Evaluating Vietnam's Changing Comparative Advantage Patterns

Abstract

This article provides an empirical analysis of Vietnam’s comparative advantage and its changes since the country’s reform programme began in 1986. The framework for analysis is the concept of revealed comparative advantage. The findings indicate that despite a rapid shift in comparative advantage structure from primary products towards labour-intensive manufacturing during 1991–96, and a further slow shift towards technology-intensive manufacturing since then, Vietnam’s comparative advantage is still largely based on the country’s endowments of labour and natural resources. So far Vietnam has been able to expand its exports mainly by exploring these favourable conditions. However, exports based on such existing comparative advantage do not deliver significant value-added earnings. It is therefore recommended that relevant policy be implemented to move the economy and its export sector towards a desirable comparative advantage structure by: (1) strengthening food-processing and mining-processing industries to increase value-addedness of exports of primary products; (2) building up strong supporting industries to move the manufacturing sector away from outward processing; (3) encouraging investment in technology-intensive industries; and (4) enhancing human capital and raising the technology capacity of firms.