| To evaluate the appropriateness/suitability of the current exchange rate regime on economic development of Vietnam, we should have scientific and empirical evidence. Thus, the State Bank of Vietnam should determine a "target exchange rate" that favors the economic development and increase the competitiveness of Vietnamese goods in international market. To determine the current exchange rate regime is consistent or not with the competitiveness of Vietnamese goods, we also need scientific and empirical evidence. Basing on the "target exchange rate", the government can solve a number of problems such as determining the competitiveness of goods, stabilizing macroeconomic environment, and gaining the government’s objectives. Recently, the manner in which the State Bank of Vietnam intervenes in the exchange rate policy is still a controversial issue. Some suggest that to improve the competitiveness of Vietnamese goods, the State Bank of Vietnam should devaluate the Vietnam’s Dong (VND). Some advocate Vietnam to apply the floating exchange rate so that market forces (Demand and Supply of foreign currency) will establish the exchange rate; Others recommend that in order to stabilize the macroeconomic environment, Vietnam should stabilize the exchange rate (i.e., apply the fixed exchange rate regime), and control the inflation.Real effective exchange rate (REER) is the weighted average of a country’s currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country’s currency, with each other country within the index1The REER might be a reasonable "target exchange rate" for Vietnam. Accordingly, the State Bank of Vietnam can employ this "target exchange rate" to assess the current exchange rate regime is appropriate or not. And, whether or not the country can obtain proposed economic objectives as aforementioned, especially to ensure the competitiveness of Vietnamese goods in international market. From this approach and within the analysis framework, in this study the author will choose the multilateral real effective exchange rate (REER) as a scientific evidence to discuss the possible relationship between the exchange rate and exports of Vietnam. This is on the argument that the REER is consistent with the primary development of currency market in Vietnam. Moreover, the REER is considered as a very important evidence for the State Bank of Vietnam to adjust the exchange rate policy to ensure a long-term equilibrium exchange rate.In an effort to enhance the originality and significance of the research, the author will examine the impact of the fluctuation of the REER on Vietnam’s exports. To make it logically? the author also outlines a theoretical framework related to exchange rate (see Chapter2), analyzes the exchange rate policy/regime of Vietnam from1989up to now, and points out Vietnam’s exports in relation with the exchange rate regime (see Chapter4).Beside Chapter1-Introduction and Chapter8-Concluding Remarks and Policy Recommendations, this thesis is constructed as followings:Chapter2will give an overview about exchange rate, exchange rate mechanism/regime, and theories about the effects of exchange rate on exports.Chapter3will analyze the exchange rate mechanism/regime of Vietnam-the formation and development since Renovation Policy launching, and review and discuss about the exchange rate mechanism/regime in the world, and then propose some lessons for Vietnam.Chapter4will conduct a survey about the status of Vietnam’s foreign trade (exports and imports) recently, and examine the possible impact of the volatility of the country’s exchange rate mechanism on its exports.Chapter5is going to construct theoretical model reflecting the relationship between the exchange rate and exports. First, the author relies on a number of assumptions concerning exports to determine the basic theoretical model, and then the author continues to develop assumptions. From the perspective of demand-supply, the author persists to develop the baseline model. The notable characteristic of this model in comparison with the theoretical framework is that when given the conditions of the demand function, the author starts from the perspective of the exporters to deploy incrementally to the conditions such as exchange rate risk, the cost of imported inputs, along with other variables. After that, the author builds up a suitable model that is relatively consistent with the situation of Vietnam to evaluate the impact of exchange rate volatility on the country’s exports. Finally, through the theoretical model, the equilibrium quantity of Vietnamese exports will be determined by the following factors:volatility of the real effective exchange rate; exchange rate risk; average prices of20Vietnam’s major trading partners; consumer demand for Vietnamese exports; domestic production cost of unit; and cost of inputs imported.Obviously, one of the main purposes of this thesis is to assess the impact of the volatility of the real effective exchange rate on Vietnam’s exports using theoretical model. In other words, it evaluates the real effective elastic. The results show that an increase of the real effective exchange