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Trade Liberalization and Institutional Quality: Evidence from Vietnam

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  • Dang, D Anh

Abstract

Recent cross-country research shows that there is a causal relationship between trade liberalization and quality of institutions. The literature on cross-country studies has been criticized because differences in legal systems and other institutions across countries are difficult to control for. An in-depth case study of a particular country’s experience can provide a useful complement to cross-country regressions. Using the unique dataset from provincial competitiveness survey and a natural experiment from joining the World Trade Organization, I find that variations in economic institutions across provinces in Vietnam can be explained by trade liberalization. To overcome endogeneity problems, I use minimum distance from each province to main economic centres as an instrument for trade liberalization. The instrumental variable approach shows that the direction of influence is from greater openness to better institutions. The results hold after controlling for various additional covariates. It is also robust to various alternative measures of institutions. I also find that trade liberalisation has greater short term impacts on institutional quality in the Northern provinces.

Suggested Citation

  • Dang, D Anh, 2010. "Trade Liberalization and Institutional Quality: Evidence from Vietnam," MPRA Paper 26346, University Library of Munich, Germany, revised 31 Aug 2010.
  • Handle: RePEc:pra:mprapa:26346
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    2. Le, Minh Son, 2014. "Trade openness and household welfare within a country: A microeconomic analysis of Vietnamese households," Journal of Asian Economics, Elsevier, vol. 33(C), pages 56-70.

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    More about this item

    Keywords

    Trade liberalization; institutions; Vietnam;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • F1 - International Economics - - Trade

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