The Vietnamese economy overtakes the Philippines: From economic strategies to governance and flood control

By Cesar Polvorosa, Jr.

(First of two parts)

In 1975, North and South Vietnam reunited after decades of devastating war and emerged with its GNI per capita at just around $100. In stark contrast, the Philippines — then regarded as one of Southeast Asia’s leading lights posted a GNI per capita of roughly $400 or quadruple that of Vietnam. Fast forward to nearly 50 years later, the hierarchy has reversed. In 2024, Vietnam’s GNI per capita reached $4,490, overtaking the Philippines’ $4,470 for the same year. The gap is expected to widen to around $100 in Vietnam’s favor by 2025. Using GDP per capita (PPP), a measure of real living standards, the divergence is even more striking: for 2025, Vietnam is projected at $17,480 which is far above the Philippines’ $12,913 (IMF World Economic Outlook, April 2025).

I remember visiting the Vietnamese refugees at the Bataan Refugee Camp during a field trip of our UP Development Studies class decades ago and I can’t help but ask: how did Vietnam accomplish this remarkable transformation, and what major factors prevented the Philippines from keeping pace? The answer lies in contrasting development models, foreign investment strategies, governance quality, demographic trajectories, education systems, and the political economy of reform. More recently, the comparison also extends to how both countries respond to global disruptions such as the Trump administration’s tariff shock and to long-term resilience challenges like flood control, climate change, and corruption.

DIVERGENT ECONOMIC MODELS
Vietnam pursued an export-oriented manufacturing strategy which has proven significantly more successful over the past half century than the Philippines’ service-heavy, remittances-dependent model. Export performance alone tells a compelling story. Vietnam’s exports amount to an astonishing 105-107% of its GDP, making it a true export powerhouse in Asia. The Philippines, by contrast, has exports equivalent to only a paltry 27-32% of GDP.

Vietnam’s industrial transformation has been anchored by major multinational investments, most notably Samsung, which has turned the country into a critical global electronics manufacturing hub. Beyond foreign giants, Vietnam is nurturing its own champions. Its first fully electric vehicle manufacturer, VinFast has begun exporting EVs to the United States and Canada, symbolizing the country’s ambitions to climb the technological ladder.

The Philippines’ path has been dramatically different. Instead of manufacturing, its growth pillar had been Overseas Filipino Workers (OFWs) and the Business Process Outsourcing (BPO) sector. In 2024, the country’s 2.2 million OFWs sent home $38.5 billion in remittances, which is an extraordinary lifeline that supports millions of households. The BPO sector added another $38 billion in service exports in 2024, with forecasts of $40 billion in 2025. These inflows fuel consumption but do not necessarily spark industrial deepening or lay the foundation for economic diversification.

The contrast is sharp: Vietnam built factories while the Philippines built call centers. These choices continue to shape the trajectory of both economies.

FDI AND THE INVESTMENT CLIMATE
A major platform of Vietnam’s success has been its sustained ability to attract foreign direct investments (FDIs). From 2010 to 2023, Vietnam accumulated $168 billion in FDI inflows which far outpaced the Philippines’ $107 billion. Vietnam’s transformation began with the Doi Moi reforms of 1986, which shifted the country from central planning to a market-oriented economy 11 years after reunification. These reforms created a stable policy environment, encouraged industrial clustering, improved infrastructure, and transparency.

The Philippines, meanwhile, has been stifled by regulatory inefficiencies, bureaucratic red tape, and infrastructure deficits. Although the Philippines has recently introduced reforms to liberalize sectors and improve competitiveness, its overall investment environment still lags. The Philippines ranked 95th out of 190 economies in the former World Bank Ease of Doing Business Index, compared with Vietnam’s 70th. While the Philippines scores higher in some measures of economic freedom, Vietnam outperforms in property rights security which is essential consideration for foreign investors. In the successor 2024 World Bank Business Ready Report, Philippines only scored 48 vs 65 of Vietnam under Business Entry (ease of registering and starting LLCs).

Vietnam’s aggressive pursuit of reforms allowed it to embed itself deeply in global supply chains, while the Philippines has struggled to break free from its structurally narrow economic base.

THE ELUSIVE UPPER MIDDLE-INCOME STATUS
Both countries are on the cusp of achieving Upper Middle-Income Country (UMIC) status, defined by the World Bank as economies with GNI per capita of at least $4,516 (Atlas method, 2024 threshold). With Vietnam at $4,490 and the Philippines at $4,470 in 2024, both stand within striking distance. By 2025-26, both are expected to cross this important milestone.

Yet the symbolism differs. For Vietnam, UMIC status crowns decades of export-driven transformation after its war devastation. For the Philippines, it represents a long-delayed ascent after many false dawns over the past decades due to political disruptions, uneven reforms, and governance setbacks.

SHORT-TERM ISSUES: THE TRUMP TARIFF SHOCK
Global uncertainty intensified dramatically in 2025 when US President Donald Trump announced sweeping tariff increases under his “Liberation Day” policy. On June 2, the US raised steel tariffs from 10% to 25% and slapped punitive 46% reciprocal tariffs on Vietnamese exports. As of Aug. 7, the US imposes a standard 20% tariff on most imports from Vietnam with a 40% penalty for transshipped goods. In exchange, Vietnam agreed to zero tariffs on many US products and expanded market access. The agreement restored business confidence and preserved Vietnam’s core competitive advantages of low labor costs, strong infrastructure, and reliable manufacturing ecosystems.

The Philippines faced its own tariff shock. The Trump administration imposed a 19% tariff on the country from early August. While smaller than Vietnam’s initial hit, the Philippines lacked negotiating leverage and strategic visibility in Washington. The relatively modest tariff did not reflect strength; it reflected the country’s diminishing relevance in America’s trade calculus.

For the Philippines, the economic risks are multi-layered: reduced export competitiveness, weakened investor sentiment, downward pressure on the peso and potential strain on remittances (the US is the largest source).

Both Vietnam and the Philippines now face a challenging reconfiguration of supply chains, and the full effects of the tariffs will only be clear after implementation. In the short term, these shocks will likely moderate growth prospects.

(To be continued.)

Cesar Polvorosa, Jr. is professor of Economics and International Business at a Canadian University. He is an occasional contributor to current affairs publications including the Philippine Star and Interaksyon. His literary publications in North America and Asia have been anthologized.