Modeling Energy Security–exchange Rate Linkage: Evidence of GMM Approach

Abstract

This study is an empirical attempt to revisit energy insecurity in Vietnam by focusing on the role of the official exchange rate. To this end, we gathered data of the related variables based on the 4A’s theory for energy security over the period 1985–2017, and conducted estimation using GMM estimator. The major results proved that economic growth has a positive impact on official exchange rate. CO2 emissions have negative coefficient which means negative relationship between this variable and the Vietnam’s official exchange rate, while inflation rate has a negative sign suggesting that by increase in price level of commodities in Vietnam’s economy, the domestic product will be more expensive than that before which accelerates commodities import flows that leads to depreciation of Vietnam’s national currency. In addition, we found out that energy intensity has a negative relationship with official exchange rate in Vietnam. Moreover, the results revealed that a 1% increase in gas import has a negative linkage with the Vietnam’s official exchange rate. According to the results, we recommend that Vietnam needs to diversify its gas imports, strengthen local energy production, increasing energy efficiency to have a stronger national currency against U.S. dollar which ensures energy security in this country.

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