Vietnam should harness AI to boost long-term growth

According to a report released by the International Monetary Fund (IMF) on October 3, AI adoption presents an opportunity for Vietnam to transition into more capital- and technology-intensive production and sustain high growth over the medium to long term. However, Vietnam’s economic structure may hinder its ability to adopt AI technologies early. Firms still rely on relatively low-cost labour, and the level of skills in the workforce remains low relative to the high skills required to harness AI effectively.

Moreover, Vietnam faces significant productivity gaps relative to the global frontier, and overall productivity growth has remained sluggish. Hence, heavy investment in AI technologies may not yet be economically profitable for many firms – potentially delaying widespread adoption and risking Vietnam falling behind more prepared economies.

While advanced economies such as Japan and Singapore are expected to adopt AI immediately as it becomes available (assumed in 2025), Vietnam’s adoption is simulated to be delayed – only occurring around the 2040s under the moderate and accelerated technological breakthrough scenarios (e.g., when the increase in the capital share in production is at a rate five times and 10 times of the historical experience).

Despite initial headwinds from delayed adoption, model simulations suggest that Vietnam would catch up rapidly once AI technology is adopted extensively. During the preadoption phase, Vietnam would experience a temporary growth slowdown relative to the baseline – up to 1 percentage point (ppt) lower under the accelerated technological breakthrough scenario – driven by weaker capital accumulation amid tighter global capital markets.

However, once AI is adopted extensively, growth accelerates significantly, underpinned by a structural transformation towards more capital-intensive and high-skilled production. This shift supports capital deepening, raises output per worker, and boosts GDP growth.

The technological leapfrogging effect – whereby late adopters like Vietnam benefit from directly deploying the more advanced technology in which the capital share has increased to a much higher level – further amplifies Vietnam’s catch-up growth gains. Model simulations suggest that the initial growth boost following adoption could be as high as 2 and 5 ppts under the moderate and accelerated technological breakthrough scenarios, respectively.

As production transitions permanently to the more capital-intensive technology, the growth boost is sustained, by about 1.5 and 2.8 ppts per year over the long term, respectively. Consequently, Vietnam’s GDP could be 50 per cent higher than the baseline by mid-century and nearly five times higher by the end of the century, under the accelerated technological breakthrough scenario.

The IMF noted that accelerating structural reforms to boost productivity and enhance human capital would not only advance AI adoption but also amplify the long-term growth dividend. Meanwhile, AI adoption may widen wage inequality and put certain types of workers at risk of displacement. Complementary policies can help mitigate these adverse impacts, including (i) upskilling and reskilling programmes to equip medium- and low-skilled workers with AI-complementary competencies; (ii) strengthened social safety nets; and (iii) active labour market policies to facilitate job matching.

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