09 · Application bank
Nine question types and how Vietnam helps you answer them
Each card has evidence on both sides, a chain you can adapt, and the judgment that lifts an answer into the top level. Questions are written in exam style; they are not past-paper questions.
Evaluate the benefits of foreign direct investment for a developing or emerging economy.
4.3.3 · 2.2.3
Benefits- Record $27.6 bn disbursed in 2025; millions of factory jobs.
- Exports of $475 bn, mostly from foreign-owned plants.
- Brings technology, management and access to world markets.
Costs- Low local value added; parts imported from China and Korea.
- Profits repatriated, so GNI is below GDP.
- Footloose: firms can leave if wages or tariffs rise.
ChainFDI inflow → I ↑ and AD ↑ → new factories employ ex-farm workers → productivity and wages ↑ → LRAS ↑; spillovers if local firms become suppliers.
JudgmentFDI clearly raised growth and cut poverty in Vietnam. Its long-run value depends on linkages: whether local firms learn to supply and design, as happened in South Korea.
Discuss the extent to which tariffs between two large economies benefit third countries.
4.1.6 · 4.1.3
Vietnam gained- Firms moved assembly from China after 2018 ("China plus one").
- Exports to the US reached $153 bn in 2025.
- FDI from Apple suppliers and chip firms.
Limits and risks- Bigger US surplus made Vietnam a target: 46% threatened, 20% agreed.
- 40% penalty on goods judged to be transshipped from China.
- Still depends on Chinese inputs.
ChainUS tariff on China → Chinese goods dearer in the US → buyers and firms switch to Vietnam → trade diversion → Vietnam's exports, FDI and jobs ↑.
JudgmentThird countries gain in the short run, but success attracts tariffs of their own. The gain lasts only if the third country adds real value to the goods it ships.
Evaluate export-led growth as a development strategy.
4.3.3 · 2.1.1
For- ~6–8% growth for three decades.
- GDP per head from under $500 (1986) to ~$5,000 (2025).
- Mass jobs for low-skilled workers.
Against- Exports ~92% of GDP: very exposed to world demand (2023 slump).
- Tariff retaliation from the US.
- Domestic demand and local firms underdeveloped.
ChainExports ↑ → (X−M) and AD ↑ → output and jobs ↑ → incomes ↑ → saving and investment ↑ → LRAS ↑.
JudgmentExport-led growth suits a small, open, labour-rich country early in development. Vietnam's challenge is to add domestic demand and local value before rising wages erode its edge.
Assess the benefits to a developing country of joining trade agreements.
4.1.5
Benefits- EVFTA (2020) removes most EU tariffs; CPTPP opens Canada, Mexico, Japan.
- Rules of origin push investors to source locally.
- Locks in reform and signals stability to investors.
Drawbacks- Competition hurts some farmers and SOEs.
- Labour and environmental rules raise costs.
- Agreements did not protect it from US tariffs.
ChainTariffs on Vietnam's exports removed → goods cheaper in partner markets → export demand ↑ → firms locate in Vietnam to serve many markets at once → FDI and jobs ↑.
JudgmentMany deals spread risk across markets, which matters more since US policy became unpredictable. The gains depend on meeting rules of origin, which needs local suppliers.
To what extent can a managed exchange rate improve international competitiveness?
4.1.8 · 4.1.9
It can- Gradual dong depreciation keeps exports cheap.
- Stability helps investors plan.
- Reserves can smooth shocks.
Limits- US labelled Vietnam a currency manipulator (2020).
- Weaker dong raises the cost of imported parts.
- Competitiveness really comes from wages, skills and infrastructure.
ChainSBV lets the dong fall → export prices in dollars ↓ → demand for Vietnam's goods ↑ → but imported inputs dearer, so the cost advantage is partly offset.
JudgmentLimited for an economy that imports most of its parts. Non-price factors and unit labour costs matter more in the long run.
Discuss the economic consequences of an ageing population for a middle-income country.
2.3 · 4.3.2
Serious- Fertility 1.91 (2024), below replacement.
- Golden population phase ends around 2040.
- Pensions and health costs rise before incomes are high.
Manageable- Still ~26% of workers in farming to move to industry.
- Two-child limit scrapped (2025); retirement age rising.
- Automation and better skills raise output per worker.
ChainLower fertility → fewer new workers → labour supply growth slows → wages ↑ and LRAS grows slower → cheap-labour advantage fades.
JudgmentThe problem is timing: ageing at a much lower income than Japan or Korea did. Productivity growth decides whether Vietnam gets rich first.
Evaluate the role of the state in promoting growth in a transition economy.
1.1.6 · 4.3.3
State helped- Doi Moi reforms freed prices and private enterprise.
- Political stability and clear FDI policy.
- Heavy spending on schools, electricity and roads.
State failure- SOEs less productive; favoured credit.
- Bank fraud and bond crisis show weak regulation.
- Slow approvals and power shortages.
ChainState provides infrastructure and education → lower costs and more skilled workers → attracts FDI → productivity and LRAS ↑.
JudgmentThe state was most effective when it stepped back from running firms and focused on public goods. Further growth needs a level playing field between SOEs and private firms.
Assess the impact of a rise in world oil prices on an emerging economy.
2.1.2 · 4.1.4
Harmful- CPI 4.9% in Aug 2026; diesel up 22%.
- Trade deficit of $16.7 bn in H1 2026.
- Higher costs for transport and factories.
Offsets- Growth still 8.2% in H1 2026.
- Some domestic crude and refining.
- Price controls and fuel stabilisation fund soften the hit.
ChainOil price ↑ → firms' costs ↑ → SRAS shifts left → price level ↑ and output ↓; import bill ↑ → trade balance worsens.
JudgmentThe effect depends on oil intensity and how long prices stay high. Strong FDI-led demand has so far outweighed the cost shock.
To what extent does rapid economic growth reduce absolute poverty?
4.2.1 · 2.1.1
Strongly- Poverty ($4.20 a day) 14% (2010) to under 4% (2025).
- Electricity access from 14% (1993) to ~100%.
- Factory jobs gave poor rural families wage income.
Unevenly- Ethnic minorities still make up a large share of the poor.
- Rural clean water reaches only 54%.
- ~64% of jobs informal, no social insurance.
ChainLabour-intensive growth → demand for low-skilled workers ↑ → wages ↑ for the poor → household income ↑ → absolute poverty ↓.
JudgmentGrowth cuts poverty most when it is labour-intensive, as in Vietnam. Compare India, where services-led growth created fewer jobs for the poor.