An Approaching Middle Income Trap
How Vietnam Can Escape It

Kenichi Ohno (GRIPS)
February 2024

The Middle Income Trap

What Is a Middle Income Trap?
• A country that cannot rise from middle income to high income for a longtime.
• World Bank income classification (2023/2024, GNI per capita)

Low income
Lower-middle income
Upper-middle income
High income- $1,135$1,135 - $4,465$4,466 - $13,845$14,846 -Vietnam’s GNI per capita (WB2022): $4,010
Lower-middle income but higher-middle income in a few years

Number of Countries Classified by WB Income Criteria
200
180
160
140
120
100
80

60
40
20

Low income

Lower middle income

Source: World Bank income classification data.

Upper middle income

High income

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0

Statistical Definition of MIT• Data analysis for 124 countries during 1950-2010 suggests that acountry staying in lower-middle income for 28 years or more, or acountry staying in upper-middle income for 14 years or more, is in a
trap (Felipe, Abdon & Kumar 2012).
 But we need a definition which is more analytical and useful for

discussing causes and remedies.

More Analytical Discussions• “A middle income trap is a situation where industrialization driven by
low-cost advantages (cheap labor & capital) has come to an end. Wage
that rises faster than productivity and declining investment efficiency
lead to such a deadlock” (Akira Suehiro 2014).
• “After reaching middle income, a country may stagnate for a long time
because it is unable to adopt a new development strategy and new
growth pattern, and thus cannot find a new source of growth” (C.H. Kwan2013).
• “Middle income countries in Asia are facing two difficult problems
simultaneously: how to raise productivity in key industries and avoiding
income inequality.” (Yonosuke Hara 2014)

The Phase Shift Problem
From Labor-intensive Manufacturing to High-tech Industries

Light manufacturing
 In the early stage, labor-intensive low-technology sectors such as garment,
footwear, food processing, electronic assembly (PCs, phones) dominate.
 Domestic value creation is low. A large amount of unskilled (female) laboris needed. Few engineers and technicians are required.

Liberalization,
privatizationand integration
are generally
sufficientJapan made this transition around the 1920s, and Korea and Taiwan in the 1970s.
However, many developing countries are unable to cross this line.

Technology-based industries
 Establishment of high-tech, value-creating sectors such as metal,
machinery, chemicals, ICT and high-tech services requires technology
learning and the education and retention of highly skilled engineers.
 Policy must assist technology, investment, finance, global positioning, etc.

Effective policy
intervention to
upgrade private
capacity isessential

The Middle Income Trap (my definition)• The middle income trap is a situation where an economy is stuck at
income dictated by given resources and initial advantages, and cannot
rise beyond that level: growth is given, not created.
• Growth based on FDI, ODA, abundant labor, trade agreements, big
projects, natural resources, or locational advantages will eventually end.
The true source of development is value creation by domestic citizens
and enterprises.
• Countries may reach middle income by liberalization, privatization andglobal integration, but reaching higher income requires strong policy
effort to upgrade private dynamism, not laissez-faire.

Why Do Nations Diverge?
Per capita
incomeRising skills, technology,
knowledge, innovation
Country that creates internal
value through human capital
upgradingHigh

To middle income trap

MiddleCountry that grows by given
advantages only – natural
resources, trade opportunity,
FDI, ODA, big projects, asset
bubbles; little creation ofinternal value

Initial growth byliberalization,
privatization,
integration
Low
10-20 years

Critical point
in historyTimeSpeed of Catching Up: East Asia
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Sources: Maddison Project Database 2020; for Taiwan, the Central Bank of the Republic of China.

Latin America
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Source: Maddison Project Database 2020.

Russia and Eastern Europe
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Source: Maddison Project Database 2020.

South Asia
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Source: Maddison Project Database 2020.

Africa
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Source: Maddison Project Database 2020.

Causes of the Middle Income Trap
• The lack of competitiveness is the main cause – a nation is unable toimprove technology, produce high-value products, participate in the
global value chain, etc.
• Social problems are another reason for MIT – growth can be stalled if
society becomes unhappy and unstable due to inequality, corruption,
environmental destruction, congestion, etc.
• Political and military issues, if serious, can divert the nation from
economic development – internal or external war, ethnic conflicts,
terrorism, political fights, etc.

