A comparative review of Vietnam’s economic performance and policy between 1975 and 2024 (part 1)

Vu Quang Viet

Introduction and notes on Vietnam’s data 

The study provides basically the outline of economic developement since 1975. It first outlines  some fundamental findings regarding Vietnam’s per capita income and economic development stage in comparison to other Southeast Asian nations, China, Japan, and Korea. From there, it examines Vietnam’s reform since the 1990s, including its achievements and shortcomings, especially concerning the policies to lessen the role of state-owned corporations, and promote foreign direct investment but mainly for it to use cheap labor to process goods for exports particularly to the US and European markets, to the extent that the capital inflow through FDI is shown to be lower than the outflow of dividends paid to the owners of these FDI investment enterprises, because their rates of profits are double those of the state-owned and Vietnamese private owned enterprises.  The paper also examines the shortcomings in the policies concerning R&D and tertiary education. The lack of focus on developing technical capability of the country with tertiary education particularly vocational schools and technical universities and R&D has already led the economy to a deceleration period since 2012 after only one decade of over 7% GDP growth rate, as compared to 4 decades of high growth in South Korea and China. The growth rate in labor productivity in manufacturing is surprisingly lower than that in agriculture during the 2010-2023 period (4.2% versus 7.8%). This happened when per capita income of Vietnam is still in the lower middle-income group of countries according to the World Bank, unlike 30-40 years of 7-9% rates of growth in South Korea and China.  Despite a strong GDP growth of 8.0% in 2025 cooling to 7.8% in the first quarter of 2026, the economy is performing well. However, this pace still falls short of the government’s 10% annual target for the next five years. Aggressive credit growth of 18% in 2025 and 19% in early 2026 caused inflation to surge beginning in February 2026, culminating in a 5.4% year-over-year increase by April, although for the whole quarter, it is at 3.5% . Credit expansion aimed at hitting a 10% growth target poses significant inflation risks, which can ultimately erode the population’s standard of living

The focus on digital economy, even long-term may not generate that kind of growth when a well-known Nobel-winner economist from MIT, Daron Acemoglu, expected growth in total factor productivity (which is due to knowledge, not due to capital investment on labor) of not more than 0.71% in the next 10 years in the US.  

A note on Vietnam economic data 

1. GDP and per capita GDP will be used in this paper rather than GNI since GDP data is more easily  accessible. 
2. Data on GDP growth rates and CPI from 1992 to 2024 are shown below. The cut-off point was 1992 after the decision of the Political Bureau on 12 June 1988 to abolish mandated cooperatives to encourage private production that reduced extreme high inflation from 300-700% to 17.5% in 1992 as high inflation would render the graphic after 1989 unreadable at the bottom of the graphs.  
3. Data on GDP of Vietnam after 2010 was revised by the General Statistics Office of Vietnam upward by almost 25-28% depending on the year. Data before 2010 has not been revised. For this paper, the same old rates of growth for the 1975-2009 were applied to derive GDP data measured in 2022 USD.  This decision deviates from the UN Statistics Division Data as it assumed that the data for 2005 is corrent and then for the 2005-2010, rates of growth are revised upward (at annual rates of over 10%) to catch the higher value of GDP of 2010. These new growth rates are correct only if  the old value of GDP of 2005 is the correct value.  The data used for this paper is included in the Appendix.   

Sources: CPI and GDP growth rates for 2025-2026 are from NSO of Vietnam. More complete data set from 2010-2024 can be obtained from https://www.gso.gov.vn/ or https://unstats.un.org/UNSDWebsite/ or  https://www.adb.org/publications/series/key-indicators-for-asia-and-the-pacific. Data on old GDP growth rates can only be obtained from adb.org for the key-indicators before 2010. 

Part 1

Basic observations on the economy of Vietnam

Below are some of the basic observations on the economy of Vietnam as compared to neighboring and other related countries: 

