To objectively and substantively assess the role of the manufacturing-processing industry as the economy’s “locomotive,” it is not sufficient to focus solely on surface-level macroeconomic indicators such as GDP growth or export revenue. Instead, a more powerful structural analytical tool is required to disentangle the vertical and horizontal linkages as well as the spillover effects among sectors within the economy.

In Vietnam’s strategy for industrialization and modernization, the manufacturing-processing industry has consistently been identified as a core driver and a central force behind economic growth and structural transformation. With one of the highest levels of trade openness in the world, Vietnam has rapidly integrated into global value chains, attracting strong inflows of foreign direct investment (FDI), particularly in information technology, electronics, textiles, and footwear. The remarkable expansion of exports and output in the manufacturing sector over recent decades is undeniable. However, rapid growth in sheer scale has raised important questions about development quality and structural sustainability. An economy heavily dependent on exports and foreign investment often faces the risk of becoming trapped in a low-value-added assembly model, where domestic production activities are concentrated in downstream segments with thin profit margins. To accurately assess the manufacturing sector’s role as the economy’s growth engine, examining only headline macroeconomic indicators such as GDP growth and export performance is insufficient. A stronger structural analytical framework is needed to uncover the vertical and horizontal interconnections and spillover effects among industries. This study employs the Input Output (I–O) analytical framework using official data published by the National Statistics Office (NSO) for two important benchmark years, 2012 and 2019. By calculating the power of dispersion coefficient, sensitivity coefficient, value-added (VA) multipliers, and import multipliers, the study seeks to address two key issues. First, how the manufacturing sector’s capacity to stimulate output and generate domestic value added has evolved over time. Second, how value-added leakage through dependence on imported intermediate inputs affects the autonomy of the Vietnamese economy. The manufacturing sector’s output dispersion coefficient remains above average The I–O model results reveal clear differences in output spillover effects among major economic sectors during the 2012–2019 period. Although showing a slight decline, the manufacturing and processing industry maintained its dominant position as the economy’s key sector. Its output dispersion coefficient remained above the average threshold (greater than 1) in both 2012 (1.14) and 2019 (1.13). This indicator confirms that when final demand for manufacturing products increases by one unit, it generates output growth across upstream supplying industries at a rate higher than the economy-wide average. Alongside its strong spillover effect, the manufacturing sector’s sensitivity coefficient also remained exceptionally high, reaching 1.73 in 2012 and 1.61 in 2019. This demonstrates the sector’s dual function: it not only drives the growth of other industries through its demand for intermediate inputs but also serves as a major supplier of intermediate goods to the entire production system. Consequently, when aggregate final demand in the economy increases, demand for manufacturing products rises more strongly than for products from any other sector. For the agriculture, forestry, and fisheries sectors, a notable development is the decline in its output dispersion coefficient from a positive level of 1.05 in 2012 to below the average threshold at 0.97 in 2019. This trend suggests that the sector’s inter-industry output-driving capacity has gradually weakened as the economic structure shifts more strongly toward industrialization and the expansion of modern services. The paradox between value-added multipliers and import multipliers Although the manufacturing and processing industry demonstrates a superior capacity to generate output spillovers, a deeper examination of growth quality through value-added (VA) and import coefficients reveals a profound structural paradox. The findings indicate a widespread trade-off: the ability to generate domestic value added has steadily declined while dependence on imports has increased. Specifically, the import multiplier of the manufacturing and processing sector rose from 0.43 in 2012 to 0.50 in 2019. In contrast, the sector’s domestic VA dispersion coefficient fell significantly from 0.81 to 0.74. This trend exposes a critical reality: industrial production activities in Vietnam are becoming increasingly concentrated in assembly and processing segments that are labor-intensive but retain only limited surplus value. As production scales expand, rather than stimulating domestic supporting industries to supply inputs, the manufacturing sector increasingly generates demand for foreign producers. As a result, domestic intermediate inputs are gradually being replaced by imported goods, causing a substantial portion of value added to leak beyond national borders. Particularly concerning is the situation in the electricity and water production and distribution sector. The import multiplier of this infrastructure-intensive industry nearly doubled, rising from 0.14 to 0.27, while its VA dispersion coefficient dropped sharply from 0.86 to 0.71. As a backbone sector that provides essential inputs for most production and consumption activities in the country becomes increasingly dependent on imported machinery, technology, and fuels, the entire economy becomes more vulnerable to supply disruptions originating from global markets. In contrast, the services sector and the agriculture, forestry, and fisheries sector represent two rare bright spots that have maintained greater autonomy and domestic value-added accumulation. The services sector recorded a strong increase in its VA dispersion coefficient from 1.15 to 1.26, while reducing its import dispersion coefficient from 0.65 to 0.54. Likewise, the agriculture, forestry, and fisheries sector increased its VA dispersion co- efficient from 0.96 to 1.06. These results reflect a highly positive internal structural transformation within both sectors, moving away from primary, low-value activities toward higher-value services and more advanced agricultural processing, thereby retaining a larger share of surplus value within the domestic economy. Decomposing the internal linkage structure of the manufacturing-processing industry To identify the root causes of value-added leakage, the study further decomposes the intra-industry and inter-industry linkages within the manufacturing and processing sector. The results show that the sector’s internal VA spillover effect declined sharply from 0.386 in 2012 to only 0.279 in 2019. By contrast, the internal import spillover effect increased substantially from 0.379 to 0.453. This provides the clearest quantitative evidence that do- mestic vertical supply chains within the manufacturing sector have not been developed in a substantive manner. Linkages among domestic manufacturing subsectors remain weak, preventing the production system from effectively supporting itself and forcing firms to source components and semi-finished goods from foreign suppliers. However, the seafood processing industry showed the most positive performance. The sector recorded increases in both its VA multiplier and VA dispersion index, rising from 1.06 to 1.147, while significantly reducing accrue to foreign technology suppliers, while Vietnam captures only a modest share in the form of labor income. Conclusion and policy implications The analysis of Vietnam’s input-output tables for the 2012–2019 period exposes a classic structural weakness of the economy: while the manufacturing sector occupies a central position in terms of scale and output, its capacity to generate and disseminate domestic value added has weakened. Vietnam is increasingly facing the paradox of “growth without commensurate accumulation,” driven by widespread value-added leakage resulting from heavy dependence on imported intermediate inputs. The declining effectiveness of the manufacturing sector stems from the fragmentation of domestic vertical and horizontal linkages. A clear divergence has emerged: while agriculture and services are moving toward stronger domestic integration, high-tech manufacturing industries such as ICT equipment production and key export-oriented sectors such as footwear and textiles are becoming increasingly disconnected from the domestic production base. The expansion of these industries primarily enriches foreign supply chains rather than generating demand for local supporting enterprises. To address this challenge, Vietnam’s industrial policy mindset must undergo a strategic shift—from emphasizing output scale and production achievements toward preserving and maximizing domestic value added. Policymakers should prioritize the development of core supporting industries to strengthen domestic supply-chain linkages. The country’s for- eign direct investment (FDI) strategy should also be fundamentally reoriented toward selective attraction of investment tied to clear requirements for localization and technology transfer. At the same time, labor-intensive industries should be encouraged to move upstream into segments with higher technological and knowledge content. Only through such measures can the manufacturing sector become a genuine engine of development, enabling Vietnam to escape the low-cost assembly trap and build a more auton- omous and sustainable economy.