ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi...

156
UNIVERSITÉ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL OF ECONOMICS AND MANAGEMENT ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en Sciences Economiques et de Gestion, sous la direction du Professeur Michele Cincera. Academic year 2014-2015

Transcript of ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi...

Page 1: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

UNIVERSITÉ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL OF ECONOMICS AND MANAGEMENT

ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM

Vu Thi Hanh

Thèse présentée en vue de l’obtention du grade académique de

Docteur en Sciences Economiques et de Gestion,

sous la direction du Professeur Michele Cincera.

Academic year 2014-2015

Page 2: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

ACKNOWLEDGEMENTS

This dissertation would not be possible without the guidance, comments and supports from promoters,

jury members of the defense, Vietnam Ministry of Education and Training (MOET), Vietnam

International Educational Development (VIED), my family, friends, colleagues and my employer, the

Foreign Trade University - Vietnam (FTU).

I would like to express my sincere thanks and my deep gratitude to Prof. Michele Cincera for all his

guidance during my research. His enthusiasm, encouragement, patience, sympathy, scholarly advice

and scientific approach have been extremely helpful. Without his help and counsel, the completion of

the dissertation would have been immeasurably more difficult. Indeed, whenever I encountered tricky

technical problems relating to the economic model, to the data treatment and analysis, he would always

raise questions which were in fact important clues enabling me to resolve them myself. I would like to

express my sincere thanks to my local promoter Prof. Tu Thuy Anh for her valuable comments as well

as her academic support along with Prof. Michele Cincera. Their dedication and support made a

significant contribution to the success of my research career.

My academic task can not be completed without the participation of jury members. I would take this

opportunity to extend my sincere appreciation to Prof. Bruno Van Pottelsberghe de la Potterie, Prof.

Laurent Gheeraert and Prof. Vu Bang Tam for their helpful comments, scientific advice, kindness and

time spent reading my dissertation in spite of their tough schedules.

I would like to express gratitude to my colleague working at the Foreign Trade University of Vietnam,

Doan Quang Hung for his contribution to my work in all discussions and interactions we had over the

years. I also want to thank my friend Vu Quoc Bao at the Department of Data Archives of the Vietnam

Customs Office for his support in data collection.

Furthermore, I am extremely grateful to the Ministry of Education and Training of Vietnam (MOET),

Vietnam International Educational Development (VIED) organization for their financial and

administrative support throughout my stay in Belgium. In particular, I wish to express my sincere

thanks to the ARES-CCD (Académie de Recherche et d'Enseignement supérieur - Commission de la

Coopération au Développement) for their generous support for the final stage of my research. Many

thanks to madam Do Thi Dieu Linh at VIED and madam Julie Sepulchre at the International Relations

Department of the Université Libre de Bruxelles for their essential administrative help.

My deep gratitude also goes to the Applied Economics Department (DULBEA) and the International

Centre for Innovation, Technology and Education Studies (iCite) of the Université Libre de Bruxelles

Page 3: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

for providing me with the necessary facilities to work on my PhD dissertation. I also owe my deep

gratitude to iCite members who have patiently listened to my presentation, asked questions and made

comments which really helped me to improve my dissertation.

My special thanks to Jeffrey Silver for his help in revising the manuscript. I appreciate his kindness,

patience, enthusiasm as well as his time spent on helping me.

Finally, I would like to acknowledge with due gratitude, the support, and the shared love from my

family: my husband Dang Dinh Duc, my son Dang Duc Anh and my daughter Dang Dinh Hanh Kieu.

They are my endless enthusiasm, inspiration, support for which I try to work tirelessly. I am greatly

indebted to my parents who have taken care of me and encouraged me. I also remember with thanks

my parents-in-law to whom I owe my excellent husband for their support and inspiration during my

work on this PhD dissertation.

Page 4: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

TABLE OF CONTENTS

CHAPTER 1. INTRODUCTION ............................................................................................................... 9 1.1. RELEVANCE OF THE TOPIC AND THE NECESSITY FOR SCIENTIFIC INVESTIGATION ......................................................... 10 1.2. MOTIVES FOR CHOOSING THE TOPIC ........................................................................................................................ 10 1.3. RESEARCH PROBLEMS AND QUESTIONS .................................................................................................................... 11 1.4. RESEARCH OBJECTIVES........................................................................................................................................... 12

1.4.1. General objectives of the research ................................................................................................................... 12 1.4.2. Specific objectives .......................................................................................................................................... 12

1.5. RESEARCH METHODOLOGY ..................................................................................................................................... 13 1.6. ORGANIZATION OF THE DISSERTATION ..................................................................................................................... 14

CHAPTER 2. CONCEPTUAL FRAMEWORK ON INTERNATIONAL TRADE ............................. 17 2.1. INTRODUCTION ...................................................................................................................................................... 18 2.2. THEORETICAL BACKGROUND .................................................................................................................................. 18

2.2.1. Classical trade theory ..................................................................................................................................... 18 2.2.1.1. Absolute advantage ................................................................................................................................................... 18 2.2.1.2. Comparative advantage .............................................................................................................................................. 19 2.2.1.3. Specialization of production and factor endowment ...................................................................................................... 21 2.2.1.4. International product life cycle theory .......................................................................................................................... 22

2.2.2. New trade theory ............................................................................................................................................ 24 2.2.2.1. Economies of scale and the pattern of trade .................................................................................................................. 24 2.2.2.2. National competitive advantage .................................................................................................................................. 25 2.2.2.3. Gravity model ........................................................................................................................................................... 26

2.3. EMPIRICAL FRAMEWORK ........................................................................................................................................ 27

CHAPTER 3. VIETNAMESE EXPORT STRUCTURE: PRODUCT DIVERSIFICATION

AND DESTINATION MARKET ................................................................................................................. 29 3.1. INTRODUCTION ...................................................................................................................................................... 30 3.2. TRADE LIBERALIZATION PROCESS AND ECONOMIC CONTEXT ..................................................................................... 30

3.2.1. Period 1986 - 1991 ......................................................................................................................................... 30 3.2.2. Period 1992 - 2003 ......................................................................................................................................... 32 3.2.3. Period 2003- 2012 .......................................................................................................................................... 35

3.3. EXPORT TRADE PATTERN ........................................................................................................................................ 37 3.3.1. Composition of export commodities ................................................................................................................. 37

3.3.1.1. General composition of commodities .......................................................................................................................... 37 3.3.1.2. Major export products, regions and economic groups ................................................................................................... 39

3.3.2. Export composition commodity by destination market ....................................................................................... 46 3.3.2.1. Sectoral dimension and country groups ....................................................................................................................... 46 3.3.2.2. Market and product concentration ............................................................................................................................... 50

CHAPTER 4. INTERNATIONAL EXPORT TRADE FLOWS OF VIETNAM: A GRAVITY

MODEL APPROACH ................................................................................................................................. 53 4.1. INTRODUCTION ...................................................................................................................................................... 54 4.2. THEORETICAL BACKGROUND ON THE GRAVITY MODEL ............................................................................................. 55 4.3. DATA AND METHODOLOGY ..................................................................................................................................... 62

4.3.1. Data description .......................................................................................................................................... 62 4.3.2. Model and methodology.................................................................................................................................. 63

4.4. EMPIRICAL RESULTS ............................................................................................................................................... 66 4.5. CONCLUSION ......................................................................................................................................................... 72

CHAPTER 5. THE ROLE OF FIRMS IN DETERMINING EXPORT TRADE PATTERN:

VIETNAM'S FOOTWEAR, RICE AND WOOD AND WOOD PRODUCTS SECTORS ........................ 74 5.1. INTRODUCTION ...................................................................................................................................................... 75 5.3. THE DYNAMICS OF FIRMS BY EXPORT CRITERIA ........................................................................................................ 80 5.4. LARGEST IMPORTING COUNTRIES BY EXPORT VALUE ................................................................................................ 82 5.5. METHODOLOGY AND DATA ..................................................................................................................................... 84

5.5.1. Gravity model and firms’ trade........................................................................................................................ 84 5.5.2. Data .............................................................................................................................................................. 86

5.7. EMPIRICAL RESULTS AND DISCUSSION ................................................................................................................. 90 5.7.1. Export value and the gravity model ............................................................................................................. 90

Page 5: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

5.7.2. Export volume of firms and the gravity model ............................................................................................. 93 5.8. CONCLUSION ......................................................................................................................................................... 96

CHAPTER 6. DETERMINANTS OF FIRMS' EXPORTS: A CASE OF A DEVELOPING AND EMERGING

COUNTRY ................................................................................................................................................................... 97

6.1. INTRODUCTION ...................................................................................................................................................... 98 6.2. RELATED LITERATURE ............................................................................................................................................ 99 6.3. LOCATION OF VIETNAMESE FOOTWEAR, RICE AND WOOD AND WOOD PRODUCTS FIRMS ............................................ 103 6.4. METHODOLOGY AND DATA .................................................................................................................................. 106

6.4.1. Description of variables ................................................................................................................................ 106 6.4.2. Regression method ....................................................................................................................................... 108 6.4.3. Data ............................................................................................................................................................ 108

6.4.3.1. Data source and description ...................................................................................................................................... 108 6.4.3.2. Data treatment ......................................................................................................................................................... 110

6.5. EMPIRICAL RESULTS ............................................................................................................................................. 111 6.5.1. OLS regression results .................................................................................................................................. 111 6.5.2. Quantile regression results ............................................................................................................................ 113

6.5.2.1. Quantile regressions for footwear firms ..................................................................................................................... 113 6.5.2.2. Quantiles regression for rice firms ............................................................................................................................ 116 6.5.2.3. Quantiles regression for wood and wood products firms ............................................................................................. 118

6.6. CONCLUSION ....................................................................................................................................................... 120

CHAPTER 7. CONCLUSION .................................................................................................................... 121 7.1. MAJOR FINDINGS AND LESSONS RETRIEVED THROUGH THE EMPIRICAL ANALYSIS ............................................. 122 7.2. TO WHAT DEGREE DOES THE DISSERTATION ANSWER THE RESEARCH QUESTIONS AND WHAT ARE ITS LIMITATIONS? .... 124 7.3. IMPLICATIONS FOR VIETNAM'S EXPORT TRADE ....................................................................................................... 125 7.4. SOME PROPOSALS FOR FUTURE FURTHER RESEARCH ON EXPORT TRADE ................................................................... 127

REFERENCES ......................................................................................................................................... 129

APPENDICES .......................................................................................................................................... 136

Page 6: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

ABBREVIATION

AFTA ASEAN Free Trade Area

APEC Asia-Pacific Economic Cooperation

ASEAN Association of Southeast Asian Nations

BTA Bilateral Trade Agreement

CARICOM Caribbean Community and Common Market

CEPII Centre d'Études Prospectives et d'Informations Internationales

CEPT Common Effective Preferential Tariff

CPI Consumer Purchasing Index

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

GSO General Statistics Office

ILO

IPR

International Labor Organization

Intellectual Property Rights

KILM Key Indicators of the Labor Market

MFN

MRT

Most Favored Nation

Multilateral Resistance Term

OECD Organization for Economic Co-operation and Development

OPEC Organization of the Petroleum Exporting Countries

PPP Purchasing Power Parity

SITC Standard International Trade Classification

SME Small and Medium-sized Enterprises

SOE State-Owned Enterprises

TFP

TPP

Total Factor Productivity

Trans-Pacific Partnership

Page 7: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

UNSD United Nations Statistics Division

VCO Vietnamese Customs Office

VCP

WDI

WITS

Vietnam Cummunist Party

World Development Indicators

World Integrated Trade Solution

WTO World Trade Organization

Page 8: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

TABLES

Table 1. Illustration of the absolute advantage ..........................................................................................19

Table 2. Another illustration of the absolute advantage ............................................................................19

Table 3. Production cost ............................................................................................................................20

Table 4. Comparative advantage of country before trading ......................................................................20

Table 5. Comparative advantage of country after trading .........................................................................20

Table 6. Commodity composition of Vietnam's exports (1996-2000, millions USD and %) ......................39

Table 7. Major exports in each five year period (millions USD) ...............................................................41

Table 8. Major exports in period 2006-2012 (millions USD) ....................................................................42

Table 9. Gravity model for export flows of Vietnam ..................................................................................67

Table 10. Firm heterogeneity by sector (2006-2010) .................................................................................78

Table 11. Exporting firms'criteria across sectors ......................................................................................81

Table 12. Gravity factors and export margins (footwear firms) ................................................................87

Table 13. Gravity factors and export margins (rice firms) ........................................................................88

Table 14. Gravity factors and export margins (wood and wood products firms) ......................................89

Table 15. Export value of firms and gravity model ....................................................................................92

Table 16. Export volume of firms and gravity model .................................................................................95

Table 17. Determinants of export/revenue: OLS regression results ........................................................111

Table 18. Models of export intensity via OLS and quantile regression (footwear firms) ........................115

Table 19. Models of export intensity via OLS and quantile regression (rice firms) ................................117

Table 20. Models of export intensity via OLS and quantile regression (wood and wood products firms)

..................................................................................................................................................................119

Page 9: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

FIGURES

Figure 1. Factor prices and good prices ............................................................................................ 22

Figure 2. International product life cycle ........................................................................................... 23

Figure 3. Porter's diamond ................................................................................................................ 25

Figure 4. Conceptual framework of the dissertation ........................................................................... 28

Figure 5. Evolution of Vietnamese trade and its country partners, 1986-2012 ..................................... 32

Figure 6. Historical trade foundation of Vietnam and its country group partners ........................ 33

Figure 7. Exports by country and country group (%) ...................................................................... 34

Figure 8. Vietnam's economic indicators ........................................................................................ 37

Figure 9. Share of export commodities, % of the total ................................................................... 37

Figure 10. Exports by geographical region .................................................................................... 44

Figure 11. Exports by country group .............................................................................................. 45

Figure 12. Export value of primary and manufactured products (millions USD) ................................. 47

Figure 13. Export value by country groups (millions USD) ................................................................. 47

Figure 14. Export value of primary products sector ....................................................................... 48

Figure 15. Export value of manufactured products sector ............................................................. 49

Figure 16. Vietnam's H-H market and product concentration index .................................................... 50

Figure 17. ASEAN countries' H-H market and product concentration index in 2012 .................... 51

Figure 18. 10 largest importing countries by export value (mil. USD) ................................................. 83

Figure 19. The correlation of firm's extensive and intensive margins ................................................... 85

Figure 20. Firm's factors in international trade .................................................................................. 99

Figure 21. Vietnam's number of firms across regions in 2008 ..................................................... 104

Figure 22. Vietnam's export value of firms across regions in 2008 ............................................. 105

Page 10: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en
Page 11: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

9 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 1. INTRODUCTION

SUMMARY

This chapter presents the context and scope of the dissertation as well as summing up major contents in

the following chapters: the theoretical background of trade and the origin of the two main branches of

international trade (chapter 2), a qualitative analysis helps to generalize the Vietnamese export structure

since the year of the country's political and economic reform (chapter 3), the export trade pattern of a

small and emerging country such as Vietnam replicating the gravity model (chapter 4), the role of

firms in determining the trade patterns corresponding to footwear, rice and wood and wood products

export sectors (chapter 5) as well as firms' internal factors affecting their export performance (chapter

6). This chapter also describes the general and specific objectives of the research, indicates the research

methodologies as well as the contribution of this research and concludes with the organization of the

dissertation.

Page 12: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

10 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

1.1. Relevance of the topic and the necessity for scientific investigation

Trade liberalization and international economic integration are major and important issues especially to

developing countries including Vietnam. They have provided the country with many opportunities

such as foreign investment projects from developed countries, an increase in the State budget through

taxation on exports and imports, the higher level of employment, which have all contributed to

improving the standard living of the people. Since the country's reform (Doi Moi) in 1986, trade

liberalization has brought about an increase export value from 0.78 billion USD in 1986 to more than

72 billion USD in 2010 which accounted for an average of 70% increase to the GDP of Vietnam.

Moreover, Vietnamese firms are becoming increasingly aware of the importance of innovation and this

is becoming the main driver for Vietnam's deeper participation in regional and global economic

integration organization such as ASEAN1 and WTO

2.

Why does the dissertation focus on export trade? Firstly, exports reflect the country's role and position

in the global economy. The volume of exports shows the degree of a country' integration into the

global economy. Secondly, exports may contribute directly to the economic growth of a country and

export growth may lead to an increase in the demand for the country's products, thus helping to

increase the actual output. Thirdly, according to the new trade theory, increasing competition and

economies of scale lead to increased specialization in export products, which in turn helps to stimulate

the productivity level and workers' skills. As such, countries following the export-oriented strategy

may achieve sustainable development in a volatile global market.

1.2. Motives for choosing the topic

The contribution of Vietnam's economic reform in 1986 is considerable and paved the way for the

country to implement its trade liberalization policy and to establish trading relations with over 150

countries. However, existing studies on Vietnam's export trade only examine the country's trade with

certain countries inside or outside the Asian region. By investigating the Vietnamese trade pattern with

the world, we are able to track the precise trade trajectory of the country in several specific periods, which

also enables relevant trade policy recommendations to be formulated for policy makers. Moreover, there is

an absence of longitudinal macro and micro trade studies for an emerging developing country such as

Vietnam. In particular, in our model when analyzing international trade, it is important to take account

of sector and firm effects on exports.

Exports play an important role in Vietnamese trade, helping to increase the national revenue and to

improve the position of Vietnamese firms in the global value chain. Such an improvement of

Vietnam's position in the global value chain means being higher in the chain rather than carrying out

simple processing at the low-end. If the production factors which include labor, capital, and fixed assets

are analyzed in relation to firms' exports, plausible assessments of Vietnamese firms' contributions to the

global chain can be determined. It should be also noted that the country's trade policy reform has affected

1 Vietnam became a full member of ASEAN in 1995.

2 Vietnam became a full member of WTO in 2007.

Page 13: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

11 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

the structure of Vietnam's exports during periods, has been subject to the effect of the volatile world's

trading market and the effect of an emerging giant exporter such as China.

To date, there have been some studies examining determinants of Vietnamese firms. However, the data

used in these studies came from the enterprise survey of GSO, which do not reflect the value of exports

of a firm in a specific year. Research questions addressed in these previous studies have identified

determinants of firms' decision to export. Data on total value of firms' exports have allowed the author

to measure the magnitude of change in the value of exports if a particular determinant changes. This

initiative aims to provide recommendation on export policy not only to the Vietnamese government

but also to firms when taking decision on exports.

1.3. Research problems and questions

In the age of globalization, interdependence among countries especially developed (North) and

developing countries (South) is increasing. While many large corporations in developed countries with

foreign investment projects are extending their market share and product life cycle, but on the contrary,

SME firms in developing countries are targeting major destination markets as a key strategy for export

promotion.

Vietnam's exports are facing some problems on international trade market for various reasons. Firstly,

the export structure continues to be mainly based on primary and labor-intensive products such as the

agriculture, forestry, fishery and footwear sectors. Secondly, low value added and labor intensive

products account for a large proportion of the total exports since almost all economic sectors of

Vietnam are involved in the assembly and simple processing stage of the global value chain. In

particular, the increasing share of the FDI sector in total exports may also influence sustainable

economic development of Vietnam because the advanced technology and management skill of these

firms cause fiercer competition for domestic firms. Furthermore, Vietnamese SOEs may be less

successful than non-state owned enterprises in export market.

We hope this dissertation can help strengthen the contribution of exports to the social and economic

development of Vietnam and constitute a reliable basis for formulating export trade policy. Firstly,

there is a need for greater efforts from Vietnamese government to implement social economic

structural reform with a special focus on SOEs, in order to strengthen investors' confidence. Secondly,

there is also a need to encourage the shift away from labor-intensive export products toward capital-

intensive products with special emphasis on innovation in particular through research and development

activities of firms.

At a macro level, the dissertation recommends that the Vietnamese government should support

exporting firms by actively seeking to sign trade agreements with strategic country partners such as

America, European and Asian countries as well as diversifying through the consumer markets of

African countries. The role of developing countries as potential importing partners can not be ignored.

For the agriculture sector, the Philippines is the largest market for Vietnam and African countries has

significantly increased their share of Vietnamese exports by volume.

Page 14: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

12 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

For all the issues, the dissertation attempts to shed more light on modern trade theory by empirical

studies of Vietnamese export trade and addresses the following research questions:

- Since Vietnam implemented the economic reform in 1986, how has its export composition changed

at different periods?

- Although many studies show the role of GDP of importing countries in stimulating exports from

their country partners, it does not necessarily mean that high-income countries present an attractive

destination markets. The question of whether or not the wealthy importing countries encourage

Vietnamese exports in general and its firms’ exports in particular needs to be addressed.

- Does the economic integration of Vietnam into regional organization helps stimulate its exports?

- How does geographical distance (a proxy of transport cost) affect differently Vietnam’s exports and

its firms in the footwear, rice and wood and wood products sectors?

- Do these firms actually need hiring highly skilled workers and unrestricting fixed assets investment to

improve their export performance?

- How successful are state-owned firms in the international markets? Are they more effective exporters

than their non-state-owned counterparts?

- Is there any evidence to show that the older firms are more successful in export markets than the

young ones?

1.4. Research objectives

1.4.1. General objectives of the research

Generally, the research aims to analyze export activities of Vietnam through various periods since its

reform in 1986 and its economic integration into the regional and global economy. More importantly,

the dissertation also attempts to recommend specific export trade implications for policy makers as

well as providing guidance for exporting firms.

1.4.2. Specific objectives

Specifically, the dissertation aims to accomplish the following tasks:

- To carry out the qualitative analysis of Vietnam's export trade by destination market and principal

products.

- To find the association between Vietnam's export trade and its macro determinants where we are able

to identify the destination markets and the impact of the geographical characteristics on exports.

- To determine the relationship between firms' export trade value with firms' production factors such as

capital intensity, human capital intensity as well as firms' characteristics such as firm age, type of firm

ownership, firms' location, etc.

Page 15: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

13 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

- To compare to what extent firms' factors affect differently their export performance depending on

some models. 1.5. Research methodology

The dissertation studies export trade of a single country namely Vietnam. It includes three empirical

study chapters investigating macro and micro determinants of Vietnamese exports which shed more

light on how theory of a country's factor endowment affect its export trade and on how gravity model

is used to explain trade pattern of a country. Vietnam, a small and emerging country in South East

Asia, has been implementing its economic reforms and trade liberalization for nearly 30 years.

Opening up its domestic market, it is an important tool for the country to benefit and to create trade

relationships with over 150 country partners both developed and developing. However, stimulus

factors for the country's trade may change for subjective and objective reasons. The effect of regional

and global economic integration on the export trade of country members may change from positive to

negative or vice versa particularly if a country is considering opening its market to a larger market

association.

The diversity of Vietnam's export products and the destination markets include almost all countries of

the world. We have used the synthesized database of the GSO, which demonstrates a structural change

of Vietnamese exports between 1986 and 2012. We applied a qualitative methodology which is helpful

in depicting a complete picture of Vietnam' exports. Moreover, for firms' exports, we also show

determinant factors in the table of descriptive statistics, which summarizes a sample of sub-populations

that the sample of three export sectors.

The qualitative method we applied in the dissertation was to carry out a literature review. In fact, our

contribution to the dissertation is to develop or continue a current branch of research. We show our

findings rather than replicating of previous authors' ideas. As such, this dissertation mentions the two

main strands of literature on the gravity model of export trade including theoretical and empirical

papers. This model criticizes and reviews the overall trade pattern of any country pair in so far as each

country differs from the other because of the effect of the two main factors the national income and the

transport cost proxy, which is the geographical distance.

Moreover, the gravity model is more detailed result at firm's data level so that the country's total

exports are broken down into firms' export value and volume which allow us to examine the role of

firms and sectors in determining the trade pattern. The dissertation also reviewed empirical papers,

which use the two main factors in our model the firm's performance and characteristics.

For quantitative methodology, our dissertation used export trade data at country and firm level to test

hypotheses for each determinant including firm and sector effects. Unlike the qualitative method, the

quantitative method allows us to draw conclusion about the whole population providing the sample of

sufficiently large. As stated above, we have extracted a dataset on Vietnam's export trade for the 1997-

2009 period. For firm's gravity model, we used export data of firms for the 2006-2010 period. We

analyzed determinants of firms' exports by combining firms' export data and the data of footwear, rice

and wood and wood products firms' characteristics for the year 2008. Since firms' export intensity

Page 16: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

14 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

strictly lies in the unit interval, we transformed it into the type of logit then attempted with the OLS and

quantile regression methods.

1.6. Organization of the dissertation

The dissertation is organized as follows: Chapter 2 outlines the conceptual framework for international

trade in general and for export trade in particular. To be specific, we focus on both the theoretical and

empirical background. Firstly, for the theoretical background, the dissertation analyzes various trade

theory models in order to identify their strengths and weaknesses. Moreover, the development of

international trade theory is often linked to the practical changes in a country and to firms' trade.

Particular theory always needs to apply when making empirical study of trade. Moreover, the empirical

background examines various studies in which different indicators are used as dependent and

independent variables.

Chapter 3 gives an overview of Vietnamese exports for the 1986-2012 period. The chapter uses a pure

qualitative method to figure out the export structure of Vietnam for four sub-periods. The years 1986 to

1994 marked the period of "entrepreneurial policy-makers". In 1986 in particular, Vietnam vigorously

implemented its economic reform measures after 10 years of a centrally planned economy and the

country was faced with a severe economic crisis with 775% of hyperinflation in that year. Before 1986,

Vietnam mainly traded with socialist country partners such as the Soviet bloc, China and Cuba on the

basis of barter contracts. Exporting goods were mostly limited to raw materials and the payment was

based on the Ruble. During the period, important laws were passed such as in 1987 the new law on

Foreign Investment and the Land Law and in 1990, the Corporate Law and Private Enterprise Law.

This chapter also analyzes the pattern of Vietnam's exports for the second sub-period (1995-1999) of

regional economic integration and adoption of the market economy. Importantly, President Bill Clinton

lifted the U.S trade embargo against Vietnam in 1994 and one year later, the USA announced the

normalization of diplomatic relations between the two countries. During this period, Vietnam actively

participated in regional economic groups, becoming an official member of ASEAN in 1995 and of

APEC in 1998. Nonetheless, the country suffered from the turmoil of the Asian economic crisis in

1998. In the third period from 2000 to 2006, Vietnam continued to accelerate its economic integration

into the world economy by signing the BTA with the USA in 2001 and by joining the WTO in 2006.

In fact, that was also the year in which Vietnam' exports achieved their highest level since the

implementation of "Doi Moi". The creation of Vietnam's stock market toward the end of 2000 along

with a boom at the end of 2006 combined with the 150% increase in the VN-index's in particular,

proved a great challenge for the country. As the result of the world financial crisis in late 2008, the

effect of the contagion on the country was felt in 2009 with a sharp decrease in exports. The fourth

period (2006-2012) witnessed the collapse of many state-run conglomerates because of serious

problems ranging from poor efficiency and corruption to crony capitalism (Vuong, 2014). Notably,

many state run enterprises went bankrupt in this period, setting no little challenge for Vietnam's

national economy and its foreign trade.

Page 17: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

15 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Chapter 4 describes relevant factors of the gravity model in order to explain Vietnam's export trade

pattern using data on Vietnam's exports with over 150 importing countries across five continents for

the 1997-2009 period. Although the traditional gravity model includes the two main factors, namely

the income of partner countries and the geographical distance, the dissertation develops additional

factors. Specifically, the chapter examined the effects of the importing countries' GDP per labor force,

relative factor endowment between country pairs and other proxy indicators for export transport costs.

As the chapter only dealt with export trade from Vietnam to its partner countries, its imports from its

partners in this case were not considered. Additional factors of gravity model were constructed based

on the available indicators. Firstly, we used the GDP per labor force as a proxy for the country's

productivity; secondly, the relative factor endowment is constructed by calculating the difference

between the GDP per capita of Vietnam and that of the importing country; thirdly, the exchange rate

between Vietnamese currency and an importing country’s currency can be a good proxy for the

multilateral resistance term. Moreover, the chapter examined the role of ASEAN in encouraging or

discouraging exports. In this chapter, the fixed effect model is consequently preferable. However, the

fixed effect regression model does not report the time-invariant variables, therefore the random-effect

model can be used as an appropriate reference. In general, the regression results from the coefficients

were as expected except where the geographical distance was insignificantly negative which suggests

this trade cost should be seen in the context of Vietnam's simultaneous trade with the rest of the world.

Chapter 5 examines the effects of gravity factors on firms' exports in footwear, rice and wood and

wood products sectors for the 2006-2010 period. We have treated firms who export to different partner

countries as a group then attempted to examine how each firm-country group performs differently in

continuous years of the period. Surprisingly, we found that gravity factors such as the GDP of the

importing countries and geographical distance between Vietnam and importing countries do not give

the same effects compared with those from gravity model using aggregated country level data. More

importantly, our findings in this chapter confirm the role of individual firms in determining their export

trade pattern.

Chapter 6 contains the findings of the analysis obtained from the quantitative study of three export

sectors such as wood and wood products, footwear and rice, based on various econometric models. We

identified the relationship between those determinants and a firm's export intensity. We are especially

interested in identifying the effect of the factors namely human capital intensity, firm’s size, capital

intensity and type of firm ownership (state-owned firm may be a supportive factor of exports).

Although highly qualified workers have been considered an advantage for Vietnam in attracting FDI

capital (Nguyen and Nguyen, 2007), they are becoming a disadvantage for the country's exports

because the export sectors require mostly low-cost labor in order to increase export volume. Arising

proportion of firm's exports to total sales is a good indicator that decision has been taken to increase

exports. The chapter also analyzed the role of firm location in improving exports as well as firm

distribution across the country since the geographical location, to some extent influences the exporting

activity of firms particularly those producing agricultural products. The chapter also compares the

export value of the three sectors and examines the dynamics of firms through their annual number of

contracts and their export value.

Page 18: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

16 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Chapter 7 concludes the dissertation with some concluding remarks and makes important suggestions

on important points of Vietnam's export trade policy. Since the determinants have different effects on

Vietnamese exports depending on the sector, therefore our policy recommendations focus on a single

export sector. We study macro and micro level export determinants so as to provide guidance for both

policy makers and firms seeking a method to improve their export performance. Solving the export

problem is a major concern of firms seeking to strengthen their international market position.

Page 19: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

17 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 2. CONCEPTUAL FRAMEWORK ON INTERNATIONAL TRADE

SUMMARY

This chapter analyzes the evolution of international trade theory beginning with a logical explanation

of the methods countries used to exchange goods. Attitudes to the reasons for international goods

exchange depend on a country's production innovation. However, classical trade models such as

absolute and comparative advantage trade theories explain trade among countries using a simple

example of any two countries. Modern trade theory focuses on trade leverage rather than the available

advantages of a country such as natural resources or low cost of labor. We also mentioned and

criticized the role of firms in international trade as a core factor in determining a country' trade pattern.

Determinant factors affecting trade performance include both internal and external factors of the

country and the firm.

Page 20: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

18 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

2.1. Introduction

Theoretical and empirical background section provides a critical map for the dissertation on Vietnam

trade pattern with its partner countries. In fact, the term export trade applies not only to a country pair

but also to a country with several economic blocks. Moreover, smaller entities such as firms play an

important role in influencing trade pattern since they are dynamic and different firms have different

potential and competitive strategies.

The first section of this chapter discusses various theoretical trade theorems. Firstly, classical trade

theory describes a country's trade using pure models in which two countries enter the trade model.

Secondly, new trade theory discusses production factors of a country using a data set of many countries

to prove the validity of theoretical models.

The second section of this chapter considers a wide range of empirical papers served as conceptual

framework for country-to-country trade and firm-to-firm trade. More importantly, this section builds

on the theoretical framework discussed in the first section and describes a conceptual framework

employed in the dissertation for the empirical analysis of the research question under investigation. The

conceptual framework covers three main studies including both quantitative and qualitative methods.

The qualitative study describes the general picture of Vietnamese export trade for a long period of

1986-2012. The qualitative study focuses on answering typical research questions including what to

export, when to export, why to export and for whom to export. The first quantitative study investigates

the export trade pattern of Vietnam, the second examines the role of individual firms in determining

their export trade pattern and the third one attempted to find the export determinants.

This chapter aims to show that the dissertation is a further contribution to the series of research papers

on international trade and is only one to analyze the example of Vietnam, an emerging and developing

country. The theoretical perspective itself gives context for our three empirical studies of Vietnam's

export trade. In turn, the empirical studies confirm and shed more light on the theory.

2.2. Theoretical background

2.2.1. Classical trade theory

2.2.1.1. Absolute advantage

International trade theory has long been proposed as a mean to help develop international market for

countries seeking more consumer markets for the goods and services produced within their own

borders. The principle of the absolute advantage theory was first introduced by Smith (1776) to

explain that any individual or country that can not produce one good more efficiently than others will

tend to purchase that good from one of them. Where that efficient producer and consumer do not live

in the same country, the principle is applied if no monopoly is imposed on the home country. However,

he pointed out that where a domestic product can be purchased as cheaply as a foreign equivalent product,

such regulation would clearly be pointless even though generally undesirable. The productivity of labor in

the tables below illustrates the absolute advantage.

Page 21: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

19 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 1. Illustration of the absolute advantage

Produce Country A Country B

Commodity 1 (kg/capita/hour) 1 3

Commodity 2 (meter/capita/hour) 4 2

In another case, since the tradable price of one good is the total costs, the absolute advantage can be

otherwise expressed as

Table 2. Another illustration of the absolute advantage

Produce Country A Country B

Commodity 1 (USD/kg) 1 3

Commodity 2 (USD/meter) 4 2

The absolute advantage theory inspired trade liberalization and was critical of the disadvantages of the

mercantile system, which had been earlier adopted by European governments since that system

allowed governments to increase a nation's wealth by regulating all the nation's commercial interests.

The mercantile system in some cases encouraged a nation to export rather than to import certain

commodities. Exports of certain manufacturing input materials were discouraged to enable finished

products to undercut products of other nation. It also encourages the import of manufacturing input

materials so that the workers produce finished goods more cheaply than other nations.

Unlike the mercantile system, which describes the gain in wealth of one nation as the loss of another,

the absolute advantage theory underestimates the role of government in intervening a country's trade.

However, the theory does propose that one country should specialize in producing a good that the other

country can not. It also emphasizes the role of individual firms in a free trade system. However, this

theory does have some limitations. Firstly, it does not include the case where a country has not

international trade advantages while others may. Such cases have attracted more attention in recent

years in context of North-South trade. Secondly, the theory also considers labor as a mere input

production factor in the international distribution of labor and does not take account of the proportion

of labor in different goods from different countries.

2.2.1.2. Comparative advantage

The following Ricardian model (Ricardo, 1817) developed the comparative advantage theory, where

opportunity cost is described as a reason for one country to specialize in what it can do best. This

principle partly explains one limitation of the absolute advantage theory whereby any country can act

in its own interest when engaging with the international market. A country can benefit through

specialization to produce one or more goods at a comparatively lower price than a rival country. In

turn, a country producing the good less efficiently (at a higher price) than the other can import that

good. It is important to see an individual country's gain in the context of the total sum of all goods

traded. If in fact, a country is unable to produce a particular good more efficiently than a rival country,

it can still outperform its rival with the production of other good.

Page 22: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

20 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 3. Production cost

Product Country A (wage hour) Country B (wage hour)

One unit of wheat 15 10

One unit of wine 30 15

In this example, country B has an absolute advantage over country A in producing both wheat and

wine. According to the explanation of Smith (1776), country B may not find it advantageous to import

either good from country A. However, under comparative advantage theory, country B could benefit in

another way. Since one unit of wine produced in country A is equivalent to the costs of two units of

wheat in country B, while the cost of one unit of wine produced in country B is equivalent to

production cost of 1.5 unit cost of wheat in country A, therefore, the production cost of wine in country

B is comparatively lower than in country A. Likewise, in country A, the production cost of wheat is

comparatively lower than in country B, which means that country A has a comparative advantage for

wheat and country B has a comparative advantage for wine. In the absence of international trade, the

two countries would themselves produce both goods.

Table 4. Comparative advantage of country before trading

Country Wheat unit quantity Wine unit quantity

A 8 5

B 9 6

Sum 17 11

Assuming that country A and country B merely specialize in producing wine and wheat and exchange

these products then following quantities would be achieved:

Table 5. Comparative advantage of country after trading

Country Wheat unit quantity Wine unit quantity

A 18 0

B 0 12

Sum 18 12

It is therefore clear that if each country focuses on producing a good in which it has a comparative

advantage, the total quantity of wheat and wine would increase after trading between the two countries.

However, as with the absolute advantage theory, there are certain limitations in the comparative

advantage theory in some circumstances:

- Assuming identical production cost of goods in two countries A and B and high transport cost

between them compared with a country C which shares a common border with an export country A,

the exporting country A may decide not to trade with the distant country B.

- In some cases, a country is able to benefit from economies of scale so that the production cost of a

good accordingly falls because the fixed cost is spread over more units of output. In addition to the

labor cost, other cost advantages are considered which also therefore affect the choice of the partner

country.

