INTRODUCTION
Research rationales
In today's economy, international economic integration is closely linked to trade liberalization Vietnam has actively participated in this process by joining key organizations such as ASEAN in 1995, APEC in 1998, signing the Vietnam-US Bilateral Trade Agreement in 2000, and becoming a WTO member in 2007 These milestones have created significant opportunities for the country To effectively capitalize on these opportunities and navigate challenges, Vietnam must develop a long-term, sustainable foreign economic development strategy The focus on goods exports and attracting foreign investment has proven essential for driving economic growth and shaping a successful economic development strategy.
Trade theory stands out among economic theories for its systematic and logical development, evolving from simpler to more complex concepts Each subsequent theory builds upon its predecessors, enhancing scientific understanding and practical application Notably, the theory of comparative advantage serves as the foundation of international trade, playing a crucial role in driving economic growth (Paul R Krugman & Maurice Obstfeld, *International Economics - Theory and Politics*, Volume I, Issues of International Trade).
The principle of comparative advantage, rooted in technological differences and factor ratios, explains international trade dynamics and predicts trade patterns based on resource availability Countries should export goods they can produce abundantly while importing those that are scarce Vietnam, with its low production costs and skilled labor force, holds a comparative advantage in labor-intensive products.
This study explores how leveraging comparative advantage in exports positively influences the value of Vietnam's exports, particularly to key partner countries It emphasizes the importance for developing nations to utilize the existing comparative advantage index as a tool for assessment and strategic planning in international trade.
Project Đại học Kinh tế…
W05B - 123123 Project 100% (5) 1 Đ Ề C ƯƠ NG ÔN T Ậ P PHÁP LU Ậ T Đ Ạ I… Project 100% (4) 18 Đ ề thi s ẽ g ồ m b ộ câu h ỏ i : 1.L ự a ch ọ n đún… Project 100% (4) 29
9 - bài nhóm môn pr Project 100% (3) 20
Vietnam possesses five key sectors that offer significant advantages in international trade, yet these sectors also face certain limitations Specializing in these industries can negatively impact the overall industry structure of the country By identifying sectors that are beneficial and well-suited for Vietnam, adjustments can be made to optimize the proportion of Vietnam's export industries.
General objectives
The main object of this project is to study the effect of comparative advantage to develop Vietnam's export
The main question can be stated as follow: “ In the context from 2010 to 2020, is comparative advantage the answer to Vietnam's export growth?”
Specific objectives
The following sub-question will be addressed to give more details on the general objectives:
“How affect the comparative advantage to develop Vietnam's export?”
“ What is export pattern of Vietnam ?”
Scope of the study
This study highlights the significance of comparative and absolute advantages in the context of Vietnam's economic growth and integration It analyzes the current application of these theories within Vietnam's external economy, offering insights into how they can be effectively utilized Furthermore, the study provides strategic orientations and solutions to optimize the use of comparative and absolute advantages, aiming to enhance the development of Vietnam's external economy.
Since Vietnam's reform and integration into the global economy, significant progress has been made in both integration and export promotion policies These advancements have boosted foreign currency inflows, playing a crucial role in the nation's economic growth and contributing to the establishment of a robust economic foundation.
Vietnam's strategic geographical advantages and cultural similarities position it well for socio-economic development, particularly in enhancing its export activities This study examines Vietnam's trade relations with its top ten trading partners: China, Japan, Korea, Thailand, India, Hong Kong, the USA, the UK, Germany, and the Netherlands By focusing on these key markets, Vietnam aims to boost its export goods and strengthen its economic ties within Asia and Europe.
The 1986 economic opening policy propelled Vietnam into global integration, leading to a significant increase in the availability of Vietnamese goods worldwide and a consistent rise in export growth rates The country's competitive edge stems from its low labor and translation costs, which have attracted direct investment and further boosted exports This research spans nine years, beginning in 2010, highlighting the ongoing impact of these economic strategies.
We selected the period from 2010 to 2019 to analyze economic trends, beginning after the Great Recession and concluding just before the Covid-19 pandemic, ensuring an objective perspective on the economic landscape during these years.
Research structure
The topic is divided into 5 major chapters as follows:
Chapter 5 Concluding remarks and policy recommendations.
LITERATURE REVIEW
Theoretical basis of comparative advantage
2.1.1 The Classical Theory of Comparative Advantage by David Ricardo
Adam Smith's theory of absolute advantage suggests that a country benefits from foreign trade by specializing in the production of goods in which it holds an absolute advantage over others However, this theory does not clarify the reasons behind one country's absolute advantage over another, nor does it account for how countries without an absolute advantage can still engage in international trade and reap benefits through cooperation and division of labor.
In 1817, David Ricardo, a prominent classical economist, introduced the theory of comparative advantage in his influential work "Principles of Political Economy." This theory addresses the limitations of absolute advantage and provides a clearer understanding of the motivations behind international trade.
D Ricardo's theory highlights the differences among countries in natural conditions, human resource quality, and production capabilities, suggesting that countries can specialize in certain products regardless of their inherent advantages He argued that while absolute advantages may exist, most international trade occurs based on comparative advantages By focusing on specific products for export and engaging in foreign trade, countries can enjoy benefits that extend beyond their domestic production capacities, allowing consumers access to a wider range of goods.
Ricardo's theory of comparative advantage includes the following assumptions:
(1) Two countries, two products to trade;
(2) A factor of production is labor, the value of goods is calculated according to labor;
(3) The cost of production remains unchanged;
(4) Perfect competition in commodity and factor markets;
(6) Labor can move freely within a country but cannot move between countries and
(7) Free trade, without tariffs and non-tariff barriers (David Ricardo, 1817).
