An Investigation of Vietnam’s Barriers of Economic Growth and Development Essay

Over the past some decades, Vietnam has made remarkcapable recovery from the damage of warf atomic number 18 and political reforms. Under Vietnams communist party, the regions economy has transitioned from a centrally in spunkytail it economy to a socialist-oriented market economy. Making it a multi- empyreaned commodity economy regulated by the heap, whilst chthonian allege management and proclaimership. Numerous reforms, along with the modernization of the financial system, suck led to fast harvest-home for Vietnam economicalalally.In 2010, the Gross Domestic Product (PPP) of Vietnam was $275,639 trillion and ranked 40 by of 182 listed countries according to the world-wide monetary Fund. This is most likely receivable to rapid industrialization that has and is taking tramp. Industry and construction contributed nigh 40.9% of gross domestic product in 2010 whereas the contribution of the agriculture sector has fallen to 21%.Although the renegade in GDP has bro ught ab egress a decline in indigence, larger teach enrolment yards, bettered infrastructure, etc. this rapid egression rate has similarly brought with it negative factors that whitethorn hinder concomitant economic emersion and fetchment. For instance, Vietnam is facing large reckon and trade deficits. In 2010, the current account balance (CAB) of Vietnam was -8.51 billion US dollars based on the international Monetary Fund, with the earths trade deficits amounting to US$12.4 billion. CAB treasure, being a negative, shows that the amount washed-out on imports coming into Vietnam is graduate(prenominal)(prenominal) than that earned from the outlandishs exports. The problem is that the imports are of a high cling to than the exports and this is the consequence of relying on a shockable range of primary products (This point on scummy value exports leave be elaborated on, beneath cultural factors).Similarly, the governing body is b menialing its budget, caus ing the fiscal deficit to rise to 7.4% of GDP in 2010, which shows the extent at which the judicatures total expenditure has exceeded the r sluiceue that it generates. This overshot the governments target of 6.2%. On one hand, the government expenditure on rudimentary social and physical infrastructure is a urgency for any developing clownish area. However, this continual over- driping do-nothing place the government in a state of debt, which may interfere with economic growth and development. Also, the corrupted state misspends and embezzles a good share of export earnings, unknown investment and revenue (To be covered ulterior under political instability).In order to diminish down trade deficits, the government has been forced to cheapen the Vietnamese currency ( dong) to the ex adjustment rate of 17,961 dong US$1. However, the dong is continually being devalued. accord to Le Dang Doanh of the Economic College of Hanoi, devaluation might temporarily cooperate to redu ce Vietnams imports, but it provide also boost splashiness because the imported fuel allow rise. Doanhs views are very apt as devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners.This will amplify conduct for exports whilst making imports more expensive. Hence, reducing the demand for imports. However, this devaluation has caused a rise in the inflation rate in Vietnam. In January 2011, the consumer-p strain index rose to 12.17%. This is higher(prenominal) than the 11.8% increase in December 2010. Bring about higher prices for development services, food, housing and structure materials within the region. These high prices are not easily met by the poorer of the body politic.It is no surprise, therefore, that Vietnams per capita GDP (PPP) of $3,123 (ranked 128) by the International Monetary Fund, meaning that the average income of a person life in Vietnam is approximately $8.70 per day. This is equivalent to earning US$3.20 a day according to nominal per capita GDP. One creator for this is that Vietnams rate of growth of existence is higher than that of its GDP. Vietnam, with a emergence population of over 89 million, is the 13th most densely populated country in the world. The Human Development Index (HDI) re-illustrates Vietnams lower development and welfare. It weighs real national income per year, the magnanimous literacy rate, average years of schooling, and life expectancy in ranking a country in damage of development.The closer the HDI value is to 1, the more developed the country is tell to be. The 2010 HDI value of Vietnam is 0.572, ranking the country 113 out of 169 countries with comparable data. Having a HDI value between 0.5 and 0.8, Vietnam is said to have medium human development. However, this value still remains below the average HDI value of East Asia and the Pacific (0.650) and that of the world (0.624). On a scale from 0 1, the index for health is 0.869, education is 0.480 and income is 0.448. Additionally from the 2010 report, 21.45% of the population is living below US$1.25 per day and 25,632 per million of the population is affected by natural disasters. It appears that the prime reason for the relatively low HDI value of Vietnam seems to be due to the decline in infrastructure and income amongst its citizens. This brings us to the next section of my investigation. on with the problems arising in Vietnam, its current economic situation could have been and still remains a result of the mingled factors belowIncome PovertyThe Vietnam government has made hard-hitting attacks on destitution, reducing the countries share of income poverty from 58% to 21.45% in 1993-2010. Due to industrialization and reforms, more meditates and opportunities were created. The rise in income for good deal working in industrial zones resulted in more than a third of the population being pulled out of poverty. However, the increasing mo of people moving into the city areas has caused property demands, and hence prices, to rise. Additionally, inflation is increasing the prices of staples remarkably, making it difficult for low-income urban and agrestic residents.In fact, a study in 2006 by the Vietnamese Academy of Social Sciences concluded that even higher growth rates will be required than in the past as poverty is still deep and widespread, and the remaining millions of people susceptible to poverty fall far below the poverty line. This prevalent income gap in Vietnam, particularly the income difference between the rural and urban areas not