Vietnam has grown significantly over the last three decades. Since 1990 its GDP has doubled. Macro development economist Duc Nguyen, a PhD candidate with the Department of Economics, investigated what policies the country has pursued to achieve this growth, and what lessons other countries learn from Vietnam’s reforms. His investigations, captured in the job market paper Openness to Foreign Firms, Industrialization and Aggregate Growth, were deeply rooted in an understanding of the role of market reforms in economic development.
“Before 1990 Vietnam was a totally Communist centrally planned economy with no market,” Nguyen explained. “People were very poor, there wasn’t enough food for example. You can’t even say that food was very expensive because there was no market there, there wasn’t even enough supply. After 1990, when they opened the economy, opportunities increased significantly. Many of my relatives benefited and everyone, regardless of their socioeconomic status, saw opportunities and gained a lot from that early period of reform.”
Nguyen, who was born in Vietnam and grew up there before leaving the country to pursue his education at 18, remembered being interested in economics, and particularly the Vietnamese economy since high school.
“I have many friends and family still working in the country,” he said. “Over the years, I have returned many times and made field trips into different industrial zones across Vietnam. I’ve seen firsthand how foreign firms transformed the economy and this personal experience motivated my research.”
Nguyen’s job market paper focuses on Vietnam’s openness to foreign firms and differences in government policy between foreign and domestic firms.
“What I found is that over time, the institutional barriers to foreign firms, relative to domestic firms, decreased significantly,” he said. “Using empirical methods and a structural economic model, I found that this reduction in barriers increased Vietnam’s productivity by 30% and accounted for 40% of the country’s actual growth during this period of reform. This means that 30% of Vietnam’s growth can be attributed to openness to foreign firms. The transformation happened after they opened the economy because, before this, all the firms — especially the state-owned firms — were very unproductive. People didn’t have personal motivation to work because they weren’t rewarded for their efforts.”
Nguyen’s study examined the context of major policy reforms that were aimed at reducing barriers to foreign firms’ operations in Vietnam’s manufacturing sector during the early 2000s. Before joining the WTO in 2007, the Vietnamese government implemented legal reforms aimed at strengthening property right protections for foreign firms and reducing institutional barriers, particularly in the manufacturing sector. These efforts were marked by the revised Foreign Investment Law in 2000 and culminated in the Unified Investment Law of 2005, which, for the first time, subjected foreign firms to the same regulatory framework as domestic firms. Vietnam’s openness to foreign firms meant that its economic reforms had very different outcomes than in China or Russia, for example, two countries that underwent market transformation during the same era.
Each country had different cultural and institutional backgrounds, so it shaped how they changed and implemented policies,” Nguyen said. “Vietnam, China, and Russia were similar in being communist countries, but when they opened, they went in different directions. That’s interesting to think about how culture, history, and institutions shape economic performance. In China, you see a lot of improvements through domestic Chinese firms that export and are very proactive that way, but in Vietnam, the domestic sector is still very unproductive and has many institutional barriers. The growth in Vietnam more the result of policies that open the market to foreign firms.”
Nguyen attributes some of his own motivation to being productive to his participation in the Macroeconomic Development (MacDev) Reading Group of PhD students who meet at the department. It’s a regular event Nguyen helps to plan and organize.
“We meet every week, and then we present either our work or someone else’s work. It’s a chance to practice research presentation skills and to give each other feedback on research ideas, presentation, and technical issues,” Nguyen said. “It’s a small group of people focusing on economic growth and development in general, but we also organized a conference last year and invited speakers to the department. The one-day conference brought many good researchers to the University of Toronto and all the participants benefitted from having access to each other.”
Planning seminar meetings and conferences, combined with teaching, has influenced how Nguyen contributes to the culture here at U of T and how he hopes to influence dialogue in his career moving forward.
“One of the most important values I have learned from professors and from older students over the years is the importance of being constructive, whether its with colleagues or students,” Nguyen said. “You don’t start giving feedback to presenters by saying their research, or their approach is wrong. You think positively and suggest improvements to be helpful.”
That helpfulness of academic culture that Nguyen champions is evident here at the department.
“Duc’s research has given the macroeconomic development community and policymakers much to consider about the economic transformation of Vietnam over the past 30 years,” said Professor Ettore Damiano, Chair of the Department of Economics. “Our graduate students have also benefitted from his contributions to the MacDev study group and his organizational efforts.”