Evaluating Spatial Underperformance : A Spatial Computable General Equilibrium Model Applied to Ho Chi Minh City

Overview & Synopsis

Thu Duc, a rapidly urbanizing area of Ho Chi Minh City, is well located and heavily invested in policy ambition, yet its output and density remain far below what its position in the metropolitan economy would support. Much of it is also flood exposed. This paper asks how much of that shortfall flood risk explains, and what coordinated investment could recover. A Spatial Computable General Equilibrium model of the Greater Ho Chi Minh City Metropolitan Area, covering 116 cells across Ho Chi Minh City and neighboring provinces, evaluates interventions to 2040. The model endogenizes firm location, household residence and commuting, land use intensity, and agglomeration externalities, recovering cell-level productivity and amenity parameters by structural calibration against observed employment and residential distributions. Its methodological contribution is to integrate spatially explicit flood exposure as a determinant of those fundamentals, so flood risk is evaluated within the same general equilibrium framework as transport and land use, and local gains can be separated into net new metropolitan output and activity reallocated from elsewhere. Thu Duc's calibrated productivity is roughly one-third of the metropolitan average, implying that frontier output is more than five times the business-as-usual level. Flood mitigation raises sectoral total factor productivity by 12 to 21 percent and residential amenity by 10 to 13 percent, and it broadens the sectoral employment base more than the other interventions examined. A cumulative package of innovation zones, flood mitigation, and transport reaches about 31 percent of that frontier, raising output roughly two-thirds above business as usual, of which some 56 percent is net new output for the metropolis.