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31/07/2022
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Lê Trung Ngọc, P., & Nguyen Kim , H. (2022). Determinants of bilateral trade flows of Vietnam: evidence from panel fixed effects estimation approaches. Journal of International Economics and Management, 22(2), 84-102. https://doi.org/10.38203/jiem.022.2.0050
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Determinants of bilateral trade flows of Vietnam: evidence from panel fixed effects estimation approaches
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Abstract
This study aims to investigate the determinants of bilateral trade flows of Vietnam. The panel fixed effects estimation using Driscoll and Kraay standard errors and panel fixed effects two-stage least squares approach are employed to analyze a balanced panel data, which includes fifty-three countries that have been continuously trading with Vietnam from 1997 to 2019. The estimated results reveal that free trade agreements have a positive effect on the bilateral trade flows in trading with the developed or developing countries. Additionally, the bilateral trade flows between Vietnam and the developed countries are enhanced by the differences in income level. They are, however, impeded by the institutional distance and transportation cost. In the case of trading with the developing countries, transportation cost and exchange rate have a positive impact on the bilateral trade flows. The study provides some crucial policy implications for policymakers involving international trading activities in developing countries such as Vietnam.
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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
International trade, Panel fixed effects model, Instrumental variable estimation
References
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Baier, S.L. and Bergstrand, J.H. (2004), “Economic determinants of free trade agreements”, Journal of International Economics, Vol. 64 No. 1, pp. 29 - 63.
Boug, P. and Fagereng, A. (2010), “Exchange rate volatility and export performance: a cointegrated VAR approach”, Applied Economics, Vol. 42 No. 7, pp. 851 - 864.
Davis, D.R. (1997), “Critical evidence on comparative advantage? North-North trade in a multilateral world”, Journal of Political Economy, Vol. 105 No. 5, pp. 1051 - 1060.
De Groot, H.L., Linders, G.J., Rietveld, P. and Subramanian, U. (2004), “The institutional determinants of bilateral trade patterns”, Kyklos, Vol. 57 No. 1, pp. 103 - 123.
De Hoyos, R.E. and Sarafidis, V. (2006), “Testing for cross-sectional dependence in panel-data models”, The Stata Journal, Vol. 6 No. 4, pp. 482 - 496.
Dinh, T.T.B., Nguyen, V.D. and Hoang, M.C. (2014), “Applying gravity model to analyze trade activities of Vietnam”, External Economics Review, Vol. 69, pp. 3 - 18.
Disdier, A.C. and Head, K. (2008), “The puzzling persistence of the distance effect on bilateral trade”, The Review of Economics and Statistics, Vol. 90 No. 1, pp. 37 - 48.
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Goldberg, P.K. and Maggi, G. (1999), “Protection for sale: an empirical investigation”, American Economic Review, Vol. 89 No. 5, pp. 1135 - 1155.
Gold, K. and Rasiah, R. (2021), “China's bilateral trade in Africa: is institutional structure a determinant?”, Chinese Management Studies, Ahead-of-Print.
Hall, S., Hondroyiannis, G., Swamy, P.A.V.B., Tavlas, G. and Ulan, M. (2010), “Exchange-rate volatility and export performance: do emerging market economies resemble industrial countries or other developing countries?”, Economic Modelling, Vol. 27 No. 6, pp. 1514 - 1521.
Hill, R.C., Griffiths, W.E. and Lim, G.C. (2010), Principles of econometrics, 4th Edition, Pearson, London.
Heckscher, G., Heckscher, E.F. and Ohlin, B. (1991), Heckscher-Ohlin trade theory, MIT Press, Cambridge, Massachusetts.
Herwartz, H., Maxand, S., Raters, F.H. and Walle, Y.M. (2018), “Panel unit-root tests for heteroskedastic panels”, The Stata Journal, Vol. 18 No. 1, pp. 184 - 196.
Hoang, N.T.T., Truong, H.Q. and Dong, C.V. (2020), “Determinants of trade between Taiwan and ASEAN countries: a PPML estimator approach”, SAGE Open, Vol. 10 No. 2, pp. 1 - 13.
