INTRODUCTION
Problem statement
Since 1984, global seafood exports have seen significant growth, reaching USD 102.5 billion in 2010, according to FAO (2012) The European Union, Japan, and the United States remain the largest markets for seafood Notably, developing countries, including Vietnam, China, and various African nations, contribute to 49 percent of the total export value (FAO, 2012).
Vietnam's seafood export has significantly contributed to the country's GDP, accounting for approximately 4-5% and ranking among the top four export products by value In 2014, the export value reached USD 7.84 million, marking a 16.5% increase from 2013, as reported by the Vietnam Association of Seafood Exporters and Processors (VASEP) Despite this success, challenges related to food safety persist, including the widespread sale of illegal food additives, antibiotic residues, and a lack of understanding of sanitary and phytosanitary (SPS) standards due to insufficient collaboration between government agencies and private firms Additionally, current SPS legislation does not align with international standards However, awareness of seafood quality and safety has greatly improved over the past decade, with many countries implementing food safety policies and regulatory bodies to ensure compliance for imported and exported products.
Vietnam faces significant challenges in the global seafood market due to stringent food safety standards, including the SPS Agreement and regulations from the EU, USA, and Japan To comply with the EU's zero tolerance for seafood residues, Vietnam must implement Good Agricultural Practices (GAP), use authorized antibiotics, and ensure analytical competence The rising demands for sanitary and phytosanitary standards, particularly with Vietnam's impending participation in the Trans-Pacific Partnership (TPP), necessitate enhanced food safety measures As TPP promotes science-based regulations aligned with U.S standards, Vietnam must improve its supply chain management and adopt best practices to maintain competitiveness This study examines the impact of food safety regulations on Vietnam's seafood exports from 1997 to 2012, focusing on the effects of these regulations from key markets like the USA, EU, and Japan.
Significance of study
This paper provides valuable insights for the Vietnamese Government to identify key factors significantly impacting seafood exports By leveraging these findings, policymakers can refine strategies to boost future export activities Notably, exporter companies will benefit greatly from this research, as it enables them to stay informed about changes in food safety regulations and other critical determinants affecting their operations.
Research objective
This paper aims to investigate the effect of food safety regulations on Vietnam seafood export with contribution of other aspects including distance, economic size and exchange rate.
Research question
How do food safety regulations affect Vietnam seafood export?
Scope of study
Vietnam exports seafood to over 60 countries globally, with a particular focus on the United States, Japan, and the EU-15 in this study due to data constraints Although the sample size is limited, these markets are significant as they represent Vietnam's largest seafood export destinations The analysis is based on 237 observations of Vietnam's seafood exports from 1997 to 2012.
Structure of thesis
This thesis is divided into six chapters with structure as below:
This article explores the impact of food safety regulations on seafood exports, beginning with an overview of relevant laws imposed by importing countries and a review of Vietnam's seafood export situation It then delves into the literature on the gravity model, covering its evolution from traditional to theoretical frameworks, incorporating factors such as product origin, trade dynamics, monopolistic competition, factor endowment, and technology The relevance of the gravity model to this study is examined, alongside five hypotheses and detailed testing methods The empirical results presented highlight the influence of food safety regulations, economic size, population, exchange rates, and distance on trade potential Finally, the conclusion summarizes key findings, offers policy recommendations, acknowledges the limitations of the thesis, and suggests avenues for future research.
FOOD SAFETY AND VIETNAM SEAFOOD EXPORT
Food safety and policy context
In recent decades, food safety has become a significant concern for both consumers and producers, resulting in the implementation of new regulations Consumers define food safety as the absence of harmful bacteria and additives in their food products.
In 2005, it was defined that food should be free from pesticide residues, growth hormones, antibiotics, and artificial ingredients This definition could negatively impact the food supply chain, leading producers and marketers to confront significant challenges in ensuring safe food production and rebuilding consumer trust.
Food safety hazards encompass biological pathogens like bacteria, viruses, fungi, and E coli, as well as chemical substances including pesticides, food additives, antibiotics, heavy metals, and cleaning agents Additionally, foreign objects such as wood, glass, dirt, dust, and bones can also pose risks to food safety.
2.1.2 Hazard Analysis & Critical Control Points (HACCP)
Because about 15% of an estimate 76 million case of foodborne illness occurring every year are related to seafood products (Anders & Caswell, 2006), in
In 1997, the United States implemented the Hazard Analysis Critical Control Point (HACCP) system to effectively manage biological, chemical, and physical hazards in food, starting from the production phase to the end consumer This innovative approach marks a significant advancement in the quality control of imported seafood, distinguishing itself from earlier methods like Quality Circles introduced in the 1970s.
