Declining Protection for Vietnamese Agriculture under Trade Liberalization: Evidence from an Input–Output Analysis

Abstract

This study aims to assess the protection for Vietnamese agriculture under trade liberalization based on the input–output approach. From a theoretical perspective, the authors develop a general framework to estimate the effective rate of protection using an input–output table, taking into account tariffs, subsidies and value-added tax. Based on the data of 2012 and 2016, with a projection to 2020, the empirical results reveal that agricultural production, which is considered as Vietnam’s comparative advantage, is insignificantly protected. From the year 2012 to 2016, the effective rate of protection declined for primary agriculture and its supporting sectors, and would become negative by 2020. This implies that Vietnamese farmers are at a disadvantage due to the effect of trade liberalization. Furthermore, it is empirically revealed that the primary agricultural sector has a high value-added multiplier, which means a significant contribution to the domestic economy, is not protected by the government’s tax and tariff policies. Based on the study results, the authors suggest some policy recommendations to improve the situation, which are focused on the reduction of the value-added tax rate on inputs, while making industries with a high spillover effect to the domestic economy a key priority.

Keywords

• effective rate of protection
• agriculture
• trade liberalization
• value-added multiplier
• I-O table
• Vietnam