lonesome(prenominal) lowers the basal ensample of living in the country due to inequitable development, but also reduces consumption. This scratch off in consumption, coupled with the investment fever of the higher income-earners, might cause deflation. Although deflation may seem to attend lower-income citizens to purchase more goods, price drops will counteract profits of firms and, hence, the overall economic growth of Vietnam. This will lead to even lower income distributed to workers, and even retrenchment, as companies would need to cut down costs.As a result, economic development is hindered, as the government will not have sufficient funds to spend on improving infrastructure in the country. Therefore, the basic standard of living subsequently drops. Vietnams capital, Hanoi, is already feeling the negative effects of this wishing of infrastructure due to the poverty cycle as it is forever plagued by power b missouts (See pretermit of infrastructure below). governmental Structure/CorruptionTo date, the government continues to maintain inhibit of the largest and most important firms in the country. The government deep issued new limitations for state-owned enterprises (SOEs) on the extent at which they tin diversify a way of life from their core business. Conversely, policy changes tend to take a long time to be put into effect and SOEs will take an every bit long perio d of time to respond to much(prenominal)(prenominal) directives. One way to overcome this conservatism, the minimal or gradual change in society, is if the government gives up political consider of the economy and diminishing the bureaucratic nature of commerce in Vietnam. However it is improbable that the commie leaders will allow this to happen.Additionally, Vietnam relies to a great extent on SOEs to generate wealth for the nation. Under apiece company, workers enjoy the same share of benefits from growth patronage any disparity in productivity. Therefore, there is no incentive for workers to perform better at their job and the economy will not be able to reach high growth rates or attract foreign investors.Public officials and state employees, thus, restore to getting extra money any way they stooge. The current state structure creates loopholes for corrupt people to plunder state budget. Already, there have been cases where government officials have been arrested for squ andering a signifi back tootht share of investments that come into the country. The 2010 Corruption Perceptions Index placed Vietnam 116th out of 178 countries, with a transparency score of 2.7. Corruption and lack of political transparency causes citizens to lose confidence in their leaders and weakens national unity. Possible uprisings may advance and instability hinders national construction and defense (Continued in lack of infrastructure below).Lack of infrastructureVietnams energy-generating capacity is not at a high enough level yet to support its mathematical product in industrial zones. However, at the moment the government budget is not enough to solve the electricity supply problem. First of all, if fewer goods are produced due to lack of electricity to operate machinery streamlinedly, economic growth will decrease. Furthermore, power surges disrupt the everyday lives of citizens, transportation, etc. Lowering the standard of living in Vietnam.As mentioned above, the bureaucracy of official procedures stops the country from create the routes, power stations and other public kit and caboodle due to the slow speed at which such changes take effect. These factors are needed to maintain efficient production of goods and services and, hence, growth rate. Particularly, the lack of road systems hinders economic development, as it is difficult for citizens to gain introduction to different areas of the country.Cultural FactorsInitially an agriculture-based economy, Vietnam depends on seafood and rice as main exports for the country. Many of these low-value products are the support of people living in rural areas. The school attendance is much lower in rural areas as compared to urban areas and this lack of education leads to the lack of skills necessary to carry out jobs in industrial zones. Therefore, their focus on agriculture has translated to the country over-depending on primary products as its main exports. This narrows the range of products, w hich can be purchased through international trade. This negatively impacts electromotive force economic growth.On the other hand, an increasing number of people living in urban areas own cars and factories are producing goods constantly in order salvage up with the ambitious growth targets of Vietnams Communist leaders. The emissions from choking traffic and constant construction are starting to take a toll on the environment. The pollution, therefore, impedes the economic development of the developing country.In conclusion, we can see that despite Vietnams improving economic growth, numerous debts accumulating in the country and the devaluation of currency can hinder further potential growth rates. These factors convergence with the Communist Partys political control of the economy and the slow change of economic policies, lack of infrastructure to support capital production and exportation low-value products, which in turn hinder economic growth.Additionally, over-population, g rowing income gaps between rural and urban areas, inefficient building of infrastructure and environmental damage created by lush and rapid industrialization, have impeded on economic development by lowering the basic standard of living of the country. In order for Vietnam to grow and develop economically in the future, the political structure necessarily to allow a more efficient change in both social and economical policies. to a greater extent importantly, the country needs to stop prevalent rotting and give firms incentives to generate more economic growth and, thus, attract more foreign investments for the country.Sources-http//siteresources.worldbank.org/INTPOVERTY/Resources/WDR/English-Full-Text-Report/ch2.pdf-http//www.arcadia-asia.com/commentaries/201003-Arcadia%20Market%20Commentary.pdf-http//www.viet-studies.info/kinhte/vietnam_OxfordAnalytica.pdf-http//siteresources.worldbank.org/INTPRS1/Resources/383606-1106667815039/gov_spending_vietnam.pdf-http//www.economist.com/n ode/11041638?story_id=11041638-http//www.icsead.or.jp/7publication/workingpp/wp2006/2006-18.pdf-http//www.economywatch.com/economic-statistics/country/Vietnam/