Term Paper on
Economic Growth of Vietnam
A Term paper submitted to the Department of Economics
Faculty of Arts and Social Sciences
Bangladesh University of Professionals (BUP)
Course Name: Development Economics
Course Code: ECON 2303
Submitted on 2 November, 2023
Submitted To
Assistant Professor Nahin Rahman
Department of Economics
Faculty of Arts and Social Sciences
Bangladesh University of Professionals (BUP)
Submitted By
Md. Rahatul Rayhan
ID: 2214881022
Section: B
BATCH: ECON-8
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Table of Contents
INTRODUCTION...........................................................................................................................3
VIETNAM'S ECONOMIC HISTORY...........................................................................................3
ROSTOW'S STAGES OF ECONOMIC GROWTH MODEL.......................................................4
VIETNAM’S ROSTOW'S STAGES OF ECONOMIC GROWTH...............................................5
VIETNAMS CURRENT STAGES OF GROWTH........................................................................7
PROXIMATE FACTORS CONTRIBUTING TO VIETNAM'S GROWTH SUCCESS..............7
UNDERLYING FACTORS CONTRIBUTING TO VIETNAM'S GROWTH SUCCESS...........8
POLICY IMPLICATIONS FOR OTHER DEVELOPING COUNTRIES.....................................8
CONCLUSION................................................................................................................................9
REFERENCE..................................................................................................................................9
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Introduction
Vietnam's economy has grown remarkably over the last few decades. Its GDP per capita
increased at one of the fastest rates in the world, 6.7% annually, on average, between 1986 and
2022. The combination of proximate and underlying factors has propelled this growth. The
proximate factors of economic growth are the immediate drivers of change, such as investment,
capital accumulation, and labor productivity growth. Vietnam has maintained a high rate of
investment, averaging more than 30% of GDP in recent years. Savings from both domestic and
foreign sources have been used to fund this investment. There has also been robust capital
accumulation, or the increase in the stock of human and physical capital. The underlying factors
of economic growth are the long-term determinants of economic performance, such as
institutions, policies, and demographics. Since the Doi Moi reforms in 1986, Vietnam's
institutions have undergone significant improvement. The government has become more
effective and transparent, and property rights have been reinforced.
Several lessons can be learned from Vietnam's growth experience by other developing nations.
First and foremost, funding for public goods like education and infrastructure is crucial. These
expenditures set the stage for further expansion. Second, it's critical to establish an atmosphere
that is business-friendly. This entails bolstering property rights, lightening regulatory
requirements, and welcoming foreign investment and trade. Thirdly, a youthful and expanding
population is crucial. This offers a sizable and expanding labor force.
Vietnam's Economic History
Vietnam's history is deep and rich, spanning more than 2,500 years. Vietnam's economy has been
centered on small-scale handicrafts and agriculture for the majority of its history. With very little
trade with other countries, it was virtually cut off from the outside world.
France began colonizing Vietnam in the middle of the 19th century. The economy started to
modernize during French rule thanks to the introduction of new crops and technologies as well as
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the construction of roads and railroads. Instead of growing Vietnam's economy for its own gain,
the French economy concentrated on utilizing the nation's natural resources and exporting them
to France.
1954 saw Vietnam's independence from France following a protracted and brutal conflict.
Following that, the nation was split into the anti-Communist Republic of Vietnam (South
Vietnam) and the Communist Democratic Republic of Vietnam (North Vietnam). North Vietnam
emerged victorious in the 1955–1975 civil war fought by the two Vietnams.
The Vietnamese government implemented a centrally planned economy following their
reunification in 1975. Nevertheless, corruption and inefficiencies beset the economy. The
government initiated the "Renovation" or "Đễi Mới" economic reforms in 1986. A market
economy replaced central planning in the economy as a result of these reforms.
