[Research Contribution] How Did Social Distancing Policies Affect the Vietnamese Economy During the COVID-19 Pandemic?

31 July, 2025

Keywords: COVID-19, Vietnamese economy, social distancing, computable general equilibrium model, TERM

Nationwide vs. Regional Lockdowns – Which Policy Is More Economically Optimal in Pandemic Control?

A research study conducted by scholars from the University of Economics Ho Chi Minh City (UEH) applies the TERM (The Enormous Regional Model) computable general equilibrium model to decode the differential impacts of various social distancing strategies implemented in Vietnam during the COVID-19 pandemic. The findings reveal that each policy option not only leads to distinct changes in the country’s overall GDP, but also results in varying effects on the components of GDP expenditure and the sectoral contributions to GDP across different regions. These insights offer critical considerations for policymakers when facing future systemic shocks and public health crises.

Research Context

During the COVID-19 pandemic, policymakers were frequently confronted with difficult choices requiring a careful balance between effective epidemic control and the maintenance of economic stability. While nationwide lockdowns may offer rapid containment of virus transmission, they also carry the risk of imposing significantly greater economic losses compared to regionally targeted social distancing measures.

Vietnam experienced four distinct waves of COVID-19, each accompanied by different policy responses. Notably, Directive 16 on social distancing was implemented with varying degrees of strictness – ranging from national-scale lockdowns during the first wave to region-specific measures in subsequent waves. During the fourth wave, the scale and intensity of social distancing reached unprecedented levels, with comprehensive lockdowns imposed in several key provinces and cities in Southern Vietnam.

This context underscored the urgent need to assess the effectiveness and economic consequences of social distancing strategies applied at different territorial scales. In response, a researcher from the University of Economics Ho Chi Minh City (UEH) conducted the study titled “Comparing the Economic Impacts of Nationwide and Regional Social Distancing Policies in Response to COVID-19 in Vietnam: A Regional Computable General Equilibrium Model Analysis” in order to provide quantitative evidence to inform future policy decision-making – particularly in the face of high-impact systemic crises such as pandemics.

Research Objectives

The principal objective of the study is to compare the economic impacts of nationwide lockdowns versus partial or regional social distancing policies. The specific research questions include:

How do the components of regional GDP expenditure change across different policy scenarios?
How does the sectoral contribution to GDP vary by region under each simulated scenario?

Research Methodology

This study aims to analyze and compare the economic impacts of two policy options – nationwide lockdown and regional social distancing – through the use of a regionally adapted Computable General Equilibrium (CGE) model, specifically the TERM-VN model. TERM-VN (The Enormous Regional Model – Vietnam) is a localized version of the TERM model developed by the Centre of Policy Studies at Victoria University, Australia, which has been widely applied in the analysis of economic shocks such as natural disasters and epidemics.

The study simulates five distinct policy scenarios, each reflecting a 10% reduction in the Average Propensity to Consume (APC), occurring respectively in: (1) the entire country, (2) Northern Vietnam, (3) Central Vietnam, (4) the Southeastern region, and
(5) the Mekong River Delta.

Key economic indicators analyzed include: Real GDP, Expenditure components of GDP (consumption, investment, exports), Labor force levels, and Consumer Price Index (CPI).

To ensure the precision and numerical stability of the TERM model, the Gragg numerical method (order 2-4-6) was applied throughout the simulation process.

Research Findings

The results of the study demonstrate that the economic trade-offs associated with a nationwide shock to the Average Propensity to Consume (APC) are significantly more severe than those observed under region-specific shocks. This indicates that implementing a uniform nationwide lockdown may result in broader and deeper economic disruptions compared to localized or regionally targeted social distancing measures.

The TERM model further reveals that the same APC shock does not affect all regions equally. Regions with production structures oriented primarily toward the domestic market experienced stronger negative impacts, whereas export-oriented regions showed greater resilience. Correspondingly, the contribution of various economic sectors to GDP also varied under different APC reduction scenarios: export-driven industries generally maintained a positive contribution, while others experienced notable declines.

The study systematically compares the effects of consumption shocks at the national level versus regional levels—a particularly meaningful exercise in the context of COVID-19 policy decision-making. Vietnam’s pandemic response can be divided into four waves: the first wave involved a nationwide lockdown under Directive 16; the second wave saw social distancing in Da Nang; the third wave affected several northern provinces; the fourth wave, the most intense, witnessed Ho Chi Minh City and multiple southern provinces enforcing strict and prolonged lockdowns – Ho Chi Minh City alone implemented lockdowns on five separate occasions.

The model’s results indicate that a nationwide APC shock significantly reduces key macroeconomic variables such as real GDP, consumption, investment, and labor (with the exception of exports), compared to the region-specific APC shock scenario. This supports the argument that nationwide lockdowns produce more severe economic consequences than targeted, localized measures. While regional lockdowns mainly impact the local economy and economically interconnected areas, nationwide restrictions trigger widespread negative spillover effects.

In addition to model-based simulations, the study incorporates real-world data on post-pandemic economic fluctuations—particularly changes in income, employment, and household spending following the initial 15-day nationwide lockdown beginning on January 31, 2020. Furthermore, the study compares Vietnam’s economic conditions during the fourth wave (Q3 and Q4 of 2021) to the same period in the previous year (post-second wave), thereby reinforcing the model’s validity and practical applicability in evaluating the economic effects of social distancing policies.

The research confirms that the application of the TERM model provides a valuable simulation tool for comparing economic outcomes when the same type of shock occurs at either the regional or national level. This serves as critical decision-support for policymakers, enabling more informed trade-offs when designing response strategies to future large-scale economic shocks.

Author: Dr. Nguyễn Thị Hoàng Oanh – University of Economics Ho Chi Minh City (UEH)

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