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Journal of Economic Integration 2014 December;29(4) :624-656.
DOI: https://doi.org/10.11130/jei.2014.29.4.624
Transmission of World Prices to the Vietnamese Economy
Philip Abbott
Ce Wu and 
Finn Tarp 
Purdue University, West Lafayette, USA
Indiana Wesleyan University, Marion, USA
UNU World Institute for Development Economics Research (UNU-WIDER), Helsinki, Finland
Corresponding Author: Philip Abbott ,Email: abbottpc@purdue.edu
Copyright ©2014 Journal of Economic Integration
ABSTRACT
International economic integration has been a central policy goal for the Vietnam government since the doi moi reform was initiated in 1986. We explore the Vietnamese increasing integration into the world market and bouts of high inflation. Five price transmission models using three levels of sectoral aggregation, examine the transmission of world price shocks to the Vietnamese domestic market and the impact of inflation on domestic prices from 1999 to 2008. Empirical results find wide sectoral variation, imperfect price transmission, non-neutral inflation pass-through, the dominant effect of inflation on domestic prices, and a low speed of adjustment to the Law of One Price. We conclude that policy analysts need disaggregated sector-level price transmission elasticities for accurate trade policy analysis and that careful attention must be paid to how inflation influences the economy. Moreover, while tariff reforms have typically been focused in many studies to come to grips with policy outcomes, the key to such understanding should be more associated with institutional reforms, market access, and incentives for foreign investment.

JEL Classification
F13: Trade Policy; International Trade Organizations
F14: Empirical Studies of Trade
O24: Trade Policy; Factor Movement Policy; Foreign Exchange Policy
O53: Asia including Middle East
Keywords: Price Transmission | Market Integration | Inflation | Vietnam
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