Effective seafood quality management involves the collective responsibility of all stakeholders, including farmers, fishers, food processors, transport operators, distributors, importers, and government agencies, as outlined by TQM and ISO 9000 standards established in the 1980s Compliance with HACCP requires processors to implement a comprehensive quality management system that adheres to five key principles: risk analysis and management, traceability, harmonization of safety and quality standards, equivalence in food safety systems, and prevention of risks at the source In the United States, imported seafood is regulated under Federal Regulation 21, which mandates adherence to an approved list of antibiotics and prohibits the presence of all but six specific pathogens, ensuring the safety and quality of food products.
European countries enforce stringent food safety standards and regulations to ensure the proper trade of both domestic and imported goods, particularly in seafood Notably, chloramphenicol and nitrofuran antibiotics are prohibited in imported seafood, with no maximum residue limits (MRL) or acceptable daily intake (ADI) allowed The minimum required performance limit (MRPL) defines a specified minimum concentration of detectable residues In 2002, the Commission Decision 2003/181/EC established MRPLs for substances in food of animal origin, setting the chloramphenicol limit at 0.3 micrograms/kg and one nitrofuran metabolite at 13 micrograms/kg for poultry and aquaculture products.
Under EU Regulation 178/2008 and Regulation 852/2004, all imported goods must undergo testing for antibiotics and chemical residues to ensure food safety for consumers The regulations prohibit the use of ten specific antibiotics while imposing limitations on an additional ten, in accordance with EU Food Law (Le & Pham, 2010).
In response to rising foodborne illness cases linked to seafood, the Japanese Government has prioritized consumer health by implementing stringent regulations In 2003, the Law on Food Sanitation and Safety, along with the Law on Disease Control and Trade Law, was enacted to ensure that only safe food products are imported A commission of scientific experts was established to assess toxicological residues in food By 2006, Japan introduced new regulations on antibiotic use in aquaculture and processing, banning fifteen substances and regulating sixty-one others with set maximum residue levels (Le & Pham, 2010).
Vietnam is rich in natural resources, including the Red River Delta, Mekong Delta, and a 1,650 km coastline, positioning it for significant growth in the seafood industry The Fisheries Development Strategy, established by Prime Minister Nguyen Tan Dung in 2010, aims for the seafood sector to contribute 30-35% of the agro-forestry-fisheries GDP by 2020, with an annual growth rate of 8-10% The total fisheries output is projected to reach 6.5-7 million tons, with aquaculture comprising 70-75% of this total This industry is expected to generate over 5 million jobs, tripling current income levels, while 40% of the workforce will receive training Coastal communities will be developed with a focus on cultural identity, targeting key areas such as fishing resource protection, aquaculture, seafood processing and trading, as well as shipbuilding and fisheries logistics.
According to Decision No 332, the seafood industry is crucial to Vietnam's economy, with aquaculture production steadily increasing over the years, as reported by FAO (2012) Despite this growth, seafood exports account for only 15% of the total production volume The sector is a significant source of employment, providing approximately 5 million jobs and generating income for around 8 million individuals in the fisheries sector.
Figure 2.1: Total Vietnam Aquaculture Export (1999-2011)
Recently there are 534 firms having been licensed to export seafood (VASEP,
As of 2012, the freezing industry comprises around 400 companies with a collective daily capacity of 7,500 tons The majority of these companies are state-owned or joint-stock entities, while a few private firms, such as Binh An and Hung Ca, have emerged in recent years.
Vietnam exports seafood to 105 global markets, including major regions such as the US, EU, Japan, China, Korea, and ASEAN The US, EU, and Japan are the top three markets, collectively contributing to 70% of the total value of Vietnam's fisheries exports.
Between 2001 and 2003, seafood exports to the U.S reached their highest levels following the signing of a bilateral agreement However, subsequent declines in export volumes were attributed to a dumping dispute Additionally, exports to the EU and Japan have experienced fluctuations due to stringent sanitary and safety standards.
2.3 Evidence of food safety standards (SPS Agreement and technical barrier) impact on Vietnam exports
Vietnam's aquatic product exports face significant challenges due to the SPS Agreement and various technical trade barriers imposed by importing countries, particularly the EU, which is known for its stringent food safety requirements Exporters are struggling to comply with these regulations, necessitating costly adjustments such as reconfiguring production lines and investing in research and development The EU mandates rigorous testing for antibiotic and chemical residues, requiring that all exported foods be free from ten specified antibiotics to protect public health and the environment Between 2001 and 2003, Vietnamese exporters faced serious setbacks, with 76 shipments destroyed due to violations of antibiotic residue regulations, resulting in a loss of USD 15 million (Le & Pham, 2010).
Table 2.1: Violations of seafood hygiene standards by Vietnamese Exports, 2002-2007
Number of cases by year
Under FDA regulations, all shipments of Vietnamese aquatic products must undergo testing for antibiotic residues, similar to the requirements in the EU However, due to repeated violations of these standards, Alabama has imposed a ban on the import and consumption of Vietnamese fish.