Comparative advantage is the ability to produce a good at a lower opportunity cost than another, allowing countries to engage in international trade even without an absolute advantage David Ricardo emphasized that countries can benefit from trade by specializing in the production of goods where they are less inefficient and importing those they produce less efficiently This specialization leads to an increase in total world output, benefiting all trading nations Therefore, comparative advantage serves as the foundation for international trade and the global division of labor.
Ricardo's law of comparative advantage suggests that countries should focus on producing and exporting goods where they hold a comparative advantage, while importing products that they are less efficient at producing This specialization enhances overall economic efficiency and promotes international trade.
Even countries with no absolute advantage in producing goods can benefit from international trade, as highlighted by Ricardo's theory Even the "worst" country can gain from trading with a "best" country that has an absolute advantage in both products Each country possesses a comparative advantage in producing certain goods, allowing them to specialize and export those products This specialization increases total world output, ensuring that all participating countries benefit from trade Therefore, comparative advantage serves as the foundation for international trade and the division of labor among nations.
It is possible to explain the cost difference in two countries A and B concerning the commodities X and Y geometrically through
In Fig 2.1, the production possibility curve (PPC) of country A illustrates its resource allocation capabilities If all resources are dedicated to producing commodity X, country A can achieve an output of OA units of X Conversely, if the entire resource pool is utilized for commodity Y, the country can produce OA units of Y.
BB1 is the production possibility curve of country B.
In this country, utilizing all available resources for the production of commodity X results in the output of OB quantity, while focusing entirely on commodity Y also yields OB quantity The production possibility curve's slope reflects the ratio of labor productivity between X and Y in each nation.
2.1.1.1 The Development of the Theory of Comparative Advantage
Recognizing the limitations of D Ricardo's Classical Theory, modern economists continue to study comparative advantage based on approaches other than and extend the research model.
Subsequent economists and Ricardians have expanded the study of comparative advantage beyond Ricardo's original model Notable figures such as Haberler, Heckscher-Ohlin, and Paul Krugman have contributed to this evolution Haberler utilized opportunity cost theory to elucidate comparative advantage, while Heckscher-Ohlin advanced the model by incorporating two production factors—labor and capital—under conditions of increasing opportunity costs, often referred to as the 2 x 2 x 2 model (two countries, two products, and two factors of production) Paul Krugman further developed the concept by analyzing comparative advantage in the context of multiple goods.
2.1.1.2 Advantages and disadvantages of Ricardo's theory of comparative advantage
Explain why international trade between countries is caused by
Countries trade with each other because they are different.
Countries trade with each other to gain economies of scale in production.
The benefits of international trade are derived from comparative advantage.
The only explanation is that comparative advantage exists because of differences in labor productivity movement between countries.
Unexplained why different countries have a different opportunity cost.
2.1.2 Comparative advantage under the H-O model
Since David Ricardo introduced the theory of comparative advantage, economists have actively researched and expanded this concept through new methodologies and models This ongoing exploration continues to refine our understanding of how comparative advantage operates in various economic contexts.
H-O was developed in its neoclassical form by Heckscher and Ohlin (H-O) This rationale is based on differences in the ratios of factors that explain the underlying rationale for trade and predict trade patterns between countries: “In an open economy, each country tends to specialize in It is the most favorable for that country to diversify the production industries that permit the use of many factors of production” By combining the most profitable factors of production of a country, it is possible to minimize production costs as much as possible and obtain the highest quality of goods with the highest productivity This means that we will have the highest comparative advantage in certain industries and types of goods.
Countries rich in land and minerals, like Australia, are likely to focus on exporting agricultural products, while nations with large populations, such as Vietnam, tend to export labor-intensive manufactured goods This theory suggests that as countries embrace free trade, they will see improvements in efficiency and a rise in export volumes.
The Heckscher-Ohlin-Samuelson (H-O-S) model, developed by P Samuelson, posits that countries can maximize their economic benefits by specializing in the production and export of goods that they can produce at relatively low costs By focusing on these efficient goods, countries gain a competitive advantage, while they should import goods that are more costly to produce domestically, thus enhancing overall efficiency and trade benefits.
Differences in factors of production across countries significantly influence international trade dynamics These variations contribute to a gradual reduction in price differentials, ultimately resulting in both relative and absolute equilibrium in the prices of production inputs among nations.
Comparative advantage of Balassa index RCA
In 1965, economist Béla Balassa introduced the Revealed Comparative Advantage (RCA) formula, which has since become a widely utilized metric in numerous studies to assess a country's comparative advantage in trade The calculation of the RCA index is fundamental for understanding trade dynamics and economic performance.
RCA ik : Existing comparative advantage of country i over product k
X ik : Export turnover of product k of country i
X i : Total export turnover of country i
X wk : Export turnover of k products around the world
A country is considered to have a comparative advantage in a product if its share of product exports exceeds its share of total world exports, indicated by an RCA index greater than 1 (RCA ik > 1) Conversely, if the RCA index is less than 1 (RCA ik < 1), the country lacks a comparative advantage in the production and export of that product Thus, a higher RCA index signifies a stronger comparative advantage for the product in question.
The RCA index enables the evaluation of shifts in a country's industrial structure over time, allowing for the identification of comparative advantages or disadvantages This assessment is crucial for understanding the evolution of a nation's competitive position in various industries (Elias Sanidas & Yousun Shin, 2010).
Despite its limitations, the revealed comparative advantage (RCA) index remains a valuable tool for countries to assess the strengths of their commodity sectors This assessment informs international trade policies, bilateral trade agreements, and negotiations for joining international trade organizations Consequently, it enables nations to identify and evaluate the competitive advantages of their products in the global market.
The RCA index quantifies the comparative advantage of specific commodities, enabling the ranking of countries based on their level of advantage This tool distinguishes nations that hold a comparative advantage across various commodity groups.