Page 23: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

21 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

- Since different countries do not necessarily produce the identical quality of a nominally similar

product, this may affect the choice of partner country.

- Assuming there are neither export and import taxes nor trade barriers between the two countries.

- It is also assumed that perfect information on a good is easily accessible to both the seller and the

buyer in the international market.

2.2.1.3. Specialization of production and factor endowment

Factor endowment in production originally developed by Heckscher (1919) and Ohlin (1933)

describes a given quantity of factors of production within a country rather than the dynamic changes in

those factors. While comparative theory mentioned production factors including labor, land and capital

as essential resources of a country's advantage, the analysis of resources distribution is based on

assumption. In actual fact, one country can be intrinsically different from another in its production

endowments. For example, Vietnam tends to export more agriculture and seafood products because of

the favorable factor endowments climate and geography (the two large plains Red River Delta and

Mekong River Delta). A long coastline is also an advantage for the country in fishery product sector.

Britain in contrast has the advantage of several key sectors such as aerospace, pharmaceuticals,

automotive sector thanks to its skilled labors.

According to the Heckscher-Ohlin theorem, a country will tend to export goods that use its abundant

factors intensively and to import goods that use its scarce factors intensively. The theory proposes the

important assumption that the marginal rate of substitution is independent of the scale of consumption.

Specifically, the consumption reduction for one good is the additional consumption amount for another

good if the level of utility of a person remains unchanged. Since resources are not unlimited and the

manufacturer has to determine the proportion of labor and capital allocated among goods, resources

available for distribution are therefore inevitably restricted. A manufacturer has to use his own capital

to pay for labors and fixed costs and the final cost of a product needs to cover these basic costs and

ultimately determines the price of the goods. Leaving aside other relevant price factors, this will give

the normal price conventionally called the unit price.

Figure 1 shows the relationship between the relative price of cloth together with the price of food and

the wage rent ratio. As labor becomes more expensive relative to capital, cloth, which is labor-intensive

in production, finds itself at an advantage and becomes relatively expensive compared to food.

And both home and foreign country use the same technologies, the same FPGP curve is applicable to

both countries and under free trade, the relative price of cloth will be the same in both countries.

Therefore, the wage-rent ratio will also be the same in both countries.

In an autarky economy, according to the Heckscher and Ohlin theorem, the labor-intensive good would

be relatively cheaper in the labor-abundant country therefore under free trade, the labor-intensive good

would be exported by the labor-abundant country and the capital-intensive good would be exported by

the capital-abundant country.

Page 24: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

22 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 1. Factor prices and good prices

Relative price FPGP

of cloth, Pc/Pf

17

5 Wage rent ratio, w/r

Source: Krugman, Obstfeld and Melitz (2012)

Nevertheless, the Heckscher-Ohlin theory reveals some limitations arising from its fundamental

assumptions. Firstly, the restrictive model examines the case of only two countries engaging in trade

with two goods and two production factors. Secondly, the model is static since does not cover the case

of two countries trading over a period of time therefore, the effect of any changes in production factors

such as capital and labor on country trade are not considered. Thirdly, consumer's demand, which also

influences the factor price, is ignored in the model. Fourthly, Leontief (1953) has countered the H-O

theory by presenting the case of American trade where he found that America exports labor-intensive

goods and imports capital intensive goods whereas America is in fact a capital abundant country.

Fifthly, just as the absolute and comparative advantage theory, the H-O theorem neglects other

important factors influencing commodity prices and international trade such as technology, natural

factors and differences in quality of labor.

2.2.1.4. International product life cycle theory

Vernon (1966) developed the theory of the international product life cycle linking international trade

with investment based on a product life cycle by using a database of a capital-intensive industry in the

United States.

Using the pure qualitative research method, he proposed three-main sub-stages of a product life cycle,

which influence differently the decision on production costs of a firm. At the first stage when a new

product is introduced, producer is more likely to be aware of the importance of more effective

communication with the potential market than of product innovation. Therefore, a producer is more

likely to choose his local country as production location.

At the introduction stage, a prospective producer tends to make the location choice based on the initial

capital requirement since new producer is very much aware of a potential risk arising from the fact that

the product is not yet well known and competitors have a far stronger reputation and far larger market

share. For those reasons, prospective producers are more likely to choose the local country to locate the

Page 25: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

23 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

firm whereas existing producers are more easily able to expand their production overseas and benefit

from economies of scale.

Maturity stage comes as demand particularly from foreign countries for a product expand which leads

to existing producers starting to export. Depending on the distance between exporting and importing

country, export and import tax on products, producers gradually come to realize that such costs do

matter especially cost of labor and raw material, which improve their competitiveness and thereby

make it easier for them to serve foreign markets. On the other hand, other domestic producers of

similar product may become more competitive where local demand may seem to contract.

Figure 2. International product life cycle

Stage 1 Stage 2 Stage 3

Introduction Maturity Standardization

Highly skilled Largely unskilled production workers

0 10 20 30

Time (years)

Source: Vernon (1966)

At this stage, firms may therefore find it necessary to seek new markets. Vernon (1966) was critical of

the fact that as long as the marginal production cost plus the transport cost of the goods exported from

the United States was lower than the average cost of prospective production in the import market, a

producer in the United States would prefer not to make investment on that market.

Product standardization is the advanced stage of a product life cycle. Local consumers in developed

countries are very familiar with the product whereas developing countries have high demand for the

products and offer attractive labor costs and may offer a low-cost captive source of supply of raw

material. In this regard, less-developed countries may supply cheap labor cost and perspective source

of material as well. At this stage, producers also need to consider creating trademark. Certain suppliers

of food and drink services in particular, may start thinking about the need to grant franchises, which

makes market communication of vital importance. There are various types of investment at certain

sub-stages of product development depending on the domestic and export market status. The

investment decisions of local producers are closely linked to the trade policy decided by the

government of developing countries for example import substitution or export oriented. If a developing

country applies import substitution policy, investors may face restrictions including import duties,

import licenses or currency transactions. In contrast, developing country following an export-oriented

policy to accelerate their industrialization may offer favorable terms such as reduced tariff barriers for

Labor

Page 26: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

24 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

imported raw materials or floating exchange rate to potential foreign investors seeking to relocate their

manufacturing facilities. Nevertheless, investment stimulation is not always suitable for all developing

countries because investment by a highly competitive longer established foreign producer may damage

a developing country' nascent industries. Moreover, a floating exchange rate regime is an inherent risk

for emerging countries because if a local currency is anchored to the USD, the wave of high liability

dollarization generated may result in financial fragility.

The international product life cycle like many other theories has its own limitations in that all the sub-

stages of one cycle are purely hypothetical depending on observing one specific economy of the US.

Investment decisions rely on the investment demand of the US producer and the changing consumer

markets. Furthermore, the model does not support the use of historical data for forecasting. The life

cycle of a product depends on consumer sale. Not all consumers buy in the introductory stage. Some

people buy early, others buy some time later than their friends. In particular, the product life cycle may

not synchronize with that of a similar product in a particular developing country or conversely, other

developed country competitors may already have started to invest in the same country, which may

constitute an obstacle for the first producer in deciding whether to invest.

2.2.2. New trade theory

2.2.2.1. Economies of scale and the pattern of trade

Krugman (1980) was the first to recognize that economies of scale is a prime cause of international

trade and asserted that countries with the relatively large domestic market are more likely to export

such goods. Although his theory also acknowledges labor as an important factor in the production to

explain why a country exports, its approach is very different from comparative cost theory. Whereas in

the comparative advantage model, labor is one factor in determining the product value, in the Krugman

theory, he assumes it is a function of a country's output of one good. Importantly, under his theory,

output of one good is equal to the sum of individual consumptions. Krugman has also assumed that

there is no free entry and exit of a firm otherwise, the profit margin would always be zero.

Krugman examined equilibrium between firm's output and wages in the context of both a closed and

open economy. By combining the utility function with the labor factor in a cost function, he concluded

that firms costlessly differentiate their products because two firms never want to produce the identical

product. If there are a large number of different goods being produced, the pricing decision of any one

firm will have negligible effect on its marginal utility of income. Especially where profits are positive,

new firms will enter the market, causing the marginal utility of income to rise and profits to fall until

profits are driven down to zero. Assuming zero transport cost, trade would not affect the scale

production and the gains from trade would come solely through increased product diversity.

In the open trade system, assuming zero transport cost, trade would occur in the presence of increasing

return that is gains from trade would occur if the world economy were to produce a greater diversity of

goods offering each individual a wider choice. Even if we include transport cost in this equilibrium, the

elasticity of export demand would be the same as that of domestic demand indicating that transport

Page 27: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

25 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

costs would have no effect on the number of firms or output per firm. However, transport costs would

matter if wages were assumed not to be equal in the two countries. Firms would be more likely to

concentrate production near their largest markets so that they could minimize their transport costs.

Each country would be a net exporter to its largest market. However, wages would not normally be

equal particularly in smaller economies. Whichever country has a larger market for a product would be

a net exporter of that product and a net importer of another product.

2.2.2.2. National competitive advantage

Porter (1990) asserted that differences in national values, culture, economic structure, institutions and

histories contribute to competitive success. Since nations can not be competitive in all fields and

industries, they need to develop their own appropriate strategy so as to become more competitive in the

international market. As such, he proposed a diamond model, which highlights the importance firms

and other factors in promoting country's competitive advantages. Using the case study method, Porter

conducted a four-year study of 10 major trading countries and postulated interesting findings on how a

country can improve its competitiveness. According to this model, four main attributes create

determinants of a national competitive advantage.

- Factor endowments: Porter criticized standard economic theories especially those of Adam Smith and

David Ricardo in their economic models who postulated certain key production factors such as land,

labor, capital and natural resources.

As analyzed in the previous sections on the classical trade theory, any country endowed with one or

more factors can gain an advantage on the international market and a labor-intensive country tends to

import capital-intensive products whereas capital-intensive country tends to import labor-intensive

products.

Figure 3. Porter's diamond

Source: Porter (1990)

Firm strategy,

Structure, and Rivalry

Demand conditions Factor endowments

Related and Supporting

Industries

Page 28: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

26 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

This leaves open the question of how a country without low cost labor or natural resources can raise its

competitiveness. Does a country faced with tough competition from other nations learn to respond to

challenges? Porter indicates that firms manage to find opportunity even in the absence of natural

endowments. Such firms need to upgrade their labor productivity and to innovate.

- Demand conditions: Home-demand to some extent reflects the needs of emerging buyer and

encourages domestic firms to innovate and improve standard quality of their products. In some cases,

sufficiently large domestic demand can lead to increased demand from other nations. In other words,

local demands may significantly affect global consumption.

- Related and supporting industries: Manufacturing a finished product involves different stages in the

production chain, which need to be linked. Within a single country, a firm may not be able to cover all

the production stages and hence may need to cooperate with another firm, which can provide it with

support in the form of input materials or design work. For example, a shoe manufacturer needs to

cooperate with a leather producer as a supplier of an essential input material. In the context of the

global value chain, firms from one country can cover one important link in the chain and thus a

finished product is international although domestic supporting industry where available can help a

manufacturer to reduce costs and save time since they are easier to approach and better known to him

than in third country's supporting industries. Where a firm can not cover all stages of production then it

is very important to have a strong supporting industry. Furthermore, supporting industries can provide

innovation and upgrading for a manufacturer and therefore improve technical quality.

- Firm strategy, structure and rivalry: Firms' strategy and structure often differ from one country to

another. These differences depend on the national context as well as on the types of sectors. In some

countries, small and medium firms are more productive than larger ones while in some other countries,

firms are strictly hierarchical in organization and management practice. Even in any sector of a

country, there may be both domestic and foreign competitor supplying similar product. Globally, the

competition is fierce especially for firms entering the market. However, competition also motivates

firms to innovate in various ways such as improving product quality, introducing new products, which

would drive less innovative firms to exit the market. Competition in some respect is to be considered as

an advantage since it encourages firm to improve their performance.

2.2.2.3. Gravity model

The gravity model first proposed by Tinbergen (1962) to explain the pattern of trade by one country is

considered to be analogous to the Newton’s gravitational law. According to the basic model, the size of

the economy of exporting and importing country is the attractive factor in determining a country's trade

pattern whereas the geographical distance between a country pair is the unattractive factor. In many

studies on trade prior to ours using the gravity model, the attractive factor is not limited to the income

of country for which GDP is a good proxy but also includes other indicators such as GDP per labor

force, population, the relative factor endowment. Furthermore, variable "cost" is not limited only to the

geographical distance but includes other factors such as social distance, whether the country is

Page 29: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

27 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

landlocked, whether it is a member of a common economic group, whether it shares a common

language with its partners or whether one country is colony of the other.

Theoretical foundations of the gravity model mostly regards trade volume between a country pair as a

function of supply and demand factor in the supply and demand equation. Although the gravity model

explains the trade pattern between a country pair and most literature uses data on trade at country level,

the role of the firms in determining trade is also of crucial importance since firms are dynamic and

firms active in the international market are more competitive than firms only active in the local

markets.

2.3. Empirical framework

The contribution of exports to the country's economy has been analyzed in the above sections.

However, the product structure of Vietnam's exports still needs to be further addressed. The description

of a country's export product structure also indicates one country's competitive capacity in a particular

sector. The fact that developed and developing countries have different product ranges indicates they

have different resources.

Since Vietnam's economic reform almost three decades ago when it opened its market to foreign

investors, its export product structure and trade partners have fundamentally changed. Vietnam's

regional and global economic integration is which enables local firms to penetrate very distant markets

including the highly dynamic market such as the United States of America, etc. With over 150 export

partners, the export volume has continuously increased. Our dissertation gives a general description of

Vietnam's economic integration through exports for the 1986-2012 period. Since Doi Moi in 1986,

Vietnam has become not only an official member of the regional integration group ASEAN but also of

the WTO, as well as concluding many bilateral trade agreements with countries all over the world.

Specifically, our dissertation attempts to analyze Vietnam's export trade pattern at the macro and micro

level by applying the gravity model to exports data at country and firm levels. Of course, a country's

exports are the aggregate value of the individual firms' exports in a given period. However, export

firms' dynamics vary which directly affect their comparative export performance. Our dissertation also

attempts to analyze the role of the firm's extensive and intensive margins in determining Vietnam's

trade pattern in three export sectors. Furthermore, firms active in different export sectors have different

characteristics and therefore require appropriate distribution of production resources.

Internal factors of firm in a particular industry are determinants, which may encourage or discourage

firm's export performance. Figure 4 below shows the framework of the dissertation and presents

Vietnam' exports performance since the year of country's economic reform 1986. Four important

chapters of the dissertation show the evolution of Vietnam's exports as well as the relevant macro and

micro determinants. One chapter uses a purely qualitative method while the other three chapters use

quantitative methods based on the three main data sources including the UN Comtrade, the GSO and

the VCO of Vietnam.

Page 30: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

28 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 4. Conceptual framework of the dissertation

Source: Author's research

Chapter 5

Firms to country

exports

(Quantitative)

Chapter 3

Export structure: Product diversification and destination market

(Qualitative)

Chapter 4

Country to

country exports

(Quantitative)

Export

entity

* GDP

* GDP per labor

* Difference in GDP per capita

* Distance

* Trade block: ASEAN

* Landlocked country

*Common border

*Colony

* Economies of

scale

* Types of

ownership

* Experience

* Location

* Capital intensity

Chapter 6

Exporting firms and

their internal

determinants

(Quantitative)

Page 31: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

29 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 3. VIETNAMESE EXPORT STRUCTURE: PRODUCT DIVERSIFICATION

AND DESTINATION MARKET

SUMMARY

This chapter gives an overview of Vietnam's export trade since its economic reforms in 1986 using

only the qualitative method. Vietnam's export pattern is investigated against the background of

Vietnam's economic reforms in three main periods. The 1992-2003 period in particular represents a

major landmark in Vietnam's economic and trade integration into many groups such as ASEAN and

APEC. When Vietnam became a full member of the WTO in 2006 that was a signal that the country

had completely integrated into the global trading structure. This chapter also analyzes Vietnam's export

structure, which had been changing dramatically in the course of the three periods. Indeed, export

revenue from manufactured goods has gradually exceeded that of primary goods showing that the

country has been increasingly concentrating on developing products requiring skilled labor. The

chapter also analyzes Vietnam's export markets as well as the contribution of the most dynamic

importing countries and country groups including the USA, the EU, Japan and China.

Page 32: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

30 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

3.1. Introduction

The break-up of the Soviet Union and the fall of communism in the Central and Eastern Europe bloc in

the 1980s had negative consequences for other communist countries in South Eastern Asia including

Vietnam. The country was faced with the dilemma when the western countries did not open up their

economic relationship with Vietnam but followed the embargo policy of the United States of America.

The shortcomings of the centrally planned and closed economy pushed Vietnam to the brink of

bankruptcy. The country was also facing a major economic crisis in 1986 when the highest rate of

hyperinflation reached 775% and there was still three-digit inflation for a further two years.

For ten years following the country's independence in 1975 until the economic reforms in 1986,

Vietnam's international trade relations were mainly confined to the countries of Socialist Republic bloc

and covered some capitalist countries including Japan, France, Sweden and India. Meanwhile, export

products were mainly manufactured from various natural resources such as coal, chromium, cement

and some agricultural products. Foreign trade payment was made in Ruble, which was then converted

into US dollar. In 1985, the country's export trade with the Socialist Republic countries bloc earned

425.8 million Rubles and 272.7 million Rubles were earned through trade with some capitalist

countries.

The year 1986 when the leaders of Vietnam's VCP launched a series of economic renovations

including the organizational and personnel structure, administrative system, economic and political

system is considered as a turning point of the Vietnamese economy. Specifically, these fundamental

changes applied to the country's economy constitute a transition from a centrally planned economy to a

socialist-oriented market economy. The opened position of the VCP on the country's economy is

shown by the Government's acceptance of a multi-sector economy including the state-owned sector,

collective sector, domestic private-capitalist sector, foreign-owned sector. Following the VCP

guideline of 1986 whereby Vietnam was to aim to be on friendly term with the countries of the world,

since then it has started to integrate into the world economy.

Some economic indicators such as GDP, trade revenue, the FDI attraction index confirm how much

Vietnam's economy has been transformed since 1986. From 1986 to 2012, the contribution of exports

in GDP rose dramatically peaking at 73.5% in 2012. In particular, export revenue in 2012 reached

114.5 billion USD, which corresponds to 145 times the country's export revenue in 1986. Moreover,

the number of Vietnam's importing partners also rose annually from 33 in 1986 to a peak of 220 in

2002.

3.2. Trade liberalization process and economic context

3.2.1. Period 1986 - 1991

Vietnam's economic crisis was mainly caused by a misguided economic policy which forced its leaders

to launch Doi Moi, changing their political approach and taking new economic and trade initiatives. A

lengthy virtually closed economy had many consequences for the economic approach and its development

strategy of Vietnam. After Doi Moi, the economy went through a long recession before recovering from

Page 33: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

31 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

the introduction of the market-oriented economy. Negative economic indexes pushed back the national

economy leaving it far behind the world economy.

The economic reforms in 1986 were a turning point showing that Vietnam was ready to open up to the

countries of the world. The first example of the Government's new direction was the 1987 first law on

Foreign Investment in which the Socialist Republic of Vietnam welcomed and encouraged foreign

organizations and individuals to bring capital and technology to Vietnam on the basis of mutual

benefits and nondiscrimination between domestic and foreign investors. Another example was the

1990 Cooperate and Private Enterprise law whereby all Vietnamese entitled citizens were allowed to

establish private enterprises. Although private economic entities had been legally recognized in 1972,

many of those were subsequently nationalized and converted into SOEs. This economic decision badly

affected the growth of the economy and was one of the main causes of the 1986 national crisis.

Furthermore, the 1990 major legal milestone was an importance factor in encouraging both the private

and state-owned enterprises to boost their contribution to the growth of the economy. However, the

1990 law was also seen as an important step forward compared with the 1972 Commercial Code,

which was restricted to only five forms of enterprises: partnerships, simple share capital companies,

joint capital companies, limited liability companies and share holding companies.

As early as three years after Doi Moi, Vietnam has made remarkable progress including a reduction in

the rate of inflation to 67.4% and whereas in 1988, the country had to import nearly half a million ton

of rice, a mere two years later, it was able to export over 1 million ton. The Foreign Direct Investment

law of 1987 not only encouraged an increase to 0.32 billion USD of FDI in 1988 but also meant a

greater number of projects were included. The important role of exports has been reflected via its

contribution to the national income, yielding from nearly 3% in 1986, gradually increasing to about

35% in 1997 and reaching 73% in 2012. For the period, the trade balance was mostly negative, the

difference between exports and imports was rather small.

Figure 5 shows the evolution of Vietnamese trade from 1996 to 2012 including four important factors

of trade. We see that there was a limited increase in exports and imports until 1992 and the number of

importing countries grew slightly between 1986 and 1992. However, from 1993 to the end of the

period, there was a slightly increasing trend in the country’s exports and imports and its trade balance

was mostly negative until 2012 when exports exceeded imports.

Page 34: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

32 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 5. Evolution of Vietnamese trade and its country partners, 1986-2012

Source: Export, Import and number of destination markets data for 1986-2012 GSO

(website of GSO, Vietnam)

3.2.2. Period 1992 - 2003

The year 1992 was the first time that Vietnam amended its Constitution since Doi Moi. It included the

guiding principle that the country pursues a policy of peace, friendship and expands international

relations and cooperation with all countries in the world, irrespective of their political and social

systems. The 1992 Vietnam's Constitution also acknowledged for the first time the right to create a

multi-sector competitive economy thus encouraging each economic sector to create its own value of

first phase of modernization and industrialization.

The period saw significant initiatives by Vietnam ranging from normalizing diplomatic relations to

establishing trade relations with some important partners either an individual country or foreign

economic blocs. Figure 6 shows the various stages in the development of Vietnam's trade relations

with key trading partners such as USA, Japan, China, the EU and ASEAN. In general, the open

economic policy approved by the State Government has had a positive effect on trade in particular on

the flows of exports, which make an important contribution to GDP, create employment, attract

advanced technology and encourage local production. When Vietnam became an official member of

ASEAN in 1995 and APEC in 1998 and normalized its diplomatic relations with the United States of

America in 1994, it was a milestone in its integration into the global market. In 1995, Vietnam signed

the Vietnam-EC framework cooperation agreement and in 2000, it signed a bilateral trade agreement

with the US triggering an active period of trade cooperation. The CEPT-AFTA reflects the tax cuts and

exemption by member countries, which facilitate and liberalize trade between members.

Moreover, the extension of ASEAN to ASEAN plus three including Japan, China and South Korea

was an opportunity for Vietnam to consolidate relationship with these large economies in the region.

Firstly, China shares a common northern border with Vietnam and is a major supplier of competitively

priced raw materials for production and Vietnam has much in common with China culturally and in its

pattern of consumption.

0

50

100

150

200

250

-400000

-200000

0

200000

400000

600000

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Exports (real million USD) Imports (real million USD)

Balance (real million USD) Number of importing country partner

Page 35: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

33 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 6. Historical trade foundation of Vietnam and its country group partner

Source: Author's research

Secondly, Japan, which is a leading technological power, is a major investor and aid partner for

Vietnam. South Korea has significantly contributed to Vietnam's economy, on the one hand emerging

as Vietnam's number one investor, with $23.5 billion FDI in more than 3,000 projects (Park, 2012) and

on the other hand, being one of the top five largest customers in Asia for Vietnam's export products.

Vietnam also succeeded in exporting annually to South Korea an average of 2.1 million USD in the

VN-EU

1992

1995

1997

Signed textile agreement

Signed Vietnam-EC framework cooperation agreement

Vietnam joined ASEAN-EU cooperation agreement

VN-ASEAN

1995

1996

2002

1997

Signed the agreement on the Common Effective Preferential

Tariff Scheme for ASEAN Free Trade Area

Vietnam implemented first package for the CEPT scheme

ASEAN plus three including China, Japan and South Korea

ASEAN-Japan Free Trade Agreement

ASEAN-China Free Trade Agreement

1998 Became official member of APEC VN-APEC

VN-USA 1995

2000

Formal normalization of US-VN diplomatic relations

US-VN bilateral trade agreement (BTA) was signed

Page 36: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

34 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

1986-1991 period and the annual export value exceeded 5 million USD on average in the second

period, indicating strong progress in trade tie between the two countries.

Figure 7. Exports by country and country group (%)

Source: Author's diagram based on GSO data

Figure 7 compares the export performance of Vietnam in some key markets. From the diagram, it is

clear that Vietnam's exports to those markets increased in all three periods.

It is noteworthy that exports to the ASEAN, EU, USA, Japan and China markets accounted for larger

share of Vietnam's total exports in the second period after Doi Moi showing how much progress

Vietnam achieved through trade liberalization. In fact, the total share of exports by value to those

markets remarkably doubled in the second and third period compared with first period after Doi Moi.

While ASEAN and Japan accounted for a largest share of Vietnam's total exports in the first period,

which was maintained during in the second and third one, the EU and the USA share rose spectacularly in

the second and third period. In particular, we should note that China has become a major export market for

Vietnam in the second and third period following its economic reform.

ASEAN

13%

EU

4.93%

Japan

16.08%

China

0.29% US

0%

The Rest

66%

Period 1986-1991

ASEAN

18.81%

EU

20.99%

Japan

18.71% China

7%

US

6.06%

The Rest

28.03%

Period 1992-2002

ASEAN

15.99%

EU,

17.1%

Japan, 12.02%

China, 10.8%

USA,

16.68%

The Rest

27%

Period 2003-2012

Page 37: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

35 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Trade liberalization under the framework of the agreement on CEPT3 grants preferential tariff rates of

0-5% to member countries of the ASEAN. This policy enabled Vietnamese products to gain access to

a large regional market before expanding into the global market. Vietnam today has fully implemented

its commitment to cut its preferential tariff rate to 0-5%. In fact, the absolute value of Vietnam's

exports to ASEAN countries increased in line with the preferential tariff elimination roadmap

confirming its active participation in regional and international markets.

3.2.3. Period 2003- 2012

The third period is characterized by Vietnam's close integration into the world economy, as the country

became a full member of the WTO in 2006. Membership of the global trade community provides

Vietnam with support in seeking more opportunities for its firms to find export and import partners, for

it to increase trade revenue, and attract advanced technology from large intercontinental corporations.

However, just as many other members of the WTO, Vietnam has to comply with the general principles

of the multilateral trading system namely MFN4, transparency, and protection for domestic industry

through tariffs only and continued liberalization.

In particular, Vietnam is currently involved in comprehensive cooperation with some regional

economic associations. Firstly, the AEC established by leaders from the ASEAN bloc of nations, will

soon become effective at the end of 2015. As a single market, the AEC will help promote free flows of

goods, services, investment and employment in the bloc by eliminating tax on most goods and services

between ASEAN countries. Vietnam in turn, has committed itself to eliminate import taxes for about

80% of tariff lines as well as to remove of all tariff lines by 2018. Secondly, in 2009, Vietnam started

the first round of negotiations for the TPP agreement5. The TPP agreement is considered to be one of

the most important trade negotiations for Vietnam because it would give the country favorable

conditions to expand the export market and indirectly improve the quality of employment. Thirdly,

Vietnam would benefit from the upcoming free trade agreement with the EU expected to be concluded

in late 2015. After starting negotiation the free trade agreement with the EU in 2012, Vietnam has

actively initiated many free trade talks with EU countries and expects to achieve its goals of improving

the environment, competition, sustainable development and free investment.

3 CEPT reduction schedule affects four categories of product/items summarized in the Inclusion List (IL), the Temporary

Exclusion List (TEL), the Sensitive List (SL) and the General Exception List (GEL). Vietnam announced the classification of

goods in four lists including 4232 items are listed under IL, 1800 items under TEL, 51 items under SL, 202 items under GEL.

Major goods on Vietnam's TEL have been automobiles with more than 16 seats, household appliances, bicycles, toys,

cosmetics, textiles/garments, iron and steel products. The SL includes 26 items unprocessed agricultural products such as

livestock, meat, fish product, eggs, brown rice and sugar that are protected by quantitative import restrictions. GEL covers

196 products and their importation is restricted for reasons of environmental protection, national security, public moral and

health. 4 MFN is the most important discipline of the WTO referring to the fact that trade benefits granted to one country must be

immediately and unconditionally extended to like products of other countries. The national treatment, that complements the

MFN principle, prohibits a member from discriminating between imported products/services and domestically produced

products and services. 5 TPP is a multilateral free trade negotiation aiming to integrate the economies of the Asia-Pacific region. At present, 11

countries taking part in TPP negotiations include New Zealand, Brunei, Chile, Singapore, Australia, Peru, United States,

Malaysia, Vietnam, Canada and Mexico.

Page 38: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

36 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

In 2005, Vietnam approved a wide code of law thus demonstrating its progress in acknowledging these

general principles and bringing its law into compliance with them. Moreover, the government of

Vietnam increasingly through new legislation provided a greater stimulus to foreign investment. The

three new laws, law on investment, law on enterprises and commercial law represent Vietnam's legal

commitments beyond the mandatory WTO provisions on the privatization of state-owned enterprises

and the transparency of trade policy. In particular, the 2005 law on investment included both domestic

and foreign investors as a legally regulated category whereas the 1987 law on foreign investment

applied solely to the foreign investors. Specifically, the 2005 law was the first to mention guaranteed

protection of intellectual property rights for investors replacing the narrower notion of industrial

property rights in the 1996 law on foreign investment.

As mentioned, the IPR is considered to be a challenge for developing countries such as Vietnam

following toward the process of global economic integration. Improving the IPR system, on the one

hand presents Vietnam’s commitment in the WTO, on the other hand, assures the rights to both foreign

and local investors over the creations of mind. Moreover, building an IPR system may help Vietnam to

improve its FDI environment through FDI policies, the cost of patenting and the quality of examination

processes and therefore to encourage FDI projects. As Vu (2012) showed a positive and significant

correlation between Resident Patent and FDI suggesting that FDI contributed to the growth of

technological capability and stimulated the demand for patents in the fast growing ASEAN countries.

According to WEF (2010), among fast developing ASEAN countries, Vietnam was ranked as 109th out

of 139 countries for its IP protection. The country experienced a very low IPR enforcement index at

0.4 point. Although Vietnam has made remarkable progresses in attracting more FDIs, the number of

patents filed per million capita in 2008 was about the same as number of patents per million capita of

Thailand filed in 1991. The filing cost of patent is rather expensive at approximately $587 especially if

patentees have more claims in their patent applications. Regarding the quality of examination process,

Vietnam has a low average in patent granting rate with only 19% of resident patent filings that were

granted against 21% of non-resident patent filings.

Vietnam does not only play an active role in the world economy but also demonstrates its high

capability to confront potential risks from large trading partners. Although GDP increased steadily over

the three periods peaking in 2012, GDP growth rate fluctuated strongly. There was a particularly sharp

decrease in the year 2000 partly due to contagion of the Asian financial crisis in 1997. Vietnam's GDP

growth rate fluctuated within a 5-6% range in the third period but fell steeply in 2009 one year after the

global financial crisis in 2008. However, there was an upward trend for registered FDI, which reached

a peak of 71.72 billion USD in 2008 before declining slightly in the following years.

Page 39: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

37 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 8. Vietnam's economic indicators

Source: GDP and GDP growth rate, World Bank (WB)

FDI, General Statistics Office of Vietnam (GSO)

3.3. Export trade pattern

3.3.1. Composition of export commodities

3.3.1.1. General composition of commodities

During the period of the country's regional division, Vietnam's economy mainly depended on three

layers comprising a bottom layer based on rice growing, a middle layer dominated by mining in the

north and rubber plantations in the south and the third layer in the north created by the large-scale aid

packages from the Soviet Union and China. After the country's reunification in 1975 and before Doi

Moi, Vietnam's exports were limited to agriculture, forestry and fishery products in the form of raw

material and products having undergone preliminary processing. However, Vietnamese exports

prospered for several years following the adoption of the Doi Moi policy by the Government. For the

1986-1991 period, there were 5 commodity groups6 which were the main exports according to State

Plan and which accounted for almost all the annual export revenue of the country. Significantly, all

these commodity groups are primary and/or labor intensive showing that Vietnam possesses a

comparative export cost advantage.

Figure 9 compares the share of Vietnam's five export commodities as set out in the State Plans over the

1986-2012 period. Generally, the country tends to focus on the stimulation of natural resource and

agriculture-based exports. Even through, each export commodity group’s contribution may vary, it

remained vibrant. While the aggregate share of agriculture, handicraft and light industrial and fishery

products dominated Vietnam's exports early in the period, mineral, heavy industry, handicraft and light

industry products accounted for a larger share of the country's exports later in the period. Over this

period, handicraft and light industry products experienced the greatest increase in export value whereas

mineral and heavy industry products saw a sharp increase in their export value in the third year after

Doi Moi then leveled off and fluctuated slightly until 2012.

6 Five commodity groups include mineral and heavy industrial products, handicraft and light industrial products, agriculture

products, forestry products and fishery products.

0

10

20

30

40

50

60

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

19

87

1

98

8

19

89

1

99

0

19

91

1

99

2

19

93

1

99

4

19

95

1

99

6

19

97

1

99

8

19

99

2

00

0

20

01

2

00

2

20

03

2

00

4

20

05

2

00

6

20

07

2

00

8

20

09

2

01

0

20

11

2

01

2

Per

cen

tag

e, %

Mil

lio

ns

US

D

Real GDP GDP growth rate Real registered FDI

Page 40: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

38 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 9. Share of export commodities, % of the total

Source: Author's diagram based on GSO's data

Mineral and heavy industry products increased their export value by an extraordinary amount,

followed by handicraft and light industry products. However, forestry products experienced the least

average increase. (see Table 6).

However, within the mineral and heavy industry product group, crude oil exports were responsible for

57% on average of the total after 1989. In 1991, 1992 and 1993, crude oil was the dominant export in

the group reaching 83%, 84% and 83% respectively.

The contribution of crude oil only became less important after 2010, falling to 22%. Crude oil is a

specific industry operated by the Vietnam National Oil and Gas Group, the sole company authorized

by the Government to explore, produce and export oil to the world market.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Other products

Fishery products

Forestry products

Agriculture products

Handicraft and Light

industrial products

Mineral and heavy

industrial products

Page 41: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

39 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 6. Commodity composition of Vietnam's exports (1996-2000, millions USD and %)

Year

Mineral and

heavy

industrial

groups

Handicraft &

Light industrial

products

Agriculture

products

Forestry

products

Fishery

products

1986

63.4

8

227.5

28.8

318.6

40.4

71.6

9.1

106

13.4

1988

66.9

6.4

383.8

37

349.2

33.6

59.2

5.7

178

17.1

1990

617

25.7

635.8

26.4

783.2

32.6

126.5

5.3

239.1

9.9

1992

954.8

37

349.5

13.5

827.6

32.1

140.8

5.5

307.7

11.9

1994

1,167.6

28.8

938.2

23.1

1,280.2

31.6

2.8

11.6

556.3

13.7

1996

2,085

28.7

2,101

29

2,159.6

29.8

212.2

2.9

696.5

9.6

1998

2,609

27.9

3,427.5

36.6

2,274.3

24.3

191.4

2

858

9.2

2000

5,382.1

37.2

4,903.1

33.9

2,563.4

17.7

155.7

1.1

1,478.5

10.2

2002

5,304.3

31.8

6,785.7

40.6

2,396.6

14.3

197.7

1.2

2,021.7

12.1

2004

8,633

32.6

10,920.2

41.2

3,383.6

12.8

180.5

0.7

2,401.2

9.1

2006

14,428.6

36.2

16,389.5

41.2

5,352.4

13.4

297.5

0.8

3,357.9

8.4

2008

23,209.3

37

24,896.3

39.7

9,239.5

14.7

468.7

0.7

4,510.1

7.2

2010

22,402.8

31

33,336.9

46.1

10,639.4

14.7

803.9

1.1

5,016.9

6.9

2012

48,228.1

42.1

43,298.6

37.8

15,463.4

13.5

1363.7

1.2

6,088.5

5.3

Source: GSO

3.3.1.2. Major export products, regions and economic groups

Apart from the exception of crude oil, the other major export products of Vietnam can be freely traded

subject to Vietnam's legislation. There are also numerous firms active in other export sectors. As

previously analyzed, Vietnam is strong in manufacturing and exporting resource intensive and

agricultural products although they create low value in the global value chain.

- Major exports

Major exports are limited to the handicraft, light industry and agriculture commodity group. This

section analyzes sub-commodities from the above-mentioned commodity groups according to SITC17

classification (Revision 3). Although the relative contribution of these sub-commodities in Table 7

have changed since Doi Moi, the major exports continued to be labor-intensive, confirming the

7 SITC was first issued by the United Nations' Secretariat in 1950. This is a classification of goods used to classify

the exports and imports of a country to enable comparisons between different countries and years.

Page 42: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

40 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

dominance of traditional export products in total exports and the absence of structural changes in the

major exports during the period.

