Vietnam’s economic growth after WTO accession

Việt Nam nổi lên là một trong những quốc gia thành công về tăng trưởng kinh tế ở Châu Á. Việt Nam thụ hưởng thành tựu này nhờ công cuộc cải cách kinh tế, chuyển từ một nền kinh tế phụ thuộc chủ yếu vào nông nghiệp sang kinh tế thị trường theo hướng tăng tỷ trọng sản xuất công nghiệp và dịch vụ với lực lượng lao động trẻ dồi dào.
 
Quốc gia cũng trở lên hưng thịnh hơn sau khi gia nhập Tổ chức Thương mại Thế giới (WTO) năm 2007. Lần đầu tiên Việt Nam gia nhập nhóm các nước có mức thu nhập trung bình năm 2010. Sau khi gia nhập WTO, tuy vẫn giữ được tốc độ tăng trưởng kinh tế cao, nhưng xu hướng giảm rõ rệt do tác động của cuộc khủng hoảng tài chính toàn cầu 2008 đã làm lộ rõ những yếu điểm nội tại của nền kinh tế như hạ tầng kém, thiếu lao động lành nghề và hiệu suất thấp của nền hành chính công. Để duy trì tăng trưởng kinh tế cao trong những thập niên tới, Việt Nam nên tập trung vào cải thiện chất lượng tăng trưởng dựa trên phát triển cơ sở hạ tầng, đào tạo đội ngũ lao động chất lượng cao, và cải cách thủ tục hành chính. Bài báo này tập trung vào phân tích tăng trưởng kinh tế của Việt Nam sau khi gia nhập WTO năm 2007. Phương pháp sử dụng trong nghiên cứu này là thống kê, phân tích định tính và phân tích định lượng.

Dưới đây là bài báo khoa học “Vietnam’s economic growth after WTO accession” của ThS.Hoàng Chí Cương - Khoa Quản trị Kinh Doanh, Đại học Dân lập Hải Phòng.

Abstract

Vietnam has emerged as one of the great success countries in term of economic development in Asia. The economy has posted annual growth of around 7 percent in over two decades of Renovation since 1986. The country has also prospered since accession to the World Trade Organization (WTO), in 2007. Vietnam first time joined the group of medium income countries in 2010. Though, Vietnam's economy still gained the high growth rate after WTO accession, but it had the downward trend in the aftermath of 2008 global financial crisis in parallel with internal weaknesses appearance. To boom in the next decades, Vietnam should focus on improve the quality of growth base on develop infrastructure, train a skillful labor force, and administrative reform. By employing the qualitative, quantity research tools and analysis, this paper focus on analyze the Vietnam's economic growth after it acceded to the WTO in 2007.

Introduction

In the 1980s, Vietnam was one of the poorest countries in the world facing with internal difficulties such as super inflation, poverty, and economic crisis. To stimulate the economic development, control the inflation, and catch up with the advance of other countries in the region, Vietnam started transforming the central planned economy into market - economy since 1986. Continuing the economic integration to the world economy, Vietnam signed several regional free trade agreements (e.g., USBTA, AFTA, etc) and joined the WTO in 2007. Since then, Vietnam has maintained its high economic growth. However, global financial crisis in 2008 slowed down its growth in the context of world economic recession. The author restricts this paper's aim in analysis of Vietnam's GDP growth after its WTO accession. The paper is organized as follows. Subsequent section 1 will first analyze Vietnam's GDP growth after its WTO accession. Section two, then discusses some issues arising from Vietnam's GDP growth recently. The reminder's the methodologies taken in this research are using the qualitative, quantitative research tools and analysis.

1. Analysis of Vietnam's GDP1  growth after WTO accession

This item will give attention to analysis of Vietnam's GDP growth during 2006 - 2010 in comparison with previous duration 2001 - 2005.

Figure 1 presents the Vietnam's GDP growth rates from 2001 to 2010. Generally, GDP growth rates during 2006 - 2010 came back in to downturn just mainly from the negative impacts of Global financial crisis started in 2008, but they still stopped at the quiet high levels in difficult times.

