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Using two of its main comparative advantages—agriculture and cheap labor—the country’s exports have expanded at an average of about 12 percent per year, transforming the country into one of the most open economies in the world.

Vietnam’s Export Growth Model Gained Good Success
Ảnh: GettyImages
The expected but irreversible decline in the contribution of the demographic dividend and of labor reallocation will occur when another major driver of growth is also at risk. Over the past three decades, Vietnam has followed the export growth model initially experienced by other East Asian countries, with great success. 
Using two of its main comparative advantages—agriculture and cheap labor—the country’s exports have expanded at an average of about 12 percent per year, transforming the country into one of the most open economies in the world (in terms of the ratio of trade to GDP) and creating millions of productive jobs for the fast-growing population. 
In short, the export sector has been at the heart of Vietnam’s rapid and inclusive growth, through the export of agriculture (rice) in the 1990s, low-skilled manufacturing like textiles and footwear in the 2000s, and electronics in the 2010s fueled by the arrival of many foreign investors.
The challenge for Vietnam is to continue with such an export-led model when the global trade and financial flows have, since 2010, shown signs of decline, exacerbated by trade tensions around the world. 
Although Vietnam’s exports have continued to expand faster than the rest of the world and East Asian countries, they grew by only 9 percent in 2019 (and only 3 percent in non-U.S. markets), in line with the declining trend observed worldwide.
It is safe to assume that the global tailwind that propelled Vietnam’s economy in the past three decades is likely to be weaker in the 2020s. 
While rising uncertainty may continue to negatively affect merchandise trade and investment flows, further opportunities may emerge through increased diversification of products and markets. For example, trade in services is projected to expand due in part to digital technologies and people movements that have made many services more tradable, although barriers to services trade remain high, especially in Asia. 
The rapid growth of tourism services is a good illustration of Vietnam’s capacity to adjust to new trends. In terms of markets, Vietnam could develop trade within the ASEAN region, which has a combined GDP of more than US$2.7 trillion. 
Being at the center of this dynamic region could help offset the general slowdown, especially in more traditional markets in advanced economies. In any case, Vietnam’s economy is not fully isolated from external shocks. In fact, we find that a decrease in (net) exports growth by 5 percentage points would reduce GDP growth by an estimated 1.5 percentage points in the short term.
Not only does Vietnam’s external sector appear to be exposed to rising uncertainty in the global economy, but shifting global trade patterns and disruptive technologies in the manufacturing sector are also creating new opportunities and risks. Today, Vietnam’s exports are highly concentrated in manufacturing (about two-thirds of total exports) and in one subsector (electronics, which accounts for half the country’s exports). 
These industries have seen the advent of artificial intelligence and advanced technologies such as robotics, and 3D printing, which should reduce the importance of cheap labor in the location decision of multinationals, which has been Vietnam’s main comparative advantage, including with China, where those costs have been on the rise. In recent years, manufacturing companies in Organization for Economic Co-operation and Development (OECD) countries have been starting to transfer activities back to their home country (back-shoring) or to a neighboring country (near shoring), partly due to the cost reduction brought about by technology advancement.
There is also some evidence that emerging markets are starting to deindustrialize at lower levels of income and earlier stages of development than was the case in now high-income economies. 
In other words, there is an increasing risk for Vietnam that foreign direct investment (FDI) inflows toward manufacturing could gradually decline, leading to a possible deindustrialization process except if the country can scale-up its production capacity by adapting to these new technologies.
While the growing uncertainty in global trade and new technologies are two of the most important mega-trends that can impact the Vietnamese economy, other shocks cannot be dismissed. Among them are the rising global debt; massive monetary easing by the central banks in high-income economies (which is putting pressure on emerging market currencies), and the social discomfort in many countries (including middle-income countries) in response to increasing inequalities and frustrations in the middle class. 
So far, Vietnam has been relatively isolated from these shocks as the country’ debt declined by about 8 percentage points of GDP from the highest point in 2016, thanks to the government’s fiscal consolidation. Similarly, despite an impressive expansion over the past few years, Vietnam’s capital markets have not benefited from a large inflow of foreign investors due to the remaining weaknesses in the legal and institutional framework. 
Thanks to impressive results achieved in poverty reduction over the past two decades, Vietnam has benefited from a relatively stable social contract in recent years. The situation remains fluid, however, as the Vietnamese economy could still be affected by these shocks (or others) in the coming years.

DIEP NGUYEN