Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Journal of Finance and Economics. 2018, 6(3), 75-86
DOI: 10.12691/jfe-6-3-1
Open AccessArticle

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

Do Thi Man1,

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

Pub. Date: June 20, 2018

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


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.

trade balance REER VAR Vietnam

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit


[1]  Elif Guneren Genc and Oksana Kibritci Artar, “The effect of exchange rates on exports and imports of emerging countries”, European Scientific Journal, Vol. 10, No. 13, 2014.
[2]  Tony Matlasedi, Richard Ilorah and Stephen Zhanje, “The impact of the real effective exchange rate on South Africa’s trade balance”, Economic Society of South Africa, University of Cape Town, 2 - 4 September 2015.
[3]  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.
[4]  Pham Hong Phuoc, “Real exchange rates and trade balance in Vietnam”, 2009. [Online] Retrieved from:
[5]  Nguyen Thi Hien, “Analysis of the balance of trade deficit of Vietnam at present period”, Banking Journal, No. 24/2011.
[6]  Dang Thi Huyen Anh, “The impact of real exchange rates on Vietnam's trade balance in international economic integration conditions”, PhD thesis in Economics of Banking Academy, 2012,
[7]  Nguyen Binh Duong, Tu Thuy Anh and Chu Thi Mai Phuong, “On the linkage between FDI and trade: Evidence from Vietnam”, SECO/WTI Academic Cooperation Project, Working Paper Series 5/2012.
[8]  Nguyen Thi Tuyet Nga, ‘The solutions for enhancing the role of exchange rates in the Vietnam economy’s integration process”, PhD Thesis of Banking University Hochiminh City, 2012.
[9]  Hoang Khieu Van, “The effects of the real exchange rate on the trade balance: Is there a J-curve forVietnam? A VAR approach”, MPRA Paper No. 54490, posted 19. March 2014 14:49 UTC.
[10]  Krugman, P.R., Obstfeld, M., and Melitz, M.J., International Economics: Theory and Policy, Ninth Edition, 2012, pp.428-437 and p.447-449.
[11]  Nguyen Nhat Mai, “Determinants of Trade Balance in Vietnam during the Period 1989-2013”, (June 15, 2015). Available at SSRN:
[12]  Nguyen Hai An, “Exchange Rate Management in Vietnam for Sustaining Stable and Long-Term Economic Growth”, Review of Business and Economics Studies Volume 3, Number 2, 2015.
[13]  Hoang Lan Huong, “The Role of Exchange Rate in Supporting Trade Balance in Vietnam”, Working Paper No. HEIDWP16-2016.
[14]  Dang Thi Kim Dung, “Research on Determinants of Trade Balance in Vietnam: a VAR Approach”, Journal of Asean review of public affairs and policy, NO. 1 VOL. Three/ June 2017.
[15]  Helmut Lutkepoh, “Econometric analysis with Vector Autoregressive Models”, EUI Working Paper Eco 2007/11.
[16]  Pavle Petrović and Mirjana Gligorić, “Exchange Rate and Trade Balance: J-curve Effect”, PANOECONOMICUS, 2010, 1, pp. 23-41.
[17]  Ng, Yuen. Ling., Har, W. M., and Tan, G. M., “Real exchange rate and trade balance relationship: An empirical study on Malaysia”, International Journal of Business and Management, 3(8), pp. 130-137, 2008.
[18]  Le Mai Trang, “Exchange rate policy for improving Vietnam’s trade balance”, Dissertation, Ha Noi Thuong Mai University, 2017.