DE GRUYTER Asian Journal of Law and Economics.

2018; 20180002

Dong Phong Nguyen1 / Viet Tien Ho1,2 / Xuan Vinh Vo1,2

Challenges for Vietnam in the Globalization Era

1 University of Economics, Ho Chi Minh City, Vietnam, E-mail: vinhvx@ueh.edu.vn
2 CFVG, Ho Chi Minh City, Vietnam, E-mail: vinhvx@ueh.edu.vn

Abstract:
Emerging and developing countries around the world are playing an increasingly important role in the global
economy. They move up in the global value chain very quickly. However, these countries constantly facing a
plethora of challenges covering a wide range of issues. This paper addresses some key challenges confronting
Vietnam economy which potentially deteriorate its economic growth prospects. These include economic slow-
down, credit booming, the rise of protectionism around the world, and risk from greater opening of the do-
mestic markets. Addressing these challenges are important for Vietnam to maintain its comparative advantage
and foundation for economic growth.
Keywords: challenges, Vietnam
DOI: 10.1515/ajle-2018-0002

1 Introduction
Emerging and developing countries around the world are playing an increasingly important role in the global
economy. They move up in the global value chain very quickly. However, these countries constantly facing
a plethora of challenges covering a wide range of issues. Addressing these challenges is a continuous task of
policy makers in order to achieve inclusive and sustainable development. It is also more important because
developing countries regularly require structural change and the continuous development of productive ca-
pacities.
Vietnam is a successful transition economy toward a more market-oriented practice due to gradual economic
reforms starting from the mid-1980s. The transformation process is equipped with cautious and sequenced
adoption of market institutions. As a result, Vietnam has been among the top economic growth countries and
economic performance in the last decades. However, similar to other emerging economies, Vietnam is facing a
variety of challenges in maintaining a sustainable economic growth. This article discusses some key challenges
for Vietnam in the globalized world. This important topic potentially draws strong attention from economists
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and policy makers.

Addressing the challenges for Vietnam in the globalization is important in several aspects. Firstly, addressing
the challenges helps to improve and maintain the competitiveness of Vietnamese economy. The improvement
of competitiveness in turn results in enormous gain. Secondly, addressing these challenges to help Vietnam in
maintaining stable economic growth and employment potential. Thirdly, even though Vietnam is one of the top
economic growth countries in Asia in the last decade, it is clearly crucial to rebalance the economy and push
the country up the global value change.
The remainder of the article is outlined as follows. Section 2 discusses some key challenges facing the Viet-
nam economy in the globalization. Section 3 concludes the article.

2 Some Key Challenges for Vietnam Economy in the Globalization Era

In this section, we discuss some key challenges for Vietnam economy. These include economic slowdown, credit
booming, the rise of protectionism around the world, and risk from greater opening of the domestic markets.

2.1 Economic Slowdown

By the time writing this paper, it has been about a decade after the great global financial crisis. However, it is
a consensus among economists that the global economy has been recovered at a slower pace than expected.
Xuan Vinh Vo is the corresponding author.
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Specially, some experts even suggest that the slow recovery is an indicator the global economy is getting into a
secular stagnation.
Figure 1 presents the economic growth of Vietnam in the last decade. Even though the pace of growth
has reduced, it is still among the highest rate in Asia. However, a number of factors might cause difficulty for
Vietnamese economy in maintaining high growth rate in the near future. Firstly, the economy is relied heavily
on export. Particularly, Vietnam is among the highest growth in Asia thanks to increasing level of export. The
high level of export is also supported by a high level of FDI in exporting industries. In the last few decades,
Vietnam has successfully maintained this growth momentum which help to fuel economic development. This
growth momentum also spills over to significant expansion of different economic sectors. However, since export
is significantly influenced by recent protectionism trend around the world, Vietnam is under pressure to prevent
potential economic slowdown.

Figure 1: Vietnam Economic Growth.

