Vietnam's foreign direct investment (FDI) has experienced dramatic growth, with registered FDI reaching $34.65 billion in the first half of 2026, representing a 61 percent increase compared to the same period in 2025. Realized FDI also reached $13.03 billion during the same timeframe, marking its highest first-half level in five years. While observers such as Harvard’s Growth Lab have pointed to the country's increasingly diverse and sophisticated export base as a signal of strong long-run growth prospects, the current economic model faces a critical challenge. Despite rapid industrialization, Vietnam is not generating enough jobs that make productive use of advanced skills, which has significant implications for the government’s goal of reaching high-income status by 2045.
The gains from moving workers out of agriculture and into factories and services cannot continue indefinitely. Long-term progress requires sustained productivity growth rather than labor reallocation alone. While Vietnam's FDI model has succeeded in terms of employment quantity, it has underperformed on occupational upgrading. A recent study drawing on 13 years of nationally representative Labor Force Survey data revealed that for every 100 jobs created in foreign-invested firms, an additional 100 jobs emerge in the same district, indicating a local employment multiplier of roughly one to one. This large spillover explains why FDI is central to the country's growth story, with foreign firms accounting for about one-tenth of total employment in 2023, up from almost nothing before 2000.
However, the composition of these additional jobs presents a more sobering picture. Of every 100 additional non-FDI jobs associated with foreign investment, roughly two-thirds are in services and only one-third in manufacturing. Most of these positions are generated by small, often informal household enterprises, such as restaurants, repair shops, and retail stalls that spring up around industrial zones to serve factory workers. Occupational data reveals a similar pattern: for every 100 FDI jobs, only about 13 to 15 additional high-skilled cognitive jobs emerge, compared with 41 to 45 blue-collar production jobs and 27 to 31 clerical or service positions. The educational profile of jobs created elsewhere in the local economy largely mirrors Vietnam’s existing workforce, in which lower-secondary education predominates. Vietnam's FDI-led expansion has overwhelmingly been a jobs boom built on basic schooling rather than a skills boom, explaining why impressive educational progress has not translated into strong economic returns to education.
Vietnam has continued to invest in education, and by 2023, workers with tertiary qualifications accounted for about 18 percent of total employment. Yet, the economy has struggled to put those skills to productive use. Manufacturing employed 25.4 percent of the workforce but only 16.5 percent of tertiary-educated workers. Just 11.5 percent of manufacturing workers held a tertiary qualification, which is below the economy-wide average. This dynamic changes the choices facing households. When a reasonably paid factory job is available after lower-secondary school, continuing in education becomes more costly, particularly for poorer households that cannot easily forgo immediate income. While the Grade 9 completion rate is now more than 90 percent, the Grade 12 completion rate remains below 60 percent. Simply expanding university places will not solve this demand-side problem. Without more jobs that reward advanced skills, Vietnam risks experiencing a growing graduate mismatch, where educated workers are pushed into low-productivity services, progression through upper-secondary education slows, and talent is lost abroad.
To address this, policymakers must find ways to make capital, technology, and skills complementary. This does not mean abandoning foreign investment, which remains central to Vietnam's structural transformation, export growth, and employment creation. Instead, Vietnam should broaden its definition of high-quality investment. Registered capital, exports, and headline job numbers should be assessed alongside occupational upgrading, wage progression, firm-based training, technical and managerial employment, engineering and research functions, and durable local-supplier development. Policymakers must distinguish a local spending multiplier from a productive capability spillover, recognizing that a new restaurant or transport job is not equivalent to a new engineering team, supplier certification, or transfer of production know-how.
While introducing local-content or skills quotas is risky and could cause flexible investors to relocate elsewhere, incentive-compatible measures are more promising. These include reliable infrastructure, industry-linked training, applied research support, innovation services, and predictable regulation to lower the cost of undertaking sophisticated activities. Vietnam's objective should be to shift investment toward more complex tasks and create advancement ladders within and beyond the factory. Another solution lies in the domestic economy. Resolution 68, issued by the Politburo of the Communist Party of Vietnam in May 2025, identifies the private sector as the most important driving force of future growth. Its success will depend on whether domestic firms can acquire technology, find profitable niches, and scale up operations. Education policy must also connect directly to labor demand through public-private training partnerships, apprenticeships, and jointly designed curricula. Furthermore, industrial and urban policies should combine reliable infrastructure with universities, vocational colleges, applied research centers, transport, housing, and public amenities to attract sophisticated activities and mobile skilled workers.
Vietnam does not need to choose between foreign investment and domestic enterprises. It needs domestic firms capable of learning from, supplying, and eventually competing alongside foreign investors, as well as foreign investors whose success increasingly depends on Vietnamese skills and capabilities. While the local jobs multiplier is a milestone worth celebrating, it is not evidence of technological or human-capital upgrading. The growth model of the future must reward learning, innovation, and productivity.
People riding motorbikes in Hanoi, Vietnam, Jan. 3, 2018.
You have reached the limit of 2 free articles this month.
Related Articles
Mr. Udoy is a professional Web Developer and Blogger with 7+ years of experience in the tech world. He specializes in web architecture and digital storytelling. As the driving force behind worldincidents.com, he focuses on delivering high-quality, well-researched content to a global audience.