Louisiana and Mississippi Vietnamese exporters bore a loss of USD 300,000 in 2005 (Duong, 2005)
Evidence of food safety standards (sps agreement and technical barrier) impact on vietnam exports
Vietnam's aquatic product exports face significant challenges due to the SPS Agreement and various technical trade barriers imposed by importing countries Exporters struggle to comply with stringent requirements, including reconfiguring production lines and investing in research and development, while also keeping pace with frequent changes in import regulations Among the top global markets, the European Union (EU) is particularly demanding, requiring all food exports to undergo rigorous testing for antibiotic and chemical residues to ensure safety From 2001 to 2003, Vietnam faced issues with antibiotic contamination, resulting in the destruction of 76 shipments and a loss of USD 15 million, highlighting the critical need for compliance with EU standards.
Table 2.1: Violations of seafood hygiene standards by Vietnamese Exports, 2002-2007
Number of cases by year
Under FDA regulations, all aquatic product shipments from Vietnam must undergo testing for antibiotic residues, similar to the requirements in the EU However, due to repeated violations of these standards, Alabama has imposed a ban on the import and consumption of Vietnamese fish.
Louisiana and Mississippi Vietnamese exporters bore a loss of USD 300,000 in 2005 (Duong, 2005)
Vietnamese exporters face a serious warning in the Japanese market regarding antibiotic residue regulations, with potential losses reaching USD 1 million in export revenue if violations persist, as highlighted by Le & Pham (2010).
Table 2.1 highlights the number of violation cases in Vietnam's primary market, revealing that the U.S., EU-15, and Japan impose stringent regulations on antibiotic and chemical residues in imported food Notably, the EU-15 represents the most challenging market for Vietnamese exporters due to its rigorous standards.
Vietnam is currently negotiating its entry into the Trans-Pacific Partnership (TPP), which promises to significantly impact its economy by expanding export markets, increasing foreign direct investment (FDI), and easing import restrictions Key export commodities such as garments, footwear, seafood, and agricultural products stand to benefit from substantial tax reductions However, Vietnam must navigate challenges such as heightened competition and stringent Sanitary and Phytosanitary (SPS) standards, particularly outlined in Chapter 7 of the TPP, which aligns with U.S food safety regulations to ensure fair market conditions Additionally, the 2015 free trade agreements with Europe present a lucrative opportunity, given the bloc's 501 million consumers and a GDP of USD 17 trillion, despite Vietnam's current export share being only 0.75% of total imports To capitalize on these opportunities, Vietnam must address various barriers, including compliance with SPS requirements for seafood, textile origin verification, and adherence to the Forest Enforcement Law for wooden products Strengthening supply chain management, enhancing food safety and quality assurance systems, and adopting best practices from other countries are essential for Vietnam to meet international standards and boost seafood exports.
REVIEW
Different origin of a product
In the 1970s, scientists criticized the classic gravity model for its lack of economic theory Anderson (1979) addressed this issue by introducing a theoretical foundation based on the Armington assumption, which differentiates products not only by type but also by their origin This model incorporates various goods, the number of tradable items, and distance to analyze trade flows between countries Consequently, the gravity model shifted from reflecting absolute bilateral trade to offering a comparative analysis of trade dynamics, with trade explained through the concept of economic distance.
Trade and monopolistic competition
Helpman and Krugman (1985) examined the dynamics of increasing returns to scale and monopolistic competition, focusing on intra-industry trade Their cross-country analysis revealed a negative correlation between the share of bilateral intra-industry trade and the dispersion of per capita income This indicates that countries with similar factor compositions engage in more intra-industry trade than those with differing compositions Their findings support Lindner's (1961) hypothesis that countries with similar factors are likely to concentrate in the same industries.
Bergstrand's (1989) study connects the gravity model to factor endowments and constant elasticity of substitution, aligning with Lindner’s assumption It suggests that an exporter’s income is influenced by the capital-labor ratio of each country, while the income of importing countries correlates with consumer expenditures that reflect changing taste preferences, echoing the Helpman and Krugman model Ultimately, Bergstrand concluded that firms produce differentiated products under conditions of increasing returns to scale.
Trade and differing factor endowments
The Heckscher-Ohlin model explains international trade as a result of differing factor endowments, such as labor and capital, between two countries Initially validated by Deardorff in 1982, the model faced challenges in 1998 when he proposed a gravity equation that accounts for both frictionless trade and trade impediments This gravity equation considers not only geographical distance but also prices, highlighting that trade is influenced by the elasticity of substitution and transportation costs Consequently, greater elasticity of substitution leads to increased trade among geographically closer nations, while reduced transportation costs can enhance trade between more distant countries, diminishing the proximity advantage of nearby trading partners.
