Export-Focussed Industries in Developing Economies
Is Vietnam’s rapid economic growth sustainable beyond the pandemic?
The resilience of the Vietnamese economy throughout the pandemic has been remarkable: GDP rose by 2.9% in 2020 even as most countries recorded deep recessions, while the World Bank expects GDP to grow by 4.8% in 2021. Its booming export industry has fuelled this growth, whereby trade in goods exceeds 200% of GDP. While having a significant number of exports can lead to rapid expansions, it can crowd out domestic firms that consequently underperform. Furthermore, export-focussed industries struggle to sustain growth, suffer from poor working conditions and are highly vulnerable to market movements.
Impact on the economy
A significant number of exports has a positive impact on economic growth. Vietnam has been one of the five fastest-growing countries globally over the past year, thanks to its substantial connections in global trade. However, foreign firms may exploit this growth by employing low-salary workers with poor working conditions, meaning it is immoral and controversial. Nevertheless, growth has boomed.
A significant number of exports harms domestic firms. In Vietnam, the importance of state-owned firms in overall activity and employment has shrunk due to saturated competition from foreign firms investing in the economy. Although, this argument assumes that state-owned firms are managed effectively and appropriately supported. Libertarians would argue that the free market allocates resources more efficiently, and therefore government enterprises may naturally fall behind.
Implications of export-focussed industries
Export-focussed industries struggle to sustain growth in developing economies. As living standards rise alongside GDP, workers demand higher wages and better working conditions. However, this conflicts with the interest of firms who have produced goods in that country because of cheap labour, which could lead to diminishing foreign investment, causing lower economic growth. Contrarily, a better-educated workforce, resulting from improved living standards, could attract a different cohort of firms. Like China’s growth in the tech sector, the nature of investment could transition from simple manufactured goods to complex service-based practices. Hence, economic growth would be sustained. Such a transition relies on the competence of the government to reap the rewards of growth by investing in education and uplifting areas of extreme poverty to create an appropriate workforce.
Export-focussed industries can lead to deteriorating working conditions in developing economies. Sweatshops, defined as factories where workers are subject to poor treatment and low wages, are prevalent in poorer economies due to a lack of regulation and legislation. Garment factories in Vietnam employ kids who experience a lifetime of abuse and exploitation. However, Zwolinski (2007) argues that sweatshop workers’ choices to accept the conditions of their employment are morally significant, advocating against the closure or regulation of such practices. While this matter is both a moral argument and political and economic, its implication on developed economies is significant. The problem lies in the opportunity of the workers rather than the sweatshops themselves: while they ‘choose’ employment, the lack of opportunities elsewhere is the origin of the exploitation. Hence, as economic growth develops, the government’s responsibility is to improve working conditions and education to the point where workers’ opportunities are diverse.
Export-focussed industries in developing economies are also vulnerable to market movements. Reliance on consumer trends or commodity prices can make such industries vulnerable to crashes. Following an oil price slump in 2014, the Venezuelan government could no longer fund its extravagant spending programmes through its exports, leading to a sustained period of political turmoil and hyperinflation. On the other hand, one could argue that the exposure to rising oil prices before the crash helped develop the Venezuelan economy. However, the government should have capitalised on stable conditions to diversify its exports while mitigating the risk from market movements.
Conclusion
To conclude, export-focused industries can lead to an initial expansion of growth. Beyond this take-off stage, governments are responsible for sustainable growth by diversifying their trade and investing in social capital while implementing legislation to punish the violation of human rights.
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Ted Jeffery
