Will the growing trade gap sink Viet Nam?-Some exploratory econometrics

Viet Nam's external deficit has risen to 10 per cent of GDP, a level which although still funded by capital inflows is causing alarm to donors, particularly in light of East Asia's financial crisis. The paper argues that the problem may be self-correcting where capital inflows are directed mainly to investment, where public and private investment are complementary and investment efficiency increases. Using cointegration analysis and a 'general to specific' approach, a non-conventional econometric model is estimated using disaggregated data for imports, exports and investment from recent time series data. Finally, macroeconomic simulations are run up to 1999. The results show the trade gap narrowing significantly. If these results are borne out in practice, current obstacles to trade reform and to fomenting faster private sector growth may prove easier to overcome. Copyright © 2000 John Wiley & Sons, Ltd.