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Karamuriro, H.T. and Karukuza, W.N. (2015), “Determinants of Uganda’s export performance: a gravity model analysis”, International Journal of Business and Economic Research, Vol. 4 No. 2, pp. 45 - 54.
Kaufmann, D., Kraay, A. and Mastruzzi, M. (2003), “Governance Matters III: governance indicators for 1996-2002”, Working paper No. 3106, World Bank Policy Research, World Bank, Washington D.C.
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Krugman, P.R., Obstfeld, M. and Melitz, M.J. (2012), International economics: theory & policy, 9th Edition, Pearson Education, New Jersey.
Levin, A., Lin, C.F and Chu, C.S.J. (2002), “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, Vol. 108 No. 1, pp. 1 - 24.
Linders, G.J., Slangen, A., De Groot, H.L.F. and Beugelsdijk, S. (2005), “Cultural and institutional determinants of bilateral trade flows”, Working paper No. 2005-074/3, Tinbergen Institute, Netherlands.
Martínez-Zarzoso, I. and Nowak-Lehmann, F. (2003), “Augmented gravity model: an empirical application to Mercosur-European Union trade flows”, Journal of Applied Economics, Vol. 6 No. 2, pp. 291 - 316.
Nguyen, B.X. (2010), “The determinants of Vietnamese export flows: static and dynamic panel gravity approaches”, International Journal of Economics and Finance, Vol. 2 No. 4, pp. 122 - 129.
Nguyen, B.D., Tu, T.A. and Nguyen, T.T. (2015), “Future Vietnam-EU Free Trade Agreement (Vietnam-EU FTA): an analysis of trade creation and trade diversion effects”, External Economics Review, Vol. 72, pp. 3 - 20.
Nguyen, H. (2014). “Determinants of Vietnam's exports: application of the gravity model”, Available at https://ssrn.com/abstract=2475781 (Accessed 13 April, 2020).
Nguyen, H.H. (2020), “Impact of foreign direct investment and international trade on economic growth: empirical study in Vietnam”, The Journal of Asian Finance, Economics and Business, Vol. 7 No. 4, pp. 323 - 331.
Nguyen, K.H. and Kakinaka, M. (2019), “Renewable energy consumption, carbon emissions, and development stages: some evidence from panel cointegration analysis”, Renewable Energy, Vol. 132, pp. 1049 - 1057.
Nguyen, V.C. and Do, T.T. (2020), “Impact of exchange rate shocks, inward FDI and import on export performance: a cointegration analysis”, The Journal of Asian Finance, Economics, and Business, Vol. 7 No. 4, pp. 163 - 171.
Nguyen, H.Q., Tran, H.T.L., Truong, H.Q. and Van Dong, C. (2020), “Patterns and determinants of Vietnamese seafood exports”, Journal of Southwest Jiaotong University, Vol. 55 No. 2, pp. 1 - 11.
OECD. (2019), “Business Insights on Emerging Markets 2019”, Available at http://www.oecd.org/dev/oecdemnet.htm (Accessed 13 May, 2020).
Oparanya, A.W., Mdadila, K.P. and Rutasitara, L.K. (2019), “The determinant of bilateral trade in the east African community: application of the gravity model”, International Journal of Economics and Finance, Vol. 11. No. 4, pp. 1 - 15.
Ricardo, D. (1891), Principles of political economy and taxation, G. Bell and Sons, London.
Semykina, A. and Wooldridge, J.M. (2010), “Estimating panel data models in the presence of endogeneity and selection”, Journal of Econometrics, Vol. 157 No. 2, pp. 375 - 380.
Summary, R.M. (1989), “A political-economic model of US bilateral trade”, The Review of Economics and Statistics, Vol. 71 No. 1, pp. 179 - 182.
Thu, L.A., Fang, S. and Kessani, S.S. (2019), “Factors influencing Vietnam’s handicraft export with the gravity model”, Journal of Economics and Development, Vol. 21 No. 2, pp. 156 - 171.
Tinbergen, J. (1962), Shaping the world economy: suggestions for an international economic policy, Twentieth Century Fund, New York.
Tran, T. and Vo, M. (2020), “Determinants of Vietnam’s export to EU market”, Accounting, Vol. 6 No. 4, pp. 421 - 424.
