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The Great Recession and Developing Countries
150 percent in 2007 from 61 percent in 1994. Net exports accounted for only a small fraction of overall GDP growth. The decomposition of GDP by demand factors using the traditional method is said to underestimate the contribution of exports to GDP growth. Therefore, we instead decompose the contribution of exports separately in order to determine the contribution of this component. The export component has been a significant contributor to GDP growth during the past 10 years, especially since 2000 (table 12.2). This reflects the trade liberalization and export-led growth policies pursued as part of the government’s economic reforms. During the past 20 years, average annual export growth has stayed at about 20 percent.11 Investment and capital formation have played a key role in Vietnam’s successful economic growth strategy. The investment-to-GDP ratio has increased considerably; during the 1990s, the ratio fluctuated around 28 percent before it started rising (beginning in 2000) and then peaked at 43 percent in 2007—after which it dropped moderately to 41 percent in 2008 (table 12.2). This is a high investment level, especially for a lowincome country. According to the World Bank (2007), the large and increasing share of investment in GDP partly explains Vietnam’s high and accelerating growth rate since 2000.12 Until 2006, the state sector was the most important source of investment in Vietnam. State investment is made either directly in public infrastructure or through loans to SOEs, or in the form of grants to municipalities and private enterprises. But the state’s share in investment has declined from 60 percent in 2001 to 29 percent in 2008 as private domestic investment and FDI have increased. The recent decline in the state’s share in GDP is due more to increased private investment than to new inflows of foreign investment. The nonstate domestic sector has increased steadily to become a key source of investment. Private sector investment increased from 27.6 percent in 1995 to 40 percent by 2008.13 The increased saving and investment by Vietnam’s private sector, along with the continued involvement of the state, have contributed to Vietnam’s continuing high economic growth rates. The share of the FDI sector in total investment during the 1990s and in early 2000 experienced a downturn. FDI accounted for 30 percent of investment in the mid-1990s, but fell to 20 percent in the wake of the Asia financial crisis. Since then, the share of FDI in total investment