Abstract
Since the launch of economic reforms in China in 1978 and Vietnam in 1986, both countries have made impressive achievements. However, the two countries have experienced a notable divergence in growth, even though the context and characteristics of their reforms were broadly similar. This paper documents three principal findings: (1) China and Vietnam were similar in their initial conditions and approaches to reform and economic management; (2) the growth divergence between the two countries is substantial not only quantitatively but also qualitatively, and the growth gap widened during good times, when both the countries enjoyed accelerated growth; and (3) the growth divergence between China and Vietnam can be explained mainly by considerable disparity in government effectiveness rather than by a significant gap in the quality of institutions or human capital.