The impact of exchange rate on trade balance: an experiment in the Vietnamese economy

Abstract

In an integrated world, the role of the exchange rate becomes more and more important, as one of the core factors in import and export between Vietnam and the world. Through the exchange rate tool, it can limit or promote Vietnam's trade balance (a major contributor to the overall balance of payments) as well as contribute to the country's foreign exchange reserves. This paper focuses on the relationship between the real exchange rate and the trade balance between Vietnam and China, the US, Japan and Korea. We explore the relationship between exchange rates and trade balances in countries and analyze the effects of exchange rates on the trade balance in both the short run and the long run. According to the research results, Vietnam's trade balance improved when the devaluation of VND occurred in the US and China; the opposite is true for Japan and Korea. The reason for this difference is largely due to the structure of import and export goods between the two countries and the demand for that country's products. To stabilize and develop trade activities, the government also needs to have flexibility in monetary and fiscal policies, helping to stabilize the exchange rate with an appropriate margin. At the same time, improve infrastructure and legal foundation so that domestic enterprises have a favorable environment to develop and expand abroad..