An examination of Vietnam’s financial sector for the period 1990 to 2022 provides empirical evidence of the relationship between banking development, trade openness, inflation, and economic growth. The findings, published in the International Journal of Economics and Business Research, suggest that a well-functioning banking system plays an important role in supporting economic activity. They also highlight some of the challenges facing developing nations associated with financial sector expansion in a globalized economy.
Thao Huong Phan and Thao Viet Tran of Thuongmai University and Trang Mai Tran of the Vietnam Academy of Social Sciences, in Ha Noi, Vietnam, discuss how Vietnam’s banking sector remains the dominant channel for capital allocation, given the relatively underdeveloped nature of its financial markets. Banks provide credit to businesses and individuals, facilitating investment and economic activity. Their research found a positive relationship between banking sector growth and economic expansion, both in the short and long term.
Trade openness, defined as the extent to which an economy engages in international trade, has previously been linked to economic growth. By participating in global markets, businesses gain access to new customers, technologies, and competitive pressures that can improve their overall productivity and their bottom line.
Of course, this kind of international exposure also comes with risks, particularly if domestic financial institutions are not well-equipped to manage the inevitable external shocks. The researchers suggest that Vietnam’s banking sector needs to strengthen its ability to address such problems through improved risk management and regulatory oversight.
Inflation, another key factor in economic stability, also plays a role in financial sector performance. While moderate inflation can signal a growing economy, excessive inflation undermines purchasing power and creates uncertainty for investors. The study suggests that sound monetary policy, including responsible credit expansion and liquidity management, will also be important in ensuring financial stability.
As Vietnam continues to integrate into the global economy, its financial sector will need to adapt to new demands. Strengthening banking regulations, enhancing risk management practices, and ensuring adequate liquidity controls will be important in maintaining financial stability, the work suggests.
Phan, T.H., Tran, T.V. and Tran, T.M. (2025) ‘Banking development contributes to economic growth and inflation control in Vietnam‘, Int. J. Economics and Business Research, Vol. 29, No. 7, pp.1-16.