Growth and Social Policy: East Asia’s Success Pattern
Economic growth

START
Emergence of
new problems

Growth policy bydevelopmental stateSocial stability &popular support
Exit: 20-30
years later

FINISHMore democratic
high-income society

Emerging middle class,demand for participation,
culture of solving disputes
by votes and negotiation,
not by violence

Income & wealth gaps,
environmental damage, congestion,
cultural change, land & stock
bubbles, macro instability,
materialism & corruption…

Social policy

Two Types of Middle Income Trap
Tran Van Tho, “Viet Nam’s conditions for sustained growth to high income country:
How to escape from the middle income trap” (2023)

Lower-middle income trap – government is the main obstacle for private
sector growth. Laws, policies and institutions must be improved andexcessive interventions must be ended to generate private dynamism.
Upper-middle income trap – even though policies are supportive andbusiness climate is favorable, the private sector is too weak to achieve
productivity, technology and innovation, and cannot compete globally.

Prof. Tho says that Vietnam is in the lower-middle income trap (first case).

Vietnam’s Achievements andProblems

Vietnam’s Achievements• Rapid income growth from a low level (since the 1990s)• Social achievements in poverty, education, mortality rates, etc.
• Successful FDI attraction and trade policy (WTO, ASEAN, FTAs, TPP,
RCEP…)• Structural transformation from agriculture to industry and service• The rise of some competitive firms—Vin Group/Vinfast, Viettel, FPT, etc.
(but Vietnam needs more)Vietnam: Per Capita Income
World Bank GNI per capita, Atlas method$US

Source: World Bank Open Data, accessed on 23-02-2024.

Social Indicators Improve
Poverty Headcount Ratio at $2.15 a Day (2017 PPP)

Mortality Rate, Neonatal (per 1,000 Live Births)% of population

Average, East Asia & PacificJapan, Korea, Singapore

Source: World Bank, World Development Indicators updated on Dec. 18, 2023.

Structural Transformation Has Progressed
Agriculture declines
continuously while
industry and services
each take up about
40% of GDP.

Source: World Bank, World Development Indicators updated on Dec. 18, 2023; there is a data gap and inconsistency at 2010.

Vietnam’s Problems• Growth is slowing down at middle income (too soon) instead of
accelerating• Heavy reliance on FDI for export, technology, and structuraltransformation• Weak participation of Vietnamese firms in the global value chain• Slow construction of modern transport systems (esp. urban train
network)• Slow action on environment and natural protection

Growth Performance during the High Growth Period
Vietnam’s performanceis higher than Thailand
or Indonesia but…

Start year
Japan 1956 (10% growth begins)
Korea 1961 (Park regime begins)
Taiwan 1965 (Mfg. export rises)
Thailand 1986 (FDI inflow begins)
Indonesia 1986 (FDI inflow begins)
Vietnam 1993 (private sector
revives; FDI & ODA begin)
Source: Maddison Project Database 2020.

Per Capita Real Income in the Start Year
(Measured by the 1990 international Geary-Khamis dollars)
Vietnam’s initial
income was lower thanThailand or Indonesia.

Start year
Japan 1956 (10% growth begins)
Korea 1961 (Park regime begins)
Taiwan 1965 (Mfg. export rises)
Thailand 1986 (FDI inflow begins)
Indonesia 1986 (FDI inflow begins)
Vietnam 1993 (private sector
revives; FDI & ODA begin)
Source: Maddison Project Database 2020.

Labor Productivity Performance 1991-2019• Economy-wide labor productivity growth was 4.65% which was moderate and notvery high. There was no productivity breakthrough unlike Japan, Korea or China.
Vietnam’s productivity position did not improve much within ASEAN.
• By ownership, the labor productivity of the FDI sector rose very little (0.6%/year)
compared with the state sector (5.3%/year) or the non-state sector (4.4%/year).

Level of Labor Productivity
by Ownership(VND million per worker at constant2010 price)
Source: Viet Nam Productivity Report (2021) using
GSO data with adjustment for the 2010 data gap.

Why FDI Does Not Target Value Creation in Vietnam• In the early 2000s, the labor productivity of the FDI sector fellsignificantly. This was due to the arrival of many FDI firms doing simple
labor-intensive light manufacturing (garment, shoes, electronic
assembly, etc.) rather than mechanical engineering, mining or ICT.
• Many FDI firms consider Vietnam as a place to do simple processes
rather than high-tech design or production. They are happy with lowskill cheap labor and not willing to invest in high-level human resources.
• This strategy of FDI firms reflects Vietnam’s failure to produce
competent scientists, engineers, technicians, etc. in large number
needed for technology upgrading.