Trade and differences in production technologies
Eaton and Kortum (2002) introduced a Ricardian model that emphasizes differences in production technology, focusing on absolute advantages related to technological states and comparative advantages stemming from heterogeneous technologies and geographical barriers In their framework, labor is considered immobile internationally, leading consumers to seek the lowest-priced goods globally while maximizing a constant elasticity of substitution function Consequently, prices in this model are determined by comparative advantages, production costs, and transportation expenses.
The theoretical gravity model is based on various assumptions rather than a single theory Anderson (1979) attributed trade differences to economic distance, while Deardorff (1998) and Eaton and Kortum (2002) focused on price levels influenced by CES preferences More recently, Anderson and van Wincoop (2003) have expanded the study of the gravity model by incorporating multilateral resistance terms, driven by the complexities of border effects.
Empirical literature
The gravity model is widely utilized for analyzing trade, leading to numerous empirical studies that assess the impact of food safety standards A notable study by Otsuki, Wilson, and Sewadeh (2001) examined the relationship between agricultural exports and EU standards, utilizing data from 15 EU countries and 31 importing nations.
1989 to 1998 and applying gravity model with fixed effects, they found thatagricultural export was negatively affected by EU standard Disdier, Fontagné, & Mimouni
A study conducted in 2008 utilized cross-sectional data from 2004 to analyze the impact of sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT) on agricultural trade, revealing that these standards negatively affected commodity trading, particularly for developing countries Similarly, Nguyen and Wilson (2009) investigated the influence of food safety regulations on seafood trade, employing a gravity model with fixed effects and data from 75 exporting and 17 importing countries between 1992 and 2005 Their findings indicated that food safety regulations in the US, EU, and Japan had adverse effects on global seafood trade flows, with varying impacts on different products and changes over time.
A study by Anders and Caswell (2009) revealed that mandatory HACCP regulations led to a 0.05% decline in seafood imports among the top 33 countries, highlighting how food safety standards can impede international trade The impact of HACCP varied significantly between developed and developing nations, with developed countries experiencing less disruption Interestingly, the analysis indicated that large seafood exporters benefited from HACCP, while smaller exporters faced challenges, suggesting that food safety regulations can serve as both obstacles and opportunities Additionally, De Frahan and Vancauteren (2006) found that stricter EU food safety harmonization positively influenced intra-EU trade from 1990 to 2001 Unlike most studies that focus on pairs of exporting and importing countries, this paper will examine Vietnam as the sole exporter, with varying importing countries, potentially leading to different regression outcomes.
Several studies have examined the impact of food safety standards on food exports, with Mangelsdorf et al (2012) finding that these standards positively influence export performance by signaling to customers that products meet specific quality criteria This research uniquely considered both mandatory and voluntary standards, setting it apart from other studies Instead of employing the gravity model, the researchers utilized the Heckman two-step and threshold Tobit methods to assess the effects Notably, their findings indicated that food safety standards significantly enhance export performance.
Inspired by these empirical studies, this paper will employ gravity model to study the effect of food safety regulations on Vietnam seafood export.
Table 3.1: Summary of Empirical Studies Empirical
Gravity model with fixed effects, survey data for 15
EU countries and 31 exporting countries from
1989 to 1998 Gravity model, data of
183 exporting coun- tries and 690 products in 2004
Gravity model with random effects, data of thirty three importing countries from 1990 to 2004
Gravity model with fixed effects, data of 75 exporting countries and
Effect of implementation of the new aflatoxin standard was negative on African agricultural export.
SPS and TBT measures had negative effects on agricultural trade.
- HACCP had a negative and significant impact on import products.
- Effects of HACCP varied in different countries and technical barriers were not only barriers but also catalysts.
Different seafood regulations had different effects on seafood products.
METHODOLOGY AND DATA
Data collection
The dependent variable in this study is the export value of seafood from Vietnam, covering the period from 1997 to 2012 The data indicates that Japan has consistently been the largest market for Vietnamese seafood exports, followed by the USA, while the EU 15 represents the smallest market This raises the question of why Vietnam's trade with the EU 15 is comparatively lower—whether due to food safety regulations, geographical distance, economic size barriers, or other factors The study aims to explore the regression results to provide insights into this issue.
Figure 4.1: Average Vietnam seafood export volume (1997-2002)
In this study, the output of seafood in exporting countries (OPT) serves as a key variable, reflecting the supply-side effects on seafood availability Data on aquaculture production is sourced from the FAO STAT Database, and a positive correlation is anticipated However, some experts suggest that current-year output may be influenced by seasonal factors, leading to potential endogeneity To mitigate this issue, the analysis incorporates a one-year lag in output data.
Figure 4.2: Vietnam Seafood output from 1998-2012
The chart above is the volume of Vietnam seafood export and its output from
From 1998 to 2012, our production volume experienced significant growth, but seafood exports did not rise proportionately This discrepancy can be attributed to factors such as market demand, economic scale, and the impact of food safety regulations Notably, in years like 2004 and 2009, when foreign partners implemented new regulations, we saw a decline in export volumes.
