Relocating efficient resources is a competitive advantage

Nguyen Canh Cuong, expert lecturer, University of Economics and Business Vietnam National University, Hanoi

For three decades, Vietnam’s growth model delivered results through integration, labour absorption, and scale. That model is not exhausted, but it is no longer sufficient. The core challenge ahead is not capital scarcity, but allocation; not labour quantity, but productivity. At the centre of this transition lies a familiar yet often overlooked concept: deadweight loss.

The global environment that once rewarded export-led expansion has changed. Trade policy has become more discretionary, industrial subsidies more common, and geopolitical considerations increasingly embedded in investment decisions. According to recent Asian Development Bank (ADB) analysis, discriminatory trade and industrial policy measures have surged since 2019, led by advanced economies responding to supply chain risks, climate policy, and strategic competition.

For Vietnam, this fragmentation raises the cost of inefficiency. When capital, labour, or land remain trapped in low-productivity uses, the economy forgoes output that could otherwise be realised. In a more protectionist and competitive global system, those forgone gains translate directly into weaker resilience and reduced appeal to high-quality investors. Resource misallocation is often framed as a technical macroeconomic problem. In reality, it is a frontline investment issue.

Persistent deadweight loss emerges when credit flows favour incumbency over performance; land and infrastructure are allocated administratively rather than productively; and labour mobility is constrained by skills mismatches and regional barriers. These frictions matter to investors deciding whether Vietnam is merely a manufacturing base or a platform for innovation, upgrading, and long-term value creation.

As Vietnam moves closer to upper-middle-income status, the margin for inefficiency narrows. Growth driven by factor accumulation gives way to growth driven by productivity. Countries that fail to reallocate resources at this stage tend to stall, not because markets are closed, but because domestic systems cannot adapt fast enough.

Encouragingly, Vietnam’s policy thinking is already evolving. Research on the innovation and venture capital landscape highlights a shift from state-led technology parks towards ecosystem-oriented industrial governance, particularly since the introduction of policies a decade ago on supporting the national startup and innovation ecosystem.

This transition is more than institutional reform: it is an efficiency strategy. Rather than locking resources into specific sectors or firms, ecosystem governance allows capital, talent, and ideas to move towards enterprises that demonstrate performance and scalability. It reduces deadweight loss by letting competition and experimentation guide allocation decisions, while the state focuses on coordination, standards, and connectivity. For investors, this signals a gradual but important change: policy is becoming less about preserving structures and more about enabling movement.

One of Vietnam’s most powerful efficiency gains is also one of its least regulated: human capital mobility. Evidence shows that many of Vietnam’s high-performing startup founders and innovation policymakers have overseas education and professional experience, especially in the United States and other advanced economies. These individuals bring technical skills as well as global governance norms, investor expectations, and managerial practices.

Their role is crucial. They act as intermediaries between domestic institutions and global capital, reducing information frictions and improving resource matching. Facilitating such circulation, rather than constraining it, enables productivity gains without large fiscal intervention, and enhances Vietnam’s attractiveness to technology-driven foreign direct investment. Reallocating resources inevitably involves adjustment. Firms exit, sectors shrink, workers retrain. Without macroeconomic stability, these transitions become politically costly and economically disruptive.

Vietnam’s relatively prudent fiscal position, manageable public debt, and strengthening foreign reserve buffers provide room to manoeuvre. The ADB emphasises that such macro-financial resilience is essential for managing long-term structural change without crisis-driven policy reversals.

For policymakers, the implication is clear: stability should be used to enable their evolution. Nowhere is efficient reallocation more urgent than in Vietnam’s green transition and manufacturing upgrade. Moving into higher-value manufacturing, digital services, and climate-related industries requires capital and labour to leave less productive uses. Delaying this shift increases adjustment costs later and weakens Vietnam’s position in emerging value chains.

For investors watching Vietnam’s next move, the question is whether its policy framework allows resources to relocate efficiently enough to make that ambition credible. Reducing deadweight loss is a strategic choice about Vietnam’s development path in a fragmented global economy.

In the next decade, Vietnam’s growth will be shaped less by how much it invests, and more by where it flows. Efficiency, not expansion alone, will define the country’s next competitive advantage.