Figure 1 Vietnam's GDP growth during 2001 - 2010 (1994 Prices)

Source: Vietnam General Statistics Office (GSO, 2011)

Specifically, Vietnam's GDP increased 8.2 % in 2006, in which agriculture, industry, and services raised 3.7%, 10.4% and 8.3%, a contribution of 0.67%, 4.16%, and 3.34% respectively to Vietnam's GDP growth.

Came to 2007, the first year of being the WTO membership, Vietnam's GDP growth has consequence of many inside and outside positive elements associated with the WTO accession. First, the implementation of a series of important WTO accession commitments to open internal market has helped Vietnam in offering a more predictable business environment for trade and foreign investors. Second, after joining the WTO, Vietnamese enterprises have a lower cost of expanding to international markets as well as to be treated equally in trade and dispute settlement. Third, Vietnam has more foreign investment and advanced technology and the role in setting international trade rules. Finally, the domestic political environment sustained stability. As a result, the GDP increased 8.5% (the highest rate after Asian financial crisis).

Jumped in to 2008, the impacts took place in two opposite directions. For the first direction, the increase

of the inputs price strongly affected to the domestic production because imported materials covered up to 2/3 factory price. Moreover, Vietnamese GDP growth was suffer from a recession that occurred simultaneously in North America, Europe, and Japan - the most important trade partners of Vietnam for years. The Global financial crisis impacted on Vietnam's macro - economy in many ways. Firstly, demand for some Vietnamese export was weaken. Vietnam's export performance has remained remarkably strong, but by the end of 2008 export values had already begun to contrast and dropped out in 2009. Secondly, foreign investment fell over the short to medium term as investors faced with financing constraints and reassess earnings prospects in 2009 and 2010. Thirdly, tourist arrivals into the country also reduced. Lastly, the fall of commodity prices resulted in a shortfall in government revenues (Jonathan, 2009, pp.11-24). Besides that depreciation of VND made imports more expensive. On the other direction, Vietnam was beneficial from the world price arising in fuel and food products, because crude oil and food products took majority of Vietnam's export merchandises. GDP of this year only increased 6.2% in comparison with 2007. But it is undeniable that if Vietnam had not integrated in to the world economy (especially joined the WTO), it would not have got that growth rate (CIEM, 2010, pp.27-29).

For the year 2009, though the prices of inputs, fuel, raw materials as well as crude oil declined, the demand for importation of trade partners still decreased. Vietnam GDP growth has depended much on export and FDI inflows. Vietnam needs the USA, European, Japan, China, and ASEAN trade partners to do well in order to increase their demand for Vietnam's export. Whenever they get the troubles in terms of economic growth will raise the negative impacts on Vietnam's export then effect to its GDP growth. Vietnam's trade decreased dramatically accompanied by the downturn of GDP growth. Vietnam's ongoing integration with the global economy means it becomes more dependent on matters outside its control. This year, Vietnam economy had many negative impacts from the global financial - economic crisis. The positive impacts on Vietnam economy were negligible. Despite the Government of Vietnam used a series of solution to prevent the decrease of economic growth (e.g., Issued Resolution No 30/2008/NQ-CP on 11 Dec. 2008,

Resolution No 01/NQ-CP on 9 Jan. 2009, Resolution No 32/2009/QH12 on 19 Jun. 2009 of General Assembly)2, the GDP growth rate bottomed out to 5.32% in 2009, higher than the planed target of the year (5%).

Year 2010 has been a year of challenges for Vietnam's economy. The world economy has created difficulties. Vietnam's economy coped with risks such as macro-economic issues (e.g., inflation, the trade deficit, the imbalance of payments, public debt, and market stability etc), easing monetary policy of United States of America and the downward trend of FDI inflows, which could not put economy into balance. The risks were higher than others. This year has been a year with full of turbulence and challenges. 3 Vietnam recorded GDP growth rate of 6.78%, up 0.2% over the target, against growth of 5.32% in 2009. An average rate of GDP growth for 5 - year stage (2006 - 2010) was approximately 7%. Vietnam was still in top 20 countries with the highest average GDP growth in duration 2001 - 2010 (IMF, 2010).

