The Long Run Effects of Competitive Undervaluation of Dong Currency on Economic Growth of Vietnam

Abstract: Since joining the World Trade Organization in 2006, Vietnam has attracted increased foreign investment. Over the past few years, Vietnam has depreciated its currency compared to the U.S. Dollar, making Vietnam’s exports to the U.S. lower-priced. This has helped Vietnam increase exports and boost national income in the short run. However, one consequence of this policy is to make imports more expensive, including imports to update its technology. This paper investigates what long term effects the undervalued Dong currency might have on the economy by using a system dynamics approach. The study finds that the devaluation causes productivity and percentage change of real GDP per capita to decline and reach a steady state