Gross Domestic Product (GDP) of the importing country plays a crucial role in determining seafood demand, as it reflects the market value of all goods and services produced within a specific timeframe (Parkin, 2010) This economic indicator captures the purchasing power and demand size for seafood in the importing nation Data sourced from the International Monetary Fund suggests that an increase in GDP is likely to positively influence seafood exports.
Figure 4.3: Relationship between Vietnam seafood export and importing countries’ GDP
The chart illustrates the correlation between Vietnam's GDP and its seafood exports, revealing that the export volume remains relatively low compared to GDP This indicates significant potential for growth in Vietnam's seafood industry Below, each country will be discussed in detail.
JPN_GDP(USD) VN_JPN_EXP
Figure 4.4: Relationship between Vietnam seafood export and Japan’s GDP
The chart illustrates a correlation between Japan's GDP and its purchasing power, indicating that as Japan's GDP rises, trade with Vietnam also increases This trend highlights the growing demand for Vietnamese seafood in the Japanese market.
USA_GDP VN_USA_EXP
Figure 4.5: Relationship between Vietnam seafood export and the USA’s GDP
In the USA, in the 1990s, Vietnam seafood did not attract USA customers very much Especially in 1998, the trade volume declined However, after policy changed,
Vietnam firms have upgraded their production chain to meet their customers’ requirements The export volume has increased gradually.
EU_GDP VN_EU_EXP Unit: USD
Figure 4.6: Relationship between Vietnam seafood export and EU15’s GDP
EU proves to be a very challengingmarket Despite their enormous GDP, they did not purchase much seafood from Vietnam in the 1990s and early 2000s After
2002, the year of policy change, the volume of seafood export has increased gradually.
It can be explained by improvement in product quality.
The resistance factor in this study is distance between exporting and importing country, denoted as DIST, the data is from CEPII The expected effect is negative on seafood export.
Figure 4.7: Relationship between Vietnam seafood export and distance
The chart indicates that Vietnam primarily engages in trade with Japan, its closest trading partner In contrast, countries situated in the middle range exhibit lower trade volumes with Vietnam This disparity can be attributed to various factors, including consumer preferences and business culture.
Population plays a crucial role in this study as it indicates market size; a larger population leads to increased food demand Therefore, the anticipated relationship between population and food demand is positive Data for this analysis is sourced from the World Bank's database.
Bilateral Exchange rate is added to this model to calculate the trade variation between trading partners (Bergstrand, 1985) Exchange rate in this paper is calculated by below formula: e xp o rt _ U S D
EXijt=Annual average of the national currency of Vietnam per US Dollar/ Annual average of the national currency of country j per US Dollar (in year t)
Using the established formula, we can determine how much Vietnamese Dong can purchase one unit of a trading partner's currency An increase in the exchange rate indicates a devaluation of the Vietnamese Dong, leading to cheaper export prices and more expensive import prices Given that Vietnam remains a net importing country, these fluctuations significantly impact its economy.
1997 until now, thehigh exchange rate is expect to have positive effect on Vietnam seafood export Buyer will find Vietnam seafood affordable and tend to trade more with Vietnam.
Table 4.1: Descriptive statistics of variable in the model
Variable Observation Mean Std.Dev Min Max
Methodology
In this paper, we apply gravity model developed by (Krugman & Obstfed,
In the original model, GDP and distances serve as independent variables, while additional factors such as food safety, population, and exchange rates are incorporated to analyze the trade relationships between Vietnam and its partners The gravity model is expressed mathematically as follows: ln EXPij = α0 + α1 ln Xi + α2 ln Xj + α3 ln distij + α4 ln Nit + α5 ln Xjt + α6 ln EXijt.
This study analyzes the export value of seafood from Vietnam to various countries, denoted as EXPij Key variables include Vietnam's seafood output (Xi), the GDP of the importing country (Xj), and the distance between the two nations (distij) Additionally, factors influencing bilateral trade encompass Vietnam's population (Nit), the population of the partner country (Nit), the exchange rate between Vietnam and its trading partners (EXijt), and food safety regulations, represented by FOODSAFETY.
In panel data analysis, three primary models are utilized: the pooled model, the fixed effects model, and the random effects model The choice of which model to use is determined by the characteristics of the data and the outcomes of specific tests.
The fixed effect model is ideal for testing the impact of time-varying variables, as it controls for individual characteristics that may influence predictor variables This model assumes that unique, time-invariant characteristics of individuals should not correlate with those of others However, if the error term is correlated, the fixed effects model becomes inappropriate (Gujarati, 2003) A significant limitation of this model is its ineffectiveness in scenarios with minimal data variation or slowly changing variables, such as distance or Vietnam's population In such cases, opting for a random effects model may be more suitable.
This study employs both fixed and random effects models to analyze the impact of individual variables To determine the most suitable model for interpreting the results, the Hausman test (xttest0) is utilized.