Forster, & Murray, 1987) Furthermore, RCA indicators can be used to analyze changes in comparative advantage, trade patterns and structural adjustments within individual industries, countries or regions (Chow & Kellman) , 1993; Rana, 1990).
Lin et al (1996) assert that leveraging comparative advantage is crucial for economic growth, even in expanding economies Each economy should identify its optimal industry structure based on available resources, as different goods necessitate various input combinations Early in development, capital is often scarce, leading to a comparative advantage in land and labor-intensive goods, such as agricultural products and cosmetics As capital accumulates and the labor force expands, the focus shifts to labor-intensive production Eventually, as capital becomes more abundant and labor costs rise, economies transition towards technology-intensive industries Implementing a competitive market system and opening the economy reveals the relative scarcity of production factors through pricing, motivating domestic producers to capitalize on their comparative advantages, ultimately enhancing competitiveness and fostering rapid economic growth.
Using the RCA Index in International Trade
Despite its limitations, the revealed comparative advantage (RCA) index remains a valuable tool for countries to identify their commodity sector strengths This index informs international trade policies, bilateral trade agreements, and negotiations for joining international trade organizations Consequently, it facilitates the recognition and assessment of national product advantages in the global marketplace.
The RCA index quantifies the comparative advantage of commodities, enabling the ranking of countries based on their specific advantages across various commodity groups (Balance, Forster, & Murray, 1987) Additionally, RCA indicators facilitate the analysis of shifts in comparative advantage, trade patterns, and structural adjustments within industries, countries, or regions (Chow & Kellman, 1993; Rana, 1990).
According to Lin et al (1996), the strategy of comparative advantage is crucial for economic growth, particularly as economies evolve Each economy should identify the most beneficial industry structure based on its unique resources, as the availability of production factors varies with economic development stages In early development, capital is scarce, leading economies to focus on land and labor-intensive products like agriculture and cosmetics As capital accumulates and the workforce expands, the focus shifts to labor-intensive production, and eventually to technology-intensive industries as capital becomes more abundant By implementing a competitive market system and opening the economy, relative prices reveal the scarcity of production factors, encouraging domestic producers to leverage their comparative advantages This approach enhances competitiveness and accelerates economic growth.
Comparative advantage elucidates the varying levels of specialization in services trade (Tang, Zhang, and Findlay, 2013) The Revealed Comparative Advantage (RCA) index, derived from net trade, interprets trade intensity values as indicators of the divergence between actual and expected trade (Bowen, 1983a).
The export forms of a nation can be understood through the lens of comparative advantage theory, which highlights the importance of increasing profits associated with larger production scales and diverse consumer demand This interplay has resulted in a synergy between manufacturing and exports, elucidating not only the remarkable economic growth of the country but also its swift expansion in export activities.
Research by Tang, Zhang, and Findlay (2013) highlights that China's trade in services mirrors its trade in goods, with a comparative advantage stemming from low-cost labor and enhanced specialization Given that service trade relies heavily on the proximity of producers and consumers, leveraging global industrial adjustments presents a new challenge for China Data indicates that trade constitutes nearly 60% of China's service transactions, predominantly with OECD countries and Hong Kong Therefore, it is essential to examine the service trade dynamics between China and developing countries, particularly focusing on outward foreign direct investment (FDI) in the service sector.
Vietnam in the current development context
2.2.1 Vietnam's comparative advantage in the process of international economic integration
Vietnam's comparative advantage primarily stems from static and low-level resources, which, if not renewable, may eventually diminish This is evident in the country's two main advantages: natural resources and a large labor force While Vietnam is rich in minerals, its per capita mineral wealth is relatively low Additionally, although the nation boasts a young and abundant workforce, this labor pool lacks experience in industrial work and has limited access to new technologies Consequently, the overall quality of labor is not high, and productivity does not justify the rising wage levels.
Vietnam's trade and investment activities remain comparatively low among ASEAN countries, with the WTO's 2007 statistics ranking it 50th out of 50 analyzed economies In contrast, ASEAN nations like Singapore, Malaysia, Thailand, and Indonesia rank significantly higher at 14, 19, 25, and 32, respectively Despite similarities in resource composition, Vietnam's inherent production conditions lag behind those of its ASEAN counterparts, leading to its underdeveloped trade status While Vietnam's low-level comparative advantage—characterized by labor-intensive production with low added value—attracts foreign investment, relying solely on this advantage limits potential economic restructuring and advancement The liberalization of AFTA and the emergence of advanced technologies are prompting transnational companies to favor countries with dynamic advantages such as capital, high technology, skilled labor, and modern infrastructure, enabling them to optimize production in free trade environments.
Manufactured goods and services that leverage low-grade production conditions, such as inexpensive raw materials and basic processing, tend to be cheaper than those benefiting from higher-level production conditions, which involve skilled labor and advanced technology Currently, Vietnam exports commodities like crude oil, rice, and minerals However, without transitioning to modern technologies that utilize abundant labor for producing export goods, Vietnam risks facing disadvantages in export prices, resulting in low added value This trend has been consistently demonstrated over the years.
Vietnam's current low-level comparative advantages are temporary and should not be abandoned but rather understood as a stepping stone To achieve long-term growth, Vietnam can learn from Japan and the Newly Industrialized Economies (NIES) by transitioning towards higher-level comparative advantages, including capital-intensive production, skilled labor, and advanced technologies Initially, Vietnam's industrialization relied on low-level advantages characterized by labor and resource-intensive goods However, as the country progresses through industrialization and modernization, it can expand its comparative advantages to include high-value products This transition requires a combination of favorable geography, natural resources, and, most importantly, a skilled workforce, which is crucial for enhancing productivity and achieving sustainable development.