Tu, M.T.C. and Giang, H.T.T. (2018), “Estimating the impact of trade cost on export: a case study in Vietnam”, The Journal of Asian Finance, Economics, and Business, Vol. 5 No. 3, pp. 43 - 50.
Umair, M., Sheikh, M.R. and Tufail, A. (2022), “Determinants of pakistan’s bilateral trade with major trading partners: an application of Heckscher-Ohlin model and Tinbergen gravity model”, Bulletin of Business and Economics, Vol. 11 No. 1, pp. 24 - 36.
United Nations. (2019), “World economic situation and prospects 2019”, Available at https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESP2019_BOOK-web.pdf (Accessed 13 April, 2020).
VCCI. (2018), “Doing business in Vietnam”, Available at https://www.pwc.com/vn/en/publications/2018/pwc-vietnam-dbg-2018.pdf (Accessed 13 April, 2020).
Vietnam GSO. (2019), Statistical summary book of Vietnam 2019, Statistical Publishing House, Hanoi.
Vu, T.T.H., Tian, G., Zhang, B. and Nguyen, T.V. (2020), “Determinants of Vietnam’s wood products trade: application of the gravity model”, Journal of Sustainable Forestry, Vol. 39 No. 5, pp. 445 - 460.
Wang, C., Wei, Y. and Liu, X. (2010), “Determinants of bilateral trade flows in OECD countries: evidence from gravity panel data models”, The World Economy, Vol. 33 No. 7, pp. 894 - 915.
Wei, Y. and Liu, X. (2006), “Productivity spillovers from R&D, exports and FDI in China's manufacturing sector”, Journal of International Business Studies, Vol. 37 No. 4, pp. 544 - 557.
Wooldridge, J.M. (2013), Introductory econometrics: a modern approach, 5th Edition, Cengage Learning, Mason.
Yu, C.M.J. and Zietlow, D.S. (1995), “The determinants of bilateral trade among Asia-Pacific countries”, Asean Economic Bulletin, Vol. 11 No. 3, pp. 298 - 305.
Bahmani-Oskooee, M. and Brooks, T.J. (1999), “Cointegration approach to estimating bilateral trade elasticities between US and her trading partners”, International Economic Journal, Vol. 13 No. 4, pp. 119 - 128.
Baier, S.L. and Bergstrand, J.H. (2002), On the endogeneity of international trade flows and free trade agreements, Mimeo, New York.
Baier, S.L. and Bergstrand, J.H. (2004), “Economic determinants of free trade agreements”, Journal of International Economics, Vol. 64 No. 1, pp. 29 - 63.
Boug, P. and Fagereng, A. (2010), “Exchange rate volatility and export performance: a cointegrated VAR approach”, Applied Economics, Vol. 42 No. 7, pp. 851 - 864.
Davis, D.R. (1997), “Critical evidence on comparative advantage? North-North trade in a multilateral world”, Journal of Political Economy, Vol. 105 No. 5, pp. 1051 - 1060.
De Groot, H.L., Linders, G.J., Rietveld, P. and Subramanian, U. (2004), “The institutional determinants of bilateral trade patterns”, Kyklos, Vol. 57 No. 1, pp. 103 - 123.
De Hoyos, R.E. and Sarafidis, V. (2006), “Testing for cross-sectional dependence in panel-data models”, The Stata Journal, Vol. 6 No. 4, pp. 482 - 496.
Dinh, T.T.B., Nguyen, V.D. and Hoang, M.C. (2014), “Applying gravity model to analyze trade activities of Vietnam”, External Economics Review, Vol. 69, pp. 3 - 18.
Disdier, A.C. and Head, K. (2008), “The puzzling persistence of the distance effect on bilateral trade”, The Review of Economics and Statistics, Vol. 90 No. 1, pp. 37 - 48.
European Commission. (2020), “Commission welcomes European Parliament's approval of EU-Vietnam trade and investment agreements”, Available at https://ec.europa.eu/commission/presscorner/detail/en/ip_20_227 (Accessed 13 April, 2021).
Golub, S.S. and Hsieh, C.T. (2000), “Classical Ricardian theory of comparative advantage revisited”, Review of International Economics, Vol. 8 No. 2, pp. 221 - 234.
