Exports and Long‑run Growth in Vietnam, 1975–2001

Abstract

I. Introduction and Background The purpose of this study is to examine the long-run impact of exports on gross domestic product (GDP) growth in Vietnam in the period 1975-2001. As one of the poorest countries in the world with per capita of less than US$400 at the end of the twentieth century, Vietnam is increasingly attracting the eyes of development economists as a successful model of poverty reduction and remarkable improvement in its economic performance, as a result of economic reform and restructuring programmes, in which the outward-oriented strategy has seemingly played a crucial role. The contemporary economic history of Vietnam in the last quarter of the century began in 1975 when the country was unified, and the Soviet-style central planning was applied to the whole country for the first time. However, the economic did not perform well, and, as a result, the country faced several episodes of macroeconomic crisis in the period of 1976-85 (see Hoa 1997; Harvie and Hoa 1997). This period also witnessed the experimentation of import substitution characteristic of developing countries in the early period of industrialization. The application of this policy led to the expansion of industries producing consumption, inputs, and capital goods at the expense of the export sector. It is noteworthy that in the early 1980s, two market-oriented reforms were tried out within the framework of a centrally planned economy. The first reform occurred in the agricultural sector with the introduction of a contract system. The second reform was applied to state-owned enterprises with the introduction of the three-plan system to provide some limited economic freedom. Though short-lived, these limited reforms brought about tremendous effects on increasing production in the two sectors (see more in Riedel and Comer 1998). Nevertheless, not until 1986 did Vietnam implement a set of bold and far-reaching reforms to open itself to the world and the region, and transfer its planned economy to a market-driven economy. Of particular important reforms and policy changes have been one that promoted foreign trade. The results were impressive. As shown in Table 1, all macroeconomic indicators were significantly higher in the period of 1986 onward than in the period of 1975-85, with one exception being the average annual growth rate of population. The average annual growth rate of GDP increased from 3.7 per cent in 1975-85 to 6.6 per cent in 1986-2001. The average annual growth rate of exports increased much more impressively, from 10.2 per cent to 19.1 per cent, respectively. The average annual weighted growth rate of exports was substantially higher in 1986-2001 than in the period before (5.1 per cent and 1.1 per cent, respectively). (1) As another indication of export performance, the average annual growth rate of export share in GDP also increased significantly from 7.3 per cent in 1975-85 to 11.2 per cent in the next period. Since trade liberalization allows the export sector to grow along the line of comparative advantages, it is reasonable to assume a greater contribution of exports to economic growth in the period after 1986. Indeed, many observers have agreed that increasing exports, along with increasing foreign direct investment (FDI) and domestic saving, have been central to high economic growth in Vietnam. However, as can be seen from Figure 1, export growth was far more unstable than economic growth. Exports followed a clear boom-bust pattern. There were several booms in the mid-1970s, the early and the late 1980s, and the mid-1990s, as well as several busts in the late 1970s, the mid-1980s, the early and the late 1990s. In some contrast, the growth rate of the economy was low and even turned to negative during the Second Five Year Plan 1976-80, due mainly to a dismal performance of agriculture and the stagnant growth of the industrial output as a result of efforts by the government to eradicate private industry and commerce in the south (1. …