The missing middle: A political economy of economic restructuring in Vietnam

Abstract

Vietnam’s cautious and sequenced adoption of market institutions has brought more than two decades of impressive economic performance, all while leaving the country’s underlying political economy largely intact. Notably, Vietnam has leveraged greater integration with the international economic system, including through ascension to the World Trade Organization in 2007 and the conclusion of a spate of free trade agreements, as a means of reinforcing domestic change. Such efforts, however, have not resolved Vietnam’s ‘missing middle’, or the dearth of a productive domestic private sector and the continued dominance of the state-owned sector. As a result, impressive levels of exports and investment have not yet resulted in concomitant gains for domestic value added or linkages to domestic firms. As these challenges represent serious risks to Vietnam’s future growth potential, it is important to find new methods to bolster institutions and reduce the role of state-linked actors. The historical importance of international trade agreements in the Vietnamese system means initiatives such as the rebranded Comprehensive and Progressive Agreement for Trans-Pacific Partnership presents an unusual opportunity — both for assisting Vietnam’s current economic restructuring, as well as creating a framework for further expansion of trade and investment with other important economic partners.