Goldberg, P.K. and Maggi, G. (1999), “Protection for sale: an empirical investigation”, American Economic Review, Vol. 89 No. 5, pp. 1135 - 1155.
Gold, K. and Rasiah, R. (2021), “China's bilateral trade in Africa: is institutional structure a determinant?”, Chinese Management Studies, Ahead-of-Print.
Hall, S., Hondroyiannis, G., Swamy, P.A.V.B., Tavlas, G. and Ulan, M. (2010), “Exchange-rate volatility and export performance: do emerging market economies resemble industrial countries or other developing countries?”, Economic Modelling, Vol. 27 No. 6, pp. 1514 - 1521.
Hill, R.C., Griffiths, W.E. and Lim, G.C. (2010), Principles of econometrics, 4th Edition, Pearson, London.
Heckscher, G., Heckscher, E.F. and Ohlin, B. (1991), Heckscher-Ohlin trade theory, MIT Press, Cambridge, Massachusetts.
Herwartz, H., Maxand, S., Raters, F.H. and Walle, Y.M. (2018), “Panel unit-root tests for heteroskedastic panels”, The Stata Journal, Vol. 18 No. 1, pp. 184 - 196.
Hoang, N.T.T., Truong, H.Q. and Dong, C.V. (2020), “Determinants of trade between Taiwan and ASEAN countries: a PPML estimator approach”, SAGE Open, Vol. 10 No. 2, pp. 1 - 13.
Hoechle, D. (2007), “Robust standard errors for panel regressions with cross-sectional dependence”, The Stata Journal, Vol. 7 No. 3, pp. 281 - 312. International Monetary Fund. (2021), “Data”, Available at https://www.imf.org/en/Data (Accessed 24 June, 2021).
Irandoust, M., Ekblad, K. and Parmler, J. (2006), “Bilateral trade flows and exchange rate sensitivity: evidence from likelihood-based panel cointegration”, Economic Systems, Vol. 30 No. 2, pp. 170 - 183.
Karamuriro, H.T. and Karukuza, W.N. (2015), “Determinants of Uganda’s export performance: a gravity model analysis”, International Journal of Business and Economic Research, Vol. 4 No. 2, pp. 45 - 54.
Kaufmann, D., Kraay, A. and Mastruzzi, M. (2003), “Governance Matters III: governance indicators for 1996-2002”, Working paper No. 3106, World Bank Policy Research, World Bank, Washington D.C.
Kogut, B. and Singh, H. (1988), “The effect of national culture on the choice of entry mode”, Journal of International Business Studies, Vol. 19 No. 3, pp. 411 - 432.
Krugman, P.R., Obstfeld, M. and Melitz, M.J. (2012), International economics: theory & policy, 9th Edition, Pearson Education, New Jersey.
Levin, A., Lin, C.F and Chu, C.S.J. (2002), “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, Vol. 108 No. 1, pp. 1 - 24.
Linders, G.J., Slangen, A., De Groot, H.L.F. and Beugelsdijk, S. (2005), “Cultural and institutional determinants of bilateral trade flows”, Working paper No. 2005-074/3, Tinbergen Institute, Netherlands.
Martínez-Zarzoso, I. and Nowak-Lehmann, F. (2003), “Augmented gravity model: an empirical application to Mercosur-European Union trade flows”, Journal of Applied Economics, Vol. 6 No. 2, pp. 291 - 316.
Nguyen, B.X. (2010), “The determinants of Vietnamese export flows: static and dynamic panel gravity approaches”, International Journal of Economics and Finance, Vol. 2 No. 4, pp. 122 - 129.
Nguyen, B.D., Tu, T.A. and Nguyen, T.T. (2015), “Future Vietnam-EU Free Trade Agreement (Vietnam-EU FTA): an analysis of trade creation and trade diversion effects”, External Economics Review, Vol. 72, pp. 3 - 20.
Nguyen, H. (2014). “Determinants of Vietnam's exports: application of the gravity model”, Available at https://ssrn.com/abstract=2475781 (Accessed 13 April, 2020).
Nguyen, H.H. (2020), “Impact of foreign direct investment and international trade on economic growth: empirical study in Vietnam”, The Journal of Asian Finance, Economics and Business, Vol. 7 No. 4, pp. 323 - 331.
