Impact of transport costs on Vietnam’s textile exports

Abstract

Transport cost is a critical component that structure price of goods at destination points in international trade. This research explored and analyzed transport cost and its impact on export by gravity model. The two stage least squares (2 SLS) model in the estimation was used, in which for the first stage, the transport cost is regressed on a set of exogenous variables including five instrumental variables that affect transport cost, but do not affect exports. In the second stage, the forecasted of transport cost enters as one of the regressors of the exports. A survey was conducted for data collection purposes. Results from the paper show that higher distance and poor partner port infrastructure leads to a notable increase in transport costs. Besides, higher importer income, depreciating real exchange rate and better logistics condition facilitate trade growth. In contrast, greater transport costs, distance and tariff significantly deter trade. Based on the research results, the paper provides recommendations and solutions that encompass a series of policies to effectively reduce the transport cost in textile export in Vietnam.