Articles of apparel and clothing accessories are the largest sub-commodity making significant

contribution to Vietnam's total exports. Table 7 shows 18 major export products for four five-year

periods since Vietnam's economic reforms in 1986. The respected share of each product in total

exports changed over these periods. In the first period, fishery products exports earned an average of

861 million USD, followed by articles of apparel and clothing accessories with an average of 675

million USD and rice products ranking third in export value for these periods. The ranking for these

products remained unchanged until the third period when footwear products emerged as the second

largest export sector, achieving an average of 5,398 million USD and remained in second position for

the 2000-2005 period. During the same period, articles of apparel and clothing accessories reached the

strong first ranking in total product exports.

All major product exports clearly increased throughout the periods with the exception of the wool,

rubber, meat and meat preparations. In the 2000-2005 period, exports of these products suddenly fell to

zero indicating that those product sectors had lost their market in the five years preceding Vietnam's

WTO membership. Significantly, the average export value of footwear products showed an

extraordinary 220-fold increase in the fourth period after Doi Moi compared with the first. The export

revenue from articles of apparel and clothing accessories rose steeply, 126 fold compared with the first

period. The value of tin and cinnamon product exports increased slightly by 0.24% and 0.06%

respectively in the fourth period compared to the first.

There was a structural change after 2006 for some major export products (see Table 8). That year also

marked by the important turning point of Vietnam's membership of the WTO. On 7 November 2006,

the General Council of the WTO formally approved Vietnam's accession package and the country

became a full member of this organization one year later. During the period, export revenue generally

increased and there was a greater diversification of export products At this time, the number of major

export products doubled to 38 compared to the situation before membership. Among the major export

products, the value of exports of articles of apparel and clothing accessories, footwear, fishery

products, wood and wood products, rice, rubber and coffee grew significantly except for 2009 when

the country was severely affected by the global financial crisis, which caused an economic downturn.

However, exports fell for the two product categories: bicycles and parts of bicycles, groundnuts

shelled, which before Doi Moi had been mainly exported to the Soviet Union and Eastern bloc

countries. By 2012, embroidery products and art articles of pumice lacquer were no longer amongst

Vietnam's 38 largest exports. Vietnamese exports of phones of all kinds and their parts as well as

cassava and cassava products have grown impressively, reaching 12,746.5 million USD and 1,351.4

million USD respectively.

Traditionally as mentioned, the structure of Vietnam' exports was mainly linked to agriculture, fishery

and forestry items. However, since 2006, light industrial products have begun to perform better on

export markets with significant contribution of several sectors: electronic parts, computer and their

Page 43: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

41 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 7. Major exports in each five year period (millions USD)

Major exports 1986-1990 1991-1995 1996-2000 2001-2005

1. Articles of apparel and clothing accessories 675 1,912 7,744 17,541

2. Fishery products 861 2,193 4,788 11,191

3. Footwear 52 511 5,398 11,454

4. Rice 661 1,969 4,438 4,427

5. Coffee 343 1,207 2,598 2,594

6. Articles of vegetable fibers 175 12 205 687

7. Articles of rattan, bamboo 194 92 83 0

8. Articles of art 73 81 135 0

9. Embroidery 144 76 143 0

10. Jute rugs 56 7 32 0

11. Wool rugs 53 38 4 0

12. Rubber 207 514 885 2,216

13. Coal 117 319 517 1,480

14. Vegetables and fruits 272 166 534 1,131

15. Pepper 60 113 462 608

16. Cashew nuts, shelled 40 270 603 1,576

17. Tin 41 93 72 51

18. Meat and meat preparations 77 121 88 0

Source:GSO

Page 44: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

42 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 8. Major exports in period 2006-2012 (millions USD)

Major exports 2006 2007 2008 2009 2010 2011 2012

1. Articles of apparel and clothing accessories 5,854.8 7,732 9,120.4 9,065.6 11,209.8 13,211.7 14,416.1

2. Footwear 3,596.9 3,999.4 4,769.8 4,071.2 5,123.3 6,549.4 7,263.9

3. Fishery products 3,357.9 3,763.4 4,510.1 4,255.3 5,016.9 6,112.4 6,088.5

4. Electronic parts computer and their parts 1,807.8 2,165.1 2,640.3 2,763 3,590.1 4,662.1 7,848.8

5. Wood and articles of wood 1,943 2,384.6 2,767.1 2,597.6 3,444.5 3,961.1 4,665.5

6. Rubber 1,286.3 1,393.8 1,604.1 1,227.1 2,386.1 3,234.4 2,860.1

7. Rice 1,275.8 1,490.1 2,895.9 2,666 3,249.5 3,659 3,673.6

8. Coffee 1,217.1 1,916.6 2,113.7 1,730.5 1,851.4 2,760.2 3,674.4

9. Coal 914.8 999.7 1,388.4 1,316.5 1,614.5 1,632.1 1,239.8

10. Electrical wire and cable 705.7 882.3 1,008.9 891.7 1,315.9 443.5 618.7

11. Cashew nuts, shelled 503.8 645.1 915.8 849.6 1,136.9 1,473.1 1,470.1

12. Rucksacks, bag, pockets, wallets 502 627.1 773 824.1 985.4 1,285.3 1,522.5

13. Plastic produce 452.3 709.4 933.6 867.3 1,130.1 1,373.7 1,595.5

14. Iron and steel products 389.3 403.2 706.2 620.2 832.9 1,130 1,386

15. Ceramic articles 274.4 334.8 344.3 267.1 317 359.2 440.4

16. Vegetables and fruit 259 305.6 406.4 438.8 460.2 622.5 827

17. Articles of rattan, bamboo, rush and leaf 203.6 233.5 199.5 1.5 5.9 181.5 185.9

18. Carpets 10.4 13.2 24.1 20.4 21.4 21.2 25.1

19. Pepper 186.5 271.4 311.4 348.3 421.4 732.4 793.6

20. Preparations of cereals, flour, milk 151.2 194 258.5 267.3 385.1 377.4 410.7

21. Phones all of kinds and their parts 0 0 0 0 0 6,396.7 12,746.5

22. Art articles of pumice lacquer 119.5 217.8 385.4 1,296.1 14.1 0 0

23. Bicycles and parts of bicycles 110.5 81.1 89.1 85.8 93.6 44.6 18

24. Tea 110.4 133.4 147.3 180.2 200.5 205.5 224.8

Page 45: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

43 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

25. Cassava & Cassava products 0 0 0 0 0 0 1,351.4

26. Embroidery products 98.1 111.8 110.5 129.2 153.9 3.6 0

27. Diary produce 90.1 16.3 29.6 23.6 33.6 66.5 122.7

28. Toys 32.8 35 110.8 118 155.7 193.7 212.3

29. Meat and meat preparation 26.3 48.4 58.9 45 40 58.9 68

30. Tin 20.4 28.5 41.5 9.06 27.5 59.1 35

31. Vegetable oils and fats 15.3 49.3 99.5 77.3 98 209.5 314.4

32. Cinnamon 14.3 16.2 5.2 5.7 5.7 5.3 5.7

33. Ground nuts, shelled 10.4 31.2 13.7 21.5 22.5 7.1 5.6

34. Chromites 2,7 0 0 0 0 0 0

35. Sugar 2.3 4.7 5.01 1.5 0.8 173.8 47.1

36. Articles of precious stones and metal 2.08 3.7 415.3 2,730.7 2,823.9 2,668.7 545.8

37. Maize 0.84 1.2 6.2 1.2 1.1 2.01 7.3

38. Electrical Energy 0,027 0.28 0.74 11.06 56.6 79.3 28.9

Source: GSO

Page 46: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

44 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

parts, phone all of kinds and their parts. Vietnam has become an important exporter of electricity and its

revenue grew impressively by 37% in 2011 compared with 2006.

- Exports by geographical region

Since the economic reforms in 1986 and the official Government' directive to open up its market,

Vietnam has been prepared to be a trade partner for all countries of the global market and export value

as well as the number of trading partners have continuously increased. In fact, Vietnam has been able to

supply almost all countries across the continents of Asia, Europe, America, Africa and Oceania. Figure

10 illustrates by all geographical regions the rising trend in the country's exports where Asia is the

largest export market, followed by Europe and America meanwhile Oceania imports least from

Vietnam. However, the European and American markets swabbed position after 2004 when export

value of the American markets exceeded that of European markets. Initially, from 1986 to 1993, the

value of the country's exports to the European market was always higher than to Americas. Specifically,

in 1986, the value of Vietnam's exports to Europe was 446.9 million USD while that to Americas was

only 14.2 million USD. By 2003 and 2004, the value has almost converged and by 2005, America has

caught up, overtaken Europe and has become as the second largest importing market for Vietnam after

Asia.

Figure 10. Exports by geographical region

Source: GSO export database

Most of Vietnam' export markets were dynamic with the exception of Africa and Oceania where

although the value of Vietnam's exports rose slightly in 2006 then fell back and stagnated between 2010

and 2012. Meanwhile, Vietnam's export growth on European and American markets was accelerating,

particularly after 2008. Surprisingly, in the two years immediately following Doi Moi, Asia - Vietnam's

largest export market performed less well than Europe. However, after 1988, this market became

dominant and Vietnam's most dynamic import market. After falling to 26,648 million USD in 2008, the

value of Vietnam's exports to the Asian market increased impressively achieving by 61,368.3 million

USD in 2012.

0

20000

40000

60000

80000

100000

120000

Mil

lio

ns

US

D Ocenia

Africa

America

Europe

Asia

Page 47: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

45 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

- Exports by country group

The creation of economic groups aim to facilitate trade between member countries through tariff or non-

tariff measures. There are many regional economic groups based on shared characteristics of geography,

politics or economics, in addition to the WTO largest trade organization. Figure 11 shows the value of

Vietnam's exports to following country groups: ASEAN8, APEC

9, EU

10 and OPEC

11 the first two of

which Vietnam is a full member.

Among these groups, APEC emerges as the biggest and the most dynamic export market of Vietnam.

From the beginning of Doi Moi until today, APEC has always taken the lead in attracting export

products from Vietnam. In 2012, Vietnam’s revenue from exports to APEC hit its highest level in 1986,

78,028.2 million USD. The EU was the second largest import market for Vietnam, followed by ASEAN

with OPEC being the least dynamic market for Vietnam's exports over this period.

Figure 11. Exports by country group

Source: GSO export database

Although, Vietnam's exports to APEC were very strong, they fell back to 38,802.1 million USD in 2009

due to the effect of the global financial crisis, before recovering and reaching a new record level in 2010.

Meanwhile, exports to the EU and ASEAN markets were steadily increasing and almost converged in

1999.

8 ASEAN is a political and economic organization, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand,

Brunei, Cambodia, Laos, Myanmar and Vietnam.

9 APEC seeks to promote free trade and economic cooperation throughout the Asia-Pacific economies. Its members are

Australia, Brunei Darussalam, Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore,

Thailand, United States, Chinese Taipei, Hong Kong, People' Republic of China, Mexico, Papua New Guinea, Chile, Peru,

Russia and Vietnam.

10

EU covers the following 28 sovereign states Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark,

Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands,

Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and United Kingdom.

11

OPEC covers 12 countries, which are Qatar, Libya, the United Arab Emirates, Algeria, Nigeria, Angola, Iran, Iraq, Saudi

Arabia, Kuwait, Ecuador and Venezuela.

0 20000 40000 60000 80000 100000 120000

1986

1989

1992

1995

1998

2001

2004

2007

2010

Millions USD

ASEAN

APEC

EU

OPEC

Page 48: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

46 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

3.3.2. Export composition commodity by destination market

3.3.2.1. Sectoral dimension and country groups

Immediately after the introduction of Doi Moi, the country mainly produced raw materials. Just as many

other developing countries in the region, it focused on exploiting its strength which are natural resources

and competitive labor cost. In the short-term when Vietnam had just moved past the stage of shortage of

goods, hyperinflation, capital scarcity and skilled labor paucity, concentrating on primary products was

inevitable. Figure 12 illustrates the proportion of two categories over the two consecutive periods of

1986-1996 and 1997-2012.

In the first period after Doi Moi, the export value of primary and manufactured products gradually

increased. For primary products, the increase was relatively steady however, exports of manufactured

products fluctuated somewhat. From 1986 to 1996, exports of primary products outperformed

manufactured products. However, since 1997, the export value of manufactured products increased

significantly and exceeded that of primary products reaching 46.2 billion USD in 2008 before falling

back sharply to 43.8 billion USD in the following year due to the effect of global financial crisis. For the

same years, however, the value of exports of primary products fell by 6.9 billion USD. More

significantly, from 1997 to 2002, the value of exports of manufactured products has caught up with

primary products and was constantly higher since 2003. In 2012 in particular, the value of exports of

manufactured goods reached 100.4 billion USD, three times as much as primary products.

These values marked the outstanding achievement of Vietnam in changing the structure of export

products and enhancing its comparative advantage by exporting products with high skilled labor content

as well as its success in finding new raw material inputs to replace natural resources. We note that, the

value of exports of primary and manufactured products varies depending on the country group

destination.

Throughout this period, APEC continues to be Vietnam's largest export market for primary and

manufactured products followed by ASEAN and the EU. However, export level to APEC varied over

the 2004-2012 period during which the value of exports of manufactured products overtook primary

products.

Page 49: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

47 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 12. Export value of primary and manufactured products (millions USD)

Figure 13. Export value by country groups (millions USD)

For primary products

For manufactured products

Source: Author' diagrams based on GSO data

We can see that APEC has imported manufactured products since 2007 reaching approximately 52

billion USD in 2012, which is twice the value for imports of primary products. In contrast, the value of

primary product exports from Vietnam to ASEAN tends to be higher than for manufactured products

whereas the value of manufactured product exports to the EU exceeded the value of primary products

for the whole period and contributed 16.7 billion USD to Vietnam's export revenue in 2012.

Figure 14 compares the value of Vietnam's exports of primary and manufactured products categories by

country groups from 2004 to 2012. In general, the trend line broken down for the different categories

0

1000

2000

3000

4000

5000

6000

7000

8000

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

Primary products

Manufactured products

Others

0

20000

40000

60000

80000

100000

120000

140000

160000

1997 1999 2001 2003 2005 2007 2009 2011

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

ASEAN APEC EU Others

0

20000

40000

60000

80000

100000

120000

ASEAN APEC EU Others

Page 50: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

48 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 14. Export value of primary products sector

Source: Author's diagrams based on GSO data

differs between the ASEAN, APEC, EU and others country groups. Primary products are commodities

classified at the 1-digit level under the SITC: food and live animals, beverages and tobacco, crude

materials, inedible except fuels, animal and vegetable oil, fats and waxes. Manufactured products

comprise chemicals and related products, manufactured goods classified chiefly by materials,

machinery, transport equipment and miscellaneous manufactured articles.

Food and live animals, crude materials and inedible except fuels dominate and account for the largest

proportion of the primary product sector, achieving a value of nearly 12 billion USD to the APEC

market in 2008. Beverages and tobacco, animal and vegetable oils, fats and waxes, however had a

smaller share of this market earning 0.5 billion USD and 0.3 billion USD in 2012 respectively in export

revenue. Especially, APEC is a biggest importing country group in all categories of primary sector

through the years. For this specific category of food and live animals, APEC is the largest country group

importing market and pioneering role compared with the other country groups. The ASEAN country

0

2000

4000

6000

8000

10000

12000

14000 M

illi

on

s U

SD

Figure 14a. Food and live animals

ASEAN

APEC

EU

Others

0

50

100

150

200

250

300

Mil

lio

ns

US

D

Figure 14b. Beverage and tobacco

ASEAN

APEC

EU

Others

0

2000

4000

6000

8000

10000

12000

14000

Mil

lio

ns

US

D

Figure 14c. Crude material, inedible

except fuels

ASEAN

APEC

EU

Others

0

50

100

150

200

250 2

00

4

20

06

20

08

20

10

20

12

Mil

lio

ns

US

D

Figure 14d. Animal and vegetable

oils, fats and waxes

ASEAN

APEC

EU

Others

Page 51: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

49 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

group was the least dynamic for this category, after the EU. For the beverage and tobacco category,

APEC has become a major import market with levels rising rapidly since 2009, followed by ASEAN

with the EU coming third. Vietnam's revenue from exports to APEC of crude materials, inedible except

fuels strongly fluctuated whereas the value of exports to ASEAN only fluctuated slightly. However,

there has been strong rising trend in the value of exports to the APEC and ASEAN markets of the

animal, vegetable oils, fats and waxes categories.

Figure 15. Export value of manufactured products sector

Source: Author's diagrams based on GSO data

As Figure 15 shows, there is a generally increasing trend in the value of exports to all country groups in

the four categories of the manufactured products sector in almost all cases. APEC remains the leading

country group importing all kinds of manufactured products from Vietnam while the role of ASEAN

and EU in this regard is broadly equivalent. ASEAN imports more chemical and related products and

0

500

1000

1500

2000

2500

3000

Mil

lio

ns

US

D

Figure 15a. Chemical and related

products

ASEAN

APEC

EU

Others

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Mil

lio

ns

US

D

Figure 15b. Manufactured goods

classified chiefly by materials

ASEAN

APEC

EU

Others

0

5000

10000

15000

20000

25000

Mil

lio

ns

US

D

Figure 15c. Miscellaneous

manufactured articles

ASEAN

APEC

EU

Others

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Mil

lio

ns

US

D

Figure 15d. Machinery and transport

equipment

ASEAN

APEC

EU

Others

Page 52: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

50 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

manufactured goods classified by materials than the EU but imports less miscellaneous manufactured

articles and machinery and transport equipment than the EU. Although APEC is the largest export

market for all four categories, the chemical and related products category represents the smallest share

and miscellaneous manufactured articles account for the largest share, earning nearly 20 billion USD in

2011.

3.3.2.2. Market and product concentration During the process of political reform and international economic integration, Vietnam has faced many

problems arising from strong competition and market vulnerability. Through the Herfindahl-Hirschman

market and product concentration index, it is possible to measure the dispersion of trade value across an

exporter's partners and products. Specifically, a higher index indicates that one country concentrates on

a very few markets or products. In other words, a country with higher indexes tends to be more

vulnerable than other countries. In the case of Vietnam, we use the HH product concentration index

value derived from the UN Comtrade data for all export markets and products at the 6-digit HS codes

level as issued in 1996.

Figure 16 shows the fluctuations of the HH market and product concentration index for the 2000-2012

period. The two trend lines clearly are falling which is a positive signal for Vietnam's exports since a

lower index directly reflects a higher market and product diversification thereby diminishing the threat

of vulnerability. However, after 2006, the HH product concentration index decreased faster than the HH

market concentration index coinciding with a growing number of export products whereas the number

of Vietnam's export markets has gradually decreased after 2005 having peaked at 218 markets in 2002.

This positive signal shows that the country has mainly concentrated on diversifying export products

across markets rather than seeking more markets.

Figure 16. Vietnam's H-H market and product concentration index

Source: Author's diagram based on UN COMTRADE data

Figure 17 compares the HH market and product indices of several ASEAN countries for aggregate

markets and products in 2012. Using the HH market concentration index, Thailand emerges as the least

vulnerable country since its export markets and products are the most highly diversified, followed by

Singapore and Vietnam ranking third. However, Cambodia and the Philippines are the most vulnerable

0

0.02

0.04

0.06

0.08

0.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

HH Market Index HH Product Index

Page 53: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

51 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

for export market volatility. As shown in Figure 17, Singapore has a relatively low diversification of

export products with Cambodia having the lowest whereas, Vietnam and Thailand have the highest

diversification of export products.

Figure 17. ASEAN countries' H-H market and product concentration index in 2012

Source: Author's diagram based on UN COMTRADE data

3.4. Conclusion

In the nearly 30 years since Vietnam implemented its Doi Moi policy, the national economy has

witnessed a breakthrough in its economic development and trade growth. From a closed economy with

a limited number of trading partners in Eastern Europe and the former Soviet Union, Vietnam has been

transformed into an open economy, actively engaging in the global market. The country so far has also

been able to diversify to a maximum of 3610 export products at the 6-digit level and has become a

relatively dynamic exporting country in the region.

Thanks to Doi Moi since then, the fundamental economic indicators GDP, FDI and exports have

continued to improve. Inflation in particular has fallen back to a 2-digit rate from a 3-digit hyperinflation

rate in 1986. More importantly, along with the growth in exports, Vietnam has managed to attract more

capital investment and advanced technology from multinational corporations in developed countries.

Although, the country experienced certain negative effects caused by the regional financial crisis in

1997 and the 2008 global financial crisis resulting in a sharp drop in exports to 57 billion USD in 2009

compared with 62.6 billion USD in 2008. However, the total value of exports then soon recovered and

peaked in 2012 at nearly 115 billion USD.

With its strategy of economic integration including the open trade policy, Vietnam has assumed an

important role in the regional and global economy including ASEAN and the WTO. This strategy has

enabled the country to develop additional markets and increased its export volumes. The normalization

of diplomatic relation with the US represented an important launching pad for the country enabling it to

sign trade agreements and establish a number of trade links with USA's allies.

Moreover, another striking feature was the transformation of Vietnam' export product structure after Doi

Moi. Previously, the country had used its comparative advantage in exploiting natural resources, raw

0.0617

0.1297

0.0677 0.0665

0.0934

0.0609 0.0481

0.0195

0.1078

0.0273 0.03 0.0238

0.0757

0.0117

Vietnam Cambodia Indonesia Malaysia Philippines Singapore Thailand

HH Market Index HH Product Index

Page 54: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

52 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

materials and low-skilled labor. Indeed, the primary sector accounted for the larger share in total exports

until 2001. From 2001 onwards, the country focused on exporting manufactured products where

machinery and transport equipment, miscellaneous manufactured articles were dominant and by 2012,

the export revenue of this category was almost three times the revenue from primary products. Thanks

to its open trade policy and integration strategy, Vietnam has gradually moved out of poverty and

improved the quality and value of export products by reducing the share and low cost unskilled labor

products.

The following chapter concentrates on examining Vietnam's export pattern through the gravity model

where its two main factors among others include the national income of the importing country and the

geographical distance between Vietnam and its importing partners. It is important to note, the aggregate

export value at country level and its determinants are observed for several years, which in some cases

may cause an endogeneity problem, the presence of which needs to be checked.

Page 55: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

53 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 4. INTERNATIONAL EXPORT TRADE FLOWS OF VIETNAM: A

GRAVITY MODEL APPROACH

SUMMARY

This chapter attempts to define the export pattern of Vietnam with its trading partners by using the

gravity model, showing one-way exports of Vietnam to the world market between 1997 and 2009. Since

the Hausman test does not support the random effects model in which we assume that unobservable

effects within destination markets do not bias the outcome variables, the fixed effects model is

consequently preferable. The role of the economic size indicator reaffirms its high relevance to export

trade. The geographical distance gives a negative and insignificant sign suggesting that the trade barrier

needs to be examined in the context of Vietnam' s trading with the rest of the world. As such, we have

employed the MRT for which the exchange rate between Vietnamese currency and an importing

country’s currency acts as a good proxy. Although this indicator encourages Vietnamese exports, it is

found to be significant for the OLS regression model. ASEAN as a regional economic integration

organization plays a positive role and therefore constitutes a significant absorptive factor. Interestingly,

high labor productivity importing countries tend to have a lower demand for export products from

Vietnam and countries which share a common border with Vietnam also become important and positive

trading partners.

Page 56: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

54 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

4.1. Introduction

In recent decades, globalization has led to a pattern of multilateral trading between countries or free

trade associations. Exporting countries have been able to gain major benefits particularly through

offering diverse products giving global consumers a wide choice. Such gains vanish where highly

protected economies impose constraints on production and consequently consumption. Albeit, larger

importing country markets lead to tougher competition between exporting countries who need to be able

to surmount typical trade barriers such as geographic, social and economic hurdles. Some regional

economic groups offer member countries preferential treatment for trade and stimulate production

capacity as well as technological development, which highlight the role of such an area in fostering free

trade.

After two decades open to the world’s economy, Vietnam has achieved remarkable growth on some

economic indicators such as GDP, Exports and Foreign Direct Investment, etc. Since the US embargo

was lifted in February 1994, Vietnam has become an active member of ASEAN. Vietnam also became

a member of APEC in 1998. Those steps paved the way for this small economy to stimulate bilateral

and multilateral trade hence improved exports particularly when it became a full member of the WTO in

2007. Between 1997 and 2009, exports and GDP gradually increased and exports peaked at over 50

billion USD in 2008, falling slightly to 50 billion USD in 2009. Meanwhile, GDP saw a gradual rise

over the same period, increasing from 100 billion USD to over 250 billion USD in 13 years. Overall, the

export-to-GDP ratio increased remarkably and the rate of GDP growth increased, reaching 0.25% in

2009 and dropping sharply to 0.2 % partly due to the effect of the world financial crisis.

Many empirical studies on bilateral trade have confirmed the success of the gravity model in explaining

the intra-trade among countries involving in a single free trade area such as the EU, APEC, CARICOM

or the inter-trade between two economic blocks. Serlenga and Shin (2004), Rault et al. (2007), Mitze

(2012) and Sapir (2001) found that liberalization within the EU tends to lower prices through increased

competition and the removal of barriers to the mobility of goods leads to an increase in trade flows

within the commodity. However, the role of the EU in the study by Bastos and Silva (2010) changing

from positive to negative and insignificant to Portuguese exports once export firm-fixed effect, product-

fixed effect and firm-product fixed effects were examined implies that productivity of firms frame the

export pattern.

In regard to the demand side of a partial equilibrium, the income of each economy measured by GDP,

and/or GNP shows that country would expense more if it has the ability to earn more. Further, literature

on gravity model demonstrates a higher preference to heterogeneous import products rather than to

homogenous goods. To express differently, Nguyen (2009) found that homogenous goods are less

responsive to changes in income than heterogeneous goods. Regardless of time and space, GDP

consistently enhances trade capacity between countries even if many papers tend to confirm endogeneity

for these indicators.

Barriers in international trade include geographical, social and economic distance. Geographical

distance is regarded as a transport cost. In most of the paper using aggregated data on trade, distance

Page 57: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

55 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

decreases systematically with export and import value. Although distance is a time-invariant factor,

using it as a proxy is problematic because the underlying assumptions vary over time. To resolve the

difficulty of using it in a fixed effect model, Brun et al. (2005) defined the augmented transport cost

function which includes indexes for infrastructure, price of oil in a random effect model showing that

distance did not vanish and providing support for the distance estimates in a range [-1.3; -0.8]. Bastos

and Silva (2010) conversely demonstrated that distance for a firm’s exports does not matter and such

firms may be able to charge a higher price and/or sell in larger quantities to more distant market, which

strongly supports the idea that a firm’s productivity is a key factor determining its export pattern.

How does the gravity model explain export flows of Vietnam? If we make some new assumptions on

certain typical factors of the full gravity model, this then makes it possible to solve the puzzle as to

whether a regional economic association such as ASEAN remains relevant for Vietnamese exporters.

There is little existing literature on the gravity model for Vietnamese bilateral and multilateral trade. Do

(2006) has used data on Vietnam’s exports and imports to 23 European countries between 1993 and

2004 to analyze trade potential with individual importing countries. Nevertheless, the paper is limited to

fixed and random effect test where an endogeneity problem may arise. Nguyen (2009) examined the

intra-trade between Vietnam and the other ASEAN countries under AFTA and applied a similar model

but the absence of some trading partners therefore in both cases meant that the conclusions about the

determinants were somewhat incorrect. In this chapter, we attempted to examine the pattern of

Vietnam’s exports to all its importing countries where in particular ASEAN countries’ trade with

Vietnam was examined. One important point to note is that geographical distance is negative but no

longer significant although it had been previously considered a good proxy for the transport costs of

international trade. This finding raises a question as to whether another efficient cost indicator such as

the multilateral resistance term should be substituted. The main findings also reveal that high-income

trading partners are rightly found to be important to Vietnamese exports, whereas high labor

productivity markets are not always a suitable target. The greater the difference between the GDP per

capita of the potential importing country and Vietnam, the lower the export value of Vietnam to such a

country. Moreover, the economic integration area – ASEAN group, helps Vietnamese exports to

member countries.

The remainder of the chapter is structured as follows: Section 4.2 explains the theoretical background

of the gravity model, section 4.3 describes the data used in the empirical analysis and the methodology,

section 4.4 presents the empirical results of the gravity model for Vietnam's export country trade and

section 4.5 offers some concluding remarks.

4.2. Theoretical background on the gravity model

The main branch of new trade theory is the gravity model firstly introduced by Tinbergen (1962) which

considers the interaction in trade between country pairs. The baseline model is a modified version of

Isaac Newton’s law of gravitation to predict movement of commodities between countries and

continents taking into account the economic size of the two countries and their distance.

31 2

0ij i j ijE Y Y D

Page 58: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

56 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Where ijE is the flow of trade between country i and country .j iY and jY are the country 'i s and

country 'j s GDP and ijD is the geographical distance among two countries’ capital. The above model

could be put in the linear form as follows:

0 1 2 3( ) ( ) ( ) ( )ij i j ijLog E log Y log Y log D

As Christie (2002) specified that trade flow between two countries is proportional to the product of each

country’s economic mass measured by GDP, each to the power of quantities to be determined, divided

by the distance between the countries respective “economic center of gravity” generally their capital,

raised to the power of another quantity to be determined. In some cases, a group of dummy variables

can be added to the traditional model comprising of the country’s being a member of trade agreement,

sharing the common border or speaking the same language, etc.

The gravity model is considered to have connections to key elements of the classical trade theory such

as Ricardian and Heckscher-Ohlin models. Primary Ricardian model assumed that labor is only input

and countries trade is based on the differences between labor productivity which uses different

“technologies”. Moreover, the opportunity cost theory applies to the case when a country with a

comparative advantage in producing a good uses its resources most efficiently when it produces that

good rather than producing other goods. According to Heckscher-Ohlin model, relative endowments of

the factors of production including land, labor and capital determine a country’s comparative advantage.

A country will export that commodity which uses intensively its abundant factors such as labor, and

land while importing a commodity, which uses intensively its scarce factors. Meanwhile, the gravity

model describes trade relationship between North-South countries by showing a range of low-cost of

labor and high-technology products flows which generate trade pattern between country pairs.

The theoretical framework of the gravity model later focused on the supply and demand side and how

consumers’ wishes could be satisfied as to the utility of imported and domestically produced

commodities. Highly critical of some previous papers, Linnemann (1966), Aitken (1973), Geraci and

Prewo (1977) asserted that the gravity model is a reduced form of a four – equation partial equilibrium

model of export supply and import demand. Specifically, Linnemann (1966) assumed that the potential

demand of a country for another countries’ goods depends on its income or GDP and population.

Although his empirical result, which were based on cross-section data of trade flows have given

expected signs of the GDP variables, in some cases, GDP variables are not significantly different from

unity. As such, the effect of importing countries’ GDP should be examined in the context of world

GDP. This approach is “loose’ because it does not explain the multiplicative functional form.

Goldstein and Khan (1978) examined the association of a country’s export volume with price

determination in a simultaneous equation between the supply and demand sides of exports. In the

Page 59: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

57 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

demand side equation12

, weighted average of the real incomes of the country’s trading partners

considered as one basic gravity factor is expected to be positive whereas the relative price13

is expected

to be negative. The supply side equation14

includes relative price of exports15

and an index of the

productive capacity of the country. Because an equilibrium model does not analyze lags effect, the

adjustment of export volume and prices takes place within a one-quarter period. By normalizing the

supply equation for the price of exports and solving the two equations to obtain the reduced-forms, these

authors expected that the weight average of the real incomes of the country’s trading partners16

yields

the positive effect on both export volume and price of exports. Moreover, a disequilibrium model in

which exports are assumed to adjust to the difference between demand for exports in period t and

actual flows in the previous period (1log (log log )d

t t tX X X 17

. Again, the weight average of

the real incomes of the country trading partners at time t is expected to have a positive effect on export

volume and price of exports at time .t Amazingly, empirical results for both equilibrium and

disequilibrium models show the expected positive signs of income elasticities implying that high

income importing countries were attractive destinations in respect with export volume of the exporting

countries.

Anderson (1979) referred to the gravity model as a pure Cobb-Douglas expenditure system where each

country is assumed to be completely specialized in the production of its own good and no tariff or

transport costs exist. The consumption of good i in country j is accordingly identified as ij i jM bY

where ijM denotes the multiplication of the price of good i and its quantity, jY is income in country j

and ib denotes the fraction of income spent on the product of country i . If income is supposed to equal

sales implying that ( )i i jY b Y then / .ij i j jM YY Y However, this simplest form of “gravity

model” may result in simultaneous equation bias because of the presence of .iY A country in reality

imports a variety of goods with price differences thus determining different expenditure shares in a less

12

Demand side equation is specified as 0 1 2log log( / ) logi

d i iX a a PX PXW a YW

13

This variable is specified by dividing price of exports by weighted average of the export prices of the country’s trading

partners

14

Supply side equation is specified as *

0 1 2log log( / )s

t t tX PX P Y

15

This variable is specified by dividing price of exports by domestic price index

16

Eight countries are included in the sample as follows: Belgium, France, Germany, Italy, Japan, the Netherlands, the United

Kingdom and the United States.

17

Where is the coefficient of adjustment and is the first difference operator

Page 60: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

58 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

restrictive preference form such as the CES18

. By examining only the level of expenditure on traded

goods, Anderson (1979) showed that the gravity model is also derived from Cobb-Douglas form

because within the class of traded goods, preferences are identical, expenditure shares for any good are

identical across countries. As such, the demand for 'i s tradable good in country j is ij i j jM Y

where i is the expenditure on country 'i s tradable good divided by total expenditure in country j on

tradables, j is the share of expenditure on all traded goods in total expenditure of country j and

( , ).j j jF Y N Because the value of imports of i plus domestic spending on domestic tradables is

equal to the value of exports of i plus domestic spending on domestic tradables ( ( ) ),i i j j i

j

Y Y

demand for 'i s tradable goods in country j can be expressed as /ij i i j j j j

j

M Y Y Y = i i j jY Y /

ij

i j

M . Although Anderson has successfully explained that the gravity model is based on Cobb-

Douglas utility expenditure function, his assumptions of the similarity of traded-goods preference, of

trade tax structures and of transport costs structures reveal limitation since these cases can not practically

applied. Therefore, there would be a tradeoff between bias and efficiency because countries have

considerable differences of income, preferences and production capacity, which lead to biased estimate

of GDP.

Helpman and Krugman (1985) nonetheless derived the gravity model from the increasing return to scale

models and showed that specialization and trade would persist even when countries had identical

relative factor endowment for a wide variety of models. They did not support the viewpoint that

comparative advantage explain the relationship in a gravity model because countries with similar level

of income have been shown to trade more. Helpman and Krugman saw this as evidence that these

countries are trading in differentiated goods because of their similarities.

Bergstrand (1985) has described the gravity model under the general equilibrium framework whereby

world trade activities are basically based on the constant-elasticity-of-substitution (CES) utility function

and profit maximizing agent behavior in countries assuming a single factor of production. For the

demand side, the CES utility function is expressed as:

1/

1/

1

jj

j

jt

N

j kj jj

kk j

U X X

(1)

1,...,j N

18

This term denotes constant elasticity of substitution. According to Anderson (1979), the CES traded goods utility indicator is 1/

j ik ijk

i k

U M

where ijkM is the quantity of good k from country i consumed in country .j Good k is a

different commodity in each country due to differentiation. The elasticity of substitution is 1/ (1 ).

Page 61: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

59 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Where ( )kj jjX X is the amount of 'k s aggregate good ( 'j s domestically produced good) demanded by

'j s consumers, ( 1) /j j j where j is the CES between domestic and importable goods in j

and ( 1) /j j j where j is the CES among importables in .j And expenditures in j are

constrained by income:

1

N

j kj kj

k

Y P X

and /kj kj kj kj kjP P T C E (2)

Where kjP is the k-currency price of 'k s product sold in the 'j s market,

jkT is one plus 'j s tariff rate

on 'k s product, kjC is the transport cost factor to ship 'k s product to j and kjE is the spot value of 'j s

currency in terms of 'k s currency. Maximizing (1) subject to (2) generates ( 1)N N first order

conditions that are solvable for ( 1)N N bilateral aggregate import demand equations:

1

11/(1 ) 1/(1 )

1 1 1'' ''j j j

j jj j j

kj jjkjP P P

(3)

And N domestic demand equation:

1

11/(1 )

1 1''j

jjj jD

jj j jj kj jjX Y P P P

For the supply side, Bergstrand employed the profit function maximized by firms in each country i in

each year:

1

N

i ik i i

kk i

X W R

(4)

Where iR is the amount available of the single, internationally immobile resource in a given year in i to

produce the various outputs and iW is the i -currency value of a unit of .iR R in each country is

allocated according to the constant-elasticity-of-transformation (CET) joint production surface:

1/1/

1

ii

i

i i

N

i ik ii

kk i

R X X

(5)

Where (1 ) /i i i where i is 'i s CET between production for home and foreign markets and

(1 ) /i i i where i is 'i s CET for production among export markets. This specification allows

the elasticity of transformation of supply between home and foreign markets and that among foreign

Page 62: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

60 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

markets to differ. Substituting (5) into (4) and maximizing the resulting equation yields 2N first order

condition that are solvable for ( 1)N N bilateral aggregate export supply equations:

1

( ) 11/(1 ) 1/(1 )

1 1 1' 'i i i

i ii i i iS

ij i ij ik ik iiX Y P P P P

(6)

And N domestic supply equation:

1

11/(1 )

1 1'i

ii i iS

ii i ii ik iiX Y P P P

Where with one factor of production, national income in i is constrained by i i iY W R

For equilibrium, assuming 2N equilibrium conditions: D S

ij ij ijX X X (7)

Where ijX is the actual trade flow volume from i to .j However, the reduced form of

ijX in this

system would only be a function of ,iR ijT and .ijC No endogenous exporter and importer incomes are

included as one important factor of the gravity model. Bergstrand (1987) then solved for the gravity

equation with a partial equilibrium approach under the three assumptions.