The Smile Curve and the Lack of Functional Upgrading

Latecomers usually start with simple cutting, sewing, assembly, etc. with little value creation. From there,
activities must be upgraded to raise productivity and capture upstream and downstream processes. This
will increase domestic value creation and effective participation in the GVC.

Limited Participation in the Global Value Chain
Vietnam: Export Value Structure (2015)

A

B

Imported inputs

Domestic inputs
Domestic workers & suppliersincl. FDI suppliers (44.5%)

C
ProfitmarginExporters(11.1%)

D
CF&T

Charges, fees & taxes paid togovernment, domestic &foreign agents for import,
export & production

B + C = 55.6% but a large partof this goes to FDI firms• Khoi & Chaudhary (2019) calculated Vietnam’s participation in GVCs. Backward
participation (upstream components, B) rose but forward participation(downstream marketing, C) remained stagnant.
• Supporting industries (upstream components) are dominated by FDI firms.

Solution

Policy as the Key Factor
Economic performance = Private dynamism + Policy quality+ External factors• Private dynamism is the most fundamental determinant of thenation’s economic performance.
• External factors do matter but their effects usually wear out in thelong run (global recession, financial crisis, terrorism, war, natural
disaster, COVID, etc.)• Policy has the important role of enhancing private dynamism andcoping with external shocks.
The lack of policy quality is the main cause of any long-term growth
problem including the middle income trap.

Industrial Policy Quality• I have visited the following countries in Asia and Africa to compare theformulation and contents of industrial policy.
Asia—Vietnam, Singapore, Taiwan, Korea, Malaysia, Thailand,
Indonesia, India, Cambodia, Sri Lanka, Myanmar
Africa—Ethiopia, Rwanda, Mauritius, Mozambique, Zambia,
Tanzania, Ghana, Uganda, South Africa, Kenya, Djibouti• In policy quality, Asia is not always superior to Africa. Some Africancountries such as Mauritius and Rwanda practice better industrial policy
than Vietnam or Indonesia.

How Do You Measure Industrial
Policy Quality?
(Tentative)

5 – Excellent
4 – Good
3 – Moderate
2 – Some
1 – Little
0 – None or worse

Policy areas

Policy functions

1. Industrial human resource
2. Domestic enterprise development
3. Business climate
4. Power & logistics
5. Export promotion
6. Strategic FDI marketing
7. Industrial parks
8. Supporting industries & FDI-local firmlinkage
9. Productivity, technology & innovation
10.Standards & testing

1. Policy ownership
2. Vision & commitment of top leader(s)3. Policy drafting procedure
4. Authority & capacity of policy organizations
5. Mindset & competency of implementing
officials
6. Budgeting & staffing
7. Inter-ministerial coordination
8. Involvement of key non-official stakeholders
9. Monitoring & evaluating mechanisms
10.Impact on the real economy

×The Scorecard for Vietnam
Date: May 2015 (based on policy research 1995-2015)

Notes:- Evaluation: 0 (non-existent or worse), 1 (little), 2 (some), 3 (moderate), 4 (good), 5 (excellent).
- Evaluation of policy prepared and implemented by government only; results obtained by private effort, international cooperation or external conditions are not included.
- Letter grades: A+ (4.5 or above), A ( <4.5), B (<4), C (<3), D (<2), F (<1).

Industrial Policy Quality:
Summary of 13 Economies
Log of per capita income(Correlation = 0.815)

Singapore
Japan
Korea
Taiwan
Malaysia
Mauritius
ThailandIndonesia

India

Vietnam
RwandaCambodia
Ethiopia

Industrial policy quality score

Observations• Governments are not created equal. There is a huge gap in industrial
policy quality from excellent to poor.
• Industrial policy quality and income level are positively correlated(0.815). This suggests, but does not prove, causality.
• Within each country, policy quality is similar across various components.
If one policy or ministry is bad, others are also likely to be bad. There is
a common policy culture prevailing in the entire government.

Vietnam: Policy Talks vs. Implementation
Since the 1990s, the same issues have been discussed and documented
many times without implementing effective solutions.
• Agro-processing—add value before export (coffee, seafood, fruits,
vegetables, cashew nuts, etc.)• Productivity—raise productivity by appropriate education, training,kaizen, innovation, etc. (since 1995)• Supporting industries—produce components of motorcycles,
automobiles, electronics, etc. domestically and by domestic firms.
• Upgrading FDI policy—from quantity & job creation to quality & value
creation in attracting FDI.
• Environment—policies are in place for air and water quality, naturalprotection, etc. but implementation is weak.