Theoretical gravity model with importer fixed effects
X it X jt = α0 + αjt + α1 ln Xi+ α2 ln Xj + + α3 ln distij + α4 ln Nit+ α5 ln Xjt+ α6 ln
EXijt + α7FOODSAFETY+ ε k it (4.2) αjt is the importer fixed effect.
Theoretical model with time and importer fixed effects
The equation X it X jt = α0 + αjt + αt + α1 ln Xi + α2 ln Xj + α3 ln distij + α4 ln Nit + α5 ln Xjt + α6 ln EXijt + α7 FOODSAFETY + ε k it (4.3) incorporates time fixed effects, represented by αt This analysis focuses on trade panels between Vietnam and various countries from 1997 to 2012 The test results indicate that the dummy variables for all years are significantly different from zero, confirming the necessity of including time fixed effects in the model.
The theoretical model with random effects
X it X jt = α0 + α1 ln Xi+ α2 ln Xj + + α3 ln distij + α4 ln Nit+ α5 ln Xjt+ α6 ln EXijt
+ α7FOODSAFETY+ ε k it (4.4) to test the effect of distance on seafood export due to shortcoming of fixed effect model which is misidentifying the effect of time invariant variables like distance.
Export is value of seafood export from Vietnam to importing countries at 2000 constant US dollars Many researchers has studied the factors determining exports of Vietnam For example, (B X Nguyen, 2010).
Vietnam's seafood production serves as a crucial variable in this study, reflecting the country's output in this sector This metric has previously been utilized by Chen, Yang, and Findlay (2008) to analyze the impact of food safety standards on agricultural exports.
Population: population is defined by the market size of partner countries The bigger the market size is, the higher demand of seafood becomes.
The exchange rate plays a crucial role in influencing trade dynamics, particularly in the context of imports and exports Research by K.-M Chen, Rau, & Chiu (2011) and Aljebrin (2012) indicates that a devaluation of local currency can enhance export performance by making commodities more competitively priced Conversely, Saqib & Sana (2012) identified a negative impact of exchange rates on Pakistan's exports However, in Vietnam, studies have demonstrated a positive correlation between exchange rates and export growth (Pham).
& Nguyen, 2013) However, the fact is, there still exists many papers showing that exchange rate and trade has no causality relationship such as paper of Ryuzo (2003), Alam(2010) and Pham & Nguyen(2013).
Food safety regulations play a crucial role in seafood trade between importing and exporting countries, serving as a dummy variable in this model When no food safety regulations are imposed, this variable is assigned a value of 0, while it equals 1 when such regulations are in place It is anticipated that the presence of food safety regulations will negatively impact trade, a concept that has been extensively utilized by Nguyen in related research.
& Wilson (2009) on the paper “A theoretically-consistent gravity model approach on seafood exports to the EU, Japan and USA.”
The GDP of importing countries plays a crucial role in the gravity model of trade, as it reflects the purchasing power, market size, and demand for seafood products This variable has been highlighted in studies by Timbergen (1962) and Anderson & van Wincoop (2003), both of which demonstrate a positive relationship between GDP and trade Numerous empirical studies, including Hatab and Romstad's analysis of the determinants of Egyptian agricultural exports, further corroborate the significant impact of GDP on trade dynamics.
Research on trade flows has produced varied insights regarding the impact of importing countries' GDP on Vietnam's exports Notably, Bac (2010) established a positive correlation, indicating that higher GDP in importing nations leads to increased export volumes from Vietnam Conversely, a study by Trang, Tam, & Nam (2011) found no significant effect of importing countries' GDP on Vietnam's export performance This discrepancy highlights the complexity of trade dynamics and the need for further investigation into the factors influencing Vietnam's export activities.
Distance is a crucial factor in international trade, defined as the geographical separation between the capitals of trading partners According to Tinbergen (1962), distance can serve as an indicator of information regarding export markets It encompasses various elements that affect trade, including transportation costs, transit times, transaction costs, and cultural differences (Keith, 2003) Research on Namibian trade by Eita (2008) revealed that greater distances correlate with reduced exports, a finding echoed by Weldemariam (2009), who demonstrated that exports between Ethiopia and Kenya decline as distance increases.
(2010) of Bangladesh’s export, distance’s coefficient was negative, but insignificant For the case of Vietnam, Nguyen(2010)concluded that Vietnam’s trade and distance has a negative relationship during period of 1991 and 2006
Table 4.2: Definition and measurements of all variables in this study
Variable Definition Measurement Unit Expected
Export Value of seafood Annual net sales USD Dollar export Output Output of seafood Annual captured Tons positive production volume
GDP Gross Domestic Value of goods and Billions positive
Product services produced USD Dollar within a given year
Distance Geographical Distance km Negative distance between two capital of trading partners
Dummy variable to identify food safety regulation
Existence of Food Safety Law and Regulation
Vietnam Vietnam market Annual population People Negative Population size
Foreign Trading partner’s Annual Population People Positive Population market size
Exchange Trade Variation Exchange rate of Number Positive Rate between trading partners
Vietnam/Exchange rate of trading partner 4.2.4 Estimation method
The gravity model in this thesis will be obtained using panel fixed and random effects estimation method.
