Vietnam’s export and foreign direct investment led growth model has underpinned strong economic performance and supported its transition to upper-middle income status.
As Vietnam enters the next stage of development, however, the growth model faces a more challenging environment, with diminishing returns to capital accumulation, slower labor-force expansion, scope for more efficient labor allocation and utilization of human capital, and a less favorable external outlook.
Estimates using several approaches suggest that Vietnam retains solid medium-term growth potential, with productivity expected to play an increasingly central role as traditional growth drivers weaken. Achieving the government’s ambition of double-digit growth over the medium term would require a substantial acceleration in investment and productivity relative to historical trends, while relying on credit or fiscal expansion to support economic activity beyond the economy’s productive capacity could heighten macro-financial risks.
Sustained progress toward higher-income status will therefore hinge on preserving macroeconomic stability while improving investment efficiency, strengthening human capital and domestic capabilities, deepening technology diffusion, and addressing infrastructure bottlenecks.