Trade and cooperation rely heavily on commercial partners, as evidenced by the WTO's 2007 analysis of 50 countries and territories, which accounted for 93.2% of global export turnover, totaling $1,306.4 billion These nations can be categorized into three groups: the first group includes high-performing economies such as Germany, China, the United States, Japan, and France, ranked from 1 to 15; the second group consists of countries with average comparative advantages, ranging from Taiwan (16th) to Chile (40th); and the third group encompasses economies from Nigeria (41st) to Vietnam (50th), representing lower comparative advantages.
In 2007, Vietnam's export turnover reached 48.4 billion USD, representing 0.3% of global exports and placing it among the top 50 exporting nations This figure highlights Vietnam's position in the global market, where its comparative advantage is reflected in relatively lower export values compared to countries with higher advantages, such as the G7 nations Notably, Germany leads in export turnover, followed by China, the United States, Japan, and France Utilizing a multi-country trade model, it becomes evident that Vietnam should enhance trade relationships with these major economies, as the disparities in development levels and comparative advantages present significant opportunities for growth As a developing nation, Vietnam must focus on fostering trade cooperation with larger countries to boost its economic potential.
Vietnam has established a strong comparative advantage in the international division of labor, with major trading partners including the United States, Japan, and China In 2007, Vietnam's export turnover to the U.S reached $10.2 billion, making up 21.07% of its total exports, with textiles and garments alone accounting for $4.4 billion or 43.14% of exports to the U.S Japan followed as Vietnam's second-largest export market, with exports totaling $6.069 billion, representing 12.53% of Vietnam's overall export turnover Despite a modest market share of approximately 1% in Japan, Vietnam's exports are gaining acceptance The concept of comparative advantage, as explained by Ricardo and further elaborated by Heckscher-Ohlin, underscores the importance of a country's unique production resources in determining trade dynamics Ultimately, Vietnam's export success hinges on its ability to leverage its comparative advantages in specific products, driving its trade growth.
Vietnam is advancing in its comparative advantage, transitioning from the third group of countries to the second group, which reflects a higher level of development and an expanded trade scale.
Vietnam's comparative advantage
Vietnam boasts significant comparative advantages, primarily characterized by low production costs and a skilled workforce As a developing country, it benefits from both natural resources and a dedicated population, resulting in generally low production costs across various industries.
Vietnam's economy has experienced rapid growth, largely driven by increasing foreign direct investment (FDI) inflows, particularly in labor-intensive sectors like garment and footwear manufacturing for export This investment surge primarily comes from Newly Industrialized Economies (NIEs) such as Korea, Taiwan, and Hong Kong, as rising labor costs in these regions prompt companies to relocate production to developing countries like Vietnam, where they can benefit from lower labor costs and favorable investment incentives.
A global value chain (GVC) refers to a worldwide production and business network involving multiple countries that collaborate to create final products for consumers In this interconnected system, production activities are intricately linked, highlighting the close relationships between participating companies.
Each country's economy approaches the study of global value chains uniquely, as the division of labor evolves and national boundaries become less restrictive for economic growth To enhance its participation in the global value chain, Vietnam must identify its strengths and weaknesses in export goods, enabling the formulation of effective support policies.
From 2010 to 2018, Vietnam experienced a decline in its GVC entry rate, with key input partners for manufacturing and exports primarily located in Asia, particularly China, Korea, Japan, and ASEAN nations These countries play a significant role in shaping Vietnam's import structure on both regional and global levels In contrast, the input materials for Vietnam's export processing have become increasingly diverse, expanding beyond Asian partners to include markets in the EU, Australia, and the United States.
Vietnam's participation in the global value chain, particularly in manufacturing and primary industries like mining and agriculture, is significantly increasing This trend underscores the nature of outsourcing and the manufacturing processes within Vietnam's industrial sector Furthermore, it highlights the agricultural sector's vital role and potential in strengthening Vietnam's global standing.
From 2010 to 2018, industries, including processing, manufacturing, and services, have increasingly integrated into the supply stage of the public value chain This trend highlights a significant shift towards greater collaboration and efficiency across these sectors.
From 2010 to 2019, Vietnam experienced significant trade growth, with a consistent increase in total import and export market share, alongside a trade surplus sustained for five consecutive years Additionally, foreign direct investment (FDI) in Vietnam showed stable growth during this period.
Table 1:RCA index of industry groups according to SITC criteria level 1
From 2010 to 2019, Vietnam's comparative advantage in food, live animals, and mixed manufactured goods has shown a declining trend, as indicated by the existing comparative advantage (RCA) method based on market share and export value Conversely, Vietnam is increasingly gaining an advantage in the technical products sector.
During this period, Vietnam's economic development diverged from typical trends observed in both developed and developing nations The variability in trade has led to an inconsistency between the "revealed" comparative advantage in exports and the comparative advantage based on resource factors Consequently, changes in Vietnam's export structure involve not only a shift in factor proportions but also a reconfiguration of industry structures and resource allocation, aligning with the transition to a market economy This swift evolution in export composition increasingly mirrors the country's comparative advantages, ultimately bolstering export growth.
Specifically, Vietnam has a comparative advantage in 9 commodity sectors These are footwear, hats and hats, textiles, textiles, electronic equipment, wood and wood products, plant products, live animals and animal products.
DATA AND METHODOLOGY
Data source (s)
This article analyzes data from the UNcomtrade database, focusing on manufacturing enterprises in line with trade theory The dataset, covering 11 countries from 2010 to 2019, underwent a thorough cleaning process to eliminate redundant and missing observations.
Methodology
Model for estimating export value:
LnEXijt = β + β0 1lnYit + β2lnYjt + β3Distij+ β4Corr uijt+ ijt
Variable Definition Formula Sources Note
Ex ijt Export turnover of
Yjt Real gross domestic product of Vietnam.