Not WHAT but HOW• The industrial policy menu is similar across countries and usually
includes:
Education and training, export promotion, import substitution, incentives
for targeted sectors, SME support, FDI attraction, linkage creation, power
and logistics, industrial parks, R&D, technology transfer, low-interest policy
loans, ICT, startups, productivity, innovation, standards, worker rights,
green manufacturing, regional planning, etc.

• The question is not WHAT governments plan to do but HOW
competently they execute these common policies.
• It is HUMANS, not resources, laws, institutions, technology or
machines, that improve policy implementation.

Critical Importance of Leadership and Technocrats
 A national leader who is wise, strong, and action-oriented
 Competent and dedicated technocrats who support this leader• Leadership is primary because a good leader can create competenttechnocrats if they don’t exist (Taiwan 1950s, Korea 1960s).
• When the nation has a good leader and good technocrats, it can
execute policies effectively through self-effort and policy learning.
There is no need for foreign experts or international organizations toadvise what to do.

Policy Learning
The best way to improve policy capability is systematic comparison ofinternational best (and worst) practices. Use them as building blocks tocreate one’s own policy. Policy learning must be vigorous, systematic andwith proper local adjustment.
• Distinguish globally common factors and country-specific factors. These
two are always present in any international comparison.
• Build general skill to create policies that fit your country. Don’t copyand-paste policies of others.
• Ask the right question. Choose the right benchmark countries. These
require deep knowledge and extensive experience.
• If you don’t know where to start, invite competent foreign experts toguide you through the initial steps. Regain ownership when you
accumulate sufficient policy skill.

Japan’s Policy Dialogue with Developing Countries: A Selected List
Country
Argentina

PhasesKey members from Japan

Remark1985-1987
1994-1996(follow up)

Saburo Okita (former foreign minister, IDCJ); Hirohisa
Kohama (IDCJ), Akio Hosono, Kotaro Horisaka(professors); JICA

Agriculture & livestock farming, industry, transport, export promotion (Okita
Report). Follow-up phase studied measures to strengthen economic ties withJapan/East Asia.

Vietnam

1995-1996
1996-1998
1998-1999
1999-2001

Shigeru Ishikawa, Yonosuke Hara (professors); JICA

Large-scale joint study on macroeconomy, industry (with in-depth studies of
selected sectors), agriculture, enterprise reform, and financial crisis
management (Ishikawa Project).

Paraguay

1998-2000

ThailandIndonesia
MyanmarMongolia

1999
2000
1999-2002
1998-2001

Economic develoment, competitiveness, and export promotion (including
clusters and agro-industry chain).
Study on SME promotion policy (Mizutani Plan)
Policy recommendations for SME promotion
Agriculture, rural development, industry, trade, finacne, ICT, etc.
Study on economic transition and development

Indonesia

2002-2004

Kagehide Kaku (DIR), Hidesuke Kotajima (DIR), Akio
Hosono (professor); JICA
Shiro Mizutani (former MITI official); JICA
Shujiro Urata (professor); JICA
Konosuke Odaka (professor); JICA
Hiroshi Ueno and Hideo Hashimoto (ex-World Bankeconomists and professors)
Takashi Shiraishi, Shinji Asanuma, Shujiro Urata(professors); JICA

Laos
Vietnam

2000-2005
2003-present

Yonosuke Hara (professor); JICA
Keidanren, Japanese embassy, JICA, JETRO, JBIC

Ethiopia

2009-20112012-20162017-present

Kenichi Ohno, Izumi Ohno (GRIPS professors);
Japanese embassy, JICA

Macroeconomy, finance, state enterprises, FDI, poverty reduction.
Bilateral joint initiative to improve business environment with action plans and2-year monitoring cycles
Policy methods and organizations, kaizen, export promotion, champion
products, FDI policy and support, SME support, productivity, automotive
assembly, inviting Japanese FDI, etc.

Myanmar2012-2015

Laos

2019-2020

Konosuke Odaka, Shigeru Matsushima, Toshihiro Kudo
(professors); METI, JICA
Toshiro Nishizawa, Terukazu Suruga, Takuji Kinkyo,Kazue Demachi, Fumiharu Mieno (professors), MOF,
JICA

Macroeconomic management, financial sector reform, SME promotion, private
investment promoton, democratization, decentralization, human resource
development

Supporting economic reform program covering finance, trade, investment,
SMEs, agriculture, rural development.
Joint policy research and dialogue for fiscal stabilization, fiscal & debt
management, resource export, balance of payments, financial systemdevelopment.

