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Economic growth

Vietnam's Economic Growth Model Needs a Shift to Innovation and Technological Advancements

Strategic Insights

— 2 min read

Experts at an international conference on Vietnam's economic growth highlighted the country's need to transition away from a growth model driven by capital, low-cost labor, and foreign direct investment (FDI). The country's slow growth in total factor productivity (TFP) and vulnerability to economic shocks expose weaknesses in governance, financial market efficiency, and FDI firms' connectivity with domestic businesses. Dr. Le Xuan Sang proposed five key strategies to improve Vietnam's growth model, including reforming government and promoting transparency and accountability, and developing renewable industries. Dr. Nguyen Quynh Trang cautioned that without improvements in investment and human resources quality, Vietnam risks falling behind in the Fourth Industrial Revolution and green transition.

Key Takeaways:

  • Vietnam's growth has been largely driven by capital, low-cost labor, and foreign direct investment (FDI), while total factor productivity (TFP) contributes less, especially from 2001 to 2023.
  • The country's economic vulnerabilities expose weaknesses in governance, financial market efficiency, and FDI firms' connectivity with domestic businesses.
  • Dr. Le Xuan Sang proposed five key strategies to improve the country's growth model:

+ Ensuring macroeconomic stability and preparing for shocks.

+ Reforming government and promoting transparency and accountability.

+ Enhancing the efficiency of capital, stock, and real estate markets.

+ Fostering linkages between FDI and domestic enterprises, and developing renewable industries.

+ Improving social trust, social capital, and workforce quality.

  • Dr. Nguyen Quynh Trang cautioned that without quick improvements in investment and human resources quality, Vietnam risks falling behind in the Fourth Industrial Revolution and green transition.
  • Trang recommended domestic consumption be spurred through tax relief and credit policies, and improving workforce quality via vocational training, digital skills, and high-tech education.
  • Dr. Dang Hai Anh emphasized the importance of social safety nets for long-term growth and suggested that social welfare policies should drive growth by expanding insurance coverage, increasing vocational training, and aligning labour standards with international norms.

Statistics:

  • Vietnam's GDP growth in recent years faces great pressure from global downturns and trade tensions.
  • Household consumption shows sluggish recovery post-pandemic.
  • Private investment is constrained by high capital costs, and public investment disbursement has fallen short of expectations.
  • Long-term growth is hampered by weak production capacity, inadequate infrastructure, and low labor productivity and TFP.
  • Vietnam's labor force is largely informal, with productivity and vulnerability to changes.
  • The country has made strides in near-universal health insurance coverage but needs to improve access to social and unemployment insurance.

Sources:

  • Sang, L. X. (n.d.). Keynote speech at the international conference on drivers of Vietnam's economic growth in the new era.
  • Trang, N. Q. (n.d.). Presentation at the international conference on drivers of Vietnam's economic growth in the new era.
  • Anh, D. H. (n.d.). Remarks at the international conference on drivers of Vietnam's economic growth in the new era.
  • World Bank. (n.d.). Vietnam Economic Update: Job Creation and Skills Development for Inclusive Growth.
  • Institute of Vietnam and World Economy. (n.d.). Report on Vietnam's economic growth model and drivers.

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