Secondly, Vietnam is facing challenges in fostering innovation and productivity in state sectors. Specially,
government owned firms have strong political connections and access to huge resources. However, these firms
are under pressure to maintain productivity. Hence, it is important that Vietnamese government should con-
duct further structural economic reforms in order to maintain stable economic growth and employment status.
Clearly, the reforms should aim at fostering innovation and productivity.

2.2 Credit Booming

Credit booming is a common factor attributed to financial crises around the world (Claessens et al. 2010). Viet-
nam is a bank based economy where firm finance is funded mainly by bank credit. Recent improvement in
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the economy is supported by bank credit in many large projects. However, the current scale of credit boom is
still not sustainable. Claessens et al. (2010) state that credit growth is a factor which strongly and significantly
associated with financial crises. It is important to note that massive buildups in bank credit is associated with fi-
nancial instability (Bordo and Meissner 2012). In the case of Vietnam, there are raising concerns that the current
trend of credit boom might end up in severe banking crisis.
These concerns also arise from the banking sector which are still vulnerable to shocks because crisis in Viet-
nam banking sector has actually happened in 2011. We acknowledge that there is an improvement in banking
sector in the last few years, however, the level of non-performing loan remains very high. Further, the credit
boom is also creating stress to the banking system. This suggests that policymakers should address the credit
growth aiming at stabilizing the economy.

2.3 The Rise of Protectionism Around the World

An important challenge for global economy is the new wave of protectionism from advanced countries (the US,
the UK and other European countries). The protectionism is normally in the form of trade tensions.
Even though the impact of protectionism on economic growth remains inconclusive. For example, some
authors argue that there is little evidence to confirm a significant link between open trade policies and economic
growth (Rodriguez and Rodrik 2000). However, a large volume of studies confirm that increasing protectionism
strongly reduce economic growth globally (Lang 1984). Specially, Georgiadis and Gräb (2016) report that the
global economy is more exposed to the risk of trade protectionism. Hence, these trade tensions potentially harm
global economic growth, stocking inflation.
Protectionism in advanced countries potentially hinder economic growth in emerging economies in general
and affect Vietnam in particular. In practice, the withdrawal of the U.S. from the Trans Pacific Partnership trade

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pact negatively affects Vietnam as a signatory and exporter. Vietnam is expected to take advantage of trade
expansion when the country is being a member of this trade pact. Consequently, the unsuccessful formation of
this trade pact severely affects Vietnam.

2.4 Risk from Greater Opening of Domestic Market

Many studies assert the importance of market opening. For example, Ke (2015) examines factors relevant to mar-
ket integration. This paper also states that domestic market openness significantly improves regional economies
and in return size and growth of regional economies further promote market integration in China. Recent evi-
dence by Kant (2018) suggests that the opening of domestic market has a positive effect on institutional quality
of developing countries.
Domestic market opening brings several benefits. For example, Johansson and Ljungwall (2009) suggest that
market integration have strong spillover effects. Other studies show that market integration attributes to pro-
ductivity growth (Bekaert, Harvey, and Lundblad 2011) and reduction in regional inequality in many countries
(Ezcurra and Rodríguez-Pose 2013).
However, the opening of domestic market also bring several challenges to Vietnam economy. As a small
and partially open emerging economy, Vietnam is vulnerable to even small external shocks. Fratzscher and
Imbs (2009) also highlight the importance of institutional quality for containing the adverse effects of glob-
alization. Vietnam has been quickly integrated into the global economy thanks to its active participation in
different bilateral and multilateral agreements. The pace of economic opening is greater than the improvement
of institutional quality. Therefore, it is important to accelerate the process of improving institutional quality to
reduce the adverse effects and reap the greater benefit of globalization.

3 Concluding Remarks
In this paper, we address some key challenges confronting Vietnam economy. These include economic slow-
down, credit booming, the rise of protectionism around the world, and risk from greater opening of the domes-
tic markets. Addressing challenges facing the Vietnam economy is important to maintain constant and stable
economic development.
Even though Vietnam economic growth prospects might deteriorate by these challenges, these are not insur-
mountable challenges. We suggest that policy makers and other stakeholders should devote further attention
on alleviating adverse effects of these challenges to push up the economy to a higher level of global supply
chain.
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References
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