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Mohamed Nur Sharif and Ali Yassin Sheikh Ali, “Determinants of Trade Balance in Somalia: Regression Analysis using Time Series Data”, Journal of Economics and Sustainable Development, ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.7, No.12, 2016.

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Article

Policy Recommendations to Improve Trade Balance in Vietnam: An Empirical Study of Relationship between Exchange Rate and Trade Balance

1Lecturer at Faculty of Economic and Business Administration, Hong Duc University, No. 565 Quang Trung Street, Dong Ve Ward, Thanh Hoa city, Vietnam


Journal of Finance and Economics. 2018, Vol. 6 No. 3, 75-86
DOI: 10.12691/jfe-6-3-1
Copyright © 2018 Science and Education Publishing

Cite this paper:
Do Thi Man. Policy Recommendations to Improve Trade Balance in Vietnam: An Empirical Study of Relationship between Exchange Rate and Trade Balance. Journal of Finance and Economics. 2018; 6(3):75-86. doi: 10.12691/jfe-6-3-1.

Correspondence to: Do  Thi Man, Lecturer at Faculty of Economic and Business Administration, Hong Duc University, No. 565 Quang Trung Street, Dong Ve Ward, Thanh Hoa city, Vietnam. Email: Mandt.hdu@gmail.com

Abstract

This research aims to analyze the effect of the real effective exchange rate on the trade balance in Vietnam using Vector Autor Regressive (VAR) model applying for quarterly data from 2000 to 2016. The tests of the impulse response function investigate that there exists a J-curve for Vietnam. The J-curve effect lasts about six quarters, which implies that the trade balance needs at least six quarters to improve after real depreciation of the domestic currency. The results of variance decomposition also show that real effective exchange rate plays the most critical role in the trade balance fluctuation since the fifth quarter till the long run, whereas, consumer price index has the second impact on the trade balance, foreign direct investment and gross domestic product seem not to much effect on the trade balance. Based on the results, the author gives some policy recommendations on improving the trade balance, including moving to a flexible exchange rate and coordinating between exchange rate policy and other macro policies.

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