An Inter-temporal Approach to Gauge Determinants of Trade Deficits in Vietnam during 1997-2012

This paper will investigate the determinants of Vietnam’s trade deficit from an inter-temporal approach, in which the dynamic of the trade balance is the outcome of forward-looking consumption and investment decisions. The result shows that relative income, NFA, financial depth, exchange rate, FDI and the economy’s openness have significant impacts on the trade deficit during the period of 1997-2012. The paper then recommends changing the growth model and restructuring the economy, supplemented with FDI and exchange rate policies to sustainably solve the trade deficit problem in Vietnam.