In order to avoid the middle-income trap, Vietnam needs to change its strategy on attracting foreign direct investment (FDI). FDI attraction over the last 30 years hasn’t succeeded as expected.
As of the end of 2021, Vietnam had attracted $408 billion worth of FDI, ranked 18th in the world and second in Southeast Asia. Though the number of registered investment capital is high, more than half of foreign invested enterprises (FIEs) report losses and the benefits of FDI among the national economy remain modest.
The low value-added trap is a manifestation of the middle income trap. It happens to countries which cannot build a firm domestic industrial platform whose economies grow mostly based on external strength (the FDI sector).