Avoiding the middle income trap : renovating industrial policy formulation in Vietnam

Abstract

Vietnam’s growth in the last one-and-half decades has been driven by the liberalization effect and large inflows of external purchasing power. Now that the processes of systemic transition and global integration are near completion, Vietnam needs to create internal value to continue to grow and avoid the “middle income trap.” The country has reached the point where growth towards higher income cannot be secured unless policy making is renovated significantly to activate the country’s full potential. The vision of Industrialization and Modernization by 2020 must be backed by realistic industrial strategies and concrete action plans, which are currently lacking. Stakeholder involvement in policy design, inter-ministerial coordination, clear directives from the top, and incentive structure for government officials must be improved. This in turn calls for innovations in policy administration. A new style of leadership, a technocrat team directly serving the top leader, and strategic alliance with international partners are proposed as key entry points for the renovation of Vietnam’s industrial policy formulation.