1. Vietnam has made significant progress, 34 years after the reform started in 1988 but much less than China and South Korea before that.  Vietnam was united on 30 April 1975. At that time, its per capita GDP in 1975 was merely $US 527 (re-calculated in 2022 $USD),[1] or $1.4 a day, and less than half of Indonesia at $US 865, but was still higher than that of China at $340 (see Table 1.1). The extremely low per capita of China was due to Mao’s Cultural Revolution.  However, by 2022, Vietnam’s per capita GDP in 2022 has surpassed the Philippines, and India, catching up with Indonesia, and reaching $US 4,164, at the level of low-middle-income countries as defined by the World Bank. The per capita GDP of Vietnam has increased 11.8 times during the 1975-2022 period, though much less than 34 times achieved by China, and thus China is reaching the high middle-income level and approaching the high-income level, around $US 14,000 (see Graph 1.3 and Table 1.1).  The lesser achievement in Vietnam was due to the shorter period of high growth before deceleration as compared to South Korea and China. Vietnam achieved only one decade of average annual GDP growth rate of over 7% as compared to 4 decades of even higher growth rates in South Korea and China.  It is necessary to find out all the reasons, though greater achievement was obtained by South Korea and later by China because both countries at the initiate stage of their economic development discouraged FDI while focusing on import substitution, export promotion and industrial policies in the form of heavy industries to develop their own technical base. China allows FDI, but given its huge market, has historically conditioned FDI on technology transfer to local partners and adaptation to local conditions.[2] Both countries also promote the development of high technology together with the promotion of research at both universities and research centers, instead of encouraging foreign direct investment to utilize cheap labor as in Vietnam. The achievement of Vietnam’s industrialization lasted for 15 years (1990-2006) with an average annual rate of growth in GDP of 7.3% is laudable, but is comparatively short in comparison to that of South Korea for 40 years (1960-2000) at 8.1%, or China for 35 years (1978-2013) at 8.7%. Some Vietnamese analysts have written that Vietnam planned to be high-income (per capita GDP/income) of $14,000 and over by 2035.[3]  They may be dreaming if that target is measured in constant $USD of 2022 with zero inflation, since to achieve that, Vietnam’s GDP would need to grow at an average annual rate of growth in GDP of 10% given that the increase in population is approaching zero.  

Table 1.1. Per capita GDP by a selected number of countries over time and average annual growth rates

Sources: Data for Vietnam, Per capita GDP growth rates are derived from GSO’s original GDP growth rates and population growth rates, the series of per capita GDP in 2022 $US was estimated backward from per capita GDP of 2022 using per capita growth rates.  

2. Economic growth has been decelerating since 2011. Deceleration of growth rates is already happening in Vietnam (and Graph 1.2).  This is normal as it happened to Korea and Japan, including China, after the full potentials of a given new economic policy (market economy and opening to the world market in the case of China and Vietnam) or given stage of technology development have been realized unless a new stage of technological progress that brings forth labor productivity appears (of course given supply of population and natural resources).  The deceleration in Vietnam cannot be blamed on the Covid. It started in 2011.  The COVID problem reduced the GDP growth rate to less than 3% between 2020-2021, and miraculously achieved 7.09% in 2024. However, the deceleration trend since 2011 may be reversed if the new economic policy is focused on high-skilled domestic production instead of relying on low-skilled labor supply to foreign direct investment for packaging.  

3. Vietnam with a reasonably large population with significant domestic market to be exploited. With a population of almost 100 million, 1/3 of the US and 1/10 of India and China but in terms of GDP is very small compared to the US, China, and India.  However, with 100 million people, more than Germany’s 80 million, and almost double that of France and the United Kingdom, Vietnam’s domestic demand and supply with the improvement of technical skill and labor productivity can and should be the focus of its economic strategy but it has failed to realize it, unlike that of Japan and Korea.

Source: The United Nation Statistics Division, National Accounts, https://unstats.un.org/unsd/snaama/Index. Values in 2022 USD are converted from 2015 by the author.  

4. There has been some positive news recently; the economy has recovered well, and GDP increased by 7.09% in 2023. The overall 14.3% increase in exports to the world and the 9.1% increase to the US may be partially responsible for this. This could return to the typical prosperous years between 2011 and 2019, before COVID-19, when the average growth rate was 6.6%. However, too much focus on foreign trade particularly as a supplier of cheap and unskilled labor to foreign investors will not lead Vietnam out of the bottom of the basket. Clearly, Vietnam would need to take a new economic strategy that prioritizes enhancing technical capability to return to the high growth rate of 10% that existed between 2007 and 2011.

Notes

1. This is based on the effort to merge the statistics of South Vietnam and North Vietnam by the Statistical Office of Vietnam in Kinh Tế Việt Nam 1955-2000, Tính Toán Mới, Phân Tích Mới, Nhà Xuất bản Thống Kê, Hà Nội 12 -2000.   
2. Edward C. Prescott, Ellen R. McGrattan, Thomas J. Holmes, Quid pro quo: Technology capital transfers for market access in China,
   December 12, 2013. https://www.minneapolisfed.org/article/2013/quid-pro-quo-technology-capital-transfers-for-market-access-in%20china#:~:text=In%20recent%20research%20published%20as,between%20advanced%20countries%20and%20China.
3. “Phát triển kinh tế bền vững ở Việt Nam đến năm 2025 và tầm nhìn 2030”, Phùng Thế Đông, Tạp chí Tài Chính,
   https://tapchitaichinh.vn/phat-trien-kinh-te-ben-vung-o-viet-nam-den-nam-2025-va-tam-nhin-2030.html