The first assumption is that the market for the aggregate trade flow from i to j is small relative to the

other 2 1N markets. The small market assumption implies that variations in ijX and

ijP to

equilibrate D

ijX and .S

ijX Combining one each of (3) and (6) with one of (7) yields:

1/1

/ 1 1 / 1/ 1 1 / 11 1' '' ' '' 11 1 11

i j

j j j j ji i i i ij jj ji i i i i

kj kjij i j ij ij ij ik ik ii jjP Y Y C T E P P P P P P

(8)

and

1/

/ 1 1 / 1/ 1 1 / 11 1' '' ' '' 11 1 1

i jij

i j j j j jj i i i i ij jj i j i j i j ji i i i

kj kjij i j ij ij ij ik ik ii jjX Y Y C T E P P P P P P

(9)

The second assumption includes identical utility and production functions across countries ensures that

parameters in (8) and (9) are constant across all country-pairing. Combining (8), (9) yields:

( 1)( )/(1 )( )( 1) / 1 1' ''1 / ( 1)/ 1 / 1 / 1 1

( 1)/( )( 1)/( ) 1 / 11 / 1 1' ''1 1 1

kji j ij ij ij ik

ij

kjik ii jj

Y Y C T E P P

PX

P P P P

(10)

Page 63: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

61 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Where ijPX is the value of the trade flow from i to j and equation (10) is regarded as a generalized

gravity equation.

The third assumption indicates perfect substitutability of goods internationally in production and

consumption, perfect commodity arbitrage, zero tariff and zero transport cost which implies that

1ij ijC T and ijP P for all , 1,..., Ni j . Because , equation (10) symplifies to:

1/2 1/21/ 2ij i jPX Y Y .

Bergstrand (1989) derived the generalized gravity equation, using per capita income as a proxy for the

exporter’s K/L ratio, which depends on whether the gravity equation is estimated for a capital or labor -

intensive industry. He incorporated factor-endowment variables in the spirit of Heckscher-Ohlin (H-O)

and taste variables in spirit of Linder. By analyzing consumers’ behaviors which are based on their

maximization of utility and firms’ behaviors to maximize their profits on two factor endowments such

as labor and capital, that Bergtrand solved for reduced forms, summed up across all firms in industry A

in country i yields the “generalized “ gravity equation:

( 1)/( )

( 1)( ) ( 1)/( ) 1

( 1)/( )( 1)/( )

* * 1 1

( 1)(1 )/( ) ( 1)/( ) ( 1)/(

( ) ( )

( / ) ( ) (1 )

A A AA A A

A A A A A AA A A

A A A A A A AA A A A

K

Aij i KA LB KB LA

LB KB i i j j

Aij Aij ij

PX Y

K L Y

C T E

)

( 1)/( ) ( 1)/( )1/(1 1

1( / ) ( ) /

A

A A A A A A AA A

A

Ain Ain Anj Anj nj

n n

P C P T E

Where AijP is the value of trade flow from i to j in industry A and K

iY is 'i s national output in terms of

units of capital *( ).A BK

i i KA Ahi KB Bhih hY K B X B X

In a typical gravity model estimated, GDP of exporting and importing countries is a proxy of national

outputs expressed in terms of units of capital. Per capita GDP of exporting and importing countries is a

proxy of capital-labor endowment ratio. Geographical distance is a proxy of transport cost and ijA

includes tariff costs which are imposed on exports, bilateral exchange rate.

More recently, Deardorff (1995) has proved the linkage between the gravity equation and the H-O

model by the assumption that each country could in theory specialize in producing one good and if

importers do not have the demand for such good, then trade between the two countries would be zero.

Since the gravity equation implies the expenditure system attached to the theory that higher income

consumers are ready to pay more for capital-intensive products, then exporters would supply the

relevant items. Deardorff also found the gravity equation relevant to the H-O theory. This explains why

capital-intensive countries export less than average to low-income labor-abundant countries. Deardorff’s

explanation may seem implausible since countries do not always require a single good, but as their

preferences change, their requirements may also change.

Page 64: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

62 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Almost all theoretical papers on gravity for bilateral trade treat the trade barrier of geographical distance

between two countries pair as a proxy of transport cost. A country contiguous to its destination market is

not always at an advantage for trade. In reality, transport costs are a function of fuel costs, types of

products, volume of trade and therefore variant. It is impossible to identify them in the fixed effect

model that controls for unobserved specific effects of country pairs that do not vary over time.

Supposing that, two countries with a common border were separated from the rest of the world and had

the same level of economic development then they would be expected to trade more. In most cases,

such a country does not only trade with only one, other interacts with the rest of the world. This explains

why two contiguous countries sharing the same pace of economic development trade less. Anderson

and van Wincoop (2003) suggested a multilateral resistance term through the replacement of

geographical distance and border sharing in the U.S-Canada case (McCallum, 1995). Such a multilateral

resistance factor implies that if two countries were isolated from the rest of the world on one island in

the ocean, far away from the next continent, bilateral average trade costs measured by the iceberg factor

might be low and this should guarantee a high trade volume between both countries.

However, in fact, the two “isolated countries” are surrounded by many large countries therefore

multilateral resistance is much lower and thus trade between the two countries is lower even if GDPs

and trade costs are assumed to be at the same level. Rudolph (2010) has employed the total production

index of the exporting country and importing countries belonging to the rest of the world to compute the

multilateral resistance of trading countries for 23 OECD countries. However, data on a country’s total

production index are not always available.

4.3. Data and methodology

4.3.1. Data description

Export value: The chapter uses data on Vietnam’s export trade19

with over 150 countries across five

continents over a period of 13 years between 1997 and 2009. Such data are obtained via WITS on the

website of the World Bank, which closely collaborated and consulted with UNSD. The UN Comtrade

database contains information on exports and imports broken down by commodity and partner country.

The data base comprises various relevant items such as gross export value20

calculated in thousands of

USD annually, partner countries by country name and country code from 1997 to 2009. Overall,

Vietnam’s total and continental export value gradually increased until the year 2008 and fell back

considerably in 2009 as a consequence of the global crisis. Specifically, Vietnam exports more to Asian

countries and some other developed markets whereas the African market has been comparatively

neglected. The country’s export value peaked in 2008 but declined to about 55 billion USD in 2009. It is

noteworthy that the top 15 importing countries account for an average of 80% of Vietnam’s total exports

19

Vietnam’s export values to its importing countries for 13 years were adjusted based on the country’s GDP deflator index and

the purchasing power parity conversion factor of Vietnam’s currency required to buy the same amount of goods and services

in the domestic market as a U.S dollar would buy in the Unites States.

20

Gross export value or net export represents the value of a country’s total exports minus the value of its total imports and is

used to calculate a country’s aggregate expenditure, or GDP, in an open economy.

Page 65: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

63 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

in this period. Although the rank of the major importing partners fluctuated yearly, it includes the United

States of America, Japan, China, Australia, Singapore, Germany, France, and the United Kingdom.

Importantly, the top 15 highest income countries are also the largest importing countries as mentioned

above. In fact, only 25% on average of the highest income countries have the highest labor

productivity21

and are not Vietnam's largest markets.

Importing countries: Data on GDP (constant 2005 U.S dollars) adjusted to PPP are available on the

World Bank’s website. In addition, we have obtained data on the labor force of importing countries over

this period via the KILM - data available from the ILO. Simply, by dividing real GDP over labor force,

we were able to generate the importer’s productivity index. In regard to expenditure equilibrium,

countries with a higher level of income will be prepared to pay more for goods and services. Although,

GDP per capita might seem to be a more plausible proxy for a country's demand capacity than simple

GDP since it shows the relative performance of the country would seem to be a good indicator for

comparing one country with another in terms of productivity, this variable is not included in the model

simultaneously with covariate the labor productivity due to a problem of multicollinearity. Depending

on the level of GDP per capita of importing countries, imports would tend to be labor or capital

intensive goods. In addition to this, we have taken the annual database on the real exchange of over 178

countries from Bruegel Exchange rate data of Darvas (2012).

Data on geographical distance between Vietnam and its country partners is available via CEPII. The

data base consists of a three-letter country code, the distance measured for a given country pair’s capital

and other dummy variables showing if exporters and importers share a common border (contig), a

common colony (comcol) and whether countries are entirely surrounded by land (landlocked).

4.3.2. Model and methodology

This chapter examines the export trade flows between Vietnam and all importing countries across

continents not only by employing the economic difference indicator but also the conventional indicators,

namely the income of the importing country and the geographical distance between the country pair.

Responding to the theoretical framework of the gravity model, in this chapter, we supplemented the

model so that it now includes the following determinants:

10 2 3 4 1 2

3 4 5

ln ln ln( / ) ln ln lnijt jt jt ijt ijt i j k

j ij ij t t ijt

EX GDP GDP LB DGDP Exchangrate Distance ASEAN

Landlocked Border Colony T e

Where:

ijtEX denotes the aggregated exports in USD by Vietnam to each destination market j at time t ;

0 is the common intercept;

jtGDP represents the Gross Domestic Product of importing country j at time t ;

21

Author has calculated countries’ labor productivity index by dividing GDP adjusted at power purchasing parity and constant

at 2005 by country’s labor force.

Page 66: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

64 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

( / ) jtGDP LB denotes the Gross Domestic Product Per Labor of importers j at time t ;

ijtDGDP is the difference between GDP per capita of Vietnam and that of its importing partner and is

calculated by ijtDGDP = it jt

it jt

GDP GDP

POP POP . This indicator measures the difference in terms of the

relative factor endowments between two countries and is zero where there is equality in the relative

factor endowments.

ijtExchangrate is the real exchange rate of Vietnam and importing country j at time t .

ijDistance represents the geographical distance between the capitals of the two countries and is a proxy

of the transport costs;

The value one is attributed to ASEAN as dummy variable where the importing country is an ASEAN

member or zero otherwise. This indicates that such export trade is ASEAN intra-export trade; the value

one is also attributed to a dummy Landlocked, where the importing country is surrounded by land or

zero otherwise; Colony is a dummy variable that equals one if the importing country ever colonized

Vietnam and zero otherwise;

T is a set of dummy variables to capture year-specific “fixed” effects; and ijte is a normally distributed

error term.

The chapter aims to investigate Vietnamese exports to the global market over a period of 13 years from

1997 to 2009. Panel data are relevant to account for the unobservable effects, characteristics of each

partner country. Hence, the purpose of employing panel data is to model exports to partner countries as

a function of the income and productivity of importing countries. These covariates vary depending on

partner country and time. Moreover, there are many time-invariant variables, which may affect the

independent variables such as colonial history, financial situation, religious affiliation and political

regime. Not accounting for country heterogeneity causes serious misspecification. Baltagi (2005)

considered that panel data are more informative, provide more variability, reduce collinearity of the

variables, give a greater degree of freedom and thereby improve the efficiency of the model. With the

additional, more informative panel data, more reliable parameter estimates can be produced. Individual

characteristics of importing countries rather than conventional determinants by importing countries can

nevertheless influence exports. For comparison purposes, the above proposed model is run using the

pooled OLS as follows:

0 ijt i jtijtY X e Where i = 1, 2…, N and t = 1, 2., T

And satisfied with e│ X~ iid (0, σ2

NI )

N T N T N T N T N TQ E E I I I J J I J J

This is because there is a strong assumption for the application of the pooled OLS model that 0

should be common to all countries meaning that there is no difference between specific importing

countries in terms of unobservable effects. If this condition is satisfied, pooled OLS is unbiased and

Page 67: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

65 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

consistent. In other words, if there are some individual effects hidden within the residual 0ijt ijte e

or

α0 is correlated with ijtX then ' 1 '[ ] [ ) ]ijt ijt ijt iE b b E X X X

and pooled OLS becomes biased.

Once the regression shows unobservable effects, the pooled OLS gives biased estimates and then, the

fixed effect model is preferable. In the fixed effect model, α0 is thought of as a fixed parameter, which

enables dummy variables to be introduced for each exporter-importer pairs. These dummy variables

allow correction of this error term. Albeit, another problem would arise where the database contains

many country partners thus creating a need for many dummies. Estimated N+K parameters for the

model would cause a multicollinearity problem. According to Cheng and Wall (2005), the general

model of trade between country pairs could be characterized by

'

0ln kt t k kt kt ktX Z t = 1., T; (1)

Where ktZ is the 1× k row of vector of gravity model specified in detail in the equation (1) above. The

intercept normally has three parts, one which is common to all years and trading partners at the level of

country 0 , the other is specific to year t and common to all trading partners, t and one which is

specific to country pairs and common to all years. The disturbance k t is assumed to be normally

distributed with zero mean and constant variance for all observations. To avoid the multicollinearity

problem rooted in a large (N+T+K-1) matrix, the fixed effect estimates of can be obtained by

performing the following transformation proposed by Wallace and Hussain (1969):

N T N T N T N T N TQ E E I I I J J I J J

Where NE = NNI J and .T T TE I J This transformation removes the country and time specific

effect. In fact, y Qy has a typical element . .( ..)ijt ijt ij ty y y y y where .. /i t ijty y NT

and the regression of y Qy and X QX to obtain the estimator ' 1 '( )X QX X Qy .

One side effect of the fixed effect model is that the transformation simultaneously removes time

invariant variables or time invariant effect. It is not possible to identify the distance effect and the

dummies such as “ASEAN” or “landlocked”. Rather, the fixed effect estimator ignores variations across

the countries. The characteristics within individual countries may or may not correlate with the

explanatory variables. In such cases, the instrumental method is appropriate to treat the correlation

between some explanatory variables and unobservable effects.

In contrast with the fixed effect, the random effect could be an alternative solution if the variation across

entities is assumed to be random and uncorrelated with the predictor or independent variables included

in the model. If 2(0, ),

ii IID 2(0, )tt IID and

2(0, )ijt vv are independent of each other,

then this is a two-way random effects model. In addition, ijtX is independent of i and t and itv for all

i and .t From (1) one can compute the variance-covariance matrix

Page 68: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

66 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

' ' ' ' ' 2( ) ( ) ( )i i i i t t t t v NTE uu E Z Z E Z I

= 2 2 2( ) ( ) ( )i N T t N T v N TI J J I I I

In order to obtain 1, NJ is replaced by ,NNJ NI by ,N NE J TJ by TT J and TI by T TE J and

collecting terms with the same matrices. This gives 4

1

i i

i

Q

. Each iQ is symmetric and idempotent

with its rank equal to its trace. Moreover, iQ are pairwise orthogonal and sum to the identity matrix.

The advantages of this spectral decomposition are that4

1

.r r

i i

i

Q

. Where r is an arbitrary scalar so

that 4

1/2 1/2

1

( / ) .v v i i

i

Q

And the typical element of * 1/2

vy y is given by

*

1 . 2 . 3 ..ijt ijt i ty y y y y

1/2 1/2 1/2

1 2 2 3 3 1 2 41 ( / ), 1 ( / ), ( / ) 1.v i v i v i As a result, GLS

can be obtained as OLS of *y on *,Z where * 1/2 .vZ Z

The implication behind random effect is that, all individual differences are captured by the intercept

parameters. In the random model, the intercept parameters consist of a fixed part that represents the

population average and the individual differences from the population average. In contrast to the fixed

effect model, by definition, the random effect approach allows the time-invariant covariates to be

estimated. A random effect estimator is a generalized least square procedure and the fixed effect is a

least square estimator. In large samples, the GLS estimator has a lower variance than the least square

estimator. However, a disadvantage of the random effect sample is that the assumption on the

relationship between unobservable effect and explanatory variables goes to zero and if any explanatory

variable correlates with unobservable effects, the estimates become biased and inconsistent.

4.4. Empirical results

The empirical results reported in Table 9 present the estimates using the pooled OLS, fixed effect and

random effect approach. The value of exports, GDP, GDP per labor force and the difference between

country’s GDP per capita in USD are shown in the form of natural logarithms. For efficiency, all

coefficients are corrected for standard errors. The pooled OLS model shows heteroskedasticity and

imperfect auto-correlation. In addition, a groupwise heteroskedasticity problem arises in the fixed effect

model implying that the variance within country pair exports is not homogenous. The Breusch and

Pagan Lagrangian multiplier test for random effects reveals heterogeneous variance between country

pair exports.

Pooled OLS will be biased and inconsistent if unobservable effects are found to correlate with

independent variables. Unobservable effects may be the other time-invariant factors that are not

included in the model such as political or social characteristics within each partner country. We

therefore implemented fixed and random effects regression controlling for all time-invariant differences

between importing countries then tested to choose fixed or random effects model of Hausman (1978).

Although the Hausman test does not reject the null hypothesis that the random effect test is appropriate,

Page 69: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

67 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 9. Gravity model for export flows of Vietnam

(Dependent variable: export value in USD, robust s.e)

Independent variables Pooled OLS

(1)

Fixed effect

(2)

GLS random

(3)

LnGDPjt 0.951*** 1.925*** 0.976***

(27.33) (2.95) (14.65)

LnGDPjt/LBjt -0.027 -0.947 -0.0331

(0.58) (-1.43) (-0.29)

LnDGDPijt -0.300 -0.530 -0.461*

(-1.40) (-1.35) (-1.65)

LnExchangrateijt 0.955***

(5.39)

0.146

(0.45)

0.270

(0.87)

LnDistance -0.311*** . -0.264

(-4.10) . (-1.19)

ASEAN 1.876*** . 1.921***

(8.52) . (3.00)

Landlockedj -0.974*** . -1.039***

(-8.54) . (-3.31)

Borderij 1.917*** . 1.950***

(7.94) . (2.78)

Colonyi 0.747*** . 0.742***

(3.88) . (3.49)

Constant 2.083* -14.86 1.929

(1.67) (-1.24) (0.72)

Year dummies (12 years)

Observations

yes

1871

yes

1871

yes

1871

No of groups

R2

-

0.73

165

0.56

165

0.73

LM (p-value)22

Breusch-Pagan/

Cook-Weigsberg23

: 2 (1)

Wald test (p-value)24

Hausman test: 2 (15)

34.74***

85.13***

-

-

-

-

30435.4***

45.06***

-

-

-

-

Robust t-statistics in absolute value in parentheses, * significant at 10%; ** significant at 5%; *** significant at

1%.

22

Wooldridge test for autocorrelation in panel data with H0: no first-order autocorrelation

23

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity with Ho: Constant variance

24

Modified Wald test for groupwise heteroskedasticity in fixed effect regression model with H0: sigma(i)^2 = sigma^2 for

all i

Page 70: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

68 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

the results are not identical with Hausman’s two options which are sigmamore and sigmaless. The

former option is based on both (co) variance matrices on disturbance variance estimate derived from the

efficient estimator, the latter based on both (co) variance matrices on the disturbance variance estimate

derived from the consistent estimator. Hence, the Hausman test with the two options favors the fixed

effect model.

As expected, the coefficients for the income of importing countries are positive and significant at 1%

implying that higher income countries would import more from Vietnam. Apparently, the OLS method

underestimates the GDP coefficient because it does not take in to account of a possible relationship

between independent variables with unobservable effects. When holding other repressors remains

constant and income of Vietnamese trading partners therefore increases by one percent, export volume

by Vietnam to its importing countries would increase by 1.92%.

If the gravity model is type of a reduced expenditure equation, it explains why it confirms the theoretical

notion that higher income induces higher expenditure. Regarding to the utility function suggested by

Bergstrand (1985) where the total good and service utility of one country is subject to its income it

means that if that country is able to satisfy its demand for goods then it would expand its ability to

increase consumption of domestic and imported goods. If consumers have to make a trade off either

between these two categories between two certain kinds of goods or their quantity, the country utility

would be improved if incomes rises and the demand curve would shift to the right. Empirical studies on

country level data such as Zarzoz and Lehmann (2003), Papazoglou (2007), Porojan (2001), Carrère

(2006), Tu and Chu (2014), Zhang and Kristensen (1995), Frankel and Rose (2000), Filipi and Moloni

(2003) have also proved the GDPs contribution to the intensity of trade among developed and

developing countries.

Furthermore, gravity studies using firm-level and product-level data also highlight the important and

positive role of GDP such as Bastos and Silva (2010) and Nguyen (2009). On the finding of Nguyen

(2009), the income of importing countries determines export volume of particular product items. The

sensitivity of the coefficient GDP for heterogeneous products is higher than that of homogenous ones

implying that richer countries would absorb more products, which are heterogeneous.

GDP per labor force effect is negative across the country pairs export trade, indicating that an increase in

labor productivity of an importing country will cause the Vietnam’s exports to decrease. However, the

coefficients are not significant across the pooled OLS, fixed effects and random effects regressions.

Sandberg et al. (2002) discussed that GDP per capita by importing country would much better capture

absorptive capacity and sophistication of demand for imported goods since it is a measure of the capital

labor ratio in the importing country. However, not all citizens can enter the country’s labor market;

hence, income per potential worker is more accurate indicator to compare two countries with the same

level of income and population, which may have different productivity. In fact, if this term could

account for unemployed workers, the result would be more plausible.

Page 71: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

69 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

In our case, it is not possible to obtain a good database for the unemployment rate due to a missing time

series of the relevant data. Under the quality sorting, Bastos and Silva (2010) find that income per

worker of a country may affect the quality of its import products and the competitiveness of firms in

exporting countries. As such, an increase in the importing countries’ labor productivity induces a growth

in export quantity and unit value on the part of exporting countries. As regards the high competition in

the importing countries, more qualified firms who serve export products could be very competitive in

the rival markets. This finding clearly shows the importance of export pricing in dealing with the

difference in purchasing power or low cost labor in the local production sectors. For country-level data

of exports, it is not possible to evaluate country’s labor productivity on the unit price. In the case of

Vietnam, if country partners are more productive, they tend to import less.

The coefficient, the difference in income per capita between Vietnam and its trading partners indicator is

found to be negative, indicating that the greater the difference in income per capita between Vietnam

and its trading partners, the lower its export volume. Meanwhile, the effect of the difference in income

per capita between exporting and importing countries is found to be somewhat ambiguous in the study

of Serlanga and Shin (2004) however, it yields a positive effect in the paper of Rault et al. (2007). The

positive finding confirms the Heckscher and Ohlin (H-O) theorem that countries will export products

that make use of their abundant and cheap factors of production. However, we find this indicator

negative and consistent with Marie (2009) and Nguyen and Heo (2009). According to Nguyen and Heo,

the negative effect of the difference in GDP per capita between Vietnam and its 23 trading partners25

fits

the Linder hypothesis. As noted, Linder (1961) conjectured that the international trade pattern is

determined by the demand structure of countries. That is to say, the more similar the demand structure

of countries, the more they will trade with one another. Furthermore, international trade will still occur

between two countries having identical preferences and factor endowments. The findings of Baltagi et

al. (2003), Egger and Pfaffermayr (2003) advocate new ideas on the international trade theory including

Linder’s hypothesis of preferred model with full interaction effect26

and the classical H-O model in

regard to incomplete interaction.

Basic factor inherent to the gravity model is geographical distance between two trading countries, which

is a proxy for transport costs or trade barrier, depressing bilateral trade. Empirical testing for the effect of

distance is very popular in a wide range of gravity papers such as Longo and Sekkat (2004), Sohn

(2005) and Elliot (2007), Tu and Chu (2014), Silva and Tenreyoro (2006). Effect of distance within

export trade by Vietnam and its over 150 countries is somewhat ambiguous among the regressions. For

the OLS and model, it is negative and significant while in random effects regression, it is still negative

but insignificant. The problem is that distance does not change over time while transport costs such as

25

Those trading partners comprises 6 ASEAN country partners and 17 non-ASEAN countries over a 16-year period from

1990 to 2005.

26

Full interaction effect manipulated by Baltagi, Egger and Pfaffermayr includes exporter- by- importer, exporter- by- time

and importer- by- time interaction effects. In this study, coefficients of GDP per capita difference by country pairs give positive

sign in incomplete interaction effect. For full interaction effect model, this sign is counterbalanced. The paper has tested a

generalized gravity model by bilateral export volumes of triad economies namely EU15, USA, Japan and their 57 most

important trading partners between 1986 and 1997.

Page 72: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

70 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

fuel cost, or any fee applied to certain export goods are variant over time. Consequently, Brun et al.

(2005) have treated distance as a function of oil price and infrastructure variables. Thereby, they

demonstrated that the effect of distance does not diminish over time even though this effect changes

from negative to positive27

.

There are several reasons why geographical distance is not always a good proxy for trade obstacles.

Firstly, this covariate does not change over time and it can not be identified in the fixed effect model that

captures unobservable effects within each country pair. Secondly, the result in dubious estimates where

two states are distant from one another but their mutual trade more if their economic sizes are explicitly

large. Thirdly, the level of mutual trade that two contiguous countries would trade more or less depends

on their interconnection with the rest of the world. Fourthly, foreign trade rests on how much domestic

trade within exporting or importing countries take place. If domestic trade accounts for most of a

country’s production capacity, its export volumes would fall correspondingly. It is interesting to confirm

that distance remains a hindrance to trade in empirical findings for a particular case of Vietnam

(Nguyen, 2010). Critically, the authors have treated their model as fixed and random for the former and

dynamic GMM.

Anderson and van Wincoop (2003) have proposed a MRT28

as another term for trade hindrance. Trade

cost in the context of the MRT considers country’s trade with the rest of the world, which includes the

cost of intra-national and international trade and the CPI. The general equilibrium structure with many

countries trading a variety of goods differentiated by country origin is expressed as follows:

1.

.( ).

i j ij

ij

w i j

Y Y tX

Y P P

27

If the regression is manipulated by OLS based on separate years (1997-2009), effect of distance is negative and significant.

The coefficients are not fixed and fluctuates in a range [-0.75: -0.48].

28 Starting from the idea of utility function, Anderson and Van Wincoop assumed that if ijc is consumption by region j

consumers of goods from region i , consumers in region j maximize (1 )/ ( 1)/ /( 1))i ij

i

c subject to the

budget constraint ij ij j

i

p c y Where is the elasticity of substitution between all goods, i is a positive distribution

parameter, jy is a nominal income. If ip denotes the exporter’s supply price and ijt is the trade cost factor between i and j ,

then ijp = .i ijp t For each goods shipped from i to j , and if the exporter incurs export cost equal to 1ijt of country i

goods , the sum of value of production of the origin i ijp c and the trade cost ( 1)ij i ijt p c that the exporter passes on to the

importer. And total income of country i is therefore .i ij

j

y x As such, the nominal demand for country i goods by

country j , consumers satisfy by

1

i i ij

ij j

j

p tX y

P

Where jP is the consumer price index of j given by

1/1

1

.j i i ij

i

P p t

Page 73: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

71 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Where iY and jY are total income of country i and country .j wY is the GDP of the whole world.

ijt is

the trade cost incurred by the exporter and or importer and is assumed to be symmetric ( ).ij jit t If

trade cost inside the exporting country is assumed to be 1 ( 1),iit then the trade cost that country i

passes on to country j is 1ijt and transport costs between the designate two countries are .ij ji it t P

where jP denotes the exogenous multilateral resistance of the exporting and/or the importing country.

For the MRT, if the multilateral resistance iP is high, this means high trade barriers for country ,i

demand for country 'i s goods is lower. In contrast, higher trade barriers for country j characterized by

high resistance ,jP higher demand for country i ’s goods. The positive sign of jP is in line with the

findings of Rahman (2003) and Rudolph (2010) fitting the theoretical view that the rise in importing

countries’ trade cost shift demand toward the international market. Because of the unavailability of the

intra-national trade data, we could not have applied the method postulated by Anderson and van

Wincoop (2003). Instead, we have exploited the real exchange rate as a proxy for the time-varying

component multilateral resistance factor of importing countries as proposed by Adam and Cobham

(2007). Because it is not able to observe directly iP and jP , the CPI or bilateral exchange rate of

countries could be a good reference. Although the regression result in Table 9 shows positive signs of

the exchange rate for OLS, fixed and random effect model, the significant effect is only found for the

OLS regression. The result implies that the change in exchange rates of Vietnam currency

insignificantly supports for the country’s exports in the period. To express in other word, we do not have

sufficient evidence to conclude that the depreciation of Vietnamese currency helps increase the

country’s exports.

The regression result shows that in the intra trade context of ASEAN, export value is significantly

positive, confirming the important role of the ASEAN in stimulating Vietnamese exports. The ASEAN

coefficient indicates that Vietnam’s membership of the ASEAN group has contributed to a 582%

increase in export volume between 1997 and 2009. However, the effect of the ASEAN dummy is not in

line with Nguyen (2010), Nguyen and Heo (2009) where the negative sign of the ASEAN dummy raise

a suspicion of its erosion. This discrepancy could be explained by the type of model used. While

Nguyen (2010) examined the ASEAN effect for trade between Vietnam and the other ASEAN

countries, Nguyen and Heo (2009) observed an ASEAN negative sign, which he explains as being to a

larger share of Vietnam's exports going to non-ASEAN countries. In fact, Vietnam has become deeply

integrated into the global market and thus less involved into intra-regional trade. The negative sign result

may also be partly due to the random sample taken for 15 largest trading partners of Vietnam. For our

export model, the ASEAN effect remains important. Although geographical distance is not important

for neighboring ASEAN markets, however, what is important for Vietnam is the effect of trade

liberalization through tariff and non-tariff removal between ASEAN country trading partners implying

that Vietnamese export flows to ASEAN countries largely rest on the tax relief regime.

Beside the geographical distance indicator, another trade barrier term is landlocked dummy. The

negative sign of the landlocked dummy indicates that importing landlocked countries find it a greater

Page 74: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

72 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

challenge to absorb Vietnamese export products. The reason may be that over 90% of export contracts

are FOB29

, which are less favorable for landlocked countries. The result in table 9 suggests that median

value of Vietnamese exports to landlocked countries is about 182%30

lower than non-landlocked

countries.

Countries who share a common border with Vietnam still confirms their supportive factor for trade of

Vietnam. Especially, among these contiguous countries, China is emerging as huge producer and

advantageous of economies of scale since this is a very populous country which has a high demand of

goods consumption. A very significant positive effect of the variable “Border” shows that export

activity between Vietnam to these countries is very stimulated. Moreover, country who ever colonized

Vietnam namely France remains a very active importing country for Vietnam’s exports in the period.

4.5. Conclusion

Empirical studies using the gravity model have successfully explained the international trade pattern of a

country in that trade between a country pair is shown as proportional to their income level and inversely

proportional to the distance between them.

This chapter specifically considers export trade with all countries across the continents in the purpose of

examining Vietnamese export activity in the period 1997 to 2009. Among three types of regressions,

fixed effects model is found to be the most relevant. Significantly, the 15 largest importing countries of

Vietnamese goods in this period dominate the export market, accounting for some 80% of the annual

volume of exports. Nevertheless, high income countries remain important trading partners of Vietnam.

The augmented gravity model highlights the fact that high-labor productivity countries are not important

to Vietnam’s export trade and the difference in country’s per capita income strengthens the Linder

theory, suggesting that Vietnam should not continue to use take use of its low labor cost advantage.

Unlike in previous literature on Vietnamese trade, geographical distance is shown not to be a good

proxy for trade cost although its sign is negative. The positive ASEAN sign highlights the role of

regional economic integration where tax cuts help encourage imports from Vietnam by other ASEAN

members with a rejection probability of 1% significance. In particular, the positive role of contiguous

countries in stimulating export trade from Vietnam is still confirmed indicating that the border trade

effect is important.

The following chapter investigates and compares the role of individual firms in determining export trade

pattern in footwear, rice and wood and wood products sectors. Again, the combination of micro and

macro level data in a gravity model aims to find the effects of control variables, which influence

exporting firm's activity at the same level. However, since firms are dynamic and differentiated in terms

29

FOB stands for Free on Board and this term is applied to sea transport export contract

30

Technically, the figure is obtained by taking the antilog (to base e) of the estimated dummy coefficient then subtracting 1

(*100). For further detail, see Gujarati (2004, 321).

Page 75: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

73 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

of resources and motivation to trade then effects of importing countries are expected to be different from

the country’s aggregate exports as well as among those export sectors.

Page 76: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

74 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 5. THE ROLE OF FIRMS IN DETERMINING EXPORT TRADE PATTERN:

VIETNAM'S FOOTWEAR, RICE AND WOOD AND WOOD PRODUCTS SECTORS

SUMMARY

This chapter investigates the role of firms active in the footwear, rice and wood and wood products

sectors to determine their trade pattern using the gravity model. The two main sources of data are

Vietnamese Customs Office for firm's export performance and the World Trade Indicator for gravity

factors. This chapter differs from the previous one in that it examines the effect of gravity factors on

Vietnamese firms' export performance for the three export sectors mentioned. Hausman test advocates

the fixed effect model therefore confirming the role of firms in determining their export trade.

Page 77: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

75 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.1. Introduction

In recent times, the need to satisfy domestic consumption has led to an unprecedented rise in

international trade. Since every country has its own advantages in producing certain products,

international trade is a significant catalyst for local producers and foreign consumers. The classical and

new trade theories constitute the two main strands of the theory on international trade. While the

classical trade theory for absolute and comparative advantage has some limitations, such as the

economic models are simplistic in that only two trading countries and two products go into the model

whereas the new trade theory is superior taking into account many more countries and factors, which

help describe more explicitly the international trade pattern. A typical model of the new trade theory is

the so-called gravity model in which GDP and geographical distance as the two main determinants of

international trade.

In the gravity model, the GDP factor in most cases is a driving force for stimulating trade among

countries. By nature, it is a component of a pure expenditure system model where the consumption of

one good in one country is thus equivalent to the income of that country. Nonetheless, this expenditure

system model can only be applied in practice if it is assumed that income must equal sales. In fact, a

country does not spend all its income on imported goods from another country. Bergstrand (1985) has

proved by deriving the utility function that the gravity equation is a reduced form derived from a partial

equilibrium subsystem of a general equilibrium model with nationally differentiated products, since the

expenditure of a country is constrained by its income.

Empirical literature on the gravity model describes the role of the national income of a country as

encouraging bilateral trade giving a positive sign in the regression models. There is a long list of gravity

model papers on the subject of the country's total export and/or import trade which are treated as an

endogenous variable with GDP acting as an exogenous one. Moreover, products exported or imported

are expressed as total value and in turn reflects the aggregate value of trade and are positively affected

by the GDP of a country partner. Nonetheless, the role of firms in determining trade pattern has been

totally ignored in gravity model literature for the case of Vietnam.

Krugman (1980) a pioneer of the New Trade theory, identified that there is an incentive to concentrate

production of a good near its largest markets since this would enable the seller to minimize

transportation cost. His suggestion on the role of the transportation cost was a milestone of the gravity

model where the geographical distance between exporting and importing country typically is a negative

indicator. In reality, since firms are heterogeneous and some firms are more competitive than others, the

more productive firms may decide to take part in the international markets (Melitz, 2003). In some

recent empirical gravity papers such as Bernard and Jensen (2007), Arkolakis and Muendler (2009),

Bastos and Silva (2010), firms' heterogeneity and productivity have been shown to be crucial factors

determining their trade pattern. Since the total export and import trade of a country can be expressed as

firms' extensive and intensive margins, they enable us to examine how the gravity factors affect firms’

export performance.

Page 78: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

76 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

In this chapter, we use data on firms' exports from Vietnam of footwear, rice and wood and wood

products sectors to over 150 countries across continents to investigate how firms determine their export

trade pattern. For comparison purpose, we revisit gravity model with similar indicators that have been

included in the previous chapter. However, five dummies of distance variable are included because we

detect that this variable turns out to affect positively those firms’ exports. Furthermore, the level of

mutual trade between two contiguous countries is also dependent on their extent of trade with the rest of

the world. In some cases, the scale of foreign trade rests on how much domestic trade takes place within

exporting or importing countries. If domestic trade accounts for most of a country’s production capacity,

its volume of exports would fall accordingly.