A notable success story has been the Đễi Mới reforms. Vietnam's economy has expanded quickly
in the last few decades, making it one of the world's most dynamic emerging economies. Over
the previous 30 years, Vietnam's GDP per capita has increased tenfold, and the country's poverty
rate has significantly decreased.
Vietnam has a mixed economy and is currently a lower-middle income nation. The three primary
economic sectors are services, industry, and agriculture. Vietnam is a significant exporter of
electronics, textiles, seafood, and rice. The nation is a well-liked travel destination as well.
It is anticipated that Vietnam's economy will keep expanding in the upcoming years. Vietnam's
GDP is expected to grow by 6.5% in 2023 and 6.7% in 2024.
Rostow's stages of economic growth model
The theory called Rostow's stages of economic growth model explains how nations transition
from traditional societies to modern economies. Since it is a linear model, every nation must go
through the same phases in the same sequence.
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Rostow's model has five stages, those are:
• Traditional society
• Preconditions for takeoff
• Takeoff
• Drive to maturity
• High mass consumption
Rostow held that governments could help in economic development by making investments in
infrastructure and education as well as by fostering an atmosphere that is conducive to business
growth. He also believed that the progression from one stage to the next is not inevitable.
Vietnam’s Rostow's stages of economic growth
According to Rostow's stages of economic growth model, Vietnam is currently in the Drive to
maturity stage. The emergence of new technologies and industries, as well as the expansion of
the consumer society, define this stage. Vietnam's economy has grown rapidly over the past few
decades, and it is now more diverse. The nation has also made significant strides in infrastructure
and education development.
Using Rostow's model, the stages of Vietnam's growth are introduced here:
Traditional Society
Vietnam had been an agriculturally based traditional society until the 19th century. The vast
majority of people were self-sufficient food producers who resided in rural areas. The economy
was mostly undeveloped, and there was little investment or technological advancement.
Preconditions for takeoff
Vietnam saw a number of changes in the late 19th and early 20th centuries that laid the
groundwork for success. Among the adjustments were:
French colonial rule resulted in the advancement of education and infrastructure
the emergence of nationalist movements in Vietnam
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The Second World War's outbreak, which raised interest in Vietnamese exports
Takeoff
Vietnam's takeoff phase started in the late 1950s and early 1960s, when the Democratic Republic
of Vietnam was established and the First Indochina War came to an end. The Vietnamese
government put in place a variety of measures to encourage economic expansion during this
time, such as:
putting money into infrastructure projects like irrigation systems, railroads, and roads
giving businesses and farmers subsidies
Increasing access to healthcare and education
These policies led to Vietnam's economy growing quickly during the takeoff phase. During this
time, the GDP grew at an average annual rate of more than 7%.
Drive to maturity
After the Doi Moi economic reforms were put into place in the late 1980s, Vietnam started its
transition to a more developed stage of development. The economy became more liberalized as a
result of these reforms, and foreign investment rose. Vietnam's economy grew even faster during
the drive to maturity stage as a result of these reforms. During this time, the GDP grew at a rate
of more than 8% annually on average.
High mass consumption
According to Rostow's model, Vietnam is not yet at the high mass consumption stage. On the
other hand, the nation is moving closer to this point. Between 1994 and 2021, the GDP per capita
grew from $281 to $3,694. Between 1994 and 2021, the rate of industrialization increased from
17.6% to 39.6%. Between 1994 and 2022, the rate of urbanization increased from 23.0% to
42.1%. As of right now, the infrastructure development index is 0.63 (medium), and the literacy
rate is 97.0%.
Vietnam has also created a lot of new technologies and industries in recent years. For instance,
the nation is now a significant exporter of machinery and electronics. Significant advancements
in the fields of green technologies and renewable energy have also been made in Vietnam.
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Vietnams Current stages of growth
Vietnam is now in the Drive to maturity stage of economic growth, according to Rostow's model.
