How Free Trade Agreements Affect Exports and Imports in Vietnam

The important year of 1995 marked Vietnam’s first integration as a member of ASEAN. By 2016, Vietnam had negotiated, signed, and implemented sixteen free trade agreements. They include both multilateral and bilateral free trade agreements such as the China-ASEAN, VietnamChile, and Vietnam-Japan agreements. By signing free trade agreements Vietnam can increase trade flows in bilateral and multilateral developed-country FTA scenarios.
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How Free Trade Agreements Affect Exports and Imports in VietnamVNU Journal of Science: Economics and Business, Vol. 33, No. 5E (2017) 1-15How Free Trade AgreementsAffect Exports and Imports in VietnamNguyen Thi Hoang Oanh1,2,*1Economics Department - National Chung Cheng University,No. 168, Sec. 1, University Road, Minhsiung, Chiayi 62102, Taiwan (R.O.C.)2Thai Nguyen University of Technology,No. 666, 3/2 Street, Tich Luong Ward, Thai Nguyen City, VietnamReceived 21 July 2017Revised 19 October 2017; Accepted 28 December 2017Abstract: The important year of 1995 marked Vietnam’s first integration as a member of ASEAN.By 2016, Vietnam had negotiated, signed, and implemented sixteen free trade agreements. Theyinclude both multilateral and bilateral free trade agreements such as the China-ASEAN, VietnamChile, and Vietnam-Japan agreements. By signing free trade agreements Vietnam can increasetrade flows in bilateral and multilateral developed-country FTA scenarios. Trade creation anddiversion can be found in multilateral developing-country FTA scenarios and the author finds theimpacts of each free trade agreement is different if analyzed for each 2-digit commodity.Keywords: Free trade agreement, trade, import, export.1. Introductionreducing trade barriers, and increasing socialwelfare but also by bringing new competitionfor domestic firms with foreign firms in foreignand domestic markets. Until 2016 Vietnamsigned and implemented 10 FTAs, finishednegotiation of 2 FTAs, and is negotiating 4other FTAs (VCCI). Do domestic firms takeadvantage of trade agreement opportunities?And which kinds of goods and services trademost through FTAs? These are issues the authorwants to find answers to in this paper.The relationship between FTAs andinternational trade attracts the interest ofresearchers. Baier and Bergstrand (2007)mention some approaches to deal with therelationship between FTAs and trade, such asinstrumental variables, control function and apenal approach [1]. They find that FTAs helpincrease trade flows fivefold. Chong and Hur(2008) use the hub and spoke concept to findA free-trade area is a region encompassinga trade bloc whose member countries havesigneda free-tradeagreement (FTA).Such agreements involve cooperation betweenat least two countries to reduce trade barriers import quotas and tariffs - and to increase thetrade of goods and services with each other(Wikipedia).The opening index of the Vietnameseeconomy increased over time from 20% to173% in the period 1985-2015. The reason forthis can be explained by the signing of FTAs.Countries signing FTAs have the advantage notonly in import and export goods and services by_______Tel.: 84-915803715.Email: nguyenthihoangoanhtn@gmail.comhttps://doi.org/10.25073/2588-1108/vnueab.412612N.T.H. Oanh / VNU Journal of Science: Economics and Business, Vol. 33, No. 5E (2017) 1-15this relationship [2]. They conclude that smalland open economies prefer hub status to a freetrade zone involving the same country group,and the hidden costs such as those incurredfrom wooing prospective members anddomestic resistance can reduce benefit fromFTAs. Hur et al. (2010) use panel data toinvestigate the effect of FTA and a hub andspoke system on trade [3]. They find thepositive effect is higher in non-overlappingFTAs than in a hub and spoke system.McDonald and Walmsley (2008) focus onwhether third parties would be affected bybilateral FTAs [4]. And they find that bilateralFTAscanbringnoticeableadverseconsequences for nations that are not a party inthe FTA. Pan et al. (2008) analyze the effect ofFTAs between Dominican Republic-Centraland America-United States at an industry level[5]. They find that the U.S. cotton yarn andCaribbean cotton apparel industries to bepositive while the U.S. cotton apparel industrysuffers significant losses. Benedictis et al.(2005) analyze the effect of the CentralEuropean Free Trade Agreement (CEFTA) andthe Baltic Free Trade Agreement (BFTA) onintra-European trade [6]. They use a gravitymodel with the GMM method and find thepresence of intra-periphery agreements helpedexpand intra-periphery trade and limited theemergence of a “hub-and-spoke” relationshipbetween Central and Eastern EuropeanCountries (CEECs) and the EU. Nguyen andNguyen (2015) used three models to investigatethe impact of FTAs on trade including a gravitymodel, an adjusted sample selection model, andthe Poisson Pseudo Maximum Likelihood [7].The results show a positive relationshipbetween FTAs and trade outflow.In this paper, I focus on analyzing the effectof each of the FTAs in which Vietnam is anegotiator (Vietnam directly takes part in thenegotiation processes) on both export andimport flow as pooled commodities as well aseach of 97 two-digit commodities. There aretwo kinds of FTAs in which Vietnam is amember: bilateral trade agreements andmultilateral trade agreements. I use seven FTAsthat are in force, two of them are bilateral tradeagreements (Japan and Chile are partners in thiskind) and multilateral otherwise (list in Table1b). Trade creation results from bilateral FTAs.The increase of exports and imports resultsfrom the signing of bilateral FTAs. Exports toJapan and Chile increased over 300% and 60%,respectively. Multilateral FTAs can beseparated into two groups. Group one includesVietnam’s partners that are of a high incomelevel (Korea, New Zealand, Australia) and theother group includes developing countries(ASEAN, China, and India). The effect ofFTAs on Vietnam’s trade flows is thedifference between them. The former helps tocreate both trade- in and out-flows. The latter istrade creation of imports in ACFTA butreduction in other developing-country FTAs,the opposite effects among developing-countryFTAs also find in out flow. With two-digitcommodities the coverage of commoditiesaffected ...