Vietnam at a crossroads: engaging in the next generation of global value chains

Axel Berger, Dominique Bruhn
DOI number

#Trade and FDI
#East Asia and Pacific
#South Asia
#Social and working conditions

Vietnam is a lower-middle–income country and, like many of its peers, faces the challenge of upgrading to higher value-added tasks in global value chains (GVCs). Participation and upgrading are not an arbitrary policy objective: both may be of decisive importance for Vietnam’s future economic development path. While the economy currently is highly competitive in relatively low-skilled, labor-intensive tasks, history has shown that wages eventually will rise and this comparative advantage will erode. In order to avoid the middle-income trap—where a country can compete neither in low value-added stages due to rising labor costs nor in higher value-added stages due to a lack of adequate skills and technologies—the Vietnamese government has embarked on a path toward deeper integration with the world economy. While other middle-income countries hesitate, Vietnam is signing deep preferential trade agreements (PTAs) with economic heavyweights such as the EU, the United States, and Japan. However, committing to the comprehensive rulebooks of today’s PTAs is not a guarantee for good GVC performance and requires accompanying policy initiatives at the domestic level.

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