital and an
emerging middle class
but there is a very real concern that
vietnam
won't be able to follow the same
development path as so many nations did
before it
due to the challenges of automation
prospects of tariffs and one of the
fastest aging populations
on the planet and now it's over to you
do you think vietnam will continue its
export orientated success
will it be able to follow the same
development model as so many nations
before it
let us know your thoughts in the
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