As discussed in the previous section, regional economic integration has raised various concerns
among Vietnam’s policy makers and academic circle over its possible negative impacts. Tariff
reductions would lead to increasing competitive pressures from the regional imports. Domestic
firms, lack of capital and technological capabilities and managerial skills may fail to compete with
imports from regional countries, and at the same time, they may not be able to utilize new export
opportunities brought about by regional integration. As a consequence, the country may be
marginalized, ending up with some low-tech, low value-added industries. The concerns over the
possible negative impacts of regional economic integration has largely explained for the reluctance
on the side of Vietnam in pursuing further integration with the regional economy.
This section attempts to examine the implication of regional economic integration on the
development and upgrading of Vietnam’s industries. Based on the dynamic analysis of the four
regional FTAs of concern, we track the impacts of regional integration over time and assess the role
of trade liberalization and foreign investment. Table 6 presents the sectoral impacts of the
investigated FTAs on Vietnam in terms of percentage changes in production output compared to
the base-run level. The first part of table 6 presents the simulation results for the scenarios of trade
liberalization, while the simulation results for combined trade and investment liberalization is
presented in the latter half.