Factors affecting Vietnam’s trade balance in the context of the global value chain

Abstract

Trade balance is one of the important macro balances and has a strong impact on the balance of payments and the overall national economy. A country with a large trade deficit may experience lowered competitiveness of goods, export growth, and economic growth. This paper focuses on analyzing the core factors affecting Vietnam's trade balance in the context of global value chain accession. The author uses Bound-Testing method and ARDL model with data from 1990 to 2018 to identify factors affecting Vietnam's trade balance. The results show that, in the long term, Vietnam’s trade balance is affected by factors – ranked from the highest to the lowest – as follows: real GDP of trading partners; Vietnam’s real GDP; multilateral effective exchange rate; foreign added value in Vietnam's exported goods and FDI capital into Vietnam. From these important findings, the author proposes some implications for policymakers so as to improve the trade balance in the context of deeper participation in the global value chain.