EMPIRICAL RESULTS
Results of Breusch-Pagan Lagrange Multiplier test, the Huasman Test, and
Breusch and Pagan Lagrangian multiplier test for random effects
Lnexport[id,t ]= Xb +u[id] +e[id,t]
The statistical analysis yielded a Chibar2 value of 0.47 with a probability of less than 0.0001, indicating strong evidence against the null hypothesis that variance across entities is zero Consequently, we reject the null hypothesis, suggesting that the random effects model is more suitable for this study compared to the pooled model.
To determine the necessity of a fixed effects model in this study, the Hausman test must be conducted, considering that the original model incorporates various time-variant variables, including food safety regulations, exchange rates, and population.
Null Hypothesis: difference in coefficients not systematic
Note: * is statistically significant at 1% level
Based on regression results, the fixed effects models are needed to be used in this study.
Gravity model’s estimation result
The result of theoretical model with fixed and random effects is displayed in table 5.1 Model 2 and 3 show the estimate of gravity model with fixed effects Model
4 presents the coefficients of explainable variables with random effects.
Table 5.1: Estimation results of gravity model (aggregate seafood)
Theoretical Gravity Model with importer fixed effect (Eq.4.2) ln X i 633
Theoretical Gravity Model with time and importer fixed effect (Eq.4.3)
Theoretical Gravity Model with random effect (Eq.4.4)
Table 5.1 indicates that seafood exports are significantly affected by food safety and exchange rate variables under fixed effects, while the impact of importing countries' GDP is statistically insignificant Further details on the gravity regression can be found in Appendix 2.
The policy variable is statistically significant but lacks a corrective sign, aligning with previous research Otsuki, Wilson, and Sewadeh (2001) indicated that stringent food safety regulations negatively impact agricultural exports from African nations, resulting in a substantial decline in commodity volumes Jaffe and Henson (2004) also noted negative effects of food safety regulations, though the impact was less severe than anticipated (S M Anders & Caswell, 2009) Notably, when a time effect is incorporated into the analysis, the food safety variable becomes statistically insignificant despite an R² of 62% Further investigation is necessary to understand the implications of food safety regulations in Vietnam.
The exchange rate variable shows statistical significance with a positive coefficient, confirming Hypothesis 5 Specifically, a 1% increase in the exchange rate correlates with a 0.09% increase in seafood exports, aligning with findings from previous studies by Pham & Nguyen (2013).
The GDP of importing countries is not statistically significant in the analysis, as indicated by a p-value greater than 0.05 Specifically, a 1% increase in the GDP of these countries is associated with a 0.29577% decrease in Vietnam's seafood exports, contrary to the study's expectations This finding aligns with the research of Trang et al (2011) and Helga Kristjánsdóttir's 2005 study on Iceland, which similarly concluded that the GDP of importing countries did not significantly impact import volumes, even after adjusting for the size of the country Consequently, it appears that Vietnam's export volume is not heavily influenced by the purchasing power of receiving countries during this period, potentially due to similar international conditions faced by other nations or limitations in the available data.
In the gravity model of trade, distance is a crucial factor, and utilizing a regression model with random effects reveals a negative relationship; specifically, a one percent increase in distance correlates with a 0.16% decrease in seafood exports However, the p-value exceeds 0.05, indicating that this variable is statistically insignificant This finding diverges from traditional gravity model literature, which typically suggests that countries engage in more trade with geographically closer partners Similar to Rahman's 2010 study, the results imply that neighborhood effects may have a greater influence on Bangladesh's exports than distance effects Possible explanations for this phenomenon include variations in seafood quality, recipient preferences, or limited data diversity.
Trade potential
Trade potential has been used wisely with gravity model, for example, Maurel
In previous studies by Cheikbossian (1998) and Montanari (2005), trade potential was forecasted using point estimated coefficients of independent variables, which were then compared to actual trade flows between two countries However, recent research, including work by Egger (2002), has identified errors in this method for calculating trade potential To address these issues, Jakab (2001) proposed a new method for calculating the speed of convergence.
Speed of convergence= Average growth rate of potential trade/Average growth rate of actual trade×100−100 (5.1)
According to the calculations, when the speed is negative, the potential trade falls short of the actual trade However, this scenario does not indicate a convergence between potential and actual trade It is essential to also take into account the disparity between potential and actual trade levels.
Trade error = Potential Trade – Actual Trade (5.2)
When the Speed of Convergence and Trade Error exhibit opposite signs, a trade convergence occurs, while the same signs lead to trade divergence Additionally, certain special cases may arise, such as overtrading or restrictive potential, depending on the current circumstances.
