Impacts of oil shocks on Vietnam’s trade balance and recommendations

Abstract

This paper aims at examining impacts of oil shocks on Vietnam’s balance of trade and causal relationship between the balance of trade and relevant macro factors. Bound testing approach and ARDL are applied to data from Quarter I of 1999 to Quarter IV of 2011. The results demonstrate a negative relationship between oil price, exchange rate and trade balance in Vietnam. More specifically, a one-percent increase in the oil prices and exchange rate causes the trade balance to fall by 0.12% and 0.79% respectively in the long run. In the short run, however, international exchange rates and oil pricesare positively corrrelatedwith Vietnam’s trade balance. These findings allow some recommendations and suggestions for policy makers in an effort to reduce negative effects of oil shocks on Vietnam’s trade balance.