Although, empirical papers using country-level data have contributed to international trade, in some

cases, their results may be biased since the aggregate export trade data do not accurately reflect the role

of individual firms. Another factor is that exports by firms of in various sectors are heterogeneous. Some

firms serve a wide variety of markets while others serve only one. This may be because some markets

preferentially consume a certain kind of product, which satisfies the different taste of local consumers.

It is therefore clear that firms from the footwear, rice and wood and wood products sectors perform

differently in the international market. Among those sectors, rice products are considered homogeneous

therefore it is not appropriate to express total rice exports as the intensive margin of a product per firm.

We therefore regressed potential gravity factors on the export value and volume of firms which we then

applied to all three firms sectors. Notably, the national income is consistently and positively linked with

firms’ export value and volume across the three sectors. The signs of GDP per labor unit of importing

countries are dissimilar between these sectors, being positive for the footwear firms sector but negative

for the rice and wood and wood products sectors. Interestingly, the effect of the ASEAN dummy is not

consistent, changing from positive for the footwear and rice firms’ exports to negative for the wood and

wood products firms’ exports. The landlocked country dummy variable is more sensitive to the volume

of rice than its value, probably because rice is a homogenous and heavy product and its weight affects

the transport cost, which explains why landlocked countries are commonly an obstacle to imported

goods.

The structure of the chapter is organized as follows: Section 5.2 demonstrates the heterogeneity of

footwear, rice and wood and wood products firms active in international market, section 5.3 briefly

analyzes the dynamics of these firms, section 5.4 investigates their important importing countries, sector

5.5 presents the model and data, section 5.6 shows the role of firms' intensive and extensive margins in

their export performance, section 5.7 reports empirical results of the regression model and section 5.8

concludes the chapter.

5.2. Firm heterogeneity by market value

In order to clarify the role of firms in determining their export trade pattern, we investigate their activity

levels corresponding to the number of markets served in footwear, rice and wood and wood products

sectors. The term total firms i.e. "all firms active in the three sectors" in Table 10d is used solely for

reference and firm heterogeneity analysis is based on data for the individual sectors. Table 10a shows

Page 79: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

77 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

that in general, footwear firms are the most dynamic for this period since a firm from this sector was

able to serve a maximum of 99 markets in 2008 while rice and wood and wood products firms are much

less dynamic with 49 and 48 markets served respectively in the same year. Moreover, the average

number of markets served by a footwear firm was the largest in 2008, reaching 9.59 markets while in

the same year a single rice firm averaged 5.3 markets.

Significantly, the main difference between firms in the three sectors was the number of market served

(ranging from one to over ten). A common feature of all three sectors is that the percentage of firms

serving a single market is high but the value of their exports was comparatively low. Conversely, firms

serving the largest number of markets accounted for the highest share of the value of exports. In the

footwear sector, there are 51.79% of firms serving only one export market and this percentage steeply

decreased corresponding to the increase in the number of market served.

However, since 2008, the percentage of firm serving a single market decreased reflected in the

following years in a higher percentage of firms serving more than one market. Firms performed more

dynamically in the following years as shown by the greater number of market served but that does not

necessarily mean they have become more productive or that the value of their exports increased.

Compared with the footwear sector, the percentage of firms in the rice sector serving a single market

was lower at 45.9%. In 2006, unlike the footwear sector, the percentage of firms serving three or four

markets remained constant. However, there is a rising trend in the percentage of firms serving only one

market. Although, those firms serving more than ten markets accounted for the highest value of exports,

the value of exports of those firms serving four, five and six markets were significantly higher than

firms of the footwear sector. In particular, in 2006 and 2007, the percentage of the value of rice exports

for firms serving six and four markets were significantly higher than for other firms, reaching 32.41%

and 45.8% respectively.

Surprisingly, wood and wood products firms performed very differently compared with their footwear

and rice counterparts. Although the percentage of firms serving a single market was the highest, the

percentage of the value of exports was distributed evenly across various categories of firms serving a

different number of markets but in particular, for those firms serving two, three or four markets, that

percentage was rather high compared with the footwear sector. In 2007, for the category of firm serving

a single market, the value of exports was extremely favorable, accounting for 23.25% of the total.

In short, the main difference between firms in these three sectors is that firms serving the international

market are very dynamic which may be one of the reasons why firms are able to influence the pattern of

Vietnam's export trade.

Page 80: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

78 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 10. Firm heterogeneity by sector (2006-2010)

Table 10a. Footwear sector

Number of markets served 2006 2007 2008 2009 2010

% of firms % of value % of firms % of value % of firms % of value % of firms % of value % of firms % of value

1 51.79 0.46 48.26 0.50 41.75 0.33 45.53 0.47 41.34 0.32

2 9.42 1.03 8.19 1.73 9.32 0.17 8.75 0.22 8.01 0.35

3 4.71 0.19 6.10 0.20 6.80 0.21 6.81 1.11 5.43 0.25

4 3.41 0.51 3.31 0.22 3.69 0.20 2.72 0.16 2.58 0.06

5 1.62 0.54 3.14 0.60 2.91 0.47 3.31 0.74 2.33 0.48

6 1.79 0.45 1.74 0.58 2.72 1.48 2.14 0.42 2.07 0.79

7 1.62 1.09 1.05 0.17 1.94 0.28 2.33 1.07 1.55 0.27

8 1.46 0.39 1.57 0.45 2.14 0.96 1.36 0.44 2.58 0.51

9 1.3 0.39 1.92 0.87 0.58 0.44 0.78 0.12 0.52 0.01

10 1.62 2.17 0.87 0.23 0.58 0.90 0.97 0.43 1.29 0.98

More than 10 21.27 92.74 23.87 94.39 27.57 94.50 25.29 94.78 32.30 95.92

Average number of markets per firm

Maximum number of markets per firm

Number of firms

7.69

85

127

8.63

95

140

9.59

99

133

8.94

78

118

11

81

121

Table 10b. Rice sector

Number of markets served 2006 2007 2008 2009 2010

% of firms % of value % of firms % of value % of firms % of value % of firms % of value % of firms % of value

1 45.90 0.40 51.79 1.28 37.01 0.85 46.56 0.50 50.86 2.60

2 10.66 0.61 8.04 2.27 14.29 0.79 11.34 1.09 9.97 1.49

3 10.66 2 6.25 0.53 7.14 0.32 4.86 0.54 5.84 1.23

4 6.56 1.23 8.93 45.80 5.19 0.87 3.24 0.31 4.47 1.35

5 4.10 2.48 2.68 2.72 5.84 1.29 5.26 1.01 4.81 1.15

6 4.10 32.41 8.04 18.38 5.19 17.27 4.45 1.36 3.09 1.44

7 1.64 4.48 3.57 5.03 3.90 2.78 2.43 1.31 4.12 2.98

8 2.46 1.71 3.57 3.92 1.30 0.98 2.02 8.78 2.41 2.02

9 0.82 10.66 0.89 2.17 1.95 0.93 3.24 51.68 2.06 2.56

10 4.10 5.75 1.79 2.09 4.55 3.08 2.02 1.51 1.72 1.84

More than 10 9.02 38.21 4.46 15.77 13.64 70.78 14.57 31.84 10.65 81.28

Average number of markets per firm

Maximum number of markets per firm

Number of firms

4.24

41

86

3.56

30

72

5.33

49

106

4.90

43

125

4.15

41

115

Page 81: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

79 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 10c. Wood and wood products sector

Number of markets served 2006 2007 2008 2009 2010

% of firms % of value % of firms % of value % of firms % of value % of firms % of value % of firms % of value

1 52.01 9.21 53.60 71.34 47.58 16.60 52.63 11.50 53.44 12.31

2 13.94 9.29 15.55 6.42 15.71 9.32 15.06 10.91 14.73 10.28

3 7.87 6.23 7.98 3.08 8.86 6.35 7.33 10.76 7.67 11.35

4 5.57 4.92 5.86 2.16 5.69 5.12 5.95 8.76 4.69 6.63

5 3.36 6.13 3.47 1.44 3.63 5.88 3 3.78 3.70 6.41

6 2.96 5.44 2.95 2.12 3.12 5.35 2.59 5.04 2.86 4.72

7 1.96 5.59 2.28 2.57 2.11 2.81 2.02 5.39 2.14 5.42

8 1.20 4.51 1.76 1.61 1.31 2.48 1.86 4.75 1.76 4.06

9 1.40 5.40 1.40 1.18 2.17 3 1.50 2.06 1.26 3.94

10 1.45 3.30 1.40 1.36 1.76 3.35 1.05 2 1.15 2.41

More than 10 8.27 39.93 3.73 6.66 8.06 39.68 7 35 6.60 32.42

Average number of markets per firm

Maximum number of markets per firm

Number of firms

3.43

39

127

2.88

38

114

3.64

48

113

3.24

43

137

3.17

37

135

Table 10d. Total

Number of markets served 2006 2007 2008 2009 2010

% of firms % of value % of firms % of value % of firms % of value % of firms % of value % of firms % of value

1 48.58 2.93 50.02 23.25 44.57 4.92 49.17 4.13 50.60 12.12

2 13.05 3.15 13.89 2.71 14.36 2.79 14.16 4.05 13.57 3.37

3 7.60 2.28 7.81 1.81 8.30 1.92 7.20 4.15 7.39 3.56

4 5.40 1.92 5.60 9.42 5.43 1.75 5.57 3.06 4.58 2.18

5 3.40 2.53 3.47 1.28 3.93 2.21 3.32 1.81 3.76 2.26

6 2.96 7.81 3.15 4.47 3.19 6.79 2.70 2.22 2.84 1.94

7 2.20 3.23 2.41 1.87 2.24 1.59 2.08 2.45 2.37 2.24

8 1.36 1.77 1.84 1.48 1.57 1.46 2.02 4.22 1.93 1.81

9 1.40 3.80 1.63 1.22 1.93 1.28 1.43 14.77 1.29 1.70

10 1.76 3.19 1.35 0.94 1.61 2.17 1.30 1.97 1.33 1.50

More than 10 12.28 67.32 8.83 51.51 12.86 73.06 11.04 57.11 10.35 67.28

Average number of markets per firm

Maximum number of markets per firm

Number of firms

4.74

85

340

4.38

95

326

5.06

100

352

4.43

78

380

4.29

81

371

Source: Author’s calculations based on VCO database

Page 82: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

80 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.3. The dynamics of firms by export criteria

The important export factors presented and compared across sectors in Table 11 are the number of

export transactions, export firms, destination markets and product types from 2006 to 2010. Wood and

wood products sector emerged as the most dynamic and increased rapidly the number of export

transactions year on year, followed by the footwear and rice sector. Significantly in 2009, when the

Vietnamese economy in general was affected by the world financial crisis, the number of export

transactions of the rice and wood and wood products sectors strongly increased while decreasing in the

footwear sector. The number of firms active in international market varies between sectors reflecting

varying demand for different products from foreign consumers.

In fact, there are a larger number of wood and wood products firms compared with the other sectors

whereas there are far fewer rice export firms mainly because the demand from developed countries is

rather low. Moreover, the dynamics of a firm are shown by the number of markets it served assuming

that the destination markets for each sector are relatively equal.

We use the concept of product heterogeneity across the sectors to determine a firm's ability to export

different products since heterogeneous products supplied by firm in a sector in international market

indicates the degree of a firm's differentiation. The wood and wood products sector has the highest

level of product differentiation and rice the lowest. However, this large difference in product

differentiations between rice and wood and wood products sectors does not necessarily mean that the

former is more competitive than the latter since rice is typically homogeneous product.

Page 83: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

81 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 11. Exporting firms’ criteria across sectors

Export

criteria

Year

Sector

2006

2007

2008

2009

2010

No o

f ex

port

tran

sact

ion

s

Footwear

335139 466833 615495 568455 823536

Rice

4073 3793 3577 7650 10117

Wood and wood products

441892 696211 602218 881423 1023183

No o

f fi

rms

exp

ort

ing

Footwear

671 682 980 682 511

Rice

144 134 170 270 324

Wood and wood products

2233 2360 2208 2734 2976

No o

f

des

tin

ati

on

mark

ets

Footwear

161 168 172 141 146

Rice

99 82 127 150 149

Wood and wood products

168 160 149 178 165

No o

f p

rod

uct

typ

es

Footwear

764 460 405 363 128

Rice

50 41 8 23 41

Wood and wood products

1085 915 494 611 598

Source: Author's calculations based on VCO database

Page 84: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

82 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.4. Largest importing countries by export value

The Figure 18 shows from 2006 to 2010, United States of America (USA) and Britain were the two

largest import markets for footwear from Vietnam. Out of the top 10 importing countries, Mexico

imported the least. Export revenue from the USA and Netherlands markets strongly fluctuated over the

period whereas for other countries, it was relatively constant. The value of Vietnamese exports to USA

and Netherlands peaked in 2010 and 2008 respectively. In 2010, Vietnamese footwear revenue from the

USA amounted to 1,443 million USD, a two-fold increase compared with 2006. Vietnamese footwear

exports to the remaining countries fluctuated slightly though the period. Specifically, export revenue of

Vietnam's footwear sector to the ten largest importing countries decreased significantly in 2009

compared with 2008. It should be noted that for the USA, UK and Netherlands, in 2010, the export

value rose dramatically to almost 1440 million USD, 515 million USD and 442 million USD respectively

compared with 2009.

Of the top 10 rice importing countries, the Philippines was the largest importer accounting for over 50%

of the Vietnam's total rice export revenue in 2008 and remained constant until 2010. Malaysia was the

second largest rice importing country with the peak of 271.2 million USD in 2009, followed by Cuba,

which reached 400.1 million USD in 2008. Indonesia was the fourth largest importing market for

Vietnamese rice firms, however, its demand fluctuated strongly over the period.

The USA continues to confirm as the largest importing country for the wood and wood products sector

of Vietnam in the 2006-2010 period. Japan was the second largest importing country with 424.8 million

USD for importing these products in 2010. Being different from the footwear and rice sector, export

value of the USA increased strongly in 2009 meanwhile except for China and France, export value of

the remaining importing countries increased slightly in the same year. However, in 2007, except for

China, there was a sudden decrease in exports by Vietnam's wood and wood products firms to these

countries. Especially, in the same year, export value of Vietnam's wood and wood products firms to the

USA fell sharply by 32% compared with the previous year.

Page 85: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

83 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 18. 10 largest importing countries by export value (mil. USD)

Source: Author's diagram based on VCO database

0

200

400

600

800

1000

1200

1400

1600

Footwear

2006

2007

2008

2009

2010

0

200

400

600

800

1000

1200

Rice

2006

2007

2008

2009

2010

0

200

400

600

800

1000

1200

1400

Wood and wood products

2006

2007

2008

2009

2010

Page 86: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

84 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.5. Methodology and data

5.5.1. Gravity model and firms’ trade

Another strand of empirical literature on the gravity model focuses on firms' extensive and intensive

margins just derived from the total exports or imports of a given country. This chapter however, differs

from existing literature in that it examines how firms' exports in a particular export sector are influenced

by the economic factors of the importing country market. In addition, firms are able to diversify their

activities within a particular market depending on changes in demand of importing countries. A

conventional gravity equation where the income of both exporting and importing countries are included

would capture the parallel effect of partner countries' economic size on bilateral trade. In the case of a

single exporting country and many importing countries, the exporting country's income is captured in

the constant term of the gravity model regression.

As one important factor of the gravity model, GDP is normally a proxy for the economic size of a

country. However, GDP per capita is a better measure since it represents the output per person of a

country. The theoretical framework previously described shows that demand for imported goods in any

country would be constrained by its budget and a higher national income would induce a larger demand

for goods. In this chapter, we regress export value and volume of firms with gravity factors which were

applied in the previous chapter namely GDP, GDP per labor force and the difference between GDP per

capita of Vietnam and its importing countries. Moreover, time-invariant variables are also included such

as ASEAN, geographical distance, landlocked, border and colony.

We examine the effects of the gravity factors on exports of Vietnam's footwear, rice and wood and

wood products firms through their extensive and intensive margins. This approach allows us to test the

role of heterogeneous firms engaging in country pair trade. Nevertheless, if we consider the total exports

of a country, we would be ignoring the dynamics of firm therefore probably causing the anomalous

results. Firm's intensive and extensive margins can be obtained by decomposing the total export and/or

import trade of a particular sector. We apply the margins proposed by Arkolakis and Muendler (2009)

so that total exports sdT from source country s to destination country d can be decomposed into

sdsd sdT M t where sdM is the number of exporters (intensive margin) in 's with shipments to

destination d and /sd sd sdt T M are these exporters mean sales to d (extensive margin).

Alternatively, in most cases where the total exports relate to all export varieties, total exports sdT can be

decomposed into: sdsdsd sdT M G z where sdM is the number of exporters in s with shipments to

destination ,d ( )sd

sd dG G

is the total number of products exported from s to d and

/sd sd sdz t G is the average value of exports per product per firm (Bernard et al. 2007a).

As stated earlier, since this chapter only tests the gravity model for three particular sectors, the extensive

margin is the average export sales by a firm to its destination markets. Remarkably, as shown in Figure

Page 87: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

85 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

19, the total value of exports by footwear, rice, wood and wood products firms (extensive margin) has a

strong positive relationship to the number of firms and the number of markets (intensive margin).

Figure 19. The correlation of firm's extensive and intensive margins

Source: Author's diagrams using STATA 12.0

implying that both firm’s extensive and intensive margins play an important role in determining the total

value of exports.

The graph shows, heterogeneous firms who were able to diversify their markets and maximize their

exports sale were also more productive than others. However, since firms had to compete with the

rivals, only a few firms were able to dominate in the foreign markets.

02

46

02

46

-10 0 10 20 -10 0 10 20 -10 0 10 20

2006 2007 2008

2009 2010 Total

lnnu

mfir

m

lntotalexportGraphs by year

01

23

01

23

-10 0 10 20 -10 0 10 20 -10 0 10 20

2006 2007 2008

2009 2010 Total

lnnum

mark

et

lntotalexportGraphs by year

Page 88: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

86 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.5.2. Data

Micro data: Export data of firms in the three sectors for a period from 2006 and 2010 were obtained

from the VCO. This government-based body is responsible for managing export and import activities of

firms in Vietnam as well as collecting data on their exports and imports. Firms who have the need to

export or import goods are required to make a declaration to a border gate customs sub-department of

the VCO. Such declaration includes date of application, firm identity code, importing country code,

transaction code, currency code, exchange rate, export volume, unit price, and export value in the

foreign currency31

, name of product and its code at 10-digit SITC level.

We only used firms' data for export transaction in USD although in fact, 15 different currencies were

used by firms. On average, the value of export transaction in USD for footwear, rice, wood and wood

products correspond to 99.2%, 92% and 95.2% of the total value. For the export volume dataset, we

only kept the following units "pair"32

, "ton"33

and "piece"34

for regression.

Macro data: We obtained data on the following gravity factors: constant GDP of the importing

countries (measured at PPP) are available from WDI of the World Bank's website. In addition, we have

obtained data on the labor force of importing countries over this period via the KILM - data available

from the ILO. Real exchange rate data as presented in chapter 4 are taken from Bruegel website. The

data on geographical distance between Vietnam and its importing countries and the remaining variables

were extracted from CEPII.

5.6. Gravity factors and export margins

Regression results of three firms’ export margins (total exports, total weight and total number of firms)

for three export sectors are presented in Table 12, 13, and 14. The signs of GDP are consistently positive

compared with those of gravity regression model result in chapter 4 using country level data.

Surprisingly, the signs of GDP per labor force are very different across three firm sectors. This indicator

is significantly positive for the footwear firms sector whereas it shows a negative sign in all margins of

the rice firms sector and in the wood and wood products firm sector, GDP per labor force gives a

positive sign which is only significant for the number of firms margin. As such, high-income countries

present as very attractive destination markets for footwear firms but the effect of GDP per labor force on

the rice sector margins runs counter to this stylized fact that high income countries tend to import less

rice.

In contrast with the finding of the difference in GDP per capita between Vietnam and its importing

31

Payment currency in export contract includes AUD, CAD, CHF, CNY, EUR, GBP, HKD, JPY, MYR, NOK, SGD, TWD,

USD, USR, and VND.

32

This quantity unit accounts for 98.8% of the total

33

This weight unit accounts for 92.8% of the total

34

This quantity unit accounts for 96.8% of the total

Page 89: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

87 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 12. Gravity factors and export margins (footwear firms)

(1) (2) (3) (4) (5) (6)

Independent

variables

Total exports

(ln)

Total exports

(ln)

Total quantity

(ln)

Total quantity

(ln)

Total number of firms

(ln)

Total number of firms

(ln)

LnGDPjt 1.028*** 1.036*** 1.001*** 1.046*** 0.965*** 0.977***

(18.96) (17.63) (15.72) (15.63) (18.74) (17.13)

LnGDPjt/LBjt 0.463*** 0.413** 0.518*** 0.437** 0.408*** 0.382***

(2.73) (2.32) (2.77) (2.20) (3.18) (2.85)

LnDGDPijt 0.527*** 0.567*** 0.592*** 0.621*** 0.589*** 0.603***

(4.55) (4.70) (4.67) (4.65) (6.62) (6.33)

LnExchangrateijt 2.881***

(2.70)

2.651**

(2.53)

2.373**

(2.13)

2.068*

(1.88)

1.881**

(2.03)

1.637*

(1.75)

ASEAN 2.520*** 4.040*** 3.278*** 6.943*** 2.171*** 3.767***

(6.09) (9.94) (6.31) (11.22) (4.45) (7.62)

Landlockedj 0.274 0.0517 -0.102 -0.392 0.123 -0.0406

(1.07) (0.20) (-0.34) (-1.29) (0.56) (-0.18)

Borderij 3.972*** 4.264*** 5.227*** 6.338*** 2.610*** 3.090***

(8.58) (9.98) (6.77) (10.04) (5.36) (5.11)

Colonyi 0.975*** 0.917*** 0.933*** 0.722*** 0.584*** 0.478***

(6.83) (5.29) (4.72) (3.51) (4.42) (3.13)

LnDistance 0.945*** 1.158*** 0.553***

(4.98) (4.81) (3.09)

1<km≤4000 2.844*** 5.167*** 2.449***

(4.73) (6.41) (3.19)

4000<km≤7800 2.687*** 5.438*** 2.393***

(4.48) (6.89) (3.04)

7800<km≤14000 3.330*** 6.193*** 2.804***

(5.65) (8.03) (3.64)

14000<km 4.117*** 6.953*** 3.072***

(6.67) (8.22) (3.91)

Constant -22.12*** -16.83*** -33.93*** -29.99*** -33.31*** -31.13***

(-9.79) (-10.14) (-12.02) (-15.93) (-16.83) (-20.61)

Observations 615 615 614 614 615 615

Adjusted R2 0.66 0.66 0.61 0.61 0.68 0.68

Robust t-statistics in absolute value in parentheses, * significant at 10%, ** significant at 5%, *** significant at 1%. OLS regression with year effects

Page 90: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

88 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 13. Gravity factors and export margins (rice firms)

(1) (2) (3) (4) (5) (6)

Independent

variables

Total exports

(ln)

Total exports

(ln)

Total quantity

(ln)

Total quantity

(ln)

Total number of firms

(ln)

Total number of firms

(ln)

LnGDPjt 0.407*** 0.403*** 0.374*** 0.370*** 0.381*** 0.400***

(6.10) (6.22) (5.25) (5.26) (6.87) (7.02)

LnGDPjt/LBjt -0.952*** -0.883*** -1.107*** -1.046*** -0.564*** -0.462***

(-4.91) (-4.84) (-5.55) (-5.57) (-3.73) (-3.54)

LnDGDPijt 0.0270 -0.0383 0.135 0.0749 0.0572 -0.0409

(0.22) (-0.35) (1.08) (0.65) (0.67) (-0.64)

LnExchangrateijt 0.361

(0.29)

-0.789

(-0.69)

0.670

(0.48)

-0.490

(-0.39)

1.696

(1.53)

0.714

(0.75)

ASEAN 2.722*** 0.617 3.023*** 0.823 0.908 0.411

(4.29) (0.53) (4.76) (0.77) (1.63) (0.36)

Landlockedj -2.415*** -2.453*** -2.494*** -2.540*** -2.316*** -2.289***

(-6.15) (-6.30) (-7.19) (-7.18) (-9.41) (-9.55)

Borderij -2.100** -3.194*** -2.047** -3.212*** -0.299 -0.538

(-2.36) (-2.72) (-2.36) (-2.98) (-0.40) (-0.48)

Colonyi -0.341 -0.639 -0.355 -0.652 0.367 -0.0108

(-0.84) (-1.54) (-0.79) (-1.42) (1.41) (-0.04)

LnDistance -0.001 0.0491 -0.190

(-0.00) (0.16) (-0.72)

1<km≤4000 -3.039** -3.134** -1.456

(-2.12) (-2.27) (-1.08)

4000<km≤7800 -2.182 -2.209* -0.804

(-1.63) (-1.75) (-0.62)

7800<km≤14000 -1.974 -1.994 -0.483

(-1.50) (-1.60) (-0.38)

14000<km -4.672*** -4.688*** -2.608**

(-3.41) (-3.61) (-1.99)

Constant 20.47*** 22.74*** 14.66*** 17.44*** -0.226 -1.779

(6.24) (11.03) (4.39) (8.25) (-0.08) (-1.00)

Observations 487 487 487 487 487 487

Adjusted R2 0.23 0.29 0.21 0.27 0.23 0.29

Robust t-statistics in absolute value in parentheses, * significant at 10%, ** significant at 5%, *** significant at 1%. OLS regression with year effect

Page 91: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

89 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 14. Gravity factors and export margins (wood and wood products firms)

(1) (2) (3) (4) (5) (6)

Independent

variables

Total exports

(ln)

Total exports

(ln)

Total quantity

(ln)

Total quantiy

(ln)

Total number of firms

(ln)

Total number of firms

(ln)

LnGDPjt 0.884*** 0.904*** 0.885*** 0.905*** 1.015*** 1.031***

(16.19) (16.21) (15.93) (15.70) (22.39) (22.32)

LnGDPjt/LBjt 0.0276 0.102 0.0914 0.142 0.314** 0.392**

(0.14) (0.53) (0.45) (0.70) (1.97) (2.49)

LnDGDPijt 0.644*** 0.571*** 0.578*** 0.542*** 0.790*** 0.710***

(5.00) (4.45) (4.51) (4.23) (7.45) (6.69)

LnExchangrateijt 3.036***

(4.31)

2.476***

(3.56)

3.077***

(3.71)

2.670***

(3.27)

3.434***

(4.45)

2.550***

(3.39)

ASEAN . 2.236*** . 1.599** . 3.746***

. (3.23) . (2.10) . (9.99)

Landlockedj -0.637** -0.695*** -1.029*** -1.121*** -0.454* -0.663***

(-2.29) (-2.61) (-3.43) (-3.83) (-1.72) (-2.76)

Borderij . 4.703*** . 5.432*** . 5.014***

. (12.06) . (9.51) . (11.85)

Colonyi 1.431*** 1.169*** 1.196*** 1.000*** 1.918*** 1.546***

(7.80) (6.51) (4.82) (4.04) (9.16) (7.47)

LnDistance -0.710*** -0.998*** -0.728***

(-5.52) (-5.99) (-5.80)

1<km≤4000 2.545*** 2.256** 3.288***

(3.14) (2.40) (5.48)

4000<km≤7800 1.368 0.574 1.839***

(1.64) (0.61) (2.95)

7800<km≤14000 1.682** 0.702 2.387***

(2.08) (0.75) (4.00)

14000<km 0.816 -0.124 1.240**

(0.97) (-0.13) (1.99)

Constant -0.671 -9.218*** -6.041*** -16.38*** -24.15*** -33.29***

(-0.35) (-5.33) (-2.72) (-9.15) (-14.51) (-25.22)

Observations 574 618 574 618 575 619

Adjusted R2 0.66 0.68 0.63 0.66 0.74 0.76

Robust t-statistics in absolute value in parentheses, * significant at 10%, ** significant at 5%, *** significant at 1%. OLS regression with year effect

Page 92: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

90 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

countries in chapter 4, in this chapter, we find that this indicator positively affects firms’ margins for the

footwear and wood and wood products sectors whereas for the rice sector, the effect is negative but

insignificant. This finding indicates that Vietnamese footwear and wood and wood products firms are

still able to benefit from their low-cost of labor for exports to the international market.

The multilateral resistance factor affects positively and significantly all firms’ export margins in

footwear and wood and wood products sectors. However, for the rice sector, no significant effects are

found in three margins. Those positive effects indicate that when the Vietnamese currency is devaluated

against its importing country’s currency, export margins of Vietnamese firms in these two sectors are

encouraged.

There is still a significant positive effect from ASEAN dummy variable for all three sectors. The role of

regional economic integration remains important in that tax exemption and elimination continue to play

a vital role in facilitating trade between member countries. Surprisingly, the fact a country is landlocked

has negative and significant effect on the three margins of rice and wood and wood products sectors

shows that this factor remains a trade barrier for the margins of certain export sectors of Vietnam.

Moreover, firms of footwear and wood and wood products sectors only benefit from countries which

share a common border with Vietnam as well as from a colony country such as France. Rice firms do

not consider contiguous countries attractive which absorb large amount of rice import from Vietnam.

The regression result for geographical distance varies according to the particular export sector. This

indicator is considered to be a trade barrier since distant countries result in a higher transport cost for

international trade. A negative sign for geographical distance is also found in almost all gravity model

studies such as Papazoglou (2007), Carrère (2006) and Fitzsimons et al. (1999). However, a few studies

on gravity model at firm-level data such as Bastos and Silva (2010) found a positive effect of the

distance variable concluding that more productive firms were able to reach distant markets. In our study,

we find that the effect of geographical distance depends on different margins and sectors. In fact, the

footwear sector intuitively shows the positive sign of distance implying that it is able to overcome the

distance challenge. However, in the rice sector, for geographical distance, the regression gives both

positive and negative sign, which are not significant. Meanwhile, for firms of the wood and wood

products sector, it has a negative and significant effect on the value of exports and the number of firms

margins and negative effect on the quantity indicating that only a few sufficiently competitive firms can

enter distant markets.

5.7. Empirical results and discussion

5.7.1. Export value and the gravity model

Under the proposed gravity model, we continue to regress the variables mentioned in the previous

section on the export value and volume of firms. The reason why we use firm-country-year regressions

with the gravity factors is to avoid the problem of aggregation bias. Here, the export value at firm level

is decomposed based on the total export value of a particular export sector. As such, the regression

results are differentiated by export value and volume of firm-country clusters. Since a firm differentiates

Page 93: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

91 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

its role in different markets and through periods of time, we treat a firm exporting to a particular country

as one group and the year is as the time dimension therefore we can observe these dynamic changes by

firms for different markets at a certain time. This provides a panel of identified firm-country and time t.

We also test for the year effect by adding four-year dummy variables to the regression models.

For comparison purposes, the equation has been tested for the OLS, fixed and random effects as shown

in Table 15. The OLS regression method is not helpful in discriminating an individual firm's export

activities across the destination markets thus causing bias. From observation, almost all point estimates

in fixed effects regression are considerably larger than those obtained from the OLS regressions. More

importantly, the adjusted R-squared obtained from the OLS approach is consistently low while

comparatively, fixed effect regressions give a higher level of adjusted R-squared thereby confirming the

importance of heterogeneous firms across destination markets. We also ran the random effects model in

which comparing exporting firm groups may cause a contradictory conclusion. We also generate five

categories for the variable distance in order to identify how differently transport costs affect firms in a

particular sector. Furthermore, the Hausman test reaffirms the fixed effects model as an appropriate

option.

For the market size effect, our empirical findings are in accordance with almost all previous studies on

the gravity model using country-level data (Feenstra et al. 2001; Glick and Rose, 2002; Kangas and

Niskanen, 2003; Roberts, 2004) and firm, product level data (Muuls and Pisu, 2009; Bastos and Silva,

2010; Crozet and Koenig, 2010; Nguyen, 2009). Specifically, high-income destination markets are

stimulus factor for exports of footwear, rice and wood and wood products firms but this coefficient is

not significant for rice and wood and wood products firms showing that there is insufficient evidence to

conclude the positive effect of the importing countries' GDP on rice and wood and wood export value of

Vietnamese firms. In contrast, we detect that the wealthy destination markets encourage export value of

footwear firms but discourage export value of rice and wood and wood products firms. It also should be

noted that there is not enough evidence to conclude the effects of the difference in Vietnamese GDP per

capita and its importing countries although this indicator gives negative signs for all three firms sectors.

It should also be noted that in the OLS regression models, the exchange rate between Vietnam and its

importing partner encourages export margins of footwear and wood and wood products firms, however

in the fixed effects models of the three sectors, insufficient evidence is found to conclude for the effects

of this indicator.

Since fixed effects model eliminates the time-invariant variables, we find no effect of such dummy

variables as "ASEAN" and "landlocked", “border”, “colony” as well as "distance". We derived them

from the random regression results and observed that "geographical distance" positively affects

footwear and wood and wood products firms' exports. In most studies using trade data by country,

distance is considered as a trade barrier since it increases the trade cost between country pairs.

However, distance does not necessarily reduce firms' exports even Bastos and Silva (2010) proved that

highly productive firms are still able to reach remote markets.

Page 94: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

92 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 15. Export value of firms and gravity model

Independent

variables

Footwear firms Rice firms Wood and wood products firms

OLS

(1)

FE

(2)

RE

(3)

RE*

(4)

OLS

(5)

FE

(6)

RE

(7)

RE*

(8)

OLS

(9)

FE

(10)

RE

(11)

RE*

(12)

LnGDPjt 0.33*** 1.93*** 0.24*** 0.26*** 0.05** 0.25 0.03 0.01 0.19*** 0.27 0.11*** 0.11***

(27.34) (5.27) (13.90) (14.18) (2.36) (0.21) (1.45) (0.12) (22.19) (0.64) (10.81) (9.64)

LnGDPjt/LBjt 0.17** 0.84** 0.20** 0.27*** -0.47*** -0.02 -0.53*** -0.4*** 0.06 -0.05 0.01 -0.03

(2.47) (2.10) (2.45) (3.16) (-8.19) (-0.03) (-7.74) (-6.72) (0.87) (-0.14) (0.13) (-0.52)

LnDGDPijt 0.10** -0.23 0.07 0.02 -0.19*** -0.03 -0.13*** -0.1*** 0.09** 0.09 0.10** 0.11**

(2.39) (-0.79) (1.25) (0.41) (-4.75) (-0.51) (-2.92) (-3.14) (2.04) (1.13) (2.13) (2.35)

LnExchangrateijt 2.0***

(9.32)

-0.07

(-0.40)

0.12

(0.72)

0.05

(0.34)

-2.08***

(-4.95)

-0.18

(-0.30)

-1.49***

(-3.54)

-1.7***

(-3.98)

0.6***

(4.83)

-0.22

(-1.35)

0.22

(1.61)

0.13

(0.97)

ASEAN 0.39*** . 0.33*** 1.60*** 1.45*** . 1.11*** -0.98 -0.5*** . -0.63*** -0.22

(5.13) . (2.82) (5.14) (10.24) . (6.05) (-1.60) (-8.96) . (-8.59) (-1.35)

Landlockedj -0.01 . 0.05 -0.05 -1.69*** . -1.41*** -1.1*** -0.2*** . -0.17** -0.29***

(-0.25) . (0.72) (-0.65) (-8.71) . (-6.96) (-5.32) (-3.31) . (-2.38) (-3.89)

Borderij 0.44*** . 0.28 1.24*** -1.45*** . -1.27*** -2.8*** 0.65*** . 0.68*** 1.03***

(3.35) . (1.61) (4.96) (-5.61) . (-4.38) (-5.03) (8.15) . (7.33) (6.73)

Colonyi 0.45*** . 0.24 0.09 -1.05** . -1.29** -1.30** -0.2*** . -0.13 -0.19**

(4.54) . (1.36) (0.52) (-2.56) . (-2.33) (-2.34) (-3.51) . (-1.60) (-2.32)

LnDistance 0.40*** . 0.40*** -0.05 . -0.09 0.14*** . 0.09***

(13.17) . (8.40) (-0.75) . (-1.10) (5.52) . (2.90)

1<km≤4000 1.55*** -2.3*** 0.60***

(4.67) (-3.44) (3.50)

4000<km≤7800 1.50*** -2.3*** 0.45**

(4.51) (-3.71) (2.51)

7800<km≤14000 2.18*** -2.3*** 0.72***

(6.61) (-3.60) (4.17)

14000<km 2.73*** -3.3*** 0.50***

(8.19) (-4.74) (2.71)

Observations 23237 3961 35203

No firm-country 9220 2535 19032

R2

0.09 0.86 0.20 0.90 0.06 0.87

Ftest (p-value) 163.3*** 90.9*** 73.8*** 6.5*** 167*** 204***

Wald2

16 (p-value)

Hausman test

1168.7***

165***

1143.1** 604.9***

30.77***

650.9**

133***

2037*** 2088***

Notes: Robust t-statistics in absolute value in parentheses, * significant at 10%, ** significant at 5%, *** significant at 1%.