Japan, Korea and Taiwan

Policy Formulation of Japan, Korea and Taiwan
Japan (1960s) – rapid growth and industrialization
Korea (1960s-70s) – rapid growth and industrialization
Taiwan (2000s-10s) – global supply of ICT hardware• The policy capacity and method of each government was different,
but they all produced some good economic results.
• Within each country, policy capacity and method may change overtime and with the change of government.

Japan’s Ministry of International Tradeand Industry (MITI) in the 1960s
1.Broad mandate—MITI covered industry, trade, energy, mining, SMEs,
investment, technology, IPR, etc. Its functions were also broad: vision-setting,research, consensus-building, law-drafting, implementation, monitoring, etc.
2.Clean relationship with politics—MITI worked interactively with politicians forpolicy formulation. It was not subjugated by politics.
3.Thick information networks—MITI and businesses shared the same awarenessand future visions. Industrial policy was a joint work between MITI and theprivate sector. This facilitated policy implementation.
4.Internal structure—MITI had vertical and horizontal bureaus which deliberated
both sector-specific issues and cross-cutting issues.
5.MITI officials—despite low salary, MITI officials were highly motivated to workon industrialization very hard and even at night (without overtime pay).

Ministry of International Trade and Industry
Minister

Main Bureaus

Politically appointed VM
Administrative VM

Minister’s Secretariat(incl. Research & Statistics)

Deputy VMs

Int’l Trade Policy Bureau

Special assistants

Int’l Trade Admin. Bureau

Industrial Policy Bureau

Horizontal
bureaus
Verticalbureaus

Industrial Location &Environment Protection Bureau

Basic Industries Bureau
Machinery & Information Industries
Bureau(1960s)Attached Organizations
and External Bureaus
Agency of National Resources＆Energy

Patent Office
SME Enterprise Agency

MITI agencies
were capableand effective

Agency of Industrial Science& Technology
Trade & Investment Training
Other

Consumer Goods Industries Bureau
Deliberation Councils
Industrial Structure
Export Insurance
TextilePetroleum
Electrical Works.........

Deliberation Councils are a formal
mechanism to finalize policies
with outside stakeholders

Int’l Trade Transaction
Industrial Location & Water
Product Safety & Household Goods Quality Indication
Aircraft & Machinery Industry
Traditional Crafts Industry..........
Source: adapted from Okimoto (1989), p.117.

MITI’s Policy Making Was Bottom-up
Final report and approval

Deliberation Council
Feedback

Briefings, subcommittee reports
MITI research group(subcommittee)

Conduct survey,
compile data

Public relations:Publications
Explanatory meetings
Lectures
Others

Prepare draft

MITI junior staff
study group

Young officials in their 30s actively gathered information and interactedwith stakeholders, thus having substantive influence on final result—unlike in most other countries where young officials only take orders
from above and do what was assigned.

Outside lecturers
Hearings:
Learned individuals
Interested parties
Overseas employees
Local representatives
Others

Source: Ono (1992); original graph was rearranged soreporting direction goes from bottom to up.

South Korea in the 1960s-70s• After the Korean War (1950-53), South Korea was poor and without
natural resources. Politicians and bureaucrats were incompetent andcorrupt. The economy was barely surviving with US aid. Few imagined thatgrowth was possible in this country (World Bank 1993).
• Park Chung-hee’s military coup in 1961 moved South Korea into action. He
established the Economic Planning Board and drafted five year development
plans. Incompetent and corrupt officials were removed.
• 1960s: under strong state guidance, chaebols (large corporate groups) such as
Samsung, LG and Daewoo promoted export. Technology and finance were
imported. Government dictated fund allocation.
• 1970s: Korea targeted heavy industries. Chaebols were engaged in steel,automobiles, shipbuilding, and electronics. By then, Korean bureaucracy had
become highly reputable in the developing world.

Policymaking Under A Strong President (1960s-70s)
President(Blue House)Economic
Secretariats
State Council

Five-year plan
Korea Development
Institute (KDI)

Policy analyses
KDI was created with US
aid by Korean request

Ministries
and agencies

Economic Minister’sCouncilEconomic Planning
Board (Deputy PM)

Govt.-BusinessMeetings:- Export promotion- Economic briefs- HCI drive, etc.

