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The impact of demand-side factors and rapid structural changes have largely been ignored in explaining the economic growth of Vietnam. This paper employs the multisectoral balance-of-payments constrained economic growth model to capture the influence of structural changes on the exports and economic growth of Vietnam over the period 1997–2016. Based on the estimates for the sectoral income elasticities of demand for exports and imports obtained from autoregressive distributed lag models, this paper argues that it is not relative prices but income that has played a significant role in Vietnam’s economic growth, the income elasticities of demand for exports have grown faster than those of demand for imports, and the weight of exports has significantly moved from primary to high-technology products. JEL Classification: E12, F43, O53

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This paper examines the economic growth of Vietnam by focusing on trade liberalization and the strategies that the distributional coalitions have chosen in response to this reform. It analyses the tariff schedules annexed to six key free trade agreements that Vietnam signed. This paper finds that the distributional coalitions intentionally under-protect three groups of products to keep their benefits. Group 1 consists of products with high amounts of revealed comparative advantages (RCAs) and a strong presence in the state sector. Group 2 comprises products with low RCAs and a tenuous presence of the state sector. Group 3 represents products where the presence of the state sector is strong, but their production capacities cannot meet the massive domestic demand. The strategically administered under-protection has also allowed the distributional coalitions to preserve their privileges. While these strategies have been effective in achieving static efficiency, they have been considerably less effective in bringing about structural changes necessary for sustainable long-run economic growth.