Page 95: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

93 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

We are continuing to examine the effect of the ASEAN dummy on its member countries' trade since

some papers have asserted that ASEAN has lost ground in stimulating intra-trade because that many

countries have benefited from being fully integrated into the global economy (Nguyen, 2010; Nguyen

and Heo, 2009) thus decreasing their active participation in this smaller economic bloc. Surprisingly, the

ASEAN effect is somewhat paradoxical since on the one hand it acts as a stimulus for exports of

footwear and rice firms, while on the other, exports of wood and wood products firms are discouraged.

It is therefore clear that, ASEAN is no longer supportive factor for wood and wood products firms.

The question of whether landlocked countries constitute a barrier to foreign exporting firms is also

interesting. Basically, a landlocked country can not be a supportive factor because freight costs are

inevitably higher. Although negative signs are found for landlocked coefficients, the effect is only

significant for rice and wood and wood products firms. As such, the negative sign of landlocked dummy

in the regressions for those firms confirms the importance of maritime transport in the international

trade. In particular, with heavy bulk goods such as rice and wood and wood products, the use of bulk

carriers helps firms considerably by increasing transport capacity and keeping down costs.

Comparing the effects of “border” across sectors, on firms in the footwear sector find contiguous

countries attractive whereas rice and wood and wood products firms do not benefit from such a factor.

Vietnam’s status as a former colony does not result in greater export value in the in the rice and wood

and wood product sectors which runs counter to some studies using country trade level data where such

status is found to be consistently positive. In particular, the effect of “distance” is significantly positive

for the export value of firms active in footwear and wood and wood products sectors showing that at

firm level exports, geographical distance does not cause serious problems for those firms. We also

include five categories for the distance variable and find that for the footwear and wood and wood

products firms, all distance categories are consistently positive whereas they are all negative and

significant for the rice firms.

5.7.2. Export volume of firms and the gravity model

We also test the gravity model using firms' export volume in order to find how it is affected by different

factors of the gravity model. For example, heavy and bulky goods such as rice and wood and wood

products force exporters to pay higher freight costs when shipping to distant markets. For comparison

purposes, we regressed three types of model including the OLS, fixed effect and random effect models.

The Hausman test shows that the fixed effect model is the most appropriate option, which confirms the

role of firms in determining their export pattern. Concerning coefficients of fixed effect model in

column (2), (6) and (10) of Table 16 for footwear, rice and wood and wood products sectors

respectively, the signs of the time-variant variables are generally the same as those of export value

regression except for landlocked and border variables. However, rice and wood and wood products

firms show no significant effects from the fixed effect regression model therefore we do not have

sufficient evidence to confirm the effects of gravity factors on the export volume of these firms. The

GDP of the importing country positively affects footwear firms' export volume. The magnitude of the

coefficient is considerably higher in that for every 1% increase in the GDP of the importing

Page 96: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

94 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

countries, firms' export volume increase by 2.5%. The GDP per labor force effect is positive confirming

the supportive factor for the export volume of footwear firms. The difference in the GDP per capita of

Vietnam and its importing countries gives mixed signs but insignificant for firms’ export volume in all

three sectors.

We also examine the effect of the time-invariant variables from random effect models for each specific

sector in the column (3), (7), and (11). For footwear and wood and wood products firms, we find that

distant markets affect positively on export volume implying that for those firms, higher transport costs

or other fees related to shipping these goods such as export/import duties, customs fees and port charges

do not matter. In contrast, distant markets are a larger challenge for rice firms therefore large quantity of

rice products are not exported to such markets. This may be due to rice being more likely to be a heavy

and bulky leading to relatively higher freight costs.

Surprisingly, ASEAN dummy effects appear to be inconsistent between sectors. While they give a

positive sign for the footwear and rice export volume but a negative sign for wood and wood products

export volume. Indeed, a smaller quantity of wood and wood products is exported to ASEAN countries

compared with a larger quantity of footwear and rice products exports. However, although the

landlocked dummy is still negative for all three sectors, it is only significant for the rice and wood and

wood products sectors indicating that landlocked countries are consistently at a disadvantage

particularly for these sectors. Notably, the magnitudes of all landlocked coefficients for firms’ export

volume with gravity factors are larger than those of export value indicating that the landlocked effects

on firms’ export volume are more sensitive than on their export value.

Page 97: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

95 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 16. Export volume of firms and gravity model

Independent

variables

Footwear firms Rice firms Wood and wood products firms

OLS

(1)

FE

(2)

RE

(3)

RE*

(4)

OLS

(5)

FE

(6)

RE

(7)

RE*

(8)

OLS

(9)

FE

(10)

RE

(11)

RE*

(12)

LnGDPjt 0.36*** 2.52*** 0.29*** 0.35*** 0.03 -0.35 0.02 -0.01 0.22*** -0.40 0.14*** 0.15***

(28.35) (5.61) (16.59) (18.61) (1.39) (-0.25) (0.78) (-0.20) (22.78) (-0.77) (11.76) (11.20)

LnGDPjt/LBjt 0.22*** 0.97** 0.22** 0.24** -0.56*** 0.54 -0.55*** -0.4*** 0.05 -0.24 0.02 -0.01

(2.89) (1.98) (2.44) (2.54) (-8.20) (0.43) (-7.43) (-6.37) (0.61) (-0.49) (0.25) (-0.12)

LnDGDPijt 0.15*** -0.39 0.12** 0.08 -0.11** -0.07 -0.10** -0.11** 0.03 0.04 0.01 0.03

(3.17) (-1.05) (2.10) (1.45) (-2.32) (-1.16) (-2.00) (-2.30) (0.69) (0.39) (0.37) (0.69)

LnExchangratejt 2.0***

(9.01)

-0.05

(-0.27)

0.29

(1.48)

0.25

(1.02)

-1.33***

(-2.74)

-0.01

(-0.02)

-0.874*

(-1.86)

-1.2***

(-2.60)

0.9***

(5.93)

0.13

(0.66)

0.66***

(4.24)

0.63***

(4.04)

ASEAN 0.64*** . 0.72*** 3.48*** 1.60*** . 1.31*** -0.48 -0.15** . -0.26*** -0.45***

(8.14) . (6.25) (11.60) (11.08) . (7.20) (-1.10) (-2.29) . (-3.34) (2.76)

Landlockedj -0.09 . -0.07 -0.20** -1.64*** . -1.44*** -1.2*** -0.4*** . -0.37*** -0.43***

(-1.52) . (-0.84) (-2.27) (-9.56) . (-7.88) (-6.34) (-6.45) . (-5.00) (-5.67)

Borderij 1.15*** . 1.07*** 3.08*** -1.09*** . -0.92*** -2.2*** 1.15*** . 1.11*** 1.76***

(8.27) . (5.86) (12.19) (-4.71) . (-3.69) (-5.73) (12.61) . (10.68) (11.58)

Colonyi 0.54*** . 0.44*** 0.23 -0.84** . -0.91** -1.01** -0.3*** . -0.28*** -0.30***

(5.81) . (2.92) (1.53) (-2.42) . (-2.14) (-2.34) (-5.87) . (-3.35) (-3.48)

lnDistance 0.43*** . 0.43*** -0.01 . -0.04 0.11*** . 0.07**

(13.74) . (9.08) (-0.09) . (-0.46) (3.94) . (2.14)

1<km≤4000 3.14*** -2.1*** 1.02***

(9.96) (-4.00) (5.69)

4000<km≤7800 3.27*** -2.1*** 0.84***

(10.24) (-4.26) (4.59)

7800<km≤14000 3.91*** -1.8*** 0.96***

(12.42) (-3.87) (5.44)

14000<km 4.35*** -3.0*** 0.89***

(13.55) (-5.35) (4.54)

Observations 23106 3931 34394

No firm-country 9179 2513 18628

R2

0.10 0.82 0.18 0.88 0.06 0.85

Ftest (p-value) 186*** 53.9*** 74.4*** 1.81* 182*** 211***

Wald2

13 (p-

value)

Hausman test

1447***

156.82***

1439*** 548.83***

18.1**

580***

127***

2274***

2330***

Notes: Robust t-statistics in absolute value in parentheses, * significant at 10%, ** significant at 5%, *** significant at 1%.

Page 98: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

96 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

5.8. Conclusion

The chapter aims to answer the question of whether firms' exports are differently affected by gravity

factors compared with the total exports of a country. Our study differs from the previous ones such as

Bastos and Silva (2010), Hillberry and Hummels (2008) in examining gravity factors for three separate

export sectors. We observe that different effects are obtained corresponding to each determinant

suggesting that not only firm but also sector characteristics play an important role in determining the

pattern of the Vietnamese exports.

Based on the Hausman test, we find that fixed effect model is the most appropriate option which means

that each firms' individual characteristics cause the changes in the gravity export determinants as well as

the characteristics of the exporting countries. However, a disadvantage of using the fixed effect model is

that it is not possible to obtain coefficients of the time-invariant variables since these variables are

removed during regression.

The signs of the importing countries' GDP corresponding to footwear, rice and wood and wood products

exports are in line with the one obtained from country level data confirming the stimulus role of the

economic size of the importing countries. Meanwhile, the GDP per labor factor has a negative sign for

rice and wood and wood products firms sectors but this is not significant for wood and wood products

firms. Generally, the difference in GDP per capita between Vietnam and its importing countries

negatively affects the footwear and rice firms' export value but this coefficient is not significant.

Using random effect regressions, geographical distance between Vietnam and its importing countries

shows a positive and significant sign for footwear and wood and wood products firms indicating that

transport costs do not matter and discourage firms to reach distant markets. Although this indicator is

not always negative, nevertheless rice firms find it a challenging factor in international trade. Although,

ASEAN role in the regional economic integration remains a generally supportive element for footwear

and rice exporting firms, it has a discouraging effect on the export activity of wood and wood products

firms.

In short, examining the role of firms in determining their trade pattern is another fascinating story, as

firms are heterogeneous and dynamic to varying degrees depending on their destination markets.

Normally, aggregate export value of a country has some bias because firms may face fierce competition

in different markets and therefore need to become more active and dynamic to succeed. However, if we

also decompose the aggregate export value of country into firms' extensive and intensive margins and

other authors' related works, the regression results may not reflect the role of firms in a particular sector.

Although our work, to some extent has resolved the latter problem, we were not able to capture the

gravity effects for all export sectors for the reasons given earlier.

Page 99: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

97 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 6. DETERMINANTS OF FIRMS' EXPORTS: A CASE OF A DEVELOPING AND

EMERGING COUNTRY

SUMMARY

This chapter examines Vietnamese firms’ internal key factors affecting their export performance

by using a 2008 data set of firms in three export sectors, footwear, rice and wood and wood

products. We transform the dependent variable, which lies strictly in the unit interval, into logit

and apply the OLS regression method. We also attempt to carry out quantile estimation with

bootstrapped standard errors, because we are concerned about the severe extreme values of firms'

export intensity and non-normality of the residual. A significant positive sign of firm size in

footwear and wood and wood products sectors continues to confirm the advantage of economies

of scale. In contrast, firm size decreases the export intensity of the rice firms at 10th quantile,

indicating that economies of scale do not encourage these firms' propensity to export. In

particular, human and capital intensity are negatively associated with export intensity indicating

that highly skilled workers are not needed and firms restrict their fixed assets investment in these

low-technology manufacturing firms. State-owned rice and wood and wood products firms are

found to be unsupportive to export intensity, though for the footwear sector, SOEs encourage

their propensity to export at 25th quantile. Moreover, firms' longer presence does not confirm

their better export performance, with the greatest level of significance shown across quantiles for

the wood and wood products sector.

Page 100: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

98 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.1. Introduction

The important role of exporting firms in international trade has been asserted in many studies and such

smaller economic entities do not interact in the same way as their countries. How firms operate in

foreign markets depends not only on their own ability but also on their environment as well as when

firms enter the market or whether they continue working effectively or exit after a period of time. One

important strand in international trade literature focuses on the dynamic of firms, which helps them be

more competitive with their foreign partners. Bernard et al. (2007ab) have emphasized the importance

of exporters capable of growth becoming more productive, skill- and capital-intensive than non-

exporting firms.

In Vietnam, exports have made a large contribution to the annual national income. In recent years, its

revenue has risen dramatically and in 2012 peaked at 114 billion US dollars, an increase of 18.2%

compared with 2011. The top of the list of export products are crude oil, textiles and garments,

footwear, electronics, wood and wood products, rice and machinery. Vietnam's main export markets

include the United States of America, Japan, China, Australia, Singapore, Germany and the United

Kingdom.

Despite the major contribution of Vietnam's exports to the country's income, there have been relatively

few studies examining determinants on firms' export performance. Nguyen and Hiroshi (2008) addressed

the question of whether the self-selection and learning-by-doing hypothesis is applicable to the exporting

firms of Vietnam by including several important factors such as TFP, labor productivity, age of firm,

type of firm ownership, etc. Although a random sample of 1,150 firms was collected based on the

population of 0.21 million Vietnam's manufacturing firms, their findings were reliable since no selection

bias was found for Heckman's random-effects dynamic probit model. Their paper also proved the

exceptional performance of Vietnam's exporting firms compared with non-exporting firms. Vu (2012)

attempted to examine whether firms' productivity can explain their decision to export by using a

balanced dataset from 2005-2009. However, Nguyen and Hiroshi (2008) unlike Vu (2012) showed that

the learning by exporting hypothesis is invalid for Vietnam's private manufacturing firms. The authors

also found that export status of firms had no significant effect on TFP growth, change of scale, technical

efficiency and technical progress. In a developing country such as Vietnam, export-led growth strategy

and trade liberalization play a crucial role in developing the country's trade and firms' activities. By

using firm-level data between 2000 and 2009, Doan and Kiyota (2014) were able to prove that although

trade liberalization encouraged aggregate productivity growth in Vietnamese manufacturing, it did not

necessarily have negative effects on small firms which achieve even better opportunities by being more

productive.

This chapter contributes to the existing literature of Vietnam’s export trade in that it examined internal

important determinants of exporting firms active in three sectors such as footwear, rice and wood and

wood products which are considered to be key exporting sectors of the country. The remainder of this

chapter is organized as follows: Section 6.2 presents related literature on firms' characteristics, section

6.3 demonstrates the location of footwear, rice and wood and wood products firms across regions of

Page 101: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

99 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Vietnam, section 6.4 explains the methodology and the data, section 6.5 reports and discusses

determinants of these firms' export performance based on empirical results and section 6.6 concludes the

chapter.

6.2. Related literature

In recent years, many researchers have become increasingly concerned about micro level data since the

aggregate export data are biased, to some extent. One possible plausible explanation is that exporting

firms' performance in each industry reflects their different dynamics in international trade. Literature on

exporting firms' activity reflects considerable interest in many determinants, which can be classified into

two the main groups in Figure 22 below.

Studies on exporter's performance mainly focus on export revenue, export productivity, profitability and

export intensity (propensity to export). Moreover, determinants of firms' performance cover firms'

characteristics and activities. Those factors affect firms' export performance differently depending on the

type of data as well as the methodology applied to analyze the interaction between those factors and

export performance.

- Firm's age: The age of a firm denotes the year of its establishment. Firms who have a long history of

foreign market operations are more experienced than others since their exporting capabilities may have

been improved after some years cooperating with foreign partners. However, in an ever more fiercely

competitive international market, no guarantee for survival. Although experienced firms are frequently

thought to be more successful than newborn ones, this does not always mean that older firms work more

efficiently.

Figure 20. Firm's factors in international trade

Sources: Author's diagram

Firms' factors

Firms' performance Firms' characteristics

- Productivity

- Labor cost

- Capital intensity

- Innovation

- Training

- Learning by exporting

- Earning profitability

- Enter, exit and survival

- Age

- Size

- Foreign market knowledge

- Educated workers

- Workers' gender

- Workers' skill level

- Location

- Affiliation

- Export assistance

- Ownership

Page 102: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

100 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

There are numerous studies investigating how firms' performance is affected by firm age. One stream of

research on firm age showing evidence of its positive impact on their export performance includes

typical works by Majumdar (1997), Iyer (2010), Fakih and Ghazalian (2013), Javalgi et al. (2000).

According to Javalgi et al. (2000) the aggregate level data, the age of firms confirms their export

intensity although the relationship for manufacturing-based service providers is not significant. To be

discussed later in this chapter, these Indian older firms are found to be more productive but less

profitable than the younger ones.

Another research stream has shown that the age of firms is not necessarily a positive factor on

international markets. In fact, some older firms are not as flexible in adjusting to dynamic foreign

markets whereas young firms are better able to adapt to market needs of service sectors. Interestingly,

Caparas (2006) investigated the seemingly paradoxical relationship between firm age and export sales.

He found that while older Philippine firms in the clothing and food manufacturing sector are successful

in exports because of longer time they have had to learn about the market nevertheless younger

electronic firms are able to penetrate effectively the export markets due to the fast pace of change in the

technology sector.

- Firm size: The size of a firm reflects the notion of economies of scale, which in theory induces the

growth in export turnover. Most studies use the number of workers as a good proxy for firm size such as

Bonaccorsi (1992), Bleaney and Wakelin (2002), Wakelin (1997), Muûls and Pisu (2009), Farole and

Winkle (2011), Javalgi et al. (2000), Aggrey et al. (2010), Samiee and Walters (1990), Roper and Love

(2002). In other cases, firms' revenue can be a proxy for the size of firm as shown by the studies of

Papadogonas et al. (2007), Greenway et al. (2004). Nevertheless, Obben and Magagula (2003), Javalgi

et al. (2000) used for comparison purposes the number of employees and firms' revenue as proxies for

firm size in their studies.

The firm size advantage for export performance is a widely accepted as fact of modern industrial

economies. A persuasive explanation is that firms can take advantage of factor endowment in which the

labor factor is considered as the economies of scale and firm size increases significantly with exports

(Javalgi et al. 2000; Farole and Winkler, 2011). However, the studies by Wagner (1995) and Robson et

al. (2012) reveal the positive but decreasing relationship between firm size and export intensity.

Specifically, the impact of firm's size is not the same across sectors and size categories.

- Firm's average wage: This indicator is a proxy for the labor cost so called human capital intensity.

Literature on exporting firms' performance shows a mixed correlation between their labor cost and their

export intensity (or propensity to export). One strand of the literature in favor of using firm's average

wage as indicator explains that certain firms do not require skilled and highly educated workers

(Papadogonas et al. 2007). Low labor cost can be seen as a competitive advantage for Greece, which

tends to export low-tech products such as food products, beverages and tobacco, textile and footwear

products, wood and cork products. The negative sign of firm labor cost for export performance is also

confirmed by Liu and Shu (2003), Bhavani and Tendulka (2001), Michiel (2002) where manufacturing

industries have an international labor cost competitive advantage.

Page 103: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

101 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

However, low labor cost is not an advantage for most of the developed economies because firms need to

pay higher wages in order to increase export turnover. Wagner (1995) found a positive effect of the

human capital intensity on export intensity for German manufacturing firms in four sectors: basic

products, capital goods, consumer goods, food, beverages and tobacco, although for basic goods, the

effect is not important. Another study by Greenway et al. (2004) confirms such positive relationship

between the labor cost of British domestic-owned firms and their export decisions and propensity to

export. One important feature of this study is that exporting firms also produce for the domestic market

therefore it is debatable how the presence of MNEs affects the export behavior of other domestic

manufacturing firms. A relevant explanation for the positive sign of labor cost is that highly skilled labor

is very important in the context of the highly competitive labor market in European countries such as the

UK.

Nonetheless, production costs do matter when large firms plan to expand their market shares by

reaching out to distant markets as part of their strategy to extent product life cycle. When large

enterprises such as the multinational national enterprises are seeking new markets, labor cost is of

crucial importance. American MNEs are typical of export-oriented investors with affiliates located in

less developed countries such as Taiwan, Hong Kong, Malaysia, and Thailand. Those firms therefore

employ low-wage workers in the local markets to increase export revenue.

Firm's capital intensity: This indicator measures a firm's efficiency in deploying its assets and indicates

how much capital investment is needed in order to yield a single dollar of sales revenue. It also indicates

a firms' level of production technology. In most cases, capital intensity is conducive to a firm's export

performance thus providing a positive sign (Özçelic and Taymaz, 2003; Wagner, 1995; Wakeline, 1997

and Rankin et al. 2006). Interestingly, Özçelic and Taymaz (2003) have found a significant and positive

impact of this factor on both innovators and non-innovators' export intensity for Turkish manufacturing

firms active in nine export sectors35

. In the case of the Turkish economy considered to be a labor-

abundant country, this finding is reminiscent of the Leontief paradox.

Nonetheless, the effect of capital intensity is somewhat different in the case of German manufacturing

firms (Wagner, 1995). While the positive sign of capital intensity explain the export intensity of capital

goods, consumer goods, food, beverages and tobacco, the reverse result is found in basic goods

industries. Likewise, Bleaney and Wakelin (2012) investigated the negative impact of capital intensity

on export intensity for British manufacturing firms and arrived at a 10% significance level.

Firm innovation: There is a growing literature on the role of innovation in international trade. In fact,

technological firms devote a large amount of capital to R&D activities in order to modernize equipment

and machinery. There are a number of studies exploring the possible positive effect of R&D on export

performance: Roper and Love (2002), Sterlacchini (2001), Papadogonas et al. (2007), Lin and Shu

(2003), Robson et al. (2005), Wagner (1995), Wakelin (1997), Bleaney and Wakelin (2002), Roper et

35

Sample of Turkish exporting sectors covers Food, Textile, Wood, Paper, Chemicals, Non-Metallic, Metal, Engineering and

Other.

Page 104: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

102 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

al. (2006), Banga (2006) and Michiel (2002). However, we note the exception for Canadian firms

(Lefebvre et al. 1998) where R&D intensity was found to be negative for such firms' export

performance in North American and global markets. For the case of Vietnam, innovation is also

considered to encourage a firm’ competitiveness by increasing productivity. Nguyen et al. (2009) have

used a database of Vietnamese exporting firms in the 2005 SME survey by the GSO and proved that the

probability of firms in export status increases with their innovation activities which include product

innovation, process innovation and product modification. For a developing country such as Vietnam,

since the country’s Doi Moi implementation, innovation presents as a breakthrough approach for

national economic development as well as for a firm’s competitiveness though patent grant (Vu, 2012).

Firm productivity: Literature on firms in the international trade reveals the stylized fact that productivity

raises exporting revenue for both manufacturing and service firms. A striking list of papers successfully

explained that highly productive firms could engage with and reach more distant markets (Bastos and

Silva, 2010; Bernard and Jensen, 2004ab; Bernard and Wagner, 1997; Bigsten et al. 2000; Clerides et al.

1998; Fernandes and Isgut, 2005; Wagner, 2007; Muûls and Pisu, 2009). By including firm's

productivity and export decision in a regression equation, Bernard and Jensen (2004a) clearly

demonstrated that the TFP is a main source of firm' success. Moreover, Bernard and Jensen (2004b)

show that productivity itself predates firm' entry into exporting. Wagner (2007) also highlighted that

export activity does not necessarily enhance labor productivity or total factor productivity. The question

of whether exporting in turn raises productivity is also addressed by Biesebroeck (2005), Loecker

(2007), Mukim (2011), Delgado et al. (2002).

Firm's ownership: The ownership of exporting firms is of crucial importance since the notion itself not

only specify the owner but also reflects the role of the management factor in a firm's capability to create

value both within its home country and in export markets. Three main types of firm's ownership: state-

owned firms, private and foreign-owned firms are most frequently mentioned in the literature on

exports. While foreign-owned firms emerge as the most competent type of enterprise in international

markets, state-owned firms tend to have a depressed export performance (Aggrey et al. 2010; Rankin et

al. 2005; Javalgi et al. 2000; Farole and Winkle, 2011; Özçelic and Taymaz, 2003).

However, the effect of firm's ownership needs to be seen in the context of its country of origin. In less

developed and developing countries where corruption in state-owned enterprises is increasingly

common, firm's business activities are badly affected. In contrast, the prominent characteristics of

foreign-owned firms are clearly shown through good management skills, technology transfer and

support in expanding their markets. Moreover, many foreign-owned firms have developed a worldwide

distribution network and outsourced to the less developed countries to benefit from low-cost labor

thereby creating competitive export products. Aggrey et al. (2010) found that foreign ownership was

positively correlated with exports from two Eastern African countries: Kenya, Tanzania and insignificant

negative sign for Ugandan exports. The study also confirms that foreign ownership is a vehicle for the

international transfer of management skills, technical knowhow and market information.

Page 105: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

103 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Firm's geographical location: Firm location indicates where a firm is established and carries out its

business operation. For an exporting firm, location may be an advantage if near the source of raw

material, and high density of population. On the other hand, firms may also find it attractive to open

their establishments in large centers of population, which encompass places such as cities or towns

where convenient administrative structures are available. In some cases, geographical location relates to

firms' tendency to establish an industrial clusters since firms active in the same sector are more likely to

concentrate around other larger firms, which encourages the creation of a dense distribution and supply

network. In a regression equation, this indicator is treated as a category variable thus enabling comparisons

between categories (Aggrey et al. 2010; Farole and Winkler, 2011; Campa and Guillén, 1999; Freeman

et al. 2010; Zhao and Zou, 2002; Freeman et al. 2012). Zhao and Zou (2002) described the typical case

of China with its vast land mass and it has far more advanced coastal areas where firms' location clearly

matter. Specifically, the result shows that firm location positively affects the export intensity and

propensity of Chinese firms and those firms located in coastal areas, which have higher odds of

committing to exporting than firms located inland. Whereas, Freeman et al. (2012) have divided Australian

firm location into two categories metropolitan and regional areas. Although normally, firms in metropolitan

areas have an advantage over those in regional areas, no positive impact is found for their export

performance.

6.3. Location of Vietnamese footwear, rice and wood and wood products firms

Many studies assert that the role of international trade is to help create an effective and better utilization

of natural resources, which particularly contributes to the well-being of the people. Since Vietnam's

economic reform in 1986, this government policy has stimulated domestic enterprises to engage with

the international market by applying 0% tax to almost all export goods whereby Vietnamese exports

today make a major contribution to the country's annual income.

Market liberalization encourages access by firms from developed countries whose advanced technology

is applicable to most production sector. In the case of Vietnam, multinationals entered the market in

different ways. Firstly, foreign owned firms establish their own firms in the country. Secondly, they

conclude processing agreements with local firms, which include a processing fee and transfer of

technology, machinery, designs or raw materials. The presence of foreign owned firms also helps create

employments for the country which has grown substantially from 0.35 million workers in 2000 to 1,726

million in 201036

.

Vietnam has 3444km of coastline, is mostly hilly and densely forested with tropical forest cover of

around 42% and has low labor cost, all these characteristics give it a huge advantage for its major export

products which are fishery products, wood and wood products, rubber and many other agricultural

products such as rice, coffee, and cashew nuts. Of the annual major exports, articles of apparel and

clothing accessories dominate, earning 11.2 billion US dollars in 2010. In the same year, the footwear

sector ranked second in the list of the top 10 largest export products capturing 5.12 billion USD market

share with wood and wood products being the sixth largest export sector with a revenue of 3.4 billion

36

Statistical Year Book 2011 of Vietnam on Population and Employment issued by GSO

Page 106: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

104 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 21. Vietnam's number of firms across regions in 2008

Source: Author's diagram derived from the VCO data on firms' exports

Page 107: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

105 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Figure 22. Vietnam's export value of firms across regions in 2008

Source: Author's diagrams derived from the VCO data on firms' exports

ffffirmfirm export

Page 108: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

106 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

USD. Vietnam is also a second largest rice exporter after Thailand with an approximate revenue of

3.24 billion USD in 2010.

The number of exporting firms in wood and wood products, footwear and rice sectors varies between

the sixty-four provinces of Vietnam. In 2008, the four largest exporting provinces were Ho Chi Minh,

Binh Duong, Dong Nai, Ha Noi which account for 68.7% and 75.1% of the total number of firms active

in footwear and wood and wood products sectors whereas Ho Chi Minh, Can Tho and Ha Noi

provinces included the largest number of exporting rice firms. Meanwhile, in 2008, there were 1234

firms exporting wood and wood products, followed by 237 footwear-exporting firms and 83 rice-

exporting firms. (see Figure 21).

The five provinces of Binh Duong, Dong Nai, Ho Chi Minh, Binh Dinh and Ha Noi accounted for the

majority of the country exports of wood and wood products out of which the export value of Ho Chi

Minh province firms was 3,875.03 billion VND in 2008. Five largest footwear exporting provinces were

Ho Chi Minh, Dong Nai, Binh Duong, Hai Phong and Long An out of which firms in Ho Chi Minh city

accounted for 3,748.83 billion VND in the same year. The rice exporting firms of the South East region

(Ho Chi Minh), Mekong River Delta (Kien Giang, Can Tho and An Giang) and the Red River Delta

(Ha Noi) accounted for most of the country's rice exports out of which Ho Chi Minh city is also the

largest rice exporting province earning 1,835.68 billion VND for the same year. (see Figure 22).

6.4. Methodology and data

6.4.1. Description of variables

The chapter examines determinants with variables affecting firms' exports as follows:

Dependent variable: We focus on firms' export intensity which is constructed by dividing their export

value by total revenue. The revenue, export value, labor cost and net fixed asset in Vietnamese dong

(VND) are based on trade activities by an individual firm for the year 2008.

The average value of export to revenue ratios for wood and wood products firms is the largest, followed

by footwear and rice firms with the percentage of 29.6% and 21.6% respectively. The difference in

export intensity of firms sectors shows that wood and wood products firms seems to better

internationalize whereas rice firms remained mainly focused on the domestic market.

Independent variables:

Wage of employee: The wage of employee is calculated by dividing the labor cost by the total number

of employees and corresponds to the cost of the quality of labor.

Size of firm: Basically, the number of employees or the total annual revenue of a certain firm can be a

proxy for firm size. In this chapter, we used total employees to check whether the theory of economies

scale is relevant.

Page 109: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

107 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Capital intensity: We establish the capital intensity by dividing the net fixed assets of a firm by the

number of employees. This may also provide information on the use of more advanced production

technology.

Firm ownership: In Vietnam, exporting firms may have different types of ownership37

. To express

simply, we have classified the dummy variable firm ownership into state-owned firms and non-state-

owned firms. In 2008, state-owned firms dominate other types of firms and account for almost 79% of

all rice firms. There are a large number of state-owned firms active in the wood and footwear sectors

with nearly 56% and 44% respectively.

Firm age: According to Shumway (2001), firm age is the number of years since a firm was first listed.

Nonetheless, we follow the definition of firm age that most of the studies on international firms define

as the number of years from the establishment of a legal entity. In general, although the average age of a

firm in the three sectors is relatively low, the range of firm ages is high. In fact, the age of the oldest

exporting firm is 57 and the youngest is 1 and firm ages ranging from one to nine years account for 75%

of the total, indicating that most of the firms are young compared with the majority of firms from

developed countries.

Firm location: Officially, eight locations known as socio-economic zones and approved by the

government of Vietnam include the following: Red River Delta, North Eastern, North Western, North

Central Coastal, South Central Coastal, Central Highlands, Mekong River Delta and South Eastern. For

the footwear sector, the majority of firms located in the South Eastern region account for almost 74% of

the total firms, followed by the Red River Delta where the number of footwear firms accounts for 17%

of the total. However, rice firms are evenly located throughout the regions especially the Red River

Delta, Mekong River Delta and South Eastern region, which include most of the rice firms which

account for almost 85% of the total for this sector. For the wood and wood products sector, the majority

of the firms are located in the South Eastern region, Red River Delta and South Central coastal showing

that such firms are not evenly distributed across the regions.

In fact, Vietnam's exporting firms of footwear, rice, wood and wood products sectors are concentrated

mainly in the central, northern and southern regions. The percentage of firms operating in the other sub-

regions mentioned above is so small that only three dummy variables for the location of firms have been

added in the model. Nevertheless, two firm location dummy variables are included to avoid a possible

problem of multicollinearity. Except for firm wages and total employees of firm, which are transformed

into natural logarithms, firms' capital intensity is left untransformed since its negative values are

significant. As such, our model is as follows:

2

0 1 2 3 4 5 6lnWAGE lnEMPLOYEE lnEMPLOYEE CAPINTENSITY lnFIRMAGE STATEOWNERi i i i i i

i

EXINT

LocationDummies

37

According to the law of Vietnam, firm types include State-owned enterprise, limited liability enterprise, joint-stock

enterprise, one member limited enterprise, partnerships, private enterprise, group of enterprises, foreign direct investment

firms

Page 110: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

108 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.4.2. Regression method

As proposed by Papke and Wooldridge (1996), we implemented the logit transformation for the

response variable's values (export intensity) which strictly fall within the unit interval (see Appendix 3.1,

3.2, 3.3). Logit function helps transform a continuous variable (usually probability p) in the unit interval

into the real line where it is usually the logarithm of the odds therefore the transformed response

variable y* has the following form

* log( )1

yy X

y

We used the Ordinary Least Squared (OLS) approach to model y* as a linear function of a set of the

proposed regressors. The linear predictions of this regression, when fed through the inverse logit

transformation, take them back to the space of the original proportion variable, and constrain them to lie

within the unit interval.

One important point to note is, the export intensity values of firms in the three sectors largely fall

between (0, 0.2], accounting for around 50% of the total. Here we find that the logit transformation of

the response variable yields many negative values and the kernel density estimates of the transformed

variable seem not to follow normal distribution. This fact leads us to take account of a possible problem

arising from extreme values of both dependent and independent variables and the heterokendasticity.

Where the dataset contains a significant number of extreme values, the OLS method predicting the

linear model between a set of regressors and the outcome variable based on the conditional mean

function ( | )E y x may not yield efficient estimators. We are therefore interested in obtaining regression

coefficients for the relationship between the regressors and regressand by using the conditional median

function ( | ).qQ y x While estimators obtained from OLS based on minimizing the total sum of squared

error 2( ),ii the quantile regression method known as least-absolute-deviations (LAD) developed by

Honoré (1992) minimizes | | .ii More importantly, quantile regression is a better alternative method

if the errors are highly non-normal. This method, providing a richer characterization of the data, allows

us to entangle the impact of a covariate on the entire distribution of the response variable rather than its

conditional mean (Baum, 2013).

6.4.3. Data

6.4.3.1. Data source and description

Data on firms' exports are obtained from the VCO for the year 2008. For each export transaction at a

given point in time, firms begin the custom clearance procedure by providing all information required

on a declaration form. Specifically, a declaration sheet includes information on date of declaration, firm

identity code, importing country code, transaction code, currency code, exchange rate at time of

declaration, export volume, unit price, and export value expressed in VND.

Page 111: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

109 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Export transaction requires a legal export contract signed by the Vietnamese firms and its importing

partner. The single customs declaration including the export contract allows a firm to make several

shipments of varying sizes to its partner for a specific period of time and for a specific product.

Although, the export value can in fact, be expressed in a number of major currencies such as USD, JPY,

EUR, AUD, VND, THB, SGD, the actual export value expressed in VND is used for convenience to

run the regression.

International trade transactions are based on international trade terms, which commonly include FOB

and CIF. According to Incoterms 2013 (International Trade Terms) issued by the ICC (International

Chamber of Commerce), firms who sign a DDP contract, maximize the exporter's obligation therefore

becoming more attractive for certain clients. In practice, Vietnamese firms mostly conclude FOB

contract for exports and CIF contract for imports, which are satisfactory balance between right and

obligation of two parties.

Data for the right-hand side regression model namely firms' revenue; firms' fixed assets, firms'

depreciation values or the number of firms' employees were provided by the GSO who conducts firm

survey in all Vietnamese regions and uses the following three main methods:

- Face to face interview: A survey assistant makes a direct interview with a director of firms then write

the answer in a questionnaire. This method is applied to firms who have not fully complied with

national accountancy regulation and therefore illegible to fill out the questionnaire either because they

are too small, about to be dissolved or have come under suspicion.

- Indirect survey method: The GSO organizes training for chief accountants of firms who then become

qualified to fill out a survey questionnaire.

- Web-based survey: This method is commonly applied to firms with internet access.

A survey questionnaire comprises 18 sheets requesting three main categories of firms' information:

* General information on firms:

- Name of firm;

- Address, telephone number, fax, email;

- Type of firm

- Economic activity

* Information on number of staff and their wages

- Number of workers

- Wages

* Information on production and firms' business activity

- Asset and capital source;

- Firms' revenue;

- Taxes, fees and charges paid to the State;

- Investment capital;

- Research and development investment capital;

Page 112: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

110 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

- Firm's innovations and its effectiveness;

- Turnover of goods and services categorized into 168 product groups;

- Production costs categorized into materials and services originated from local or foreign country.

Although the survey questionnaire includes various information of enterprises in the sample, data on

some activities of firms are not as good as expected for example there are many missing value

concerning firm's R&D activity partly because Vietnamese firms have not really seen the role of

innovation on firm's value development thus spending on this activity. In general, the study uses the

following data such as:

- Firm types cover state-owned and non-state-owned firms

- Firm age

- Labor cost: The labor cost is composed of the two main items. For the first item, compensation of

employees covers costs relating to wages, salaries, bonus, gratuities and the like considered as salaries;

social security contributed to employees; other compensation out of productions costs. The second item

is the contributions to insurance and pension, health, trade union.