Yit Real gross domestic product of partner countries
Distij Geographical distance between the capital of
Vietnam and the capital of the partner country
Corrijt The index shows the correlation between the RCA indicators of
=Corr(RCAik,RCAjk) Uncomtrade RCAik:
Comparative advantage index of Vietnam
Vietnam and the partner country industry k
RCAjk: index of comparative advantage of the partner country kSource: Author's calculations
Empirical model
Dependent variable: EX ijt it is an index measuring Vietnam's export turnover to country j at time t
The Corr ijt coefficient measures the comparative advantage index between Vietnam and its partner countries over a specified period A higher Corr ijt value indicates a lower ratio of Vietnam's exports to countries with similar revealed comparative advantages (RCAs) compared to those with differing RCAs, suggesting that the theory of comparative advantage effectively explains Vietnam's export patterns The similarity in RCA is assessed through the coefficients of all sectors between the two nations If this theory holds true, we anticipate that the Corr variable will exhibit a negative sign.
This research employs control variables derived from the original Gravity model, introduced by Jan Tinbergen in 1962, to quantify the effects of economic linkages on trade The model has since been further developed and validated by various researchers, enhancing its applicability in trade analysis.
The total national income of Vietnam (Y_it) and its partner countries (Y_jt) at time t demonstrates a positive correlation with trade, as supported by economic theory This indicates that as the GDP of Vietnam and its trading partners increases, intra-industry trade is likely to expand, reflecting a larger economic scale.
The variable Dis tij represents the distance between Vietnam and its partner country Increased geographical distance leads to higher transportation costs, which in turn restricts the exchange of goods between nations.
Where , and represent Vietnam, partner country and year , respectively.i j t j t
Thus, the impact direction of the two main independent variables and other control variables is expected as shown in the table below:
Table 3: Expected sign of variable effect
( + action in the same direction; - action in the opposite direction) Unit
Trade is positively correlated with Vietnam's GDP and the GDP of partner nations, indicating that larger economic scales lead to increased intra-industry trade Therefore, we expect a positive impact on trade dynamics Conversely, the geographic distance between Vietnam and its partner countries, represented by the variable Distij, negatively affects trade due to rising transportation costs associated with greater distances.
FINDING AND ANALYSIS
Comparative advantage to develop Vietnam external economy
Rice production has a long-standing tradition in Vietnam and is deeply intertwined with the country's development history Today, rice remains a staple food and is crucial for Vietnam's socio-economic growth The recognition of Vietnam's comparative advantage in rice exports has led to significant achievements, further enhancing the nation's external economic development.
Vietnam has many advantages in the production and export of rice:
Vietnam's advantageous geographical location enhances its international transport routes, facilitating efficient rice exports The country boasts economically significant seaports, which play a crucial role in lowering transportation costs for rice shipments to global markets.
Secondly, with land resources, having a large arable land, about 8.5 million hectares, is one of the advantages for the production and expansion of rice production in the future.
The tropical monsoon climate in Vietnam, characterized by high temperatures and humidity, along with substantial rainfall, creates optimal conditions for rice cultivation The country's extensive river systems and fertile alluvial soil supply essential irrigation and nutrients to millions of hectares of farmland Additionally, Vietnam's seven distinct ecological regions contribute to the development of unique rice varieties, enhancing their export value and setting them apart from those produced in other countries.
Vietnam boasts a significant advantage in rice production due to its skilled labor force, which constitutes approximately 60% of the country's workforce With a rich history in rice cultivation, Vietnamese farmers have honed their expertise over generations, leading to improved quality in rice production Their dedication and hard work further enhance the overall efficiency and output of the industry.
Vietnam's rice production costs are highly competitive, particularly when compared to other major rice-exporting nations like Thailand and India Notably, the labor costs in Vietnam are just one-third of those in Thailand, contributing to its advantageous position in the global rice market.
With all the above advantages, Vietnam from a poor country, lacking food, as of
2017 Vietnam has risen to the 3rd position in the world in terms of rice exports after India and Thailand.
In the 2018 Vietnam import report by the Ministry of Industry and Trade, rice emerged as the leading agricultural product, showcasing its prominence in the sector Additionally, seafood demonstrated remarkable growth, achieving the highest export turnover and maintaining elevated export prices throughout the year.
In 2018, rice exports reached 6.12 million tons, marking a 5.1% increase from 2017, with a total value of approximately 3.06 billion USD, up 16.3% The average export price rose to 501 USD per ton, reflecting a 10.7% increase compared to the previous year.
2018 continued to maintain growth in both export volume and export price as before achieved in 2017.
In early 2018, positive information from importing countries led to an increase in the export prices of Vietnamese rice and other exporting nations By mid-2018, the price of 25% broken white rice surged to nearly 450 USD per ton, reflecting a sharp rise However, as the year progressed, export prices began to decline, with the end of the year seeing prices drop to around 370-380 USD per ton Despite this decrease, the high export prices earlier in the year helped maintain elevated commodity rice prices, ultimately benefiting rice growers.
In 2018, Vietnam experienced significant growth in rice exports, particularly to key markets such as China, the Philippines, Indonesia, Malaysia, Ghana, Iraq, the Ivory Coast, and Hong Kong Notably, Iraq, South Korea, the Ivory Coast, Hong Kong, and Turkey also recorded high rice export turnover alongside Indonesia and the Philippines The focus of these exports was on high-quality and high-value rice varieties, including fragrant rice and japonica rice.
Table 4: Rice export markets in 2017 and 2018
Source: Import-Export Department of Ministry of Industry and Trade
Vietnam leverages its abundant natural resources and labor force to cultivate and export rice, capitalizing on the country's comparative advantage in the global rice market.
In Southeast Asia, particularly in Vietnam's Mekong Delta, catfish, especially pangasius and basa, stands out as the primary export in the fishery sector This region is known for its active caged fish farming and the cultivation of catfish in rivers, ponds, and lakes, primarily by small-scale farmers.
