Determinants of the Export Efficiency of Vietnam’s Textiles and Garments to EU Countries – A Stochastic Frontier Gravity Approach

Abstract

While free trade agreements (FTAs) can provide access to new markets, it is not automatic that producers of home countries can export to the maximum level that can be predicted by market size and level of trade liberalization. Hence, it is necessary to know the level of export efficiency and its determinants if countries want to maximize the benefits of their global integration efforts. Textiles and garments are important exports and growth drivers of Vietnam, but their export efficiency has not been studied before. This paper aims to bridge this gap in the literature by estimating the export efficiency of Vietnam's textile and garment exports to 28 EU countries and identifying its determinants, which are both behind and beyond the borders. This paper uses a panel data of Vietnam’s textile and garment exports to 28 EU countries over the period from 2007–2019 and a stochastic frontier gravity model (SFGM) with the one-step estimation method for empirical analysis. Its findings suggest that the efficiency of Vietnam’s textile and garment exports to EU countries is relatively low but it increases over the period of study. Regarding determinants of efficiency, the paper found that infrastructure, technology readiness, and quality of institutions have significant impacts on the efficiency to various degrees and at different significance levels.