- Total asset at the end of year

- Fixed asset at the end of year

- Depreciation at the end of year: This indicator is identified by the sum of three types of accumulated

depreciation of three long term assets such as tangible fixed assets, financial rented out fixed assets and

intangible fixed assets

- Owner capital at the end of year

- Total revenue of firm: Firm's total revenue is made up of three main items such as turnover of goods,

services activities, turnover of financial activities and other activities.

- Number of employees at the end of year

- Net fixed assets

- Firm's labor productivity

6.4.3.2. Data treatment

We add observations from rice and wood and wood products sectors to those of the footwear sector. We

take the sum of the value of each export contract to obtain the total value of exports of a firm in a given

year. We convert the value of export contracts into VND at the official exchange rate valid at the time of

custom declaration.

We merge data on firms' export value with the information on firms' performance and characteristics. In

2008, for the three sectors, there were 1534 firms among which wood and wood products firms

dominated with 1234 firms, followed by 234 footwear firms and rice firms accounted for fewest with 83

firms active in the same year. (see Appendix 3.1, 3.2, 3.3).

Page 113: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

111 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.5. Empirical results

6.5.1. OLS regression results

We started analyzing the effect of determinants on firms' export intensity by a model regression with

pooled data then attempting to carry out the regression on each separate sector in order to evaluate

whether those determinants affect firms' export performance differently. As explained, we regress

independent variables with the logit transformed response variable using the OLS method. Then by

generating predictions for our regression model and applying the invlogit function to express the

predictions in units of response variable, we detected that the predictions of the three separate models

were properly constrained to the unit interval though the means are not exactly the same (see Appendix

9.1, 9.2, 9.3). In general, the signs of all coefficients across models are consistent, their magnitudes, in

some cases, show considerable difference. It should be noted that all standard errors of coefficients have

been adjusted for robustness resolving for the problem of heteroscedasticity.

Firstly, the wage cost of firms negatively affects a firm's export intensity in the footwear and wood and

wood products sectors with a 1% level of significance, implying that highly skilled workers are not

actually needed in these low-technology firms. However, this indicator positively but insignificantly

impacts on rice firms' export intensity. Theoretical and empirical studies clearly show that effect of a

worker's wage on trade depends on the country of origin of exports and the kind of products exported.

To be more specific, a high wage per worker is more likely to encourage the trade of developed

countries whereas it reduces the trade of developing and less-developed countries. Wagner (1995)

proved that the export/sale ratio significantly increases with human capital intensity in almost all

industrial sectors of German firms. For British manufacturing firms, the average labor remuneration is

also found to be positively correlated with the probability of a firm being an exporter (Greenway et al.

2004). One possible explanation for the positive effect of firms' wage in Britain is that highly skilled

workers improve firm's competitive position in international markets. However, the negative sign of

firms' wage cost is found in almost all studies examining its effect on the export performance of

developing countries such as studies by Papadogonas et al. (2007), Michiel (2002), Kuma (1994). A

possible explanation is that low-cost labor remains a competitive advantage for these countries.

Literature on exports shows the advantage to a firm's export performance brought about by the

economies of scale in that the larger the size of firm, the lower the unit input cost thus creating a

consistently positive correlation with export performance. Our result is in line with many research

studies such as Aggrey et al. (2010), Sterlacchini (2001) and Papadogonas et al. (2007) showing that

export intensity increases with firm size for the footwear and wood and wood products sectors while

decreasing insignificantly with rice firms. However, for wood and wood products firms, the positive

effect of firm size decreases with size.

Advanced technology is also an important factor to improve productivity of manufacturing firms.

Theoretically, capital intensity also reflects the level of firm's technological investment. Therefore, an

increase in the net fixed assets induces the growth of export value (Özcelik and Taymaz, 2003; Rankin

et al. 2005; Wakeline, 1997; Michiel, 2002).

Page 114: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

112 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Nevertheless, it has been found that for Vietnam, capital intensity has consistently reduced the

propensity to export of footwear firms implying that these low-tech and labor-intensive products

do not require much capital for upgrading machinery. Notably, Wagner (1995) also finds that

capital intensity negatively influenced export intensity of firms active in the basic goods industry.

The firm's wage continues to confirm that the degree of modernization of capital stock in basic

good industries is very low.

Table 17. Determinants of export/revenue: OLS regression results (Dependent variable: logit-export intensity, robust s.e)

Independent variables Pooled

data

Footwear Rice Wood and wood products

(1) (2) (3) (4)

Lnwage -0.928*** -1.407*** 0.377 -0.895***

(-5.86) (-3.26) (1.33) (-4.80)

Lnemployee (firm size) 0.171*** -1.480*** -0.481 0.777**

(2.60) (-3.12) (-1.62) (2.19)

Lnemployee2

0.001

(0.01)

0.187***

(4.49)

-0.081

(-0.55)

-0.0692*

(-1.76)

Capintensity -0.002*** -0.0017*** 0.00563 -0.00074

(-6.14) (-6.16) (0.98) (-1.59)

Stateowner 0.0194 0.925 -0.462 -0.176

(0.11) (1.54) (-0.71) (-0.93)

Lnfirmage -0.550*** -0.490 0.0526 -0.586***

(-4.53) (-1.33) (0.14) (-4.30)

Central . . . .

. . . .

North -1.949*** 0.766 -0.774 -2.167***

(-6.43) (0.52) (-0.85) (-6.52)

South -0.581** 1.347 -0.123 -0.604**

(-2.50) (0.98) (-0.16) (-2.51)

Constant 1.812*** 3.081 -0.862 0.868

(3.01) (1.31) (-0.54) (0.85)

Observations 1554 237 83 1234

R2 0.11 0.21 0.11 0.10

F test (p-value)

Ramsey test (p-value)

27.5***

0.001

7.53***

0.74

2.01*

0.81

2.59***

0.007

Notes: * significant at 10%; ** significant at 5%; *** significant at 1%. Absolute of t statistics are in parentheses

Type of firm ownership is also of interest in this chapter since the role of state-owned enterprises

(SOEs) is of crucial importance for the continuing development of Vietnam's trade and for trade policy

Page 115: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

113 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

recommendations. In fact, SOEs in Vietnam are an official priority objective therefore benefit from

financial grants from the government budget, lower corporation tax rate, and easy access to state funds

and real estate.

Although, the empirical regression results shows a positive sign of "stateowner" dummy for the

footwear sector and a negative sign for the remaining sectors, these signs are not in fact

significant. However, according to studies on firms' exports, foreign firms have been found to be

more effective in enhancing their export performance (Aggrey et al. 2010; Özçelic and Taymaz,

2003; Farole and Winkler, 2011; Michiel, 2002).

A significantly negative sign for firm age is only found for wood and wood products sector. In fact,

many studies on determinants of exports show no effect of firm age with respect to export performance

(Sousa and Bradley, 2009; Papadogonas et al 2007; Rankin et al. 2006; Robson et al. 2012; Iyer, 2010).

There are few papers finding a positive effect of firm age on export intensity such as Javalgi et al.

(2000), Jongwanich and Kolpaiboon (2008), Amornkitvikai et al. (2012). In other cases, a negative sign

is found for firm age (Tapia et al. 2010; Farole and Winkler, 2011). According to Caparas's paper

(2006), there is a positive linear and negative non-linear relationship between firm age and export

performance for the Philippine clothing and electronics sectors. There are some possible explanations

for the mixed effect of firm age. In fact, firm age reflects a firm's experience in that long-established

firms are more likely to accumulate managerial skills, financial capacity and understanding of the law of

foreign markets. Likewise, young firms may not have enough experience to compete with their larger

international rivals when they launch a global competition campaign. Although, older firms should be

more efficient through their learning-by-doing process (Amornkitvikai et al. 2012), younger firms tend

to be more dynamic, thus finding it easier to adapt to changes in the law and business environment

overseas.

Regression results in the Table 17 clearly show that firms of the wood and wood products sector located

in the northern and southern regions of Vietnam have a significantly decreased propensity to export

compared with firms active in the central region. However, for footwear and rice firms, we do not

have sufficient evidence to conclude the effect of the location on their export performance.

6.5.2. Quantile regression results

6.5.2.1. Quantile regressions for footwear firms

We compared different quantile models by regressing the transformed export intensity with identified

independent variables. As earlier noted, the original response variable values are mainly concentrated

within the range (0, 0.2] and its covariates' effects vary significantly across quantiles (see Appendix

10.1, 10.2, 10.3). We applied quantile regression for quantiles smaller and larger than 50th whereby

can be identified at 10th, 25th, 50th, 75th and 90th. Table 18 reports and compares regression results of

OLS and five different quantile models for footwear firms. In general, except for a firm's capital

intensity, the effects of the remaining covariates change considerably across quantiles and the

Page 116: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

114 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

magnitude of the effect at median differs from the effect of mean. We also bootstrapped the standard

errors because we were concerned about heterogeneity between footwear firms.

Regression results show that firm wage level negatively influences footwear firms' export intensity thus

an increase in the wages of those firms does not mean that their propensity to export increases. At all

quantiles the effect of firms' wage is significant and the median estimate is quite far from the OLS

effect. It is important to note that the magnitudes of firms' wage effect at 25th and 90th are similar and

there is a fluctuation in the magnitudes of firms' wage effect from lower to upper quantiles.

Consistent with the OLS regression for firm size, firm size estimate effects at different quantiles are

positive to export intensity implying that footwear firms can increase exports by expanding their

economies of scale. The magnitude of firm size effect at median is more or less similar to the OLS

effect. From 25th to 90th quantile, the magnitudes of firm size do not significantly change, nonetheless

at 10th quantile, it is fairly small compared with the others and is not significant.

It should be noted that a positive and significant effect of state owned firm variable is found at 25th

quantile indicating that a prioritized entity such as state owned firms of footwear sector significantly

contributes to their propensity to exports. Meanwhile, older footwear firms affect their export

performance negatively but the effect is not significant across quantiles.

Page 117: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

115 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 18. Models of export intensity via OLS and quantile regression (footwear firms)

(1) (2) (3) (4) (5) (6)

Independent variables OLS Q(0.10) Q(0.25) Q(0.50) Q(0.75) Q(0.90)

Lnwage -1.479*** -1.429*** -0.956* -1.722*** -1.122* -0.989*

(-3.56) (-2.60) (-1.94) (-3.95) (-1.81) (-1.71)

Lnemployee (firm size) 0.539*** 0.116 0.584** 0.693*** 0.654*** 0.515*

(3.21) (0.33) (2.49) (2.93) (3.17) (1.91)

Capintensity -0.00018*** -0.00012** -0.00021 -0.00014 -0.00021 -0.00025

(-6.10) (-2.45) (-0.16) (-1.20) (-0.79) (-0.73)

Stateowner 0.745 1.137 1.228* 0.525 0.473 -0.204

(1.31) (1.01) (1.76) (0.79) (0.63) (-0.26)

Lnfirmage -0.521 -0.951 -0.899 -0.219 -0.091 -0.129

(-1.43) (-1.44) (-1.52) (-0.50) (-0.22) (-0.24)

Constant -0.143 -2.035 -4.148** -0.751 0.146 2.617

(-0.08) (-0.68) (-2.09) (-0.29) (0.06) (0.79)

Observations 237

R2 0.204

Pseudo R2 0.15 0.10 0.12 0.10 0.09

Notes: * significant at 10%; ** significant at 5%; *** significant at 1%. Absolute of t-statistics of OLS regression are in parentheses.

Coefficients and standard errors of quantile regressions are bootstrapped. Bootstrap is performed with 20 replications.

Page 118: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

116 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.5.2.2. Quantiles regression for rice firms

The number of rice firms was least compared with the other two firms sectors, only 83 such firms in

2008. In general, only the magnitude of a firm's capital intensity at median is similar to OLS estimate

whereas those of the remaining coefficients at median are quite different from the OLS estimates.

Moreover, almost all effects of the model coefficients are not significant with respect to the OLS as well

as to the quantile regressions.

In contrast with the negative effect of footwear firms' wage, it is found to be positive for the OLS

regression and across quantiles except for the 10th quantile. Surprisingly, there is a significant and

positive impact of firm size on rice firms' export intensity at the 90th quantile. Moreover, the size of rice

firms decreases at all quantiles but this effect is only significant at 10th quantile suggesting that large

firms discourage their export intensity.

We found a positive sign for the capital intensity effect on the OLS and lower quantiles estimates,

whereas at the upper quantiles, an intensive investment in firms' fixed assets has a negative impact on

their export performance. However, this effect is found not to be significant at all quantiles. The effect

of the state-owned firm variable is negative for OLS and quantile regression, nonetheless it is found to

be insignificant. In particular, the magnitudes of this coefficient are similar at the lower and upper

quantiles at 0.3 and 0.4 respectively.

A long presence in the market does not necessarily mean firms can work effectively in foreign markets.

The firm age variable gives a positive and negative signs at the lower and upper quantiles respectively

but its coefficients are not significant except for the median estimate. Generally, firm age is not an active

factor stimulating their propensity to export compared with the younger ones.

Page 119: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

117 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 19. Models of export intensity via OLS and quantile regression (rice firms)

(1) (2) (3) (4) (5) (6)

Independent variables OLS Q(0.10) Q(0.25) Q(0.50) Q(0.75) Q(0.90)

Lnwage 0.437 -0.350 0.466 0.778 0.563 0.496**

(1.49) (-0.42) (0.70) (1.40) (1.21) (2.33)

Lnemployee (firm size) -0.493* -0.984** -0.359 -0.147 -0.128 -0.115

(-1.69) (-2.12) (-1.04) (-0.47) (-0.35) (-0.47)

Capintensity 0.00057 0.0022 0.0012 0.00072 -0.00043 -0.00116

(1.04) (1.56) (1.08) (0.69) (-0.45) (-0.47)

Stateowner -0.368 -0.335 -0.394 -0.251 -0.462 -0.410

(-0.58) (-0.17) (-0.43) (-0.26) (-0.48) (-0.60)

Lnfirmage 0.0130 0.467 0.172 -0.707 -0.236 -0.299

(0.04) (0.84) (0.42) (-1.12) (-0.52) (-0.68)

Constant -1.513 -0.852 -4.008 -2.692 -1.221 0.172

(-0.93) (-0.31) (-1.37) (-1.26) (-0.84) (0.13)

Observations 83

R2 0.10

Pseudo R2 0.13 0.10 0.06 0.04 0.08

Notes: * significant at 10%; ** significant at 5%; *** significant at 1%. Absolute of t-statistics of OLS regression are in parentheses.

Coefficients and standard errors of quantiles regression are bootstrapped. Bootstrap is performed with 20 replications.

Page 120: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

118 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.5.2.3. Quantiles regression for wood and wood products firms

The effect of wood and wood products firms' wage cost is similar to footwear firms in that an increase in

this cost does not encourage firms' propensity to export. As clearly shown in Table 20, the magnitudes

of firms' wage are very different between the OLS estimate and the median estimate. At the lower

quantiles, the magnitudes of wage cost are also smaller than those at the upper quantiles, nonetheless

they are more significant. At all quantiles, significant effect of firms' wage cost is found. A negative

effect of wood and wood products firm wage cost across quantiles continues to demonstrate Vietnam's

competitive advantage through its lower cost of labor.

In line with footwear firms, firm size in the wood and wood products sector positively influences export

intensity though the magnitudes are apparently smaller. However, at 10th quantile, firm size effect is

negative and higher levels of quantiles when higher weights are given to export intensity, firm size

effect is the weakness compared with it at median level. A highly positive effect of firm size again

verifies the theory of economies of scale, which play an important role for firms enabling them to

compete in international market.

Although the capital intensity is negative in almost all regression models, it is only significant at 50th and

75th quantile. At 90 percentile, this indicator is found to be positive but insignificant. This finding shows

that Vietnam's wood and wood products exporting firms remain a labor-intensive sector, as shown in

some other studies for the negative effect of capital intensity, such as Papadogonas et al. (2007), Wagner

(1995) and Bleaney and Wakelin (2007).

In contrast with the effect of the SOEs in the footwear sector, in the wood and wood products sector,

SOEs are found to be less efficient compared with non-state owned firms. Although, the effects of SOEs

are negative on firms' export intensity in almost all regressions, they are not significant across quantiles.

This finding strongly confirms the unimportant role of such a firm in encouraging their propensity to

export.

The firm age variable shows a negative and significant effect on export intensity for all regressions

except for 0.10th quantile which is found to be insignificant. The finding is in line with papers of Tappia

et al. (2010), Farole and Winkler (2011). The negative effect of firm age confirms that older firms of

three sector considered are not relevant for the international trade.

Page 121: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

119 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Table 20. Models of export intensity via OLS and quantile regression (wood and wood products firms)

(1) (2) (3) (4) (5) (6)

Independent variables OLS Q(0.10) Q(0.25) Q(0.50) Q(0.75) Q(0.90)

Lnwage -0.961*** -1.566*** -1.355*** -0.694*** -0.316** -0.248**

(-5.37) (-5.23) (-7.16) (-4.28) (-2.18) (-2.02)

Lnemployee (firm size) 0.208*** -0.338** 0.269 0.600*** 0.379*** 0.184***

(2.74) (-2.11) (1.44) (8.06) (7.53) (2.88)

Capintensity -0.00077 -0.00091 -0.00070 -0.0012** -0.0012* 0.000021

(-1.56) (-0.53) (-0.58) (-2.55) (-1.87) (0.03)

Stateowner -0.129 0.263 -0.0597 -0.222 -0.363 -0.147

(-0.68) (0.66) (-0.18) (-0.85) (-1.64) (-0.88)

Lnfirmage -0.667*** -0.459 -0.729*** -0.719*** -0.397** -0.412**

(-4.81) (-1.43) (-3.70) (-5.82) (-2.44) (-2.32)

Constant 1.458** 1.140 0.594 -0.495 0.676 2.371***

(2.21) (1.11) (0.72) (-0.73) (1.17) (3.89)

Observations 1234

R2 0.075

Pseudo R2 0.07 0.06 0.06 0.03 0.01

Notes: * significant at 10%; ** significant at 5%; *** significant at 1%. Absolute of t-statistics of OLS regression are in parentheses.

Coefficients and standard errors of quantiles regression are bootstrapped. Bootstrap is performed with 20 replications.

Page 122: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

120 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

6.6. Conclusion

This chapter analyzes the effects of firms' performance and characteristics on their export intensity in the

labor-intensive manufacturing sectors, footwear, rice and wood and wood products considered to be at

an advantage in the international market.

We are particularly interested in identifying determinants on export activities of both manufacturing and

non-manufacturing firms of three selected sectors involved in export activities for 2008. Although the

OLS approach enables us to examine effects of firms' characteristics on their export intensity, which is

suitable for logit transformation, the quantiles regression method is also used because it yields richer

characterization of the data. In this respect, we observe that firms are highly heterogeneous within a

single sector and there are numerous extreme observations of firms' export intensity lying in the (0, 0.2]

interval.

The regression results of OLS and quantiles show that almost all the mean and median estimates of

independent variables are very different except for firms' capital intensity, thus confirming our concern

about the heterogeneity of firms. Another point to note is that a significant sign in rice firms'

determinants is infrequent for both OLS and quantile regressions.

The export intensity is negatively affected by the wage, age and capital intensity of these firms. These

findings confirm the fact that Vietnam's exports are still concentrating on low labor cost, labor intensive

and low-tech production. Firms' sizes continue to confirm their role in increasing their propensity to

export.

These findings suppose that policy measures need to promote extension of economies of scale for

footwear and wood and wood products firms through tax incentives whereas the economies of scale of

rice firms do not required further promotion.

Although low cost of labor may be regarded as a competitive advantage of many manufacturing sectors

of Vietnam including footwear and wood and wood products manufacturing industries, its contribution

to the global value chain is considerable. This is partly because the majority of export activities are in

the form of processing contracts whereby Vietnamese firms mainly import machinery or spend at low-

tech level for product processing. In order for Vietnam to achieve a higher position in the global value

chain and compete better in the international market, policy measures need to promote high-tech

industries, which in turn encourage more highly skilled and better-paid workers.

Export literature shows that highly productive firms are more likely to be involved in the international

market. This concept is also true for a developing country such as Vietnam, where firms' export intensity

accounts for only a small percentage of their total revenue. Moreover, the wage cost magnitudes of wood

and wood products firms decrease sharply at the lower quantiles compared with the upper quantiles

showing that where export intensity is highly concentrated, a high percentage of low cost labor is used.

In order to promote exports, this means that government officials should consider measures to improve

labor skills to adapt them to high-tech production needs.

Page 123: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

121 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

CHAPTER 7. CONCLUSION

SUMMARY

This chapter summarizes the main findings of the dissertation and suggests some export trade

implications for policy makers. The scope of research and its limitation are accordingly addressed.

Further research and exploration indeed should be carried out in order to obtain better guidance for

exporting entrepreneurs in remaining sectors.

Page 124: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

122 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

7.1. Major findings and lessons retrieved through the empirical analysis

- Vietnamese export structure has been dramatically transformed and demonstrates the spirit of a deeper

integration of Vietnam into the world economy as well as the advantages of pursuing a trade liberalization

policy.

Every country finds the process of globalization and economic integration to be an important

opportunity to develop its production and trade network far beyond its own borders. For a small and

developing country such as Vietnam, especially which had erroneously pursued a centralized state

planning model, trade liberalization and economic integration eventually became an inevitable option.

In almost 30 years following Doi Moi, Vietnam has made outstanding progress in trade with a very

impressive gain in export revenue of 114.5 billion USD (at 2012 value). Especially, the number of

Vietnam' trading partners reached 220 countries in 2009 starting from 33 partner countries in 1986

marking a large step towards integration. Moreover, trade liberalization has also encouraged through

multilateral and bilateral trade agreements between Vietnam and other major economic associations

ASEAN, EU and WTO as well as with a single country for example Vietnam-USA trade agreement.

Chapter 3 has depicted the structure of exports and country partners which continues to change since the

country's reform. In the early years of economic reform, the contribution of western partner countries

such as the EU and USA was very limited only accounting for nearly 5% and 0% respectively. However, in

recent years, especially since the signing of the Vietnam-US trade agreement in 2000, both trading

partners became extremely important with an export share of 17.1% and 16.8% respectively in the

2002-2012 period. Moreover, there has been an impressive increase in the number of export product

categories with the largest increase being in manufactured products compared with primary ones. APEC

has emerged as the most significant of the major importing country groups for both primary and

manufactured products.

In fact, as Vietnam's export revenue from manufactured product increased, this has had a positive effect

on the country's export structure. Vietnam's exports traditionally covered relatively labor-intensive products

such as clothing and textiles, footwear, embroidery as well as agricultural commodity such as rice, coffee,

pepper and cashew nuts. For the nearly 30 years since the country began its economic reforms, Vietnam

has retained its comparative advantage because of its lower labor costs.

- Although Vietnam has many importing partners for the 1997-2009 period, the 10 largest partners out

of over 200 countries account for 69% of Vietnam's total export revenue.

- Landlocked countries continue to be generally regarded as less favorable markets for exporting

countries and particularly in the case of Vietnam where most exports rely on maritime transport, which

require a seaport at final destination the absence of which will inevitably give rise to additional cost.

- Macro level export data and micro level data may give contradictory findings hence firm level exports

may not necessarily be affected in the same way as the country's exports.

Page 125: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

123 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Generally, the findings of chapter 4 show that a country economic size determines its attractiveness to

exporting countries. However, not all exporting firms take this for granted particularly firms active in

the rice and wood and wood products sectors. In practice, this means such firms based their export

decision on anticipated net profit on a particular transaction.

Wealthier countries constitute a stimulus factor for Vietnamese footwear exports. However, for the rice

and wood and wood products exports, the signs are also positive but insignificant thus indicating

insufficient evidence to confirm that these firms consider richer countries as attractive.

In general, a country finds that geographical distance is an obstacle to trade. However, it is not

necessarily a problem for firms in certain sector such as footwear and wood and wood products, which

shows that transportation costs do not always impede exports. In fact, geographical distance factor gives

a negative and insignificant sign for Vietnam’s total exports, it turns out to affect positively and

significantly exports of the footwear and wood and wood products firms but affect negatively the rice

firms’ exports

Vietnam's membership of ASEAN ensures preferential treatment for tax and import license procedures

at both country and firm level except for wood and wood products firms, the export volume of which to

the ASEAN countries is relatively smaller than to non-ASEAN countries.

- Chapter 5 also tests effects of gravity factors which are included in chapter 4 on firms’ exports in

footwear, rice and wood and wood products sector. Almost all firms in the three export sectors

considered use FOB contracts for exports where it is the importer's responsibility to cover charter and

insurance costs and Vietnamese exporting firms only charge the importers the product cost, domestic

transportation costs and any other costs, which may arise within Vietnam. If Vietnamese firms could

absorb additional costs arising outside Vietnam's border, they would be better able to compete on

international markets.

- Chapter 6 analyzes the role of firm's location obviously varies between export sectors because of the

intrinsic characteristics of its production.

While footwear and rice firms are mainly concentrated in the northeast and southwest of Vietnam, wood

and wood products firms tend to be spread throughout the central and highland regions since these firms

need to locate near the production site of their raw material. Therefore, export revenue of wood and

wood products firms located in these regions accounts for almost all the total export revenue of this

sector. Nevertheless, the density of export value by the footwear and rice sectors does not entirely

correspond to their region in which they are mainly concentrated. In fact, wood and wood products firms

do not necessarily find the north of Vietnam a stimulus factor when considering an increase in the share

of exports in their total revenue. In general, firm locations are significant for wood and wood products

sector but insignificant for the other two sectors.

- Firm age is generally irrelevant for the export intensity of wood and wood products sector.

Page 126: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

124 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

In certain cases, more experienced older firms grow larger therefore are better able to benefit from

economies of scale. In other cases, younger firms being smaller can more easily keep up with the

volatile and dynamic international market. Our research shows that older firms are not always eager to

improve their export performance.

- In general, higher wages do not increase the propensity to exports. However, in the case of Vietnam,

higher wages have reduced the propensity to exports for footwear and wood and wood products sectors

indicating that low labor costs retain their role in Vietnam's competiveness.

- Studying the role of state-owned enterprises is very important in a small emerging country such as

Vietnam, which has experienced a long period of relative economic decline under a state centrally

planned system. However, we find that state-owned exporting firms underperform compared with non-

state firms for rice and wood and wood products sectors. Even though such firms may have received

preferential treatment from the government, they have been found to be less efficient and have poorer

export performance.

7.2. To what degree does the dissertation answer the research questions and what are its

limitations?

The dissertation has described the overview of Vietnamese exports and explained systematically the

country's export trade pattern at country and firm's level by applying standard gravity factors. The

dissertation accordingly has attempted to answer questions on the determinants of Vietnam's exporting

firms in the world market.

The presentation of the theoretical background of international trade is of the utmost importance and

attempts to explain why and how countries and firms trade. The international trade paradigm also

focuses on the role of the country and firm in the international market as these two entities have their

own reasons to trade. As such, the dissertation attempts to show how Vietnam operates in international

market compared with its firms.

Vietnam's economic reform process is highly challenging in two respects. Firstly, the country's trade

policy centers on liberalization and the government is attempting to further develop a legal framework

for firms intending to penetrate and to gain a larger market share in foreign markets. Chapter 4 and 5

have answered the question of whether economic integration into the ASEAN free trade area could have

positive effect on the export trade of Vietnam as well as exports of firms in the three mentioned sectors.

Vietnam's membership of ASEAN is beneficial to its total export revenue and consequently to the

country as a whole. Depending on individual characteristics, various export firms benefit to different

degrees. Nonetheless, firms active in the wood and wood products sector do not find ASEAN an

attractive factor.

Secondly, as part of this process, firms examine which internal factors would affect their export

performance then devise further measures to cope with tougher competition in the international market.

Although, firms face constant challenges everywhere, nevertheless exports continues to grow. Chapter 6

Page 127: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

125 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

has successfully helped resolve frequent challenges of firms such as potential economies of scale,

capital and human intensity.

We have also attempted to address the question of chapter 4 and 5 is whether geographical distance (a

proxy of transport cost) matter. In fact, chapter 4 shows a negative effect of distance on Vietnam’s total

exports whereas chapter 5 indicates that it does not matter for exports of footwear and wood and wood

products firms. Especially, a positive effect of contiguous countries on Vietnam’s exports is found in

chapter 4 whereas individual firms such as rice do not consider contiguous countries supportive

However, the dissertation has the following limitations:

- Although our dissertation describes the whole of Vietnam's trade activity for the long period since

implementation of reforms in certain areas namely changes in export commodities structure, the

diversity destination markets and the national comparative advantage as expressed by its Herfidale index

but it does not explain the causes of such changes due to data limitations.

- The most interesting feature of our dissertation is that it attempts to examine the effects on firms'

export performance of gravity factors considered as external factors. However, these factors do not have

the same effect for all firms sectors and therefore no general conclusion can be drawn. Similarly, this

limitation applies to the effects of firm's internal factors because the dataset only covers firms in three

sectors mentioned.

- If our dissertation was to be able to analyze the firm size factor based on certain categories, possible

different outcomes of this determinant may lead us to more specific conclusions on firms' export

performance.

- Although, the Vietnamese enterprise survey included questions about firms' expenditure on research

and development38

, the very low response level meant that insufficient data were available to be able to

draw conclusion on these activities.

- Although our dissertation found that geographical distance did not necessarily undermine a firm's

export performance, it could not identify the precise factor determining such circumstances.

- Another important limitation is that we do not have the relevant data for such firms’ factors as R&D.

7.3. Implications for Vietnam's export trade

Our dissertation mainly focuses on certain external factors of Vietnamese exports at macro and micro

level and analyzes some important determinants of exporting firms in three sectors namely footwear,

rice and wood and wood products. Relevant findings based on empirical analysis serve to suggest policy

implications and firms' managerial practices.

- Our regression results on Vietnamese trade patterns continue to confirm the stimulus effect of

ASEAN on export performance since tariff exemptions, tax cuts or other non-tariff trade barriers are

38

Costs relate to firms' research and technology innovation activity

Page 128: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

126 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

eliminated by its member countries. It is planned that the ASEAN Economic Community (AEC)39

will

be established late 2015 with the ultimate goal of full economic integration of the community. Major

methods that ASEAN needs to apply to construct a single ASEAN market include common product

quality standard, rules and mechanisms on custom clearance and common rules of origin. It is important

to note that under AEC rules, ASEAN members have committed to removing taxes 3 years earlier than

their previous commitment arising from the ASEAN Free Trade Area (CEPT/AFTA). As such, this

enables the Government to take measures to encourage firms to prepare for further integration

particularly in priority export sectors such as agriculture, seafood, wood and wood products, garments,

electronics. Possible methods include providing training courses for firms so that they can better

recognize opportunity and threat from AEC membership, issuing legal documents, which comply with

the AEC rules for firms, and creating a more convenient legal framework for both State and non-state

entrepreneurs.

However, the role of ASEAN is not confirmed for wood and wood products sector even exports of these

products are depressed if they are supplied to this area. Managers of wood and wood products firms

need to note that ASEAN importing market should not be focused.

- In general, wealthier nations are preferred destination market for Vietnamese exports because of their

higher purchasing power. The government of Vietnam therefore tries to negotiate proactively and

conclude trade agreement as well as memorandum of understanding with such countries as these

measures facilitate trade for local firms.

In particular, managers of footwear firms can decide to choose high income destination markets to

export as well as propose promotion method for these products provided to these markets However,

management boards of rice firms do not consider high income country to be their destination market. In

fact, there are several reasons for firms to enter international market and to sign contracts such as to

improve their net profits, to expand their market share or to develop potential markets.

- Despite the generally negative effect of geographical distance, footwear and wood and wood products

firms are successful in distant markets particularly where such markets have high purchasing power. As

such, managers of those firms could consider distant importing countries as the target markets of

increasing their exports.

- One important empirical result for a firm's determinants is that higher wages reduce a firms' propensity

to export in general which significantly affects footwear and wood and wood products firms. Although,

in some cases, increasing wages somewhat improve worker's productivity thus increasing export

revenue, in other cases for economic reasons, higher wages can not be afforded by employers for

manual workers in manufacturing sectors where skilled labor is not essential.

- The size of firms affects differently their export performance of the three sectors. As a matter of policy

implications, for the rice firms sector, the finding indicates that small firms should be encouraged to

39

Along with AEC, ASEAN covers the other two important columns such as ASEAN Security Community (ASC)

and ASEAN Culture-Society Community (ACSC)

Page 129: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

127 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

increase their export intensity because there is a negative association between the size of rice firms and

their export performance. Notably, for the wood and wood products firms, firm size decreases with size

suggesting that large firms do not facilitate their export performance. However, managers of footwear

firms could benefit from the economies of scale so that increasing their firm size is a good decision to

increase exports.

- From the viewpoint of footwear, rice and wood and wood products firms, although these firms are

restricting their fixed assets investment, managerial practices should encourage new fixed assets investment

in new technology and innovation which help improve firms’ productivity. More importantly, in the period

of deep economic integration, Vietnamese firms are inevitably facing with a fierce competition from the

other less developed and developing countries in serving low labor cost products.

- Although, state-owned firms have been granted preferential or priority treatment by the Government,

they appears to be less efficient than others. The regression result shows that state-owned firms in rice

and wood and wood sectors are lagging in export performance. Ongoing Government support for state-

owned firms may lead to an unfair competitive environment especially for small, privately owned firms

since the protection of the Government seem to be unreasonable.

7.4. Some proposals for future further research on export trade

The dissertation, while showing some weaknesses, sought and analyzed the pattern of Vietnamese

exports by replicating the gravity model and investigated determinants for firms' exports. In chapter 4,

the dissertation only used the one-way gravity model, which allows us to examine the effects on

Vietnamese exports of the economic indicators of importing countries. Rather, the same controllable

economic indicators of exporting countries should be incorporated into the regression model so as to

confirm the effects of Vietnam's economic size on its exports. The 1997-2009 period may not be long

enough as a time series for the adequate consideration of the structural changes in Vietnam's export

trade to over 150 countries (see chapter 4). In fact, a qualitative analysis of Vietnamese exports (see

chapter 3) from 1986, the year of economic reform shows a major increase in export revenue as well as

the country's early steps towards economic integration and trade liberalization. Another weakness also

revealed through the fixed effects regression in chapter 4 is that it removes time-invariant variables and

GDP and GDP per labor force may be endogenous because they may be significantly correlated with

the unobserved individual-level random effect. In fact, data has been available on such other indicators

as the rule of law, the control of corruption, the government effectiveness, the political stability and the

voice and accountability index of importing countries as suggested by Egger (2002). However, because

the time series of these indicators which cover only 8 years of the 2002-2009 period meanwhile the time

series of the original model include 13 years, testing these indicators as instrumental variables is not

possible.

Studying the role of individual firms to determine a country's trade pattern is a more effective approach

because it is the more dynamic firms, which self-select for the international markets. Since aggregated

export trade data for a sector or at country level may result in biased estimates, more persuasive

Page 130: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

128 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

regression results are obtained from export data at firm level. By studying firms' export trade pattern, the

dissertation enabled discrimination between heterogeneous firms in sectoral basis. However, research

result for exporting firms active in only the three sectors previously mentioned can not be extrapolated

to the trade pattern of all sectors. For future research, once a full dataset on firms is available, more

comprehensive conclusion can be drawn.

Studying the structure of market competition of Vietnamese exporting firms in order to assess how one

firm manages to serve more markets or even fewer markets with larger proportion of export sale than

the other firms is also our interest. In addition to this, the local government of Vietnam may affect these

firms’ competitiveness within and/or outside the country. These future researches should be

implemented when data on firms’ export unit value and the province competitive index reflecting the

government’s efficiency are available.

The effect of geographical distance on country level data is mostly negative but in a few studies as well

as in our dissertation where the gravity model is replicated, the distance is found to have a positive sign

thus contradicting the traditional viewpoint that the higher costs of its exporting to distant countries are

an insurmountable obstacle to trade. As such, future research should dig out what factors determine how

firms overcome additional transport and other costs outside Vietnam. Possible determinants may include

a firm's productivity and its export strategy, which may also explain the success of some firms in distant

markets.

As mentioned above, once full data on firms' exports of in all sectors have been extracted, the author of

the dissertation will attempt to draw conclusions on the determinants for all sectors and compare

coefficients accordingly. We consider innovation indicators would be interesting particularly for firms

located in a developing and emerging country such as Vietnam. Therefore, we need an appropriate

survey method to collect information to resolve the missing data problem of the existing database.

Page 131: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

129 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

REFERENCES

Adam C and D. Cobham. 2007. Modelling bilateral trade resistance in a gravity model with exchange

rate regimes, Conference Papers 2007, Centre for Dynamic Macroeconomic Analysis, School of

Economics & Finance, University of ST Andrews of UK.

