Table of Contents

1  Introduction  5

2  Development record of Vietnam and its neighbor states  5

2.1  Macro-economic development record  5

2.2  Human development  7

3  Comparative Analysis of Poverty and Inequality  8

Regional  Disparities in Vietnam  10

4  Key Issues of inclusive and pro-poor growth  10

4.1  Reforms for inclusive growth  10

4.2  Policies for pro-poor growth  11

4.2.1  Egalitarian land reform  11

4.2.2  Investments in public goods and human capital  11

4.2.3  Targeted Aid to the Poor  12

4.3  Remaining Challenges  12

4.3.1  Tackling ethnicity-based and regional inequality  12

4.3.2  Improvements in the financial sector  12

4.3.3  Private sector development  13

5  Conclusion  13

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1 Introduction

The Bertelsmann Foundation states that Vietnam, much like China, shows the tendency of delinking economic development from the transformation towards more democracy. They stress the fact that the responsible elites avoid “political openness” while aiming at swift transformation towards a market economy. Furthermore, they claim that these developments are “symptomatic” for the region and that their economic success makes this style of polity and politics attractive to others (Bertelsmann Foundation 2008). This typical euro-centrist view of the Asian developing economies has the idea of input-legitimacy at its center. However, the legitimacy of politics and policies in low-income countries is much more dependent on their outcomes in terms of inclusive growth and poverty alleviation. The leading question is therefore: is Vietnam able to significantly improve the income and consequently, the well-being of the majority of its population, and can its development be a model for the region?

This paper will explore Vietnam’s record of development, poverty reduction and inequality in comparison to its neighbor states. The following part will examine key policies and underlying reforms that were conductive to pro-poor growth in Vietnam as well as remaining challenges.

2 Development record of Vietnam and its neighbor states

2.1 Macro-economic development record

According to the International Monetary Fund, gross domestic product (GDP) is the most commonly used single measure of a country's overall economic activity. It represents the total value at constant prices of final goods and services produced within a country during a specified time period, such as one year. Purchasing Power Parity (PPP) is a concept which relates changes in the nominal exchange rate between two countries’ currencies to changes in the countries' price levels.

Vietnam is one of the fastest growing economies in Asia with average annual growth rates from 5 to 8 percent over the last 20 years (see Table 1). This success is largely due to the doi moi reforms introduced in 1986 whose implementation transformed the once planned economy into market socialism. The nominal GDP more than doubled from 34 (1986) to 71 billion US dollars in 2007. The GDP based on PPP rose from 31 to 221 billion US dollars in this period. That represents an increase of more than 700% in 20 years.