Do Free Trade Agreements Affect International Trade Volume? An Empirical Analysis for Vietnam

Free Trade Agreements (FTAs) are among the driving forces in motivating countries to trade together and become wealthier. However, with the changing political dynamics in the United States (U.S) and the United Kingdom (UK), free trade agreements and their positive roles in trade are increasingly being questioned by many countries, especially their impacts on developing countries, and this issue is the primary motivation of this research. Using the Hausman–Taylor estimation technique for the balanced panel data covering the period 2005–2015 for Vietnam, we apply a gravity model in the analysis of bilateral trade to analyze Vietnam’s trade with its trading partners. We find that the trade between Vietnam and partner countries will be lower because of the FTAs, which is in contrast with some previous literature. These results also show that applying the gravity model could examine the impacts of income and distance from partner countries in the Vietnam situation.