Aggrey N., L. Eliab and S. Joseph. 2010. Determinants of Exports Participation in East African

Manufacturing Firms, Current Research Journal of Economic Theory, 2(2), 55-61.

Aitken D.N. 1973. The Effect of the EEC and EFTA on European Trade: A Temporal Cross-Section

Analysis, American Economic Review, 63(5), 881-92.

Amornkitvikai Y., C. Harvie and T. Charroenrat. 2012. Factors Affecting the Export Participation

and Performance of Thai Manufacturing Small and Medium Sized Enterprises (SMEs),

57th International Council for Small Business World Conference, 1-36, Wellington, New-

Zealand.

Anderson J.E and E.V. Wincoop. 2003. Gravity with Gravitas, The American Economic Review,

93(1), 170-92.

Anderson J.E 1979. A Theoretical Foundation for the Gravity Equation, The American Economic

Review, 69(1), 106-16.

Arkolakis C and A.L. Muendler. 2009. The Extensive Margin of Exporting Goods: A Firm-level

Analysis, February 2009, University of California, San Diego, unpublished manuscript (URL

econ.ucsd.edu/muendler).

Baltagi H.B., P. Egger and M. Pfaffermayr. 2003. A Generalized Design for Bilateral Trade Flow

Model, Economic Letters, 80(3), 391-97.

Baltagi H.B. 2005. Econometric Analysis of Panel Data, Third edition, John Wiley & Sons, Ltd.

Banga R. 2006. The Export-Diversifying Impact of Japanese and US Foreign Direct Investments in the

Indian Manufacturing Sector, Journal of International Business Studies, 37(4), 558-68.

Bastos P and J. Silva. 2010. The Quality of a Firm's Exports: Where You Export to Matters, Journal of

International Economics, 82, 99-111.

Baum C. 2013. Quantile Regression, Lecture Notes for Applied Econometrics, Boston College.

Bergstrand H.J. 1985. The Gravity Equation in International Trade: Some Microeconomics

Equation, The Review of Economics and Statistics, 67(3), 474-81.

Bergstrand H.J. 1987. The U.S Trade Deficit: A Perspective from Selected Bilateral Trade Models. New

England Economic Review, Federal Reserve Bank of Boston, 19-31.

Bergstrand H.J. 1989. Generalized Gravity Equation, Monopolistic Competition, and the Factor –

Proportion Theory in International Trade, The Review of Economics and Statistics, 71(11),

143-53.

Bernard A.B and J.B. Jensen. 2004a. Exporting and the Productivity in the USA, Oxford Review of

Economic Policy", 20(3), 343-57.

Bernard A.B and J.B. Jensen. 2004b. Why Some Firms Export, The Review of Economics and

Statistics, 86(2), 561-69.

Page 132: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

130 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Bernard A.B and J.B. Jensen. 2007. Firm Structure, Multinationals, and Manufacturing Plant Deaths,

The Review of Economics and Statistics, 89(2), 193-204.

Bernard A.B and J.B. Wagner. 1997. Exports and Success in German Manufacturing,

Weltwirtschaftliches Archiv/Review of World Economics, 137(1), 105-23.

Bernard A.B., J.B. Jensen, S.J. Redding and P.K. Schott. 2007b. Firms in International Trade, The

Journal of Economic Perspectives. 21(3), 105-30.

Bernard A.B., S.J. Redding and P.K. Schott. 2007a. Comparative Advantage and Heterogeneous

Firms, The Review of Economic Studies, 74 (1), 31-66.

Bhavani T and S. Tendulka. 2001. Determinants of Firm-Level Export Performance: A Case Study

of Indian Textile Garments and Apparel Industry, Journal of International Trade and Economic

Development, 10(1), 65-92.

Biesebroeck J.V. 2005. Exporting Raises Productivity in Sub-Saharan African Manufacturing Firms,

Journal of International Economics, 67, 373-91.

Bigsten A., P. Collier, S. Dercon, M. Fafchamps, B. Gauthier, J.W. Gunning, A. Oduro, R.

Oostendorp, C. Pattillo, M. Söderbom, F.Teal and A. Zeufack. 2000. Exports and Firm- Level

Efficiency in African Manufacturing Mimeo. Centre for the Study of African Economies at

Oxford University, Oxford.

Bleaney M and K. Wakelin. 2002. Efficiency, Innovation and Exports, Oxford Bulletin of Economics

and Statistics, 64 (1), 3-15.

Bonaccorsi A. 1992. On the Relationship between Firm Size and Export Intensity, Journal of

International Business Studies, 23(4), 605-35.

Brun J. F., C. Carrere, P. Guillaumont and J. de Melo. 2005. Has Distance Died? Evidence from a

Panel Gravity Model, World Bank Economic Review, 19(1), 99-120.

Campa M.J and F.M. Guillén. 1999. The Internationalization of Exports: Firm- and Location- Specific

Factors in a Middle-Income Country, Management Science, 45(11), 1463-78.

Caparas D. 2006. Determinants of Exporting Performance in the Philippine Manufacturing Sector,

Discussion Paper Series No. 2006-18, Makati City, Philippine.

Carrère C. 2006. Revisiting the Effects of Regional Trade Agreements on Trade Flows with Proper

Specification of the Gravity Model, European Economic Review, 50, 223-47.

Cheng I and H.J. Wall. 2005. Controlling for Heterogeneity in Gravity Models of Trade and

Integration, Federal Reserve Bank of St. Louis Review, 87(1), 49-63.

Christie E. 2002. Potential Trade in Southeast Europe: A Gravity Model Approach. Working Paper,

the Vienna Institute for International Economic Studies-WIIW downloaded on 14 March 2002.

Clerides S., S. Lach and J. Tybout. 1998. Is Learning by Exporting Important? Micro-Dynamic

Evidence From Colombia, Mexico and Morocco, Quarterly Journal of Economics 113, 903-48.

Crozet M and P. Koenig. 2010. Structural Gravity Equations with Intensive and Extensive Margins,

Canadian Journal of Economics, Canadian Economics Association, 43(1), 41-62.

Darvas Z. 2012. Real Effective Exchange Rates for 178 Countries: A New Database, Bruegel working

paper.

Deardorff V. 1995. Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?

Page 133: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

131 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

NBER Working Paper 5377, National Bureau of Economic Research, Inc.

Delgado W.A., J.C. Fariñas and S. Ruano. 2002. Firm Productivity and Export Markets: A Non-

Parametric Approach, Journal of International Economics, 57, 397-422.

Do T.T. 2006. A gravity model for trade between Vietnam and twenty-three European countries.

Department of Economics and Society, Dalarna University, Sweden.

Doan T.T.H and K. Kiyota. 2014. Firm-Level Evidence on Productivity Differentials and Turnover in

Vietnamese Manufacturing, Japanese Economic Review, 65(2), 193-217.

Egger P and M. Pfaffermayr. 2003. The Proper Panel Econometric Specification of the Gravity Equation

Equation: A Three-Way Model with Bilateral Interaction Effects, Empirical Economics, 28, 571

-80.

Egger P. 2002. An Econometric View on the Estimation of Gravity Models and the Calculation of

Trade Potentials, The World Economy, 25(2), 297-312.

Elliott D.R. 2007. Caribbean regionalism and the Expectation of Increased Trade: Insights from a

Time Series Gravity Model, International Trade Economic Development, 16(1), 117-36.

Fakih A and L. P. Ghazalian. 2013. Why Some Firms Export? An Empirical Analysis for Manufacturing

Firms in the MENA Region. IZA DP No. 7172.

Farole T and D. Winkler. 2011. Firm Location and the Determinants of Exporting in Developing

Countries, International Trade Department of the World Bank, Policy Research Working

Paper 5780.

Feenstra R.C., J.R. Markusen and A.K. Rose. 2001. Using the Gravity Equation to Differentiate

Among Alternative Theories of Trade, Canadian Journal of Economics, 34(2), 430-47.

Fernandes A.M and A.E. Isgut. 2005. Learning-by-Doing, Learning-by-Exporting, and Productivity:

Evidence from Colombia, Policy Research Working Paper Series 3544, the World Bank.

Filippini C and V. Molini. 2003. The Determinants of East Asian Trade Flows: A Gravity Equation

Approach, Journal of Asian Economics, 14(5), 695-711.

Fitzsimons E., V. Hogan and J.P. Neary. 1999. Explaining the Volume of North-South Trade in

Ireland: A Gravity Model Approach, The Economic and Social Review, 30(4), 381-401.

Frankel J.A and A.K. Rose. 2000. An Estimate of the Effect of Currency Unions on Trade and Growth,

Alesina-Barro conference, Stanford University.

Freeman J., C. Styles and M. Lawley. 2012. Does Firm Location Make a Difference to the Export

Performance of SMEs?, International Marketing Review, 29(1), 88-113.

Freeman J., M. Lawley and C. Styles. 2010. Does Firm Location Influence the Export Performance

of Australian SMEs?, 2010 Conference of the Australian and New Zealand Marketing Academy

(ANZMAC).

Geraci V.J and W. Prewo. 1977. Bilateral Trade Flows and Transport Costs, The Review of

Economics and Statistics, 59(1), 67-74.

Glick R and A.K. Rose. 2002. Does a Currency Union Affect Trade? The Time-Series Evidence,

European Economic Review, 46, 1125–51.

Goldstein M and M. Khan. 1978. The Supply and Demand for Exports: A Simultaneous Approach, The

Review of Economics and Statistics, 60(2), 275-86.

Page 134: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

132 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Greenway D., N. Sousa and K. Wakelin. 2004. Do Domestic Firms Learn to Export from

Multinationals?, European Journal of Political Economy, 20, 1027-43.

Hausman A.J. 1978. Specification tests in econometrics, Econometrica, 46(6):1251–72.

Heckscher E. 1919. The Effect of Foreign Trade on the Distribution of Income, Ekonomisk Tidskrift, 21,

497–512.

Helpman E and P.R. Krugman. 1985. Market Structure and Foreign Trade. Increasing Returns,

Imperfect Competition, and the International Economy, Cambridge, MA: MIT Press.

Hillberry R and D. Hummels. 2008. Trade Responses to Geographic Frictions: A Decomposition

Using Micro-Data, European Economic Review, 52, 527-50.

Honoré B.E. 1992. Non-linear Models with Panel Data, cemmap working paper CWP13/02, the

Institute of Fiscal Studies Department of Economics, UCL.

Iyer K. 2010. The Determinants of Firm-Level Export Intensity in New Zealand Agricultural and

Forestry, Economic Analysis & Policy, 40(1), 75-86.

Javalgi G.R., D.D. White and O. Lee. 2000. Firm Characteristics Influencing Export Propensity: an

Empirical Investigation by Industry Type. Journal of Business Research, 47(3), 217-28.

Jongwanich J and A. Kohpaiboon. 2008. Export Performance, Foreign Ownership and Trade Policy

Regime: Evidence from Thai Manufacturing, ERD Working Paper No. 140, Economics and

Research Department, Asian Development Bank, 2008.

Kangas K and A. Niskanen. 2003. Trade in Forest Products between European Union and the Central

and Eastern European Access Candidates, Forest Policy and Economics, 5(3): 297–304.

Krugman P.R 1980. Scale Economies, Product Differentiation, and the Pattern of Trade, The

American Economic Review, 70(5), 950-59.

Kumar N. 1994. Determinants of Export Orientation of Foreign Production by U.S. Multinationals: An

Inter-Country Analysis, Journal of International Business Studies, 25(1), 141-56.

Lefebvre E., A.L. Lefebvre and M. Bourgault. 1998. R&D-Related Capabilities as Determinants of

Export Performance, Small Business Economics, 10, 365-77.

Leontief W. 1953. Domestic Production and Foreign Trade: The American Capital Position Re-

Examined, Proceeding of the American Philosophical Society, 97(4), 332-49.

Linder S.B. 1961. An Essay on Trade and Transformation, John Wiley, New York.

Linnemann H. 1966. An Econometric Study of International Trade Flows”, North Holland Publishing

Company, Amsterdam, 1966.

Liu X and C. Shu. 2003. Determinants of Export Performance: Evidence from Chinese Industries,

Economics of Planning, 36, 45-67.

Loecker J. 2007. Do Exports Generate Higher Productivity? Evidence from Slovenia, Journal of

International Economics, 37, 69-98.

Longo R and K. Sekkat. 2004. Economic Obstacles to Expanding Intra-African Trade, World

Development, 32(8), 1309-21.

Majumdar K.S. 1997. The Impact of Size and Age on Firm-Level Performance: Some Evidence

from India, Review of Industrial Organization, 12, 231-41.

Page 135: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

133 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Marie M. 2009. Regional Integration and Trade: Controlling for Varying Degrees of Heterogeneity in

the Gravity Model, The World Economy, 32(5), 772-89.

McCallum J. 1995. National Borders Matter: Canada-US. Regional Trade Patterns, American

Economic Review, 85(3), 615-23.

Melitz M.J. 2003. The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry

Productivity, Econometrica, 71(6), 1695-1725.

Michiel V.D. 2002. The Determinants of Export Performance in Developing Countries: The Case

of Indonesian Manufacturing, Eindhoven Centre for Innovation Studies, Working Paper

02.01, Department of Technology Management, Technische Universiteit Eindhoven, The

Netherlands.

Mitze T. 2012. Estimating Gravity Models of International Trade with Correlated Time-Fixed

Regressors: To IV or not IV?, Empirical Modelling in Regional Science, Lecture Notes in

Economics and Mathematical Systems, 667, 165-90.

Mukim M. 2011. Does Exporting Increase Productivity? Evidence from Idia, World Bank Paper

Series.

Muûls M and M. Pisu. 2009. Imports and Exports at the Level of the Firm: Evidence from Belgium, The

World Economy, 32(5), 692-734.

Nguyen B.X. 2010. The Determinants of Vietnamese Export Flows: Static and Dynamic Panel

Gravity Approaches, International Journal of Economics and Finance, 2(4), 122-29

Nguyen H and O. Hiroshi. 2008. Superiority of Exporters and the Causality between Exporting and

Firm Characteristics in Vietnam. The 4th Asia-Pacific Economics Association International

Conference. Beijing.

Nguyen K.D and Y. Heo. 2009. AFTA and Trade Diversion: An Empirical Study for Vietnam and

Singapore, International Area Review, 12(1), 163-92.

Nguyen N.A and T. Nguyen. 2007. Foreign Direct Investment in Vietnam: An Overview and Analysis

the Determinants of Spatial Distribution across Provinces, MPRA Paper No. 1921.

Nguyen T. 2009. Gravity Equation for Different Product Groups: A Study at Product Level.

DEPOCEN Working Paper Series, No. 2009/18.

Nguyen N.A., N. Jones., D.N. Nguyen and D.C. Nguyen. 2009. Capitalising on Innovation for Exports

by the SME Sector. DEPOCEN Working Paper Series, No. 2009/15.

Obben J and P. Magagula. 2003. Firm and Managerial Determinants of the Export Propensity of

Small and Medium-Sized Enterprises in Swaziland, International Small Business Journal,

21(1), 73-91.

Ohlin B. 1933. Interregional and International Trade, Cambridge: Havard University Press.

Özçelic E and E. Taymaz. 2003. Does Innovativeness Matter for International Competitiveness in

Developing Countries? The Case of Turkish Manufacturing Industries, Research Policy,

33, 409-24.

Papadogonas T., F. Voulgaris and G. Agiomirgianakis. 2007. Determinants of Export Behavior in

the Greek Manufacturing Sector, Operational Research, 7(1), 121-35.

Page 136: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

134 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Papazoglou C. 2007. Greece Potential Trade Flows: A Gravity Model Approach, International

Atlantic Economic Society, Vol. 13, 403-14.

Papke L.E and J.M. Wooldridge. 1996. Econometric Methods for Fractional Response Variables with an

Application to 401(K) Plan Participation Rates, Journal of Applied Econometrics, 11, 619-32.

Park W.J. 2012. Korea and Vietnam: The National Experience and Foreign Policies of Middle Powers.

Annual Koret Conference.

Porojan A. 2001. Trade Flows and Spatial Effects: The Gravity Model Revisited, Open Economies

Review, 12, 265–80.

Porter M.E. 1990. The Competitive Advantage of Nations, Macmillan, London.

Rahman M. 2003. Panel Data Analysis of Bangladesh’s Trade: The Gravity Model Approach,

University of Sydney, NSW 2006, Australia.

Rankin N., M. Söderbom and F. Teal. 2006. Exporting from Manufacturing Firms in Sub-Saharan

Africa, Journal of African Economies, 15(4), 671-87.

Rault C., R. Sova and A. Sova. 2007. Modeling International Trade Flows between Eastern

European Countries and OECD Countries, IZA Discussion paper No. 2851.

Ricardo D. 1817. On the Principles of Political Economy and Taxation. (London: John Murray,

1821).

Roberts B.A. 2004. A Gravity Study of the Proposed China-ASEAN Free Trade Area, The International

Trade Journal, 18(4), 335-53.

Robson J.A., C.K. Akuetteh, P. Westhead and M. Wright. 2012. Exporting Intensity, Human Capital

and Business Ownership Experience, International Small Business Journal, 30(4), 367-87.

Roper S. and J.H. Love. 2002. Innovation and Export Performance: Evidence from UK and German

Manufacturing Plants, Research Policy, 31, 1087-102.

Roper S., J. H. Love and A. Hīgon. 2006. The Determinants of Export Performance: Evidence for

Manufacturing Plants in Ireland and Northern Irelands, Scottish Journal of Political

Economy, 53(5), 586-615.

Rudolph S. 2010. Computing Multilateral Resistance of Trading Countries, www.freit.org/WP/

TradePatterns.

Samiee S and G.P. Walters. 1990. Influence of Firm Size on Export Planning and Performance,

Journal of Business Research, 20, 235-48.

Sandberg M.H., G.T. Taylor and L.J. Seale. 2002. CARICOM Bilateral Trade: A Preliminary Analysis

Using the Gravity Model, International Agricultural Trade and Policy Center, Institute of Food

and Agricultural Sciences, TPTC. 02-3.

Sapir A. 2001. Trade Regionalism in Europe: Towards an Integrated Approach, ULB Institutional

Repository 2013/8144, ULB - Université Libre de Bruxelles.

Serlenga L. and Y. Shin. 2004. Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor

Estimation in Heterogeneous Panels with Common Time-specific Factors, Journal of Applied

Econometrics, 22, 361-81.

Shumway T. 2001. Forecasting Bankcruptcy More Accurately: A Simple Hazard Model, Journal

of Business, 74, 101-24.

Page 137: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

135 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Silva S.J and S. Tenreyoro. 2006. The Log of Gravity, The Review of Economics and Statistics, 88,

641–58.

Smith A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations, the University of

Chicago Press.

Sohn C.H. 2005. Does the Gravity Model Explain South-Korea’s Trade Flow?, Japanese Economic Review,

56(4), 417-30.

Sousa C and F. Bradley. 2009. Effects of Export Assistance and Distributor Support on the Performance of

SMEs: The Case of Portuguese Export Ventures, International Small Business Journal, 27(6),

681-701.

Sterlacchini A. 2001. The Determinants of Export Performance: A Firm-Level Study of Italian

Manufacturing, Weltwirtschaftliches Archiv, 137(3), 450-72.

Tapia I., J. Corea and A. Manzanares. 2010. Environmental Strategy and Exports in Medium, Small and

Micro-Enterprises, Journal of World Business, 45, 266-75.

Tinbergen J. 1962. Shaping the World Economy: Suggestions for an International Economic Policy, New York:

Twentieth Century Fund.

Tu T.A and T.M.P. Chu. 2014. On the Border Effect in the Regional Comprehensive Economic

Partnership, A Working Paper funded by the Swiss Secretariat for Economic Affairs (SECO).

Vernon R. 1966. International Investment and International Trade in the Product Life Cycle, The Quarterly

Journal of Economics, 80(2), 190-207.

Vu T.A. 2012. Essays on the Innovation and Intellectual Property System in Vietnam. Université libre

de Bruxelles thesis.

Vu V.H. 2012. Higher Productivity in Exporters: Self-selection, Learning by Exporting or both? Evidence from

Vietnamese Manufacturing SMEs. MPRA Paper No. 40708 August 2012.

Vuong Q.H. 2014. Vietnam's Political Economy: A Discussion on the 1986-2016 Period. CEB Working

Paper Series No 14/010 May 2014. Solvay Brussels School of Economics & Management.

Wagner J. 1995. Export, Firm Size, and the Firm Dynamics, Small Business Economics, 7(1), 29-

39.

Wagner J. 2007. Exports and Productivity: A Survey of the Evidence from Firm-Level Data, The

World Economy, 30(1), 60-82.

Wakelin K. 1997. Innovation and Export Behavior at the Firm Level. Research Policy, 26(1998),

829-41. www.freit.org/WorkingPapers/Papers/TradePatterns/FREIT137.pdf.

Wallace T.D and A. Hussain. 1969. The Case of Error Component Models in Combining Cross-Section

And Time-Series Data, Econometrica, 55-72.

WEF. 2010. The Global Competitiveness Report 2010-2011, available at http://weforum.org/reports.

Zarzoso M.I and F.N. Lehmann. 2003. Augmented gravity model: An Empirical Application to

Mercosur-European Union Trade Flows, Journal of Applied Econometrics, 6(2), 291-316.

Zhang J and G. Kristensen. 1995. A Gravity Model with Variable Coefficients: The EEC Trade

with Third Countries, Geographical Analysis, 27(4), 308-20.

Page 138: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

136 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Zhao H and S. Zou. 2002. The Impact of Industry Concentration and Firm Location on Export

Propensity and Intensity: An Empirical Analysis of Chinese manufacturing Firms,

American Marketing Association, 10(1), 52-71.

Page 139: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

137 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

APPENDICES

Appendix 1.1. Descriptive statistics for Vietnam’s exports and gravity factors

Variable Mean Std. Dev. Min Max Observations

LnExport

Overall

Between

Within

23.80 3.01

2.81

1.36

15.61

17.91

16.92

31.60

29.98

28.77

N = 1915

n = 170

T-bar = 11.26

LnGDP

Overall

Between

Within

24.60 2.08

2.17

.17

18.91

19.04

23.77

30.20

30.09

25.49

N = 1909

n = 170

T-bar = 11.22

LnGDP/Labor Overall

Between

Within

9.52 1.23

1.24

.12

6.49

6.55

8.88

12.00

11.91

10.25

N = 1873

n = 165

T-bar = 11.35

LnDGDP Overall

Between

Within

2.23 .24

.23

.05

-.37

1.27

.55

2.71

2.70

2.59

N = 1915

n = 170

T-bar = 11.26

LnExchangrate Overall

Between

Within

0.39 0.22

0.15

0.15

-1.50

-0.50

-1.12

2.10

1.16

0.98

N = 1913

n = 170

T-bar = 11.25

LnDistance Overall

Between

Within

8.96 .64

.63

0

6.17

6.17

8.94

9.85

9.85

8.96

N = 1915

n = 170

T-bar = 11.26

ASEAN Overall

Between

Within

.05 .22

.21

0

0

0

.05

1

1

.051

N = 1915

n = 170

T-bar = 11.26

Landlocked Overall

Between

Within

.18 .38

.40

0

0

0

.18

1

1

.18

N = 1915

n = 170

T-bar = 11.26

Border Overall

Between

Within

.19 .13

.13

0

0

0

.19

1

1

.19

N = 1915

n = 170

T-bar = 11.26

Colony Overall

Between

Within

.01 .08

.07

0

0

0

.01

1

1

.01

N = 1915

n = 170

T-bar = 11.26

Page 140: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

138 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 1.2. Results for test for including time dummies

(1) year1998 = 0

(2) year1999 = 0

(3) year2000 = 0

(4) year2001 = 0

(5) year2002 = 0

(6) year2003 = 0

(7) year2004 = 0

(8) year2005 = 0

(9) year2006 = 0

(10) year 2007 = 0

(11) year2008 = 0

(12) year2009 = 0

F (12, 1849) = 49.91

Prob > F = 0.0000

Page 141: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

139 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 2.1. Descriptive statistics for footwear firm’s exports and gravity factors

Variable Mean Std. Dev. Min Max Observations

LnExport

Overall

Between

Within

19.21 2.56

2.44

0.95

8.23

8.77

12.65

27.63

26.83

25.44

N = 23380

n = 9267

T-bar = 2.52

LnGDP

Overall

Between

Within

26.95 1.58

1.72

.03

19.31

19.31

26.71

30.20

30.20

27.18

N = 23265

n = 9237

T-bar = 2.518

LnGDP/Labor Overall

Between

Within

10.60 .76

.82

.03

6.57

6.57

10.31

11.89

11.89

10.95

N = 23237

n = 9220

T-bar = 2.52

LnDGDP Overall

Between

Within

9.65 1.11

1.18

.05

3.44

3.44

8.56

11.21

11.21

10.35

N = 23265

n = 9237

T-bar = 2.51

LnExchangrate Overall

Between

Within

0.07 0.09

0.07

0.07

-.36

-.36

-.26

.61

.61

.46

N = 23380

n = 9267

T-bar = 2.52

LnDistance Overall

Between

Within

8.86 .72

.72

0

6.17

6.17

8.86

9.85

9.85

8.86

N = 23380

n = 9267

T-bar = 2.52

ASEAN Overall

Between

Within

.07 .27

.27

0

0

0

.07

1

1

.07

N = 23380

n = 9267

T-bar = 2.52

Landlocked Overall

Between

Within

.06 .25

.25

0

0

0

.06

1

1

.06

N = 23380

n = 9267

T-bar = 2.52

Border Overall

Between

Within

.02 .16

.18

0

0

0

.02

1

1

.02

N = 23380

n = 9267

T-bar = 2.52

Colony Overall

Between

Within

.03 .17

.17

0

0

0

.03

1

1

.03

N = 23380

n = 9267

T-bar = 2.52

Page 142: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

140 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 2.2. Descriptive statistics for rice firm’s exports and gravity factors

Variable Mean Std. Dev. Min Max Observations

LnExport

Overall

Between

Within

20.76 2.24

2.20

0.70

8.20

8.20

14.93

29.15

28.44

25.15

N = 4019

n = 2574

T-bar = 1.56

LnGDP

Overall

Between

Within

25.61 1.99

2.07

.04

19.45

19.45

25.34

30.20

30.20

25.84

N = 3984

n = 2555

T-bar = 1.55

LnGDP/Labor Overall

Between

Within

9.65 1.23

1.22

.03

6.58

6.58

9.37

11.61

11.61

9.93

N = 3975

n = 2548

T-bar = 1.56

LnDGDP Overall

Between

Within

8.43 1.67

1.66

.33

2.93

2.93

5.12

11.21

11.21

10.69

N = 3972

n = 2544

T-bar = 2.56

LnExchangrate Overall

Between

Within

0.08 0.09

0.08

0.04

-.36

-.36

-.13

.61

.61

.28

N = 4022

n = 2577

T-bar = 1.56

LnDistance Overall

Between

Within

8.73 .75

.75

0

5.37

5.37

8.73

9.85

9.85

8.73

N = 4021

n = 2576

T-bar = 1.56

ASEAN Overall

Between

Within

.14 .35

.31

0

0

0

.14

1

1

.14

N = 4021

n = 2576

T-bar = 1.56

Landlocked Overall

Between

Within

.03 .17

.20

0

0

0

.03

1

1

.03

N = 4021

n = 2576

T-bar = 1.56

Border Overall

Between

Within

.03 .17

.18

0

0

0

.03

1

1

.03

N = 4021

n = 2576

T-bar = 1.56

Colony Overall

Between

Within

.009 .09

.08

0

0

0

.009

1

1

.009

N = 4021

n = 2576

T-bar = 1.56

Page 143: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

141 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 2.3. Descriptive Statistics for wood and wood products firm’s exports and gravity

factors

Variable Mean Std. Dev. Min Max Observations

LnExport

Overall

Between

Within

18.60 2.36

2.16

0.88

3.59

3.59

10.23

27.49

27.49

25.89

N = 35544

n = 19174

T-bar = 1.85

LnGDP

Overall

Between

Within

27.56 1.61

1.70

.03

19.86

19.86

27.25

30.20

30.20

27.83

N = 35251

n = 19038

T-bar = 1.85

LnGDP/Labor Overall

Between

Within

10.74 .72

.79

.02

6.57

6.57

10.44

12.01

12.01

11.08

N = 35214

n = 19004

T-bar = 1.85

LnDGDP Overall

Between

Within

9.89 0.98

1.07

.10

2.32

3.14

7.29

11.21

11.21

12.48

N = 35251

n = 19038

T-bar = 1.85

LnExchangrate Overall

Between

Within

0.08 0.11

0.10

0.06

-.36

-.36

-.26

.61

.61

.44

N = 35555

n = 19184

T-bar = 1.85

LnDistance Overall

Between

Within

8.74 .70

.74

0

6.17

6.17

8.74

9.85

9.85

8.74

N = 35555

n = 19184

T-bar = 1.85

ASEAN Overall

Between

Within

.08 .27

.29

0

0

0

.08

1

1

.08

N = 35555

n = 19184

T-bar = 1.85

Landlocked Overall

Between

Within

.03 .18

.05

0

0

0

.03

1

1

.03

N = 35555

n = 19184

T-bar = 1.85

Border Overall

Between

Within

.06 .24

.25

0

0

0

.06

1

1

.06

N = 35555

n = 19184

T-bar = 1.85

Colony Overall

Between

Within

.04 .21

.19

0

0

0

.04

1

1

.04

N = 35555

n = 19184

T-bar = 1.85

Page 144: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

142 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 3.1. Descriptive statistics for footwear firms

Variables

Observations Mean Std.Dev Min Max

Export intensity 237 .29 .36 1.83e-08 .99

LnWage 237 3.23 .70 .38 5.79

LnEmployee 237 5.57 1.89 .69 9.99

Capintensity 237 485.08 4751.14 -160.46 66349.77

Stateowner 237 .43 .49 0 1

LnFirmage 237 1.93 .74 1 3.95

Location central 237

Location north 237 .16 .37 0 1

Location south 237 .78 .40 0 1

Page 145: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

143 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 3.2. Descriptive statistics for rice firms

Variables

Observations Mean Std.Dev Min Max

Export intensity 83 .21 .24 1.90e-06 .95

LnWage 83 3.55 .88 -.34 5.30

LnEmployee 83 4.44 1.42 1.38 7.98

Capintensity 83 155.94 283.63 -159.24 1604.24

Stateowner 83 .79 .40 0 1

LnFirmage 83 2.02 1.01 0 4.04

Location central 83

Location north 83 .18 .38 0 1

Location south 83 .74 .43 0 1

Page 146: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

144 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 3.3. Descriptive statistics for wood and wood products firms

Variables Observations Mean Std.Dev Min Max

Export intensity 1234 .33 .33 1.04e-07 .99

LnWage 1234 3.22 .64 -.182 7.32

LnEmployee 1234 4.68 1.47 1.09 11.11

Capintensity 1234 72.47 339.58 -3463.64 7954.80

Stateowner 1234 .55 .49 0 1

LnFirmage 1234 1.69 .71 0 3.97

Location central 1234

Location north 1234 .15 .36 0 1

Location south 1234 .65 .47 0 1

Page 147: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

145 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 4.1. Descriptive statistics with quantiles for footwear firms

Variables

n

Mean

S.D

Quantiles

Min .25 Mdn .75 Max

Export

intensity (logit)

237 -2.70 4.22 -17.81 -

5.44

-2.53 0.39 8.75

LnWage 237 3.24 0.70 0.38 2.97 3.26 3.52 5.79

LnEmployee 237 5.58 1.89 0.69 4.16 5.62 7.01 10.00

Capintensity 237 485.08 4751.15 -160.47 -

3.28

8.46 36.89 66349.77

Stateowner 237 0.44 0.50 0.00 0.00 0.00 1.00 1.00

LnFirmage 237 1.93 0.75 0.00 1.39 1.95 2.48 3.95

Appendix 4.2. Descriptive statistics with quantiles for rice firms

Variables

n

Mean

S.D

Quantiles

Min .25 Mdn .75 Max

Export

intensity (logit)

83 -2.33 2.48 -13.18 -3.72 -1.86 -0.68 3.01

LnWage 83 3.56 0.88 -0.34 3.14 3.56 4.06 5.31

LnEmployee 83 4.45 1.43 1.39 3.53 4.48 5.44 7.98

Capintensity 83 155.95 283.64 -159.24 14.41 65.93 174.89 1604.24

Stateowner 83 0.80 0.41 0.00 1.00 1.00 1.00 1.00

LnFirmage 83 2.03 1.00 0.00 1.39 2.08 2.77 4.04

Page 148: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

146 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 4.3. Descriptive statistics with quantiles for wood and wood products firms

Variables

n

Mean

S.D

Quantiles

Min .25 Mdn .75 Max

Export

intensity (logit)

1234 -1.93 3.44 -16.08 -3.94 -1.32 0.74 9.01

LnWage 1234 3.23 0.65 -0.18 2.89 3.23 3.57 7.32

LnEmployee 1234 4.69 1.47 1.10 3.66 4.74 5.68 11.12

Capintensity 1234 72.48 339.58 -3463.6 1.11 21.25 64.55 7954.80

Stateowner 1234 0.56 0.50 0.00 0.00 1.00 1.00 1.00

LnFirmage 1234 1.70 0.72 0.00 1.10 1.79 2.20 3.97

Appendix 4.4. Descriptive statistics with quantiles for the three sectors firms

Variables

n

Mean

S.D

Quantiles

Min .25 Mdn .75 Max

Export

intensity (logit)

1554 -2.06 3.54 -17.81 -4.20 -1.53 0.60 9.01

lnWage 1554 3.25 0.68 -0.34 2.91 3.24 3.58 7.32

lnEmployee 1554 4.81 1.57 0.69 3.71 4.80 5.83 11.12

Capintensity 1554 139.86 1883.6 -3463.64 0.38 19.35 64.17 66349.7

Stateowner 1554 0.55 0.50 0.00 0.00 1.00 1.00 1.00

lnFirm age 1554 1.75 0.75 0.00 1.39 1.79 2.20 4.04

Page 149: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

147 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 5. Logit transformed export intensity for the three sectors

0

.05

.1.1

5

Den

sity

-20 -10 0 10lexportintensity

kernel = epanechnikov, bandwidth = 0.7319

Kernel density estimate

Page 150: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

148 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 6.1. Graph check for normality in the residuals (footwear firms)

Appendix 6.2. Graph check for non-normality in the extremes of the data

(footwear firms)

0

.02

.04

.06

.08

.1

Den

sity

-10 -5 0 5 10 15Residuals

Kernel density estimate

Normal density

kernel = epanechnikov, bandwidth = 1.1587

Kernel density estimate-1

0-5

05

10

Res

idua

ls

-10 -5 0 5 10Inverse Normal

Page 151: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

149 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 7.1. Graph check for normality in the residuals (rice firms)

Appendix 7.2. Graph check for non-normality in the extremes of the data (rice firms)

0

.05

.1.1

5.2

Den

sity

-10 -5 0 5Residuals

Kernel density estimate

Normal density

kernel = epanechnikov, bandwidth = 0.8575

Kernel density estimate

-10

-50

5

Res

idua

ls

-5 0 5Inverse Normal

Page 152: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

150 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 8.1. Graph check for normality in the residuals

(wood and wood products firms)

Appendix 8.2. Graph check for non-normality in the extremes of the data

(wood and wood products firms)

0

.05

.1.1

5

Den

sity

-15 -10 -5 0 5 10Residuals

Kernel density estimate

Normal density

kernel = epanechnikov, bandwidth = 0.6974

Kernel density estimate-1

5-1

0-5

05

10

Res

idua

ls

-10 -5 0 5 10Inverse Normal

Page 153: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

151 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 9.1. Predictions in units of export intensity (footwear firms)

Variables

Observations

Mean

Std. Dev.

Min

Max

Export intensity

237

.29

.36

1.83e-08

.99

Export intensity1 (invlogit)

237

.11

.14

3.85e-09

.98

Appendix 9.2. Predictions in units of export intensity (rice firms)

Variables

Observations

Mean

Std. Dev.

Min

Max

Export intensity

83

.21

.24

1.90e-06

.95

Export intensity1 (invlogit)

83

.11

.075

.01

.37

Appendix 9.3. Predictions in units of export intensity (wood and wood products firms)

Variables

Observations

Mean

Std. Dev.

Min

Max

Export intensity

1234

.33

.33

1.04e-07

.99

Export intensity1 (invlogit)

1234

.16

.13

.001

.94

Page 154: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

152 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 10.1 . Covariate’s effects vary across quantiles (footwear sector)

Page 155: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

153 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 10.2. Covariate’s effects vary across quantiles (rice sector)

Page 156: ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM · ESSAYS ON THE EXPORT PERFORMACE OF VIETNAM Vu Thi Hanh Thèse présentée en vue de l’obtention du grade académique de Docteur en

154 VU THI HANH – Dissertation – Essays on the Export Performance of Vietnam

Appendix 10.3. Covariate’s effects vary across quantiles (wood and wood products sector)