Nguyen, K.H. and Kakinaka, M. (2019), “Renewable energy consumption, carbon emissions, and development stages: some evidence from panel cointegration analysis”, Renewable Energy, Vol. 132, pp. 1049 - 1057.
Nguyen, V.C. and Do, T.T. (2020), “Impact of exchange rate shocks, inward FDI and import on export performance: a cointegration analysis”, The Journal of Asian Finance, Economics, and Business, Vol. 7 No. 4, pp. 163 - 171.
Nguyen, H.Q., Tran, H.T.L., Truong, H.Q. and Van Dong, C. (2020), “Patterns and determinants of Vietnamese seafood exports”, Journal of Southwest Jiaotong University, Vol. 55 No. 2, pp. 1 - 11.
OECD. (2019), “Business Insights on Emerging Markets 2019”, Available at http://www.oecd.org/dev/oecdemnet.htm (Accessed 13 May, 2020).
Oparanya, A.W., Mdadila, K.P. and Rutasitara, L.K. (2019), “The determinant of bilateral trade in the east African community: application of the gravity model”, International Journal of Economics and Finance, Vol. 11. No. 4, pp. 1 - 15.
Ricardo, D. (1891), Principles of political economy and taxation, G. Bell and Sons, London.
Semykina, A. and Wooldridge, J.M. (2010), “Estimating panel data models in the presence of endogeneity and selection”, Journal of Econometrics, Vol. 157 No. 2, pp. 375 - 380.
Summary, R.M. (1989), “A political-economic model of US bilateral trade”, The Review of Economics and Statistics, Vol. 71 No. 1, pp. 179 - 182.
Thu, L.A., Fang, S. and Kessani, S.S. (2019), “Factors influencing Vietnam’s handicraft export with the gravity model”, Journal of Economics and Development, Vol. 21 No. 2, pp. 156 - 171.
Tinbergen, J. (1962), Shaping the world economy: suggestions for an international economic policy, Twentieth Century Fund, New York.
Tran, T. and Vo, M. (2020), “Determinants of Vietnam’s export to EU market”, Accounting, Vol. 6 No. 4, pp. 421 - 424.
Tu, M.T.C. and Giang, H.T.T. (2018), “Estimating the impact of trade cost on export: a case study in Vietnam”, The Journal of Asian Finance, Economics, and Business, Vol. 5 No. 3, pp. 43 - 50.
Umair, M., Sheikh, M.R. and Tufail, A. (2022), “Determinants of pakistan’s bilateral trade with major trading partners: an application of Heckscher-Ohlin model and Tinbergen gravity model”, Bulletin of Business and Economics, Vol. 11 No. 1, pp. 24 - 36.
United Nations. (2019), “World economic situation and prospects 2019”, Available at https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESP2019_BOOK-web.pdf (Accessed 13 April, 2020).
VCCI. (2018), “Doing business in Vietnam”, Available at https://www.pwc.com/vn/en/publications/2018/pwc-vietnam-dbg-2018.pdf (Accessed 13 April, 2020).
Vietnam GSO. (2019), Statistical summary book of Vietnam 2019, Statistical Publishing House, Hanoi.
Vu, T.T.H., Tian, G., Zhang, B. and Nguyen, T.V. (2020), “Determinants of Vietnam’s wood products trade: application of the gravity model”, Journal of Sustainable Forestry, Vol. 39 No. 5, pp. 445 - 460.
Wang, C., Wei, Y. and Liu, X. (2010), “Determinants of bilateral trade flows in OECD countries: evidence from gravity panel data models”, The World Economy, Vol. 33 No. 7, pp. 894 - 915.
Wei, Y. and Liu, X. (2006), “Productivity spillovers from R&D, exports and FDI in China's manufacturing sector”, Journal of International Business Studies, Vol. 37 No. 4, pp. 544 - 557.
Wooldridge, J.M. (2013), Introductory econometrics: a modern approach, 5th Edition, Cengage Learning, Mason.
Yu, C.M.J. and Zietlow, D.S. (1995), “The determinants of bilateral trade among Asia-Pacific countries”, Asean Economic Bulletin, Vol. 11 No. 3, pp. 298 - 305.