in 1986. Section 3 is a literature review of demand analyses concerning Vietnam, with a focus on approaches to deal with quality substitution and endogeneity of unit values. Sections 4 and 5 explain the data and method applied in this paper, respectively, and are followed by results in section 6. Finally, section 7 concludes with some policy discussion.

# **2. Economic, social development and policies in Vietnman**

In 1986 the Đổi Mới reforms produced a decisive change in the economic and social policies in Vietnam. The country shifted from a centrally-planned, highly subsidiezed Soviet-based economic system to a multi-sector, market-oriented and globally integrated economy (Hien, 2019; Khoa, 2021). Policy reforms and favourable global trends allowed progress and economic growth, so that in 2010 Vietnam transitioned from being one of the world's poorest countries to becoming a lower middleincome economy (World Bank, 2020).

Several factors helped the transition. A young population expanded the labor force while agricultural productivity increased thanks to new technologies, resulting in 30% of the workforce moving from the rural sector to the manufacturing and industrial sectors (World Bank, 2020). Domestic migration between regions is still significant. In 2018, the provinces of Sóc Trăng and Trà Vinh had a net migration of -14.5% and -11.2% respectively, while Ho Chi Minh City and the surrounding province of Bình Dương of 6.1% and 47.9% respectively (GSO data). The expansion of global trade particularly benefited Vietnam’s exports, initially exporting important commodities such as rice thanks to a relative abundance of fertile land and water, and in a second step exporting labor-intensive products such as textiles and electronics (World Bank, 2020). The development of manufacturing industries was further improved by inflows of foreign direct investments (FDI) (Hien, 2019).

Since 2010 the yearly average GDP growth rate has been 6.3% (GSO data). In 2018, the main employing sectors were agriculture (37.6% of national workforce), manufacturing (18.4%) and wholesale and retail trade (13.4%). These are the sectors with the lower labor productivity, while higherskill jobs still employ a minority of people (e.g. professional, scientific and technical activities 0.5%, financial, banking and insurance activities 0.8%, education and training 3.2%) (GSO data). Overall, the national average unemployment rate is relatively low at 2.2%, higher in urban areas (3.1%) and lower in rural areas (1.7%).

In the last 10 years, Vietnam has built up a relatively large stock of infrastructure. In 2018, the transport sector received 9.6% of total national investments, which is the second largest amount of investments after manufacturing (27.4%) (GSO data). However, large investements are not always accompained by efficient financing, operations and maintenance, hence infrastructure services could improve in quality (World Bank, 2020). This is particularly relevant for transport infrastructure as, despite that significant progress has been made, new constructions are not always planned in an integrated way (World Bank, 2020). The road network has seen an accelleration in building new motorways, but other secondary roads lack maintenance and appropriate design, hence traffic on these roads can be dangerous and slow. Financing for building new roads comes from a diversity of organizations, such as the government, business organizations and international donors such as the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation. Lack of maintenance and need to upgrade concerns also the railway network, that is owned and operated by state-owned enterprise Vietnam Railways. On the contrary, air travel is rapidly developing with 34 national civil airports and 3 international hubs in Hanoi, Da Nang City, and Ho Chi Minh City.

The Vietnamese business landscape is composed of three main types of firms. The business sector is composed of 90% small family enterprises with up to three employees. These small firms have low capital intensity and are concentrated in traditional sectors, with low opportunities to grow and to benefit from finance and technologies. Some key utility markets, such as banking and telecoms, are controlled by state-owned enterprises (SOEs) and a few large domestic firms, while the export-oriented manufacturing firms are foreign-owned or FDI firms, often far more productive than domestic ones (World Bank, 2020).

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