Trade and Development: Lessons from Vietnam’s Past Trade Agreements

World Development Vol. 37, No. 2, pp. 341–353, 2009

Ó 2008 Elsevier Ltd. All rights reserved.

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www.elsevier.com/locate/worlddev

doi:10.1016/j.worlddev.2008.04.005

Trade and Development: Lessons from Vietnam’s

Past Trade Agreements

PHILIP ABBOTT

Purdue University, IN, USA

JEANET BENTZEN and FINN TARP *

University of Copenhagen, Denmark

Summary. — History, not predictions of CGE models or cross-country growth studies, shows a strong relationship between trade and

development. Vietnam’s experience with bilateral trade agreements, comparing actual outcomes with predictions from existing models,

demonstrates this and the limitations of research methodologies. Forecasts for Vietnam greatly underestimated the impact of past agreements because tariff reform was not the main factor driving adjustments. Addressing market imperfections through institutional reform

was central to bringing output and trade expansion. Key questions for future research are whether policy reform will result in new institutional changes, and how resulting incentives determine the evolution of investment by sector.

Ó 2008 Elsevier Ltd. All rights reserved.

Key words — trade and development, trade liberalization, bilateral trade agreements, WTO accession, Vietnam

faster growth. Also, critiques of CGE and econometric growth

studies speak more to the limitations of these methodologies

than to the underlying relationship between trade and growth

(e.g., Rodrik & Rodriguez, 1999; Stiglitz & Charlton, 2005).

Econometric studies (Andersen & Dalgaard, 2006; Frankel

& Romer, 1999; Rodrik & Rodriguez, 1999) and reviews of

this voluminous literature (Temple, 1999; Santos-Paulino,

2005) on cross-country growth performance report conflicting

results on the role of trade. Effects of trade variables are collinear with (some argue dominated by) macroeconomic variables and other globalization indicators, and tariff reductions

per se are seldom found to matter....