- Development planning- Public investment plans- Budget- Monitoring- Aid management

MCI

Business Finance• President Park directly
controls economic policies• EPB acts as a super-ministry• Research institutes (KDI andothers) provide analyses• Very close and cooperative
gov’t-business relationship• Performance-based rewards
and penalties

Top-down Orders and Rewards for High Performers
Monthly Export
Promotion Meeting
chaired by President Park
(late 1960s)

Saemaul Undong (New Village Movement)

President Park
confers medals andgreat honor to firms
achieving highexport performance

President Park’s massive rural transformation
plan targeted mindset, lifestyle and income.
Each village was graded and assistance wascontinued only to high-performing villages.
Korean villages were activated, and the urbanrural gap narrowed or even reversed (1970s).

Source: KDI, From Despair to Hope: Economic Policymaking in Korea 1945-1979: A Memoir by Kim Chung-yum, 2011.

Taiwan’s Ministry of Economic Affairs(MoEA) in the 2000s-10s• Until the 1980s, MoEA was a very powerful ministry promoting industrialization(Robert Wade, 1990). Taiwanese SMEs responded strongly to MoEA policies.
• With the rise of large ICT firms (TSMC, UMC, Foxconn, Acer, etc.), MoEA is lesspowerful today but still influences Taiwan’s industrial direction.
• Unlike Japan’s MITI which drafts policies internally, MoEA outsources policy
drafting and stakeholder consultation to two think tanks—the Taiwan Institute of
Economic Research (TIER) and the Chung-Hua Institution for Economic Research(CIER).
• Unlike Japan’s MITI with horizontal and vertical bureaus, MoEA’s policy function isconcentrated in the Industrial Development Bureau.

MoEA
Structure(as of 2011)

MinisterVice Minister

Vice Minister
Deputy Minister

6 National
Corporations

14 Administrative
Agencies

16 Staff Units

Taiwan Power

Industrial Dev. Bureau

Dept. of Commerce

Chinese Petroleum

Bureau of Foreign Trade

Dept. of Industrial
Technology

Taiwan Sugar

Small & Medium Business Adm.

Dept. of Investment
Services

Aerospace Ind.
Development

Water Resource Agency

Office of Econ. Research& Development

China Shipbuilding

Energy Bureau
Intellectual Property OfficeInternational
Cooperation Dept.
+ others

Export Processing Zone Adm.
+ others

64 Overseas
Economic Offices

IDB is the policy
brain of MoEA.
DoIT is the executing
body of industrial
projects with large
budget.

Taiwan’s Industrial Policy Instruments
Taiwan’s policy instruments have been streamlined to a few (no more incentives forexport, investment, training, etc.) The policy structure is simple but effective.
• Technology institutes offering excellent support in technology and networking(ITRI and sectors: metal, food, plastic, automobile, IT, precision machinery, etc.)• Science parks, EPZs, and industrial parks —tenant firms are required to do
intensive R&D in science parks.
• Industrial Projects —comprehensive hands-on technical and financial support isprovided to selected firms to commercialize new technology.
• Comprehensive SME support.

Industrial Technology Research InstituteVietnam?
• Despite Vietnam’s developmental success in the 1990s, 2000s, and2010s, policy quality has not improved. Policy support for domestic
businesses is insufficient.
• Vietnam shows various signs of an approaching middle income trap: Growth slowdown at middle income
 Shortage of high-skill engineers, innovators, and scientists
 Moderate performance of labor productivity and TFP Heavy reliance on FDI and limited participation in GVCs
• To cope with these problems, Vietnam needs to enhance the capacityof national leadership and economic technocrats.
• Active promotion of technology and innovation are needed with lessbureaucracy.

Summary and Conclusion
Key Ingredients of Good Policymaking• A national leader who is active, economically wise, and personallydirects important policies is essential (top-down management).
• Competent, dedicated, and clean technocrats are equally critical forpolicy implementation (bottom-up capability).
• Policy content and policy organization can be chosen flexibly to fit
each country. There is no one-size-fits-all.
• Policy learning is required to enhance policy capacity. International
experiences should be collected and compared. This can be done
through government’s self-effort, mobilization of private experts, orassistance of qualified foreign advisors (as Japan, Korea, Taiwan,
Singapore, etc. did in the past).