Vietnam’s Low National Competitiveness: Causes, Implications and Suggestions for Improvement

Abstract

The World Economic Forum’s (WEF) annual assessment using the Global Competitiveness Index (GCI) since 2006 shows that Vietnam’s national competitiveness has been relatively low. Globally, Vietnam has been in the middle of economies surveyed. Regionally, Vietnam has been in the middle of ASEAN countries. Regarding level of development, before 2015 Vietnam was in stage 1 (factor-driven), which includes ASEAN’s less developed countries (Cambodia, Laos and Myanmar). Since 2015 Vietnam has shifted to a transition toward stage 2 (efficiency-driven), which includes Brunei and the Philippines. The country has lagged behind Indonesia and Thailand (in stage 2), Malaysia (in transition to stage 3) and Singapore (in stage 3, innovation-driven). To complement the WEF’s assessment, this study provides some in-depth analyses of main causes of Vietnam’s low competitiveness. These are structural problems due to its factor-based growth model, expansionary policies to aid growth, slowly improved business environment, low R&D expenditure, low-quality higher education and under-developed infrastructure. The research also examines implications of these shortcomings for Vietnam. These are low productivity, diminishing GDP growth, middle income trap, macroeconomic instability, low business competitiveness, low technology level, low human capital quality and environmental degradation. Based on the analyses, policy measures are proposed to improve Vietnam’s competitiveness. Major suggestions include structural reforms to change the growth model from factor-based to productivity-based, raising technology level, enhancing human capital quality, improving business environment, ensuring macroeconomic stability, upgrading infrastructure and learning from advanced economies such as Korea.