In 2018, the export value reached a remarkable 2.26 billion USD, marking a 25.5% increase from 2017 This significant achievement was the result of the hard work and dedication of export enterprises, which navigated challenges across all markets, including the import sector, while also exploring potential new markets.
Vietnam is still the world’s largest the exporter, with a market share of 93% according to international trade center (ITC).
Figure 2: Catfish export market share by country
Source: International Trade Center (ITC) Some charts showing the growth in Vietnam’s exports in 2018 below:
Firgue 3: Pangasius import market structure in 2018 (GT) and pangasius export value in 2014-2018
Souce: Vietnam Association of Seafood Exporters and Producers
Vietnam's tropical climate, abundant rainfall, and extensive river systems provide ideal conditions for catfish farming, particularly in the Mekong Delta, where advanced aquaculture techniques enhance production The country excels in producing high-quality pangasius, specifically white meat, which is favored by consumers In contrast, other major producers like India, Bangladesh, Thailand, and Indonesia primarily cultivate lower-value yellow pangasius to meet local demand Vietnam boasts over 80 diverse catfish varieties, including specialty types that command high export values and are unique in the global market The exceptional quality of Vietnamese catfish has enabled successful penetration into demanding markets such as the US, EU, and Japan.
The investment costs for fish production in Vietnam are relatively low, with the construction of rafts being the primary expense for farmers raising pangasius and basa A small fish raft requires an investment of approximately 100 million VND, while larger rafts incur higher costs.
The total fixed investment for fish farming is approximately 200 million VND, with additional costs for equipment such as feeding machines (3-4 million VND) and cooking/mixing machines (5-6 million VND) Recurring expenses include seeds, feed, labor, fuel, and taxes, with basa seeds costing 3,500 VND per fish and pangasius fingerlings priced between 500-1,500 VND each Farmers typically purchase fingerlings weighing 70-80 grams, raising them to 1-1.2 kg, while experiencing a fish loss rate of about 10% due to illness and mortality Fish feed options include locally processed feeds made from marine fish and bran, averaging 2,000 VND/kg Currently, the cost of raising pangasius in the Mekong Delta is between 22,000 and 23,000 VND/kg, with selling prices ranging from 29,000 to 30,000 VND/kg, providing a favorable profit margin for farmers, processing enterprises, and importers.
Status of comparative advantage in Vietnam
Vietnam is located in favorable natural conditions for economic development, which is a convenient geographical position for exchange, trade, and trade with countries around the world.
Vietnam’s diverse terrain, including hills, plains and coasts, supports the development of both agriculture, forestry and fishery, industry and services
To enhance agricultural productivity, it is essential to focus on rice cultivation in plains, while also promoting the raising of large livestock such as buffaloes, cows, and goats in mountainous regions Additionally, planting timber trees, perennial crops, and fruit trees can contribute to sustainable farming practices and economic growth.
- Vietnam is located in favorable natural conditions for economic development, which is a convenient geographical position for exchange, trade and trade with countries around the world
Vietnam's diverse topography, featuring hills, plains, and coastlines, fosters the growth of agriculture, fisheries, industry, and services In agriculture, rice cultivation thrives in the plains, while hilly regions support large livestock such as buffaloes, cows, and goats, alongside timber, perennial, and fruit tree plantations For industry, establishing factories near raw material sources and accessible roads enhances production and trade efficiency The service sector flourishes in economically developed deltas, catering to consumer goods, while coastal areas leverage their scenic beauty to promote seafood-related services and tourism activities.
Vietnam's tropical climate, characterized by high temperatures and humidity, supports diverse agricultural practices and the cultivation of various livestock and poultry, leading to significant economic benefits for the agricultural sector This favorable climate also enhances the growth of multiple industries and services, contributing to stable working and living conditions for the workforce.
Natural resources: Vietnam is one of the countries that has a large amount of natural resources, rich and diverse
The land in Vietnam is very diverse, with high fertility, favorable for the development of agriculture and forestry The fauna in Vietnam is also rich and diverse
Valuable minerals, including coal, ore, iron, lead, and petroleum, play a crucial role in industrial development, particularly in heavy industries such as mining and processing, which cater to market demands.
Vietnam boasts a substantial labor source, with a population nearing 86 million as of April 1, 2009, making it the 13th largest globally and the 3rd largest in its region Notably, the working-age population has seen significant growth, comprising approximately 67% of the total population, highlighting the country's potential for a robust workforce.
Vietnam has experienced remarkable economic growth since 1990, with an average growth rate of 7.5%, even amidst the 1997-1998 Asian economic crisis, where it achieved a growth rate of 4.5% in 1999 while other Southeast Asian nations struggled This resilience can be attributed to the country's steadfast economic policies that promote gradual integration into the global economy, tailored to its developing status Additionally, Vietnam has implemented effective macroeconomic strategies over the past two decades, focusing on reducing public debt, controlling inflation, maintaining budget balance, and regulating cash circulation, thereby fostering sustainable economic development.
Political stability is crucial for Vietnam's sustained economic development, fostering a peaceful and prosperous environment Unlike many regional counterparts, which have faced coups or political crises since 1990, Vietnam has maintained a stable political landscape This stability ensures the consistent implementation of economic policies and serves as a significant advantage in attracting foreign investors.
Status of comparative disadvantage in Vietnam
Our country, situated near the equator, experiences abundant sunshine and rainfall, but also faces frequent natural disasters like storms, floods, and droughts, significantly impacting the economy.
- Because our country's sea area is wide and long, and the border is wide, it faces many difficulties in terms of security, defense and territory
- Although natural resources are rich and diverse, they come from an economy The economy is backward, so there is no reasonable exploitation plan, which wastes resources
The labor force in our country is abundant in quantity but lacks quality, leading to a common issue of redundant teachers alongside a shortage of skilled workers Additionally, the low level of discipline among workers further restricts foreign investment opportunities.
