Changing Pattern of Korea-Vietnam Trade Relations
Tran Nhuan Kien*
Hong Ryul Lee
Abstract
This paper analyzes the trends in bilateral trade between Korea and Vietnam over the past decade and
to draw possible implications for their future trade relations. The main findings of this paper are as
follows. First, the commodity trade patterns between Korea and Vietnam remained virtually unchanged
even though the bilateral trade between the two has expanded significantly over the past decade.
Second, there has been a high and growing share of intermediate goods in Korean exports and of
consumption goods in Korean imports. Third, the technological level embodied in Korea’s exports to
Vietnam is much higher than that of Vietnam’s export to Korea. Fourth, Vietnam’s exports had been less
diversified as compared to Korea. Fifth, the bilateral trade between Korea and Vietnam has been less
intense than their respective trade with other countries in the world during the recent years. Sixth,
Korea-Vietnam bilateral trade has been mainly inter-industry trade. Seventh, Vietnam enjoyed a
comparative advantage mainly in either primary products or low–technology manufactures while
Korea enjoys a comparative advantage primarily in manufactured products and machinery and
transport equipment. The high degree of trade complementarity between Korea and Vietnam suggests
that a free trade agreement will bring about greater benefits for the two countries.
1. Introduction
The Republic of Korea (hereafter Korea) and Vietnam have been enjoying a mutual
friendship and multifaceted collaboration since the establishment of formal diplomatic
relations in 1992. Thanks to their historical and cultural similarities, both sides have
rapidly formed close and cooperative ties covering a wide range of areas such as trade,
*
Lecturer of Faculty of Economics, Thai Nguyen University of Economics and Business Administration,
Vietnam email: tnkien@tueba.edu.vn

Jaechun Kim is an associate professor of Sogang GSIS. Authors for correspondence, Graduate School of
International Studies, Sogang University, Shinsu-dong, Mapo-ku, Seoul, 121-742 Korea, Tel: 82-2-705-8684,
Fax: 82-2-705-8755.
E-mail: jaechun@sogang.ac.kr
1
investment, science and technology, culture, security, as well as education and training. In
particular, bilateral trade relation between Korea and Vietnam has expanded tremendously.
Trade between the two countries has increased steadily in both volume and product variety,
thanks to their establishment and rapid development of institutional and physical
infrastructure for bilateral trade relations. As