Does economic distance affect the flows of trade and foreign direct investment? Evidence from Vietnam

Figures & data

Table 1. Variable descriptions

Abbreviations	Variable name	Source	Note
FDI	FDI capital inflow	Vietnam’s Foreign Investment Agency	In millions USD
RER	Real exchange rate	International Monetary Fund, International Financial Statistics, supplemented by World Bank staff estimates. The details are presented in Appendix, titled “Conversion method for Local Currency Unit into US Dollars”	The DEC alternative conversion factor, which is the underlying annual exchange rate used for the World Bank Atlas method. It is the official exchange rate reported in the IMF’s International Financial Statistics, expressed in local currency units per US dollar
DIS	Physical distance between Vietnam and partners	Centre D’Etudes Prospectiveset D’Information Internationales – CEPII	In km
ECONDIS	Economic distance between Vietnam and partners	Per-capita GDP data was obtained from the World Development Indicators	Taking the natural logarithmic difference between per-capita GDPs of Vietnam and her partner country
GOV	Government indicator	Worldwide Governance Indicators (WGI)	The average of six dimensions of governance including Voice and accountability, Political stability and absence of violence, Government effectiveness, Regulatory quality, Rule of law, Control of corruption
TR	Bilateral trade flow	Vietnam’s General Statistics Office (GSO)	In millions of USD (2005 price)
EX	Exports from Vietnam to partners	Vietnam’s GSO	In millions of USD (2005 price)
IM	Imports to Vietnam from partners	Vietnam’s GSO	In millions of USD (2005 price)
BOR	Dummy variable: 1 if Vietnam and partners share the land border, 0 otherwise		Vietnam shares its borders with China, Laos and Cambodia
AFTA	Dummy variable: 1 if Vietnam and partners join/sign the ASEAN Free Trade Area, 0 otherwise		AFTA was signed on 28 January 1992 in Singapore, originally had Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999
USBTA	Dummy variable: 1 if Vietnam and the USA sign the Bilateral Trade Agreement, 0 otherwise		On 13 July 2000, US and Vietnamese negotiators signed a sweeping bilateral trade agreement (USBTA)
ACFTA	Dummy variable: 1 if Vietnam and partners join/sign the ASEAN–China Free Trade Area, 0 otherwise		Vietnam joined the ASEAN–China Free Trade Area (ACFTA) on 4 November 2002, with China and 9 other ASEAN member states
AKFTA	Dummy variable: 1 if Vietnam and partners join/sign the ASEAN Korea Free Trade Agreement, 0 otherwise		AKFTA was signed in 2005, with parties including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam and Korea
JVEPA	Dummy variable: 1 if Vietnam and Japan sign the Japan–Vietnam Economic Partnership Agreement, 0 otherwise		The VJEPA was signed on 25 December 2008 and came into force on 1 October 2009
AANZFTA	Dummy variable: 1 if Vietnam and partners join the ASEAN–Australia–New Zealand Free Trade Agreement, 0 otherwise		Countries: New Zealand, Australia, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam, Negotiations started in 2005. Agreement in force for all countries in 2012

Table 2. Heteroskedasticity and Serial-correlation test results

	(1)	(2)	(3)	(4)	(5)	(6)
	FDI	EXPORT	FDI	IMPORT	FDI	TRADE
Heteroskedasticity	276.59***	1,718.03***	1,138.99***	2,235.29***	746.77***	1,328.13***
Serial-correlation	3.742*	159.22***	4.768**	44.624***	3.624*	120.441***

Notes: χ² statistics in parentheses (heteroskedasticity), F statistics in parentheses (serial correlation). Heteroskedasticity: Modified Wald test for groupwise heteroskedasticity in fixed-effect regression model. H₀: No heteroskedasticity. Serial correlation: Wooldridge (2002) test for autocorrelation in panel data. H₀: No first-order autocorrelation.

* Denote statistical significance at 5%.