Using the result of equation (4.3), we make a forecast of potential seafood trade and calculate the average growth rate of seafood export from Vietnam.
Table 5.2 presents the results of our analysis, indicating that Vietnam has achieved trade convergence with 10 out of 17 countries, all of which are in the EU Group This suggests that Vietnam has significant potential for expanding trade with the EU in the near future Conversely, the U.S.A is experiencing an overtrade situation characterized by a high growth rate and substantial trade errors The time of convergence, calculated by dividing trade error by the speed of convergence, highlights that a smaller time indicates greater trade development potential with a partner Countries exhibiting trade divergence may face overtrade or low potential, as reflected by their trade errors.
0, trade is over, and if ∆T > 0, trade will be restrictive potential.
Table 5.2: Trade potential between Vietnam and USA, Japan and EU-15
Country Trade error Speed of convergence Situation
Table 5.3 highlights the top ten countries with the shortest convergence times, predominantly from Europe This trend underscores the potential for significant opportunities in the Vietnamese seafood export market.
CONCLUSION
Findings
This paper aims to analyze the impact of food safety regulations on Vietnam's seafood exports and provide policy recommendations, highlighting the significance of seafood export in economic development Utilizing the gravity model, recognized as a highly effective tool for explaining bilateral trade, the study examines data from 1997 to 2012 to yield updated insights In addition to the fundamental variables of the gravity model, factors such as the population of Vietnam and importing countries, exchange rates, and food safety regulations are included to enhance the understanding of the dependent variable.
The Hausman test results indicate that the fixed effects model is more suitable than the random effects model for estimating regression However, due to the absence of coefficients for distance and Vietnam's population in the fixed effects model, the coefficients from the random effects model are utilized to analyze their impact on the dependent variable.
Estimation results indicate that food safety regulations do not have a clear effect on Vietnam's seafood exports While these regulations are statistically significant with imported fixed effects, their impact lacks a definitive direction Rather than acting as a barrier, food safety regulations are viewed as a catalyst for the industry However, when time fixed effects are introduced, the significance of these regulations diminishes, suggesting that Vietnamese firms may struggle to compete with similar products in the market It is anticipated that Vietnamese companies will prioritize adherence to food safety regulations to enhance their competitiveness.
Vietnam's seafood export dynamics are not significantly influenced by GDP or distance, deviating from the traditional gravity model Instead of prioritizing wealthier nations, Vietnam should target markets that show a preference for its seafood products Additionally, transportation costs, as indicated by distance, have a minimal impact on these exports Furthermore, border effects may also play a role in shaping the dependent variables related to Vietnam's seafood trade.
The bilateral exchange rate plays a crucial role in influencing Vietnam's seafood exports, demonstrating a statistically significant positive relationship Therefore, to enhance seafood exports and boost the overall export of commodities, Vietnam should consider devaluing its currency.
Based on the result of speed of convergence, EU is promising market which Vietnam manufacturer should focus on.
Policy implications
The study highlights that food safety regulations and exchange rates are key determinants of Vietnam's seafood exports Strengthening food safety regulations can significantly benefit the sector, prompting the Vietnamese Government to implement a robust monitoring system across various ministries and agencies to ensure compliance with hygiene standards Exporters are encouraged to invest in equipment and research and development to meet these food safety requirements However, due to financial constraints, many Vietnamese firms struggle to cover the entire product chain needed for HACCP and international standards; thus, collaboration with international companies is advisable Additionally, the positive impact of exchange rates on exports should be considered by policymakers when formulating monetary policies.
Limitations and recommendations for future research
This study's findings can guide government strategies, but they do not encompass the entire export market landscape To draw more comprehensive conclusions, further research incorporating additional factors is advised A key limitation of this study is the data availability, as certain countries and timeframes were not analyzed Therefore, we strongly recommend conducting future studies on a larger scale and over an extended period to achieve more universal results with reduced errors.
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Regression Results
Table A.1: Breusch and Pagan Lagrangian multiplier test for random effects lnexport[id,t] = Xb + u[id] + e[id,t]
Test: Var(u) = 0 chibar2(01) = 650.47 Prob > chibar2 = 0.0000
- b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg
Test: Ho: difference in coefficients not systematic chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 121.80 Prob>chi2 = 0.0000 (V_b-V_B is not positive definite)
Table A.3: Wooldridge test for autocorrelation in panel data
| fixed random Difference S.E. lnoutput| 1.116588 1.02414 0924485 1056427 lngdp | 1.050473 1.210843 -.1603708 1.128103 foodsafety | 3677957 4746713 -.1068756
Table A.4: Theoretiacal Gravity Model with importer fixed effect consisting of heteroshekasticity and serial correlation
Table A.5: Theoretical Gravity Model with importer and time fixed effect consisting of heteroshekasticity and serial correlation