Impacts of Import Liberalization Policy on Economic Growth in Vietnam: A Channel Analysis

Vietnam, a transitional economy that started its historic economic reform in 1986, has been pursuing both the market-oriented and state-controlled developments for more than twenty years. This study focuses on the country's liberalization on internal and international trade polices, an important path of economic reform, by measuring an index for import liberalization policy and then employing "channel analysis" to quantify impacts of import liberalization on the country's economic growth. The study applies the method proposed by Wacziarg (2001) to Vietnamese data for the period 1986-2006 with necessary revisions to accommodate features of the Vietnamese economy. The estimated results by 3SLS regression indicate positive impact of import liberalization on economic growth once the full information of linking channels (government expenditure, macroeconomic quality, black market premium, domestic trade, FDI and exports) have been accounted for. The study concludes that one unit increase of import liberalization index improves economic growth rate by 0.304 percentage point. Of this, increase in technological capability of exports, macroeconomic stabilization, and the efficiency domestic trade is the prominent factors, each occupies roughly 25-30% of the overall channels' impact.