Determinants of Vietnam's Exports to RCEP Countries: A Gravity Model Analysis

Abstract

This paper investigates the determinants of Vietnam's exports to members of the Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement, using a panel data set from 14 countries over the period 2005-2018. The analysis is based on the gravity model with different explanatory variables that potentially affect the export performance of Vietnam, in addition to standard gravity regressors. The study employs different estimation techniques and formal tests to decide which model is the most appropriate for analysis. Based on the outcome of the F-test, Breusch-Pagan's Lagrange Multiplier test, and Hausman test, it is clear that the Random Effect Model is favored over Pooled Ordinary Least Square and Fixed Effect Model. The empirical results of the study reveal that Vietnam's exports to RCEP markets might be positively affected by the GDP of economies, control corruption ability of the importing countries, and common border sharing. The distance between countries is reported to restrain the export performance. These findings are quite consistent with existing literature on the gravity model of bilateral trade. Against the expectation, the effect of exchange rate on exports is negative; the coefficients of Vietnam's integration to Free Trade Agreements and corruption control ability are not statistically significant.