Vietnam, located in Southeast Asia, is rich in diverse customs and traditions that significantly shape its cultural identity These time-honored practices not only define Vietnamese culture but also attract international tourists, enhancing their experience in the country.
4.3.2 The disadvantage of domestic conditions.
Vietnam's economic policy faces significant challenges, as current integration strategies have not adequately addressed the needs of businesses and citizens While the integration of Vietnam's economy into the global market has fostered development opportunities, it has also introduced a range of difficulties that must be navigated.
Economic integration offers access to advanced scientific and technical achievements from other countries, accelerating our economic development It opens up large potential markets and ensures equal trade conditions, facilitating the export of our goods However, this integration also presents challenges, such as the need to reduce tariff barriers in line with global regulations, which may decrease budget revenues Compliance with international standards on product quality, design, and safety becomes essential Furthermore, increased competition arises as state protections for local industries diminish, leading to a dismantling of regulations on foreign goods and manufacturers in Vietnam’s South.
- Economic development policies in the regions are not synchronized, the mechanisms are not suitable
The distribution of human resources across localities and regions is uneven, largely influenced by financial conditions While remote areas rich in natural resources urgently require highly qualified workers, these professionals tend to cluster in major cities and lowland regions, leading to a significant waste of valuable resources.
Many workers lack adequate knowledge of science and technology, particularly those operating outdated production lines This gap in understanding hinders their ability to adapt to new techniques and operate modern equipment, ultimately resulting in decreased labor productivity and negatively impacting overall development.
- The structural transformation of our country still faces many difficulties because our country comes from an agricultural country
- Production and business management capacity has not been met in the conditions of liberalization and commercialization, especially in marketing, forecasting and market forecasting
- The State management apparatus is still cumbersome, bureaucratic, stagnant and conservative, which discourages domestic and foreign investors
From the perspective of political and military geography, our country holds a crucial position in Southeast Asia, situated at the intersection of continental and oceanic Southeast Asia This region is abundant in resources and features a market with growing purchasing power, making it a dynamic economic hub Consequently, it attracts the attention of imperialist forces while also being highly sensitive to shifts in global political dynamics.
CONCLUDING REMARKS AND POLICY RECOMMENDATIONS
Major finding
This study investigates whether comparative advantage can elucidate Vietnam's export patterns, utilizing cross-country data from 2010 to 2019 for empirical analysis The findings indicate that unexplained comparative advantage does not account for Vietnam's export value.
Through that, the study proposes a number of solutions to overcome the remaining limitations.
Policy recommendations
In light of the current global landscape, it is essential to focus on economic development as international trade increasingly becomes a dominant trend Many countries worldwide are implementing strategies to boost their goods exports, highlighting the importance of adapting to this evolving market.
Vietnam's export growth has been significantly driven by its abundant natural resources and low labor costs However, these advantages may not be sustainable in the long term, as natural resources are finite and are becoming increasingly depleted Additionally, the environmental consequences of resource exploitation could hinder Vietnam's export growth in the future.
Vietnam's competitive edge of cheap labor is diminishing due to rising wage differences with other developing countries and advancements in technology that enable machines to perform tasks with high precision and productivity To adapt, Vietnam must transition its export strategy from a focus on quantity to one that emphasizes the quality and value of exported goods This shift involves moving from raw resource extraction to more sophisticated processing methods, enhancing the overall value of exports.
Scientific progress is accelerating, leading to rapid modernization and technological advancements, which necessitate a shift in the structure of export goods Since 2018, Vietnam has been steadily gaining a competitive edge in the electronics sector, reflecting a gradual transformation in its industrial structure to align with current trends.
Concluding remarks
As globalization and regionalization intensify, competition among countries in international trade is escalating It is crucial to acknowledge our unique advantages Vietnam's strategy to focus on economic development through international trade markets presents both significant opportunities and challenges.
Vietnam's agricultural sector has significant advantages over other countries, yet manual production methods hinder its ability to meet large-scale demands Issues such as improper production processes and excessive chemical use have resulted in poor-quality products that fail to comply with food safety and hygiene standards, as well as size requirements from international markets Currently, the primary market for these products is China, but the economic value derived is not reflective of Vietnam's agricultural potential To address these challenges, it is essential to modernize the agricultural production process by restructuring it and developing large-scale production zones that facilitate the integration of advanced technologies.
The interplay between industries reveals that the strengths of one can often pose challenges for another In sectors requiring skilled labor and refined raw materials, Vietnam must focus on diversifying its export products to align with current market trends This transition towards a more industrialized economy should be approached carefully to ensure that the country retains its comparative advantage in agricultural production.
Vietnam's industrial exports, including textiles, leather, footwear, and electronics, primarily rely on basic processing and lack advanced technological capabilities found in developed countries Consequently, Vietnamese producers and exporters have limited control over the product value chain, capturing only 20-30% of the total value added Furthermore, the country has not effectively leveraged its competitive advantages in the construction industry or fostered strong relationships within the sector to enhance its export value chain This has resulted in significant stages of the value chain remaining inaccessible, preventing meaningful growth in export value As a result, increases in producer income are often tied to declining prices or reliance on cheap labor and natural resources, rather than genuine value creation.
PANGASIUS IMPORT MARKET STRUCTURE IN 2018 (GT)
Souce: Vietnam Association of Seafood Exporters and Producers
Vietnam's tropical climate, abundant rainfall, and extensive river systems, combined with the expertise of local fishermen, create ideal conditions for catfish farming, particularly in the Mekong Delta This region boasts favorable ecological factors for large-scale pangasius production, where advanced farming techniques yield high-quality pangasius products, especially white meat, which is favored by consumers While other countries like India, Bangladesh, Thailand, and Indonesia primarily produce lower-value yellow pangasius to meet domestic needs, Vietnam stands out with over 80 diverse catfish varieties, including specialty types that command high export prices The exceptional quality of Vietnamese catfish has enabled successful penetration into demanding markets such as the US, EU, and Japan.