Four years after joining the WTO, Vietnam recognized its internal weaknesses. The scope of economy was still quiet small. The competitiveness capability and effectiveness of the economy was also quiet low. Others were the “bottlenecks” of the economy like synchronous institutions, poor infrastructure, low quality of human resources and macro - economic instability in the context that inflation was high, trade and budget deficits have been widening, foreign currency reserve was low, interest rates and exchange rates were escalating. 4

Figure 2 Vietnam GDP growths (1994  prices)

Source: Personal calculated from data of Vietnam General Statistics Office (GSO, 2011).

Figure 2 shows the Vietnam's GDP growth by sectors during 2001 - 2010. Commonly, first, it is clear that the increase of industry and services sectors mainly contributed on Vietnam GDP growth while agriculture took the minority. Second, the private sector and state sector contributed lager shares to GDP growth than foreign invested sector. Moreover, Contribution of state sector to total GDP growth had the downward trend from 40.96% in average in duration 2001 - 2005 to 27.82% in duration 2006 - 2010, while the ratios of both private and foreign invested sector tended to increase from 44.75% and 14.38% to 54.71% and 17.30% respectively. It is noted that, contribution of the services sector to total GDP growth had the upward trend. Average rate soared from 37.80% in duration 2001 - 2005 to 45.60% for duration 2006 - 2010. In contrast, the contribution of both agriculture and industry sectors had the downturn trends (see figure 2).

Figure 3 Vietnam's GDP by three - expenditure approach at 1994 prices (Billion VND)

Source: Vietnam General Statistics Office (GSO, 2011).

Figure 3 indicates Vietnam's GDP by three - expenditure approach at 1994 prices during 2001 - 2010. Overall, Vietnam's GDP growth was contributed mostly by Final consumption expenditure (FCE) and Gross capital formation (GCF) because Net export (X - M) used to got the under zero value (or trade deficit). There still exists a “desire to growth” phenomenon. Economic growth has relied mostly on Gross capital formation and final consumption expenditure.

Figure 4 illustrates the fluctuations of Vietnam's GDP structure from 2001 to 2010. Chiefly, Vietnam's GDP structure has changed in the direction of industrialization, in which there has been increases in industry and services sectors. This was consistent with the objective of industrialization and modernization of Vietnam.

Figure 4 Vietnam's GDP compositions by sectors in Percent during 2001  2010 (1994 Prices)

Source: Personal calculated from Vietnam General Statistics Office (GSO, 2011).

The proportion of agriculture shrunk from 22.43% in 2001 to 16.42% in 2010. Industry sector has increased from 36.57% in 2001 to 41.93% in 2010. Services sector maintained level up around 41% during 2001 - 2010. In general, Vietnam's economic structure has moving towards the modern composition, reducing the ratio of agriculture during rapid urbanization, and increasing the ratio of industry and services sectors. However, the Vietnam's economy structure has been dedicated towards processing - based industries dominated by garments, textiles, footwear, automobile and motorbike assembling and industries consume large amounts of energy and materials such as cement, steel etc (Thai, 2011, pp.18-19).

Figure 5 Vietnam's GDP compositions by sectors in Percent during 2001  2010 (1994 Prices)

Source: Personal calculated from figures of Vietnam General Statistics Office (GSO, 2011).

Figure 5 demonstrates the Vietnam's GDP compositions by sectors in percent during 2001 - 2010. It is understandable that State sector's shares tended to decrease while the shares of Private and Foreign invested sector had the upward trends. Specifically, the share of State sector of Vietnam's GDP reduced from 41% in 2001 to 37% in 2010. While, the shares of Private and Foreign invested sectors had slight increase from 48.2% and 10.8% in 2001 to 49.4% and 13.6% in 2010.

Figure 6 Vietnam's GDP growth and Effectiveness

Source: General Statistics Office of Vietnam (GSO, 2011).

Mention the quality of Vietnam's GDP growth after its WTO accession. Figure 6 above shows the Vietnam's economic growth and effectiveness in period 1991 - 2010. Universally, average growth rate of Vietnam's GDP was at the high levels. However, the average growth rate of Total factor productivity (TFP)5  had the downward trend, from 4.4% in duration 1991-1995 to 1.4% in duration 2006 - 2010. In contrast, the Incremental capital output ratio (ICOR)6  had the upward trends especially in period 2006 - 2010. In period 2006 - 2010, the ICOR of the economy was 6.12 higher than that of in duration 2001 - 2005, 5.1, but the average growth rate of GDP of this duration was only 7% compared to 7.5% in previous duration. This means that the economic growth in duration 2006 - 2010 was less effective than previous duration 2001 - 2005 (higher ICOR but lower growth rate).

2. Some issues of Vietnam's economy growth recently

The following are some issues of Vietnam's economy that need to be addressed. First, the scope of Vietnam's economy is still quiet small (GDP was over 100 billion USD in 2010). Even if it continuously increases the gap is still wide in comparison to regional economies. Second, the competitive capability and effectiveness of Vietnam's economy are also quiet low. The Vietnam's economy structure has been dedicated towards processing - based industries with low added value and industries consume large amounts of energy and materials shows the poor economic structure.

Finally, there still are some “bottlenecks” of Vietnam's economy like synchronous institutions, poor infrastructure, and low quality of human resources and macro  economic instability etc.

Conclusion

After Vietnam's WTO accession, the growth rates of GDP still stood at high levels but less effective than previous phase in difficult times under the impacts of world economic recession. Vietnam's economy emerged the internal weaknesses reflected its low quality of the growth. This raises the requirement's on economic reform to get the better quality rather than the quantity extension like the previous duration. To continue booming in coming years, Vietnam's economy should be reformed base on develop infrastructure, train a skillful labor force, and administrative reform searching for the goal of being modern industrial country in 2020.

References

Books, Journals, Reports sources:

1. ASEAN Productivity Organization, “APO Productivity Data book 2011”, Keio University Press inc., Tokyo, Japan, 2011, p. 61.

2. Bui Truong Giang, “Quality of Vietnam economic growth in perspectives of economy's effectiveness and competitiveness” - Report, Hanoi, February 2011.

3. Central Institute for Economic Management (CIEM), “Impacts of international economic integration on Vietnam's economy after three years of membership” - Final Report, 2010, pp.27-29.

4. Jonathan Pincus, “Vietnam: Sustaining Growth in Difficult Times”, ASEAN Economic Bulletin, Volume 26, Number 1, April 2009, pp.11-24.

5. McKinsey Global Institute, “Taking Vietnam's economy to the next level” - Report, 2012, pp.2-6.

6. Nguyen Quang Thai, “Greater competitiveness and effectiveness must result from any new economic model”, Vietnam Economic Times, January 2011, pp. 18-19.

Website sources:

1.http://www.gso.gov.vn/default.aspx?tabid=413&thangtk=12/2009

2.http://www.gso.gov.vn/default.aspx?tabid=413&thangtk=12/2010

3.http://www.gso.gov.vn/default.aspx?tabid=413&thangtk=12/2011

4.http://news.vneconomy.vn/20110111034059614P0C6/coping-with-uncertainty.htm).

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*Graduate School of Asia - Pacific Studies, Waseda University, Tokyo Japan, Doctoral Degree Program; The lecturer at Faculty of Business Administration, Hai Phong Private University

[1]Gross domestic product (GDP) is a general indicator reflecting the final results of production and business activities of the whole economy in a given period. GDP is calculated at current or constant prices.

[2]Those aimed in stimulated the Vietnam's economic growth.

[3]See “Coping with uncertainty”, accessed on 16th December, 2011, Website:http://news.vneconomy.vn/20110111034059614P0C6/coping-with-uncertainty.htm.

[4]Ibid.

[5]Total factor productivity (TFP) is a variable which accounts for effects in total output not caused by traditionally measured inputs.

 [6]Incremental Capital Output Ratio (ICOR) is the additional capital required to increase one unit of output. This ratio is used to measure the efficiency of an industrial unit or country as an economic unit. Less ICOR ratio means more effective growth.

 

Source:  qt.hpu.edu.vn

Collected by Nhu-Vu SAPUWA