Do Free Trade Agreements (FTAs) Really Increase Vietnam’s Foreign Trade and Inward Foreign Direct Investment (FDI)?

Free Trade Agreements (FTAs), the first stage of economic integration, can have possible impacts on member countries through foreign direct investment (FDI) and foreign trade. In this study, we attempt to evaluate the impacts of FTAs that Vietnam has engaged successfully recently on inward FDI and foreign trade of the country. To do this we construct three gravity models, employ a panel dataset of country pairs and the Hausman-Taylor (1981) estimation. The estimation results suggest that the opening up of the country’s economy through the means of FTAs and the WTO has led to diverse FDI and foreign trade effects. Some FTAs have created “strong” trade and inward FDI but unevenly across individual agreements.