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Determinants of Vietnam’s exports: An application of the gravity model

The success of exports in Vietnam has become a driving force for economic growth since the reform in 1986. The paper uses data from 2010 to 2014 to estimate the gravity model for Vietnam’s exports with the random effect estimation. | Journal of Asian Business and Economic Studies Volumn 25, Special Issue 01 (2018), 103-116 www.jabes.ueh.edu.vn Journal of Asian Business and Economic Studies Determinants of Vietnam’s exports: An application of the gravity model NGUYEN QUYNH HUYa a National Academy of Public Administration ARTICLE INFO ABSTRACT Received 22 Aug. 2017 The success of exports in Vietnam has become a driving force for economic growth since the reform in 1986. The paper uses data from 2010 to 2014 to estimate the gravity model for Vietnam’s exports with the random effect estimation. The empirical results show that the bilateral trade of Vietnam is positively associated with the country’s GDP and importing countries’ GDP. Furthermore, it has a negative relationship with distance from Vietnam to trading partners. These results are akin to those of the previous studies of the gravity model. Particularly, foreign direct investment, border effects and exchange rate play a significant role in promoting exports of Vietnam. Besides, the deepened integration into the region and world market also has significant impacts on expanding exports of Vietnam. Therefore, these factors have contributed to explaining the success in exports of Vietnam over the past few years. Revised 4 Jan. 2018 Accepted 1 Jan. 2018 Available online 12 January 2018 JEL classifications: F14; F15; O24 KEYWORDS Gravity model Exports of Vietnam Determinants of Vietnam’s exports FDI a Email: huynq@napa.vn 104 Nguyen Quynh Huy, JABES Vol. 25(Special 01), Feb. 2018, 104-116 1. Introduction Before the renovation process1 in 1986, Vietnam experienced a prolonged centralplanning regime and import-dominated economy. Most decisions on foreign trade were made by central authority, and biased towards socialist countries. Moreover, international trade instruments were applied such as trading rights, quantitative restrictions, and a multiple exchange rate system. Following the loss of traditional markets in 1989, .