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An Investigation of Vietnam's Barriers of Economic Growth and Development

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An Investigation of VIETNAM'S Barriers of Economic Growth and Development Over the past few decades, Vietnam has made remarkable recovery from the damage of war and political reforms. Under Vietnam's communist party, the country's economy has transitioned from a centrally planned economy to a socialist-oriented market economy. Making it a multi-sectored commodity economy regulated by the people, whilst under state management and ownership. Numerous reforms, along with the modernization of the financial system, have led to rapid growth for Vietnam economically. In 2010, the Gross Domestic Product (PPP) of Vietnam was $275,639 million and ranked 40 out of 182 listed countries according to the International Monetary Fund. This is most likely due to rapid industrialization that has and is taking place. Industry and construction contributed approximately 40.9% of GDP in 2010 whereas the share of the agriculture sector has fallen to 21%. Although the rise in GDP has brought about a decline in poverty, larger school enrolment rates, bettered infrastructure, etc, this rapid growth rate has also brought with it negative factors that may hinder subsequent economic growth and development. For instance, Vietnam is facing large budget 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 country's trade deficits amounting to US$12.4 billion. CAB value, being a negative, shows that the amount spent on imports coming into Vietnam is higher than that earned from the country's exports. ...read more.


This brings us to the next section of my investigation. Along with the problems arising in Vietnam, its current economic situation could have been and still remains a result of the various factors below: Income Poverty The Vietnam government has made effective attacks on poverty, reducing the countries share of income poverty from 58% to 21.45% in 1993-2010. Due to industrialization and reforms, more jobs and opportunities were created. The rise in income for people working in industrial zones resulted in more than a third of the population being pulled out of poverty. However, the increasing number 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 rural 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 vulnerable to poverty fall far below the poverty line. This prevalent income gap in Vietnam, particularly the income disparity between the rural and urban areas not only lowers the basic standard of living in the country due to inequitable development, but also reduces consumption. This drop in consumption, coupled with the investment fever of the higher income-earners, might cause deflation. Although deflation may seem to help lower-income citizens to purchase more goods, price drops will hamper profits of firms and, hence, the overall economic growth of Vietnam. ...read more.


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, which can be purchased through international trade. This negatively impacts potential 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 keep up with the ambitious growth targets of Vietnam's 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 Vietnam's improving economic growth, numerous debts accumulating in the country and the devaluation of currency can hinder further potential growth rates. These factors overlap with the Communist Party's political control of the economy and the slow change of economic policies, lack of infrastructure to support capital production and exporting low-value products, which in turn hinder economic growth. Additionally, over-population, growing income gaps between rural and urban areas, inefficient building of infrastructure and environmental damage created by excessive 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 needs to allow a more efficient change in both social and economical policies. More importantly, the country needs to stop prevalent corruption 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/node/11041638?story_id=11041638 -http://www.icsead.or.jp/7publication/workingpp/wp2006/2006-18.pdf -http://www.economywatch.com/economic-statistics/country/Vietnam/ ...read more.

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