The creation of new industries and technologies, as well as the expansion of the consumer
society, are characteristics of the Drive to Maturity stage. Vietnam's economy has grown rapidly
over the past few decades, and it is now more diverse. The nation has also achieved notable
strides in the fields of infrastructure development and education.
Vietnam appears to be in the Drive to maturity stage, based on the following important
indicators:
• GDP ($3,694 per person) in 2021
• Rate of economic growth: 8.02% in 2022
• Rate of industrialization: 39.6% in 2021
• Rate of urbanization: 42.1% in 2022
• Rate of literacy: 97.0% in 2021
• The medium-level infrastructure development index is 0.63.
Proximate factors contributing to Vietnam's growth success
High investment rates: Over the past few years, Vietnam has continuously maintained
substantial investment rates, averaging over 30% of GDP. Education, industrialization, and
infrastructure development have all benefited from this investment.
Manufacturing focused on exports
Vietnam has emerged as a significant exporter of manufactured goods, including textiles,
machinery, and electronics. This has aided in boosting employment and the economy.
Vietnam has seen a notable increase in foreign direct investment (FDI) in recent times. The
nation now has access to capital, technology, and expertise thanks to this FDI.
Population
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With a median age of 32.8 years, Vietnam's population is both young and expanding. As a result,
the nation has a sizable labor force and expanding consumer base.
Vietnam has benefited from both political stability and the implementation of economic reforms
in recent decades. This has made it easier for companies to operate and make investments.
Underlying factors contributing to Vietnam's growth success
Education: Vietnam has made significant investments in education, leading to a workforce that
is highly educated. This has drawn foreign direct investment and increased economic
productivity.
Roads, railroads, and ports are just a few examples of the infrastructure in which Vietnam has
made significant investments. As a result, the economy is now more efficient and operating costs
are lower.
Trade and investment openness: Vietnam's economy is open to outside trade and
investment. This has accelerated economic growth and assisted in integrating the nation into the
global economy.
Policy implications for other developing countries
Vietnam's growth success has the following policy implications:
Invest in infrastructure and education
These are necessary for the development and expansion of the economy. To develop a skilled
labor force and increase economic efficiency, developing nations should invest in these sectors.
Encourage export-oriented manufacturing
This sector of the economy can contribute to job creation and economic growth. Developing
nations ought to establish an atmosphere that encourages companies to participate in and work
within this industry.
Draw in foreign direct investment (FDI)
FDI can give developing nations access to resources like money, technology, and know-how.
Developing nations ought to enact measures like tax breaks and deregulation to draw foreign
direct investment.
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Upholding political stability and carrying out economic reforms are crucial for fostering an
atmosphere that is conducive to business investment and operation. Developing nations ought to
make an effort to uphold political stability and carry out sensible economic policies.
Vietnam's impressive growth is evidence of the effectiveness of infrastructure, education,
investment, and trade openness. Vietnam's experience can be used by developing nations to
further their own economic objectives.
Conclusion
In general, Vietnam's experience with economic growth over the previous few decades has been
remarkable. The nation's trade liberalization, export-oriented industrialization, infrastructure and
education investments, and political stability have all contributed to its quick economic growth
and decrease in poverty. By putting similar policies into place, other developing nations can
benefit from Vietnam's experience. Vietnam's prospects for future growth, however, may be
jeopardized by a number of issues, including growing economic inequality, environmental
degradation, and corruption. To maintain economic growth over the long run, the Vietnamese
government needs to take action to address these issues
Reference
Economy of Vietnam. (2023). Retrieved from Wikipedia:
https://en.wikipedia.org/wiki/Economy_of_Vietnam
Rostow, W. (1991). The Stages of Economic Growth. Cambridge University Press .
Vietnam : Development news, research, data. (2023). Retrieved from World Bank :
https://www.worldbank.org/en/country/vietnam
Vietnam development data. (2023). Retrieved from World Bank:
https://data.worldbank.org/country/vietnam
