Transmission of World Prices to the Vietnamese Economy |
Philip Abbott, Ce Wu, 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 The Journal of Economic Integration |
ABSTRACT |
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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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