The Political Economy of Tariff Formation in Vietnam

Abstract

Using a simultaneous equation model of tariffs and impurts, this paper empirically investigates the determinants of tariff rates applied in Vietnam using two-digit ISIC data over the 2001-2006 period. This paper extends the findings of previous studies in Several ways. First, there has been no study thus far conducted that has attempted to apply the endogenous theory of tariffs to explain tariff formation in developing countries, including Vietnam. Second, imports and trade protection are simultaneously modeled using the two-stage least square estimator. Third, this study employed an up-to-date panel dataset that was recently made available in Vietnam, which allowed us to measure the dynamic interactions among trade flows. industry characteristics, and trade protection. The results of this paper showed that tariffs are frequently high in industries with a small number of firms, large employment size, low import penetration, low industry growth rate, and less capital stock. Therefore, the findings of our study on Vietnam provide further evidence favoring the theory of endogenous protection.