International Trade has Benefited the Poor in Vietnam

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VIETNAM — Vietnam has a population of roughly 95 million. Of its population, 84 million are non-poor, “64 million of which are economically secure,” meaning there is little risk of them dropping below the poverty line, according to the World Bank. This still leaves a significant amount of people in poverty. However, over the past couple of decades, improvements to trade have drastically reduced the poor in Vietnam.

Trade and Poverty Reduction in Vietnam

The connection between trade and poverty shows itself in many ways. For instance, there is a “causal relationship” between trade and economic growth. With this growth, the poor are often allowed to save and to invest in their work to then sell to a larger consumer base through the open market. Growth also means the national government can increase revenue, providing more money to spend on social programs and education. The poor can also benefit through access to new and cheaper goods.

In the 1980s, Vietnam had a per capita income of about $100 with an economy centered around agriculture. Since then, its per capita income has risen to $2,300 and its economy has become more production-oriented. Now, only 17 percent of Vietnam’s gross domestic product is agricultural, 39 percent comes from industries and the remaining 44 percent come from services. This shift took place as Vietnam transitioned into a market economy and opened its borders to more trade.

The statistics show that the connection between trade and poverty reduction in Vietnam has been felt across class lines. From “2002 to 2018, more than 45 million Vietnamese were lifted out of poverty” with poverty rates declining from more than 70 percent to less than 6 percent. Additionally, there was about a 13 percent decline in poverty among minority ethnic groups from 2014 to 2016.

Poverty is decreasing in all regions of the country. At the same time, consumption is increasing across all welfare levels. Moreover, the risk of individuals falling below the poverty line and into extreme poverty has decreased. Also, the upward mobility for the poor in Vietnam has been increasing, showing that the country has gained a stronger middle class as well.

Troubles With Trade

To be sure, opening up to trade does not always benefit everyone. The importation of more goods means greater competition and thus less demand for some work. In the developing world, there is also the issue of the “race to the bottom” whereby countries and factories lower regulations and standards to cut production costs to attract buyers from abroad.

Certain parts of the population get left behind when a country’s development is primarily driven by the international market. As is the case in Vietnam, those living in remote areas often benefit the least from international trade. The mountainous regions make up 20 percent of its total population but 56 percent of the poor in Vietnam. Despite some improvement, ethnic minorities have also been struggling in the country, accounting for 73 percent of the poor population.

While the dynamic between trade and poverty reduction is not simplistic, the former can lead to the latter through targeted efforts. For instance, the World Trade Organization cites the need to reduce the costs of trade, as in reducing tariffs and other non-tariff costs and improve infrastructure to further integrate those living in remote areas into the supply chain. With this in mind, a more open and connected world can help reduce poverty everywhere.

Scott Boyce
Photo: Flickr

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