A breakthrough in productivity would be Vietnam’s new growth engine in the 2021 – 2030 period, helping the country successfully escape the middle-income trap, according to Vu Viet Ngoan, chief of the Economic Advisory Group.

Vu Viet Ngoan, chief of Economic Advisory Group

Vietnam must achieve GDP growth rate of at least 7 – 7.5% in the 2021 – 2030 period, much higher than the average rate of 6.3% in the 2011 – 2020, to join the higher income group, Ngoan said at a conference on Vietnam’s new growth model held on March 20, local media reported. 

During this period, Vietnam targets to become a high middle income country with GDP per capita of US$4,859 by 2030 and high income country with US$12,642 by 2045. 

According to Ngoan, Vietnam’s growth model in the 2011 – 2020 period was mainly based on its advantage on production input. However, this model has now reached its limit as competitive advantage relied on labor-intensive production and exporting industrial products has gradually diminished. 

The main reason behind countries falling into the middle income trap was due to the long transitional period to knowledge- and technology-based growth models.

This resulted in an unchanged total factor productivity (TFP) while the efficiency of investment capital is declining and countries could not get hold of the next technologies available, Ngoan continued. 

The difference between a successful and non-successful country in escaping the middle-income trap is the TFP, which is determined by how efficiently and intensely the inputs are utilized in production, he stated. Specifically, economies got stuck in the middle-income trap get an average TFP of 0.4%, while others have the TFP of 1.2%. 

Vietnam’s current TFP level is much lower than that of successful countries, requiring the country to have TFP of 2.67% to escape the middle income trap in the 2021 – 2045 period. 

He expected Vietnam’s growth model in the 2021 – 2030 period to be a gradual transition from labor-intensive to capital and knowledge-intensive, in which technologies, creativity and entrepreneurship take a center role in the new growth model. 

A development strategy based on new technologies and innovation would help Vietnam’s GDP increase by US$60.6 billion by 2030, and US$168.6 billion by 2045, Ngoan said. 

Hanoitimes