The investment cost for fish production in Vietnam is relatively low, with the primary expense for farmers raising pangasius and basa being the construction of rafts A small fish raft typically costs around 100 million VND, while larger rafts require a higher investment.
The initial investment for fish farming can reach around 200 million VND, with additional fixed costs for machinery such as feeding machines (3-4 million VND) and cooking and mixing machines (5-6 million VND) Ongoing expenses include seeds, feed, labor, fuel, disease prevention, treatment, interest, and taxes The cost of basa fish seed is approximately 3,500 VND per fish, while pangasius fingerlings range from 500 to 1,500 VND each, typically weighing 70-80 grams at purchase and raised to 1-1.2 kg Fish loss due to illness and death averages about 10% per crop Farmers often use locally processed feed, made from marine fish and vegetables, costing around 2,000 VND/kg Currently, the price for raising pangasius in the Mekong Delta is between 22,000 and 23,000 VND/kg, with selling prices ranging from 29,000 to 30,000 VND/kg, providing a favorable profit margin for farmers, processing companies, and importers.
The catfish industry in Vietnam is experiencing significant growth, leveraging the country's natural resources and skilled workforce Notably, the pangasius sector is focusing on sustainable development through the standardization of raw materials, farming practices, and quality control measures.
4.2 Status of comparative advantage in Vietnam
Vietnam is located in favorable natural conditions for economic development, which is a convenient geographical position for exchange, trade, and trade with countries around the world.
Vietnam’s diverse terrain, including hills, plains and coasts, supports the development of both agriculture, forestry and fishery, industry and services
To enhance agricultural productivity, it is essential to expand rice cultivation in the plains while promoting the rearing of large livestock, including buffaloes, cows, and goats in mountainous regions Additionally, planting timber trees, perennial crops, and fruit-bearing trees will contribute to sustainable farming practices.
- Vietnam is located in favorable natural conditions for economic development, which is a convenient geographical position for exchange, trade and trade with countries around the world
Vietnam's varied topography, featuring hills, plains, and coastlines, fosters the growth of agriculture, fisheries, industry, and services In agriculture, rice cultivation thrives in the plains, while hilly regions support livestock farming, including buffaloes, cows, and goats, alongside timber and fruit tree plantations Industrial development focuses on establishing factories near raw material sources and transportation routes to enhance production and trade efficiency The service sector flourishes in economically vibrant deltas, catering to consumer goods, while coastal areas leverage their scenic beauty to promote seafood-related services and tourism activities.
Vietnam's tropical climate, characterized by high temperatures and humidity year-round, promotes robust agricultural development, supporting diverse livestock and poultry that contribute significantly to the economy This favorable climate benefits not only agriculture but also various industries and services, ensuring stable working and living conditions for the workforce.
Natural resources: Vietnam is one of the countries that has a large amount of natural resources, rich and diverse
The land in Vietnam is very diverse, with high fertility, favorable for the development of agriculture and forestry The fauna in Vietnam is also rich and diverse
Valuable minerals like coal, iron ore, lead, and petroleum play a crucial role in industrial development, particularly in heavy industries such as mining and processing, to meet market demands.
Vietnam boasts a robust labor force, with a population nearing 86 million, making it the 13th largest globally and the 3rd largest in its region As of April 1, 2009, the working-age population has significantly increased, representing approximately 67% of the total population, highlighting the country's abundant human resources.
Vietnam boasts a stable political economy, fostering sustainable economic development Since 1990, the country has achieved remarkable progress with an average growth rate of 7.5% Even during the 1997-1998 Asian economic crisis, when many Southeast Asian nations struggled, Vietnam's economy continued to expand, recording a 4.5% growth rate in 1999 This resilience can be attributed to a steadfast economic policy promoting gradual integration into the global economy, which is particularly beneficial for a developing nation like Vietnam Additionally, Vietnam has implemented courageous macroeconomic policies over the past two decades, focusing on reducing public debt, controlling inflation, ensuring budget balance, and managing cash circulation effectively.
Political stability is crucial for Vietnam's ongoing economic development, fostering a peaceful and prosperous environment Unlike many regional countries that have faced coups or political crises since 1990, Vietnam's consistent political stability ensures the effective implementation of its economic policies This stable political landscape not only supports internal coherence but also enhances Vietnam's appeal to foreign investors, making it an attractive destination for investment.
4.3 Status of comparative disadvantage in Vietnam.
Our country, situated near the equator, experiences abundant sunshine and rainfall, but is also prone to natural disasters like storms, floods, and droughts, which significantly impact the economy.
- Because our country's sea area is wide and long, and the border is wide, it faces many difficulties in terms of security, defense and territory
- Although natural resources are rich and diverse, they come from an economy The economy is backward, so there is no reasonable exploitation plan, which wastes resources
Despite having a large labor force, our country faces challenges in terms of quality, with a notable imbalance between an excess of teachers and a shortage of skilled workers Additionally, the low level of discipline among workers hinders foreign investment opportunities.
Vietnam, a Southeast Asian country rich in customs and traditions, boasts a unique cultural identity shaped by its historical practices These age-old customs not only define Vietnamese culture but also significantly attract international tourists to the region.
4.3.2 The disadvantage of domestic conditions.
Vietnam's economic policy faces significant challenges, as current integration strategies have not fully addressed the needs of businesses and citizens While the integration of Vietnam's economy into the global market presents numerous opportunities for growth, it also exposes the country to various difficulties that must be navigated.