rate (the devaluation of domestic currency) will promote Vietnam’s exports. The impact of the exchange rate risk variable on exports is not clear (it may be a positive effect, negative effect, or no effect). Specific conclusions will be based on a comparison between the foreign exchange earnings and imported inputs cost of exporters. Therefore, the impact of the fluctuations of the real effective exchange rate on exports depends on the total net effect of fluctuations of the real effective exchange rate (appreciation or underestimate of the domestic currency) and exchange rate risk affecting exports.Chapter6will present the process to adjust the theoretical model and estimation techniques. In this chapter, the author examines the effect of the volatility of the real effective exchange rate on exports from a broader perspective. The exchange rate risk is estimated basing on GARCH (1,1)-Generalized Autoregressive Conditional Heteroskedasticity model. And, the author employs the ARDL-Autoregressive Distributed Lag model to create full-scale experiments. Then, the author details the roadmap for implementing the empirical estimation, from Unit Root Test to Cointegration, and checks the stability of the time series by using APF unit testing. This Chapter emphasizes on theoretical model, estimation techniques, and the logic of estimated steps. Especially, it indicates the mutant structure of the time series/string data and examines the trend stationary process for the time series that have structure break. Finally, base on the tested results on the trend stationary process, the author employs the ordinary least squares (OLS)/or cointegration estimation technique.Chapter7will base on theoretical model established/adjusted in Chapter6, and figures about exports of Vietnam as well as the real effective exchange rate between VND and currencies of20trade partners and other relevant data/variables in the model for the estimation. This Chapter also specifies data sources and data processing methods, presents the results of Unit Root Test-ADF for original time series data, and structural mutation testing. It uses the GARCH (1,1) model to calculate the risk of fluctuations of exchange rates, and includes in the ADRL model dummies reflecting mutant structure (including structural changes and changing trends). The estimation results of the ARDL regression model show that the real effective exchange rate variable has total accumulative elasticity of about0.0038267, negative impact, but relatively small. The total accumulative elasticity of exchange rate risk variable is-14.236suggesting that the exchange rate risk impedes exports. This is consistent with the results of previous studies. It implies that Vietnam’s exporters will face with exchange rate risk due to the fluctuations of exchange rate. Over time, the exporters will feel their profits reduced so they may cut down/reduce exports or assure for exchange rate risk in reality. The estimation results of these two variables are completely opposite to the expected theoretical models and statistically significant at the level of5%.In addition, the estimated results also show that Vietnam’s exports increase together with the development of the world economy (through the index of the world industrial production). The cumulative elastic is0.061873indicating that, holding other conditions constant, if the index of the world industrial production increases1%, it will stimulate Vietnam’s exports about0.061873%. However, the impact is quite small. This is because the majority of Vietnam’s exports are agricultural products, minerals, essential products with low elasticity. The estimated results of the average CPI of20trading partners (representing for the foreign price level) also have a positive impact on Vietnam’s exports with the total accumulative elastic of about3.089759. This indicates that the foreign prices rise will increase Vietnam’s exports. The changes of the cost of imported inputs have a positive impact on exports of Vietnam with total cumulative elasticity of about0.106448, showing that the increase in imports of1%would make exports rise0.106448%. It means that besides exporting mostly agricultural products, minerals, essential products for daily life, Vietnam also exports merchandises with high ratio of imported inputs from the world markets. Vietnam is a developing country so the demand for importation of machinery and technology to serve the development of domestic production is inevitable. The estimation result of the cost of domestic inputs affecting exports is negative with total cumulative elasticity is-0.131134. The result is consistent with the expected theoretical model. All estimated results are significant at the level of less than10%. From those estimated results above, Vietnam should apply managerial floating exchange rate, and the State Bank of Vietnam should use the REER as the "target exchange rate" from which it can adjust the exchange rate towards purchasing power parity versus a basket of foreign currencies. This is to ensure the competitiveness of Vietnamese goods in international market.
|
PDF Full Text Request