Comment on “Revisiting Exports and Foreign Direct Investment in Vietnam”

• Author: Kenichi OHNO
• Published date: 01 June 2011
• DOI: http://doi.org/10.1111/j.1748-3131.2011.01189.x
• Date: 01 June 2011

Comment on “Revisiting Exports and

Foreign Direct Investment in Vietnam”

Kenichi OHNO†

National Graduate Institute for Policy Studies

JEL codes: F14, F15, F21

With almost uninterrupted growth for nearly two decades,Vietnam has emerged from the

status of a poor agro-based transition economy in the early 1990s to a young industrial

country with a lower middle income. However, growth up to now has been largely

factor-driven without significant improvements in local productivity or competitiveness.

In the last few years, a consensus has formed among Vietnamese policymakers and

researchers that this quantity-driven growth cannot take Vietnam to a higher level unless

more domestic value is created to replace the massive use of cheap labor or a huge inflow

of foreign capital relative to gross domestic product. This view is widely shared by the

official drafters of the Ten-Year Socio-economic DevelopmentSt rategy 2011–2020 as well

as such foreign observers as Ohno (2009), Ketels et al.(2010), and the World Bank (2010).

Vietnam’s challenge is to discover and implement concrete policy actions to overcome a

middle income trap which may occur in the future.aepr_1189134..135

With this background, the in-depth analysis of the two drivers of current growth –

trade and investment – by Thanh and Duong (2011) is highly welcome. Starting from

descriptive narratives of the two variables, the authors show a decomposition ofVietnam’s

export growth and revealed comparative advantage analysis from 1997 to2008 and indices

of trade complementarity, trade intensity, and export similarity from 2004 to 2008. They

also estimate simultaneous equations for export demand and export supply for 1995–2009

to explore the trade–foreign direct investment (FDI) nexus. The authors find that the

major contributors to the rapid export growth of Vietnam have been global trade expan-

sion and the “unexplained residual” which is regarded as liberalization effects and

improvements in competitiveness combined. Another important finding is that FDI

inflows have a positive, significant,and lagged effect on exports. Moreover, FDI also has a

positive effect on the export performance of local firms. The paper reports numerous

other results derived from a close examination of subsectors and subperiods. These

data-intensive results provide us with much food for thought. However, some care must

be taken in interpreting the major findings.

First of all, the most important driver of Vietnam’s export growth remains unex-

plained. The large residual of the export decomposition contains both liberalization

effects and improved competitiveness. As the authors admit, separation of the two is

difficult. This is unfortunate because the two would lead to entirely different assessments

†Correspondence: Kenichi Ohno,National Graduate Institute for Policy Studies, 7-22-1 Roppongi,

Minato-ku, Tokyo 106-8677 Japan. Email: kohno@grips.ac.jp

doi: 10.1111/j.1748-3131.2011.01189.x Asian Economic Policy Review (2011) 6, 134–135

© 2011 The Author

Asian Economic Policy Review © 2011 Japan Center for Economic Research

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