Vietnam: economic growth, global relevance and middle-income trap

Abstract

This paper intends to study Vietnam from an economic perspective, with the aim of investigating the growth of the country within the Southeast Asian region, through the use of economic theories and the examination of global scenarios in recent years. The choice of Vietnam is essentially based on three assumptions: 1. In recent years, Asia has been the engine of global growth, mostly driven by China, but not only. Some countries of the Asian continent, in fact, experienced an economic development in a very short period of time, realizing the so-called "Asian miracle", while ASEAN region is becoming more and more important for its geopolitical position as a hub for international trade; 2. In this context, Vietnam is a nation that, in just thirty years, passed from being one of the poorest countries in the world to a middle-income one, pushed by a sustained and constant economic growth (GDP annual growth rate has always been higher than 7% between 2000 and 2010 and more than 6% since 2014), aiming to become industrialized within the next five years; 3. Vietnam is a paradigmatic case due to the massive presence of Foreign Direct Investment (FDI). In fact, many multinational companies have moved the production of particular industrial sectors, such as electronics, textiles and footwear (mainly due to Vietnam’s low costs of prduction and stable political situation), leading to a progressive development of the country. However, Vietnam’s future growth and its transition to an industrialized country, as for the "Asian tigers” (South Korea, Singapore, Japan and Taiwan), is still questionable. The concept of Middle-Income Trap (MIT), or the difficulties faced by most of the developing countries in surpassing the middle-income threshold, is of primary importance. Examples of this phenomenon range from other ASEAN countries, such as Thailand, Malaysia and Indonesia to many nations in Latin America. This thesis would like to be a contribution to hypothesize possible scenarios arising from the current process of development, in the context of the Global Value Chain Analysis, in order to understand the value creation and division of labor, in a market that increasingly seems to be the international one. The paper starts from an economic and geopolical study of the Southeast Asian region, where Vietnam is situated, with particular attention to ASEAN's political alliance. The objective is to understand underlying dynamics and the role of the region, to contextualize Vietnam’s development. The second part intends to provide a "photograph" of the country's current economic, political and social situation, with the aim of capturing, as far as possible, the development path and the role of Vietnam within Southeast Asia. A paragraph is dedicated to Vietnam’s relations with Europe, in light of the "European Union Vietnam Free Trade Agreement" and Italy. The third part intends to study the theory of the Global Value Chain Analysis and the role of multinational companies and FDI on the economic development of Asian countries and the economic theory of Middle-Income Trap, with the aim of explaining the factors at the base of this phenomenon. The fourth and final part will be focused to the application of the Global Value Chain Analysis directly to Vietnam’s case, in order to measure the country's participation and position in some of the major national industries. Particular attention will be given to to the consumer electronics GVC and to Samsung's investment, measuring the value generated in this sector and Vietnam's role at global level. Finally, the risk of MIT will be assessed, through comparison with other countries situations.