** Denote statistical significance at 1%.

*** Denote statistical significance at 0.1%.

Table 3. Benchmark models: PCSE estimation results

	(1)	(2)	(3)	(4)	(5)	(6)
	FDI	EXPORT	FDI	IMPORT	FDI	TRADE
RER	−0.021	0.032	−0.002	−0.027	−0.022	0.062
	(−0.22)	(0.90)	(−0.37)	(−1.23)	(−0.34)	(1.42)
DISTANCE	−2.124***	−0.824**	−1.150***	−2.020***	−1.425***	−1.911***
	(−6.78)	(−3.27)	(−3.61)	(−8.17)	(−5.52)	(−4.25)
Ln(GOVi X GOVvn)	2.102**	0.171	0.835**	0.087	0.924***	0.812**
	(2.87)	(1.21)	(2.72)	(0.82)	(3.86)	(2.21)
BOR	0.018	0.324	0.141	−0.215	0.128	−0.217
	(0.97)	(1.45)	(1.71)	(−1.56)	(1.02)	(−0.82)
AFTA	0.001	0.914**	0.014	0.527	0.005	0.615**
	(0.01)	(2.78)	(1.23)	(1.83)	(0.03)	(2.71)
USBTA	0.813	1.237**	0.081	0.907	0.402	1.019**
	(1.32)	(2.11)	(1.25)	(1.63)	(1.32)	(2.62)
ACFTA	0.716	1.638**	−0.282	1.291**	0.031	1.268**
	(1.28)	(2.84)	(−0.69)	(3.24)	(0.08)	(2.62)
AKFTA	2.121**	1.197*	2.025*	2.124***	2.250**	2.258***
	(2.81)	(2.01)	(2.08)	(3.23)	(2.90)	(4.82)
JVEPA	1.102*	1.918**	0.228	1.142*	1.321*	1.656*
	(2.02)	(2.71)	(0.86)	(1.98)	(2.02)	(2.16)
AANZFTA	−0.014	0.125	0.192	0.629**	0.622	0.828**
	(−0.02)	(0.69)	(1.35)	(2.82)	(1.33)	(2.56)
ECONDIS	1.005***	1.090***	1.138***	1.705***	1.184**	0.649***
	(3.23)	(5.23)	(4.14)	(7.25)	(2.88)	(6.23)
FDI		0.270*		0.081***		0.109***
		(2.43)		(5.27)		(4.86)
EXPORT	1.126***
	(6.63)
IMPORT			1.135***
			(5.74)
TRADE					0.568***
					(6.21)
CONST	−1.713	6.026***	6.674*	10.12***	−6.528**	8.29***
	(−0.46)	(4.32)	(2.32)	(8.68)	(−2.91)	(5.80)
N	450	450	450	450	450	450

Notes: Importer and exporter fixed effects are included (not reported). t statistics in parentheses.

* Denote statistical significance at 5%.

** Denote statistical significance at 1%.

*** Denote statistical significance at 0.1%.

Table 4. Robustness check: Benchmark models, PCSE (with alternative economic distance proxy)

	(1)	(2)	(3)	(4)	(5)	(6)
	FDI	EXPORT	FDI	IMPORT	FDI	TRADE
RER	−0.283	0.105	0.055	0.035	−0.151	0.120
	(−0.62)	(1.24)	(0.65)	(1.024)	(−1.32)	(1.50)
DISTANCE	−1.629***	−1.052*	−1.025***	−1.062***	−1.104***	−0.344***
	(−5.83)	(−2.01)	(−5.72)	(−4.55)	(−5.21)	(−6.37)
Ln (GOVi X GOVvn)	1.102*	−0.558	0.616	1.413*	1.512*	1.255**
	(2.13)	(−0.84)	(0.82)	(2.08)	(2.05)	(2.80)
BOR	−0.428	0.466	0.942	−0.326	0.656	−0.410
	(−1.02)	(0.82)	(1.08)	(−1.01)	(0.55)	(−0.96)
AFTA	−0.628	1.012	0.273	−0.051	−0.905	0.210
	(−1.22)	(1.42)	(0.86)	(−0.32)	(−1.54)	(0.84)
USBTA	1.820*	1.963***	2.284**	1.932***	2.127**	2.525***
	(2.12)	(6.26)	(2.84)	(3.69)	(2.86)	(3.72)
ACFTA	1.226*	1.392***	0.055	2.516***	0.350	2.593***
	(2.26)	(5.09)	(0.28)	(4.07)	(0.91)	(5.14)
AKFTA	0.902***	0.912***	0.868*	1.825***	2.022*	2.215***
	(3.85)	(4.59)	(2.20)	(3.92)	(2.02)	(6.23)
JVEPA	0.728	1.225*	0.298	1.892*	0.433	1.263*
	(1.22)	(1.28)	(1.51)	(2.39)	(1.06)	(2.29)
AANZFTA	0.282	0.282	1.192*	0.722*	1.144*	1.494*
	(1.28)	(1.86)	(2.12)	(1.92)	(2.05)	(2.15)
ECONDIS	0.128***	0.016***	0.122***	0.009**	0.101***	0.011***
	(4.12)	(4.35)	(3.82)	(3.34)	(4.56)	(4.23)
FDI		0.081***		0.100***		0.02**
		(4.86)		(4.98)		(2.92)
EXPORT	0.868***
	(6.26)
IMPORT			0.574***
			(6.24)
TRADE					0.912***
					(9.29)
CONST	6.424	10.325***	0.103	11.25***	2.630	4.32***
	(1.84)	(5.45)	(0.20)	(6.22)	(0.84)	(5.52)
N	450	450	450	450	450	450

Notes: Importer and exporter fixed effects are included (not reported). t statistics in parentheses.

* Denote statistical significance at 5%.

** Denote statistical significance at 1%.

*** Denote statistical significance at 0.1%.