It is that time of my life once again, where I return to my root and start working on Vietnam's economic reform. Not that I have never attempted to escape from this subject to gain more breadth on other regions. Yet, this time I found myself coming back to that same initial starting point from my undergraduate years to look closer into Vietnam’s economic performance and its shortcomings. Why don't I want to work on China, India etc? Why Vietnam again?
In my senior year at UC Santa Cruz, I wrote a senior thesis on trade relationship between Vietnam and China and how these two trade regimes complement and compete with each other in the world market (US and Europe). Although this first experience with academic research was extremely influential and rewarding, I have never reread the paper since it was finished. For some seasons, it isn’t something that I feel particularly proud of other than the fact that I was the first student who ever wrote a senior thesis in the Economic Department at UCSC and was invited to give a lecture on the paper in the very class that I had sat on just a year before then. I guess part of the reason for such attitude is the fact that I further understand how complex and significant the problem is in understanding the reform structure and trade relationship that Vietnam sustains within the regional and global economy. My gaining knowledge made me become ever humble with the unknown and unlearned phenomenon of Vietnam’s developing process.
Some time last week, I decided to write my Master thesis on Vietnam's economic reform again. While searching for data and literature, I was bombarded with so much information that I hadn’t exposed to in quite a few years. There is this bittersweet flavor in digging through the economic literature of Vietnam's trade reform, WTO benefits, FDI and institutional framework of the country. It's sweet because I am working toward a set goal with challenging and applicable subject matter, but bitter from seeing how much more that the country needs to catch up and yet, the institutional and legal framework is too lacking to bridge any major economic gap in the near future. For now, here are a few issues:
1. What are the market failures and advancements created from government subsidies in major sectors?
Political economist, Mushtaq Khan, identifies four major market failures in Vietnamese economy: failures in capital markets, labor markets, land markets and knowledge (information) markets. Given our limited knowledge of how these limitations were addressed by Vietnamese government historically, it’s still the matter of further studies to prioritize and strategies how Vietnamese government should undertake these limitations. For instance, what makes the country’s state owned enterprises profitable- a paradoxical phenomenon for most emerging markets.
2. How Vietnam’s export led growth strategies prevents technological catch up necessary for industrialization? What are the roles of FDI and government subsidies in Vietnam long-term economic development?
It is unquestionable that FDI and trade agreements in the past two decades have driven the country's economic growth. Yet, there is one major concern within this growth format namely the existence of significant constraints in technological acquisition. So far, major exporting sectors such as garments and agriculture not only require minimal skilled workers but also import limited technological transfer. The NICs (newly industrialized countries) all went through similar starting point but later managed to move up the ladders through technological advancement. Korea, Singapore, Taiwan and Hong Kong all are currently manufacturers of high-tech electronic and computer components. The Vietnamese government needs to focus its policies to reinvest and to lure FDI into industries that could provide higher skill training and importing technology, but that seems easier said than done.
3. Two years after Vietnam’s access to the WTO, what are the benefits and barriers to country’s development process?
Jan 11, 2007 marked a major hallmark in Vietnam's trade regime for its official access to the World Trade Organization (WTO). According to the STAR-Vietnam: “Overall exports to U.S. grew at about 20% in 2007. Exports of primary products declined by 4% largely due to a 33% decline in petroleum exports. Clothing exports posted a 28% growth – 10% increase from 2006’s.” The economy as a whole grew 8.4% in 2007 and approximately 7% in 2008.” Having said that, couple with high inflation (26.7 at its peak) in 2008, the real estate bubble and the global credit crisis later in the year, it is extremely complicated to single out how Vietnam’s access to the WTO enhances the country’s growth rate in 2008. One interesting aspect of these numbers is the correlation between WTO access and global demand for food, raw materials and cheap labor of the past two years. It is questionable if WTO’s access is in fact the main driver of Vietnam’s trade. In addition, WTO access may further create barriers for the government to effectively use subsidies and rents to further its industrialization process.
Source: Star-VN
4. What are the standing of Vietnam’s institutional reform in enhancing property rights and enforcing commercial contracts? Being far from the standard of other developed countries, what can be done to speed up institutional reform in Vietnam? Are there lessons from China’s legal reforms?
The country's legal reform has seen itself drastically transformed since 2001. Yet, the country still needs to bridge a considerable gap to effectively offer a stable legal framework to lure foreign investors as well as to improve banking and financial sectors. The reform process was indeeded has been closely replicated China's given China started its economic reform 12 years ahead in 1978. However, policy makers should not forget there remains considerable difference between the two economies.
Hopefully, my research will paint a clearer picture than where it appears to be at the moment. For this reason, lots of entries on this topic are forthcoming.
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