The economy of Vietnam is a developing mixed socialist-oriented market economy. It is the 33rd-largest economy in the world by nominal gross domestic product (GDP) and the 23rd-largest economy in the world by purchasing power parity (PPP). It is an upper-middle income country with a rising cost of living, specifically in urban areas like Ho Chi Minh City and Hanoi. Vietnam is a member of the Asia-Pacific Economic Cooperation, the Association of Southeast Asian Nations and the World Trade Organization.
Since the mid-1980s, through the Đổi Mới reform period, Vietnam has made a shift from a highly centralized planned economy to a mixed economy. Before, South Vietnam was reliant on U.S. aid, while North Vietnam and reunified Vietnam relied on Soviet aid until the Soviet Union's dissolution.
The economy uses both directive and indicative planning through five-year plans, with support from an open market-based economy. Over that period, the economy has experienced rapid growth. In the 21st century, Vietnam is in a period of being integrated into the global economy. Almost all Vietnamese enterprises are small and medium enterprises (SMEs). Vietnam has become a leading agricultural exporter and served as an attractive destination for foreign investment in Southeast Asia.
According to a forecast by PricewaterhouseCoopers in February 2017, Vietnam may be the fastest-growing of the world's economies, with a potential annual GDP growth rate of about 5.1 percent, which would make its economy the 10th-largest in the world by 2050. Vietnam has also been named among the so-called Next Eleven and CIVETS countries.
History
Before 1858
Civilization in Vietnam had been built on agriculture. The feudal dynasties always considered agriculture as the main economic base, and their economic thoughts have been predicated on physiocracy. Land ownership was regulated, and such large-scale works as dykes were constructed in the Red River Delta to facilitate wet rice cultivation. In peaceful times, soldiers were sent home to do farm work. Furthermore, the court prohibited slaughtering water buffalo and cattle and held many agriculture-related ceremonies. Handicrafts and art were valued, but commerce was deprecated, and businessmen were called by the derogatory term . Thang Long (Hanoi) was the main handicraft manufacturing center of the country. Chinese noted that the Vietnamese were doing business just like the same with in the Chinese Song dynasty. From the 9th to 13th century, the Vietnamese traded ceramics and silks with regional powers such as China, Champa, Western Xia, Java among others.Ngô Sĩ Liên 1993, Đại Việt sử ký toàn thư, vol 4. Further archeological evidence suggests that Muslim traders had lived in Hanoi from around the 9th to 10th centuries, based on Muslim ceramics found in the Old Quarter of Hanoi.
However, from the 16th century, Confucianism was losing its influence on Vietnamese society and a monetary pre-capitalism economy began to develop. During the Lê–Mạc period, the state encouraged semi-industrial business and sea-traders, as the Vietnamese economy would mainly depended on them for the next 250 years. Cities such as Dong Kinh, Hội An and others grew quickly under rapid urbanization. They were later constrained when foreign nations saw them as an economic threat.
During the 17th century, Vietnam's economy had reached its peak as the country was the third-largest economic power in East Asia and Southeast Asia. In the late 18th century, the economy suffered depression because of a series of diseases and disaster such as the Tay Son peasant rebellion which devastated the country. This policy led to stagnation of the Vietnamese economy in the early-19th century, and contributed to Vietnam becoming a French colony.
1858–1975
Until the French colonization in the mid-19th century, Vietnam's economy had been mostly agrarian, subsistence-based and village-oriented. French colonizers, however, deliberately developed the regions differently as the French needed raw materials and a market for French manufactured goods, designating the South for agricultural production as it was better suited for agriculture, and the North for manufacturing as it was naturally wealthy in mineral resources. Though the plan exaggerated regional divisions, the development of exports—coal from the North, rice from the South—and the importation of French manufactured goods stimulated domestic commerce.
The separation distorted the basic Vietnamese economy by overly stressing regional economic differences. In the South, while irrigated rice remained the principal subsistence crop, the French introduced plantation agriculture with products such as tea, cotton, and tobacco. The colonial government also developed some extractive industries, such as the mining of coal, iron, and nonferrous metals. A shipbuilding industry was begun in Hanoi; railroads, roads, power stations, and hydraulics works were constructed. In the South, agricultural development concentrated on rice cultivation, and, nationally, rice and rubber were the main items of export. Domestic and foreign trade were centered around the Saigon-Cholon area. Industry in the South consisted mostly of food-processing plants and factories producing consumer goods.
When the North and South were divided politically in 1954, they also adopted different economic ideologies: socialism in the North and capitalism in the South. Destruction caused by the Second Indochina War from 1955 to 1975 seriously strained the economy. The situation was worsened by the country's 1.5 million military and civilian deaths, and the subsequent exodus of 1 million refugees, including tens of thousands of professionals, intellectuals, technicians and skilled workers out of the millions of war refugees.
+GDP per capita in Vietnam, 1956–1974 (in US$/year)Year195619581960196219641966196819701972197462881051001181008581906540505168596055606065
1975–1997
The government's Second Five-Year Plan (1976–1981) aimed for solid high annual growth rates in industrial and agricultural sectors and national income and sought to integrate the North and the South, but the goals were not attained. The economy remained dominated by small-scale production, low labor productivity, material and technological shortfalls, and insufficient food and consumer goods. The more modest goals of the Third Five-Year Plan (1981–85) were a compromise between ideological and pragmatic factions; they emphasized the development of agriculture and industry. Efforts were also made to decentralize planning and improve the managerial skills of government officials.
After reunification in 1975, the economy of Vietnam was plagued by enormous difficulties in production, imbalances in supply and demand, inefficiencies in distribution and circulation, soaring inflation rates, and rising debt problems. Vietnam's gross domestic product ( GDP) in 1984 was valued at US$18.1 billion with a per capita income estimated to be between US$200 and US$300 per year. Reasons for this mediocre economic performance have included severe climatic conditions that afflicted agricultural crops, bureaucratic mismanagement, elimination of private ownership, extinction of entrepreneurial classes in the South, and military occupation of Cambodia (which resulted in a cutoff of much-needed international aid for reconstruction).
From the late 1970s until the early 1990s, Vietnam was a member of the Comecon, and therefore was heavily dependent on trade with the Soviet Union and its allies. Following the dissolution of the Comecon and the loss of its traditional trading partners, Vietnam was forced to liberalize trade, devalue its exchange rate to increase exports, and embark on a policy of economic development. Between 1975 and 1994, the United States imposed a trade embargo on Vietnam, forbidding any trade during the 19-year period.
In 1986, Vietnam launched a political and economic renewal campaign (Đổi Mới) that introduced reforms to facilitate the transition from a centralized economy to a socialist-oriented market economy. Đổi Mới combined government planning with free-market incentives and encouraged the establishment of private businesses and foreign investment, including foreign-owned enterprises. Furthermore, the Vietnam government stressed the necessity to lower birth rates when developing the economic and social rights of the population by implementing a policy that restricted the number of children per household to two, called the two-child policy. By the late 1990s, the success of the business and agricultural reforms ushered in under Đổi Mới was evident. More than 30,000 private businesses had been created, the economy was growing at an annual rate of more than 7%, and poverty was nearly halved.
Since the early 1990s, Vietnam had structurally changed away from agriculture, but without industrialization (service-oriented globalization).
In 1990, the state sector was the key hoped-for site of industrialisation. The state sector transitioned away from the processes of bottom-up commercialisation of the 1980s. This created a supply capacity. The supply capacity allowed Vietnam to avoid negative shock as Soviet aid was removed, and it allowed the economy of Vietnam to grow rapidly in the 1990s. Its growth has averaged about 7% annually since the 1990s, a rate second only to China.
Throughout the 1990s, exports increased by as much as 20% to 30% in some years. In 1999, exports accounted for 40% of GDP, an impressive performance in the midst of the economic crisis that hit other countries in Asia. Vietnam became a member of the World Trade Organization (WTO) in 2007, which freed Vietnam from textile quotas enacted worldwide as part of the Multi Fibre Arrangement (MFA) in 1974. The MFA placed restrictions on the import by industrialized countries of textiles from developing countries. For China and other WTO members, however, textile quotas under the MFA expired at the end of 2004 as agreed in the Uruguay Round of trade negotiations in 1994. A 2019 study found that Vietnam's WTO entry led to substantial gains in productivity for private firms, but had no impact on state-owned enterprises. In the absence of state-owned enterprises, "the overall productivity gains would have been about 40% larger in a counterfactual Vietnamese economy."
Development since 1997 Vietnam's economic policy following the 1997 Asian financial crisis has been a cautious one, emphasizing macroeconomic stability rather than growth. While the country shifted toward a more market-oriented economy, the Vietnamese government still continues to hold a tight rein over major state sectors, such as the banking system, state-owned enterprises and foreign trade. GDP growth fell to 6% in 1998 and 5% in 1999. The economy saw continuous real GDP growth of at least 5% since 2000.
The signing of the Bilateral Trade Agreement (BTA) between the United States and Vietnam on 13 July 2000, was a significant milestone. The BTA provided for "normal trade relations" status of Vietnamese goods in the U.S. market. It was expected that access to the U.S. market would allow Vietnam to hasten its transformation into a manufacturing-based, export-oriented economy. Furthermore, it would attract foreign investment, not only from the U.S., but also from Europe, Asia and other regions.
In 2001, the ruling Communist Party of Vietnam approved a 10-year economic plan that enhanced the role of the private sector, while reaffirming the primacy of the state. Growth then rose to 6% to 7% between 2000 and 2002 even in the midst of the global recession, making it the world's second fastest-growing economy. At the same time, investment grew threefold and domestic savings quintupled.