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Old July 17th, 2009, 08:17 PM
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Default Competitiveness and Urban Economic Change

Typical of East Asian nations, the urban areas of Vietnam account for a disproportionate share of economic growth. It is estimated that urban areas account for 70% of economic growth, while containing only 25% of the population.

Vietnam’s cities are currently undergoing transition from economies dominated by state owned enterprises (SOEs) to market driven economies; however, this process is proceeding slower than in urban China. SOEs are particularly important in Hanoi and HCMC, which together account for over half the national SOEs in the country.

Vietnamese urban economies are under triple stress. They are undergoing (i) strong demographic pressures resulting from rural to urban migration, (ii) economic / employment pressures associated with the transition from a planned to market economy, and (iii) similar to other Southeast Asia’s cities, are being buffeted by strong external economic forces, described briefly in the Philippines section (above).

The Government is establishing Industrial Zones (IZs) in every province of the country to attract FDI, but if East Asian experience is a guide, only a few will succeed, probably those in the HCMC peri-urban area, the Hanoi- Haiphong-Hailong Triangle, and perhaps in the Cam Thoi area of the Mekong Delta. To date, HCMC has received 85% of FDI flowing to Vietnam. Developing East Asian experience indicates that industrial dispersal is often most successful when investment is concentrated in a few critical areas in outer regions to create “breakthrough clusters”. In Vietnam, development of such economic clusters is still in its early stages, often firms, such as shoe making, are “stand alone”, which makes it much harder for them to compete in terms of innovation supported by cluster learning dynamics, production costs that can be lowered through specialization within a cluster, etc. In other words, as equitable as the policy to locate an IZ in every province may be, it may actually have the counter-intended effect, ultimately leading to the more industrial concentration in the HCMC extended urban region.

It is not clear whether Vietnamese peri-urban areas will be able to capture significant amounts of export oriented manufacturing, as Thailand and Malaysia were able to do earlier in their development trajectories. Although recent data indicates positive trends, it will be more difficult to develop a strong export oriented manufacturing economy over the next decade than it was in the 1985-1997 “Golden Age of Manufacturing” period in Southeast Asia. This means that there will be an even greater premium on human resource development and urban competitiveness than was previously the case in Southeast Asia. Tourism continues to offer considerable potential for growth not just in the two largest cities, but also in several intermediate sized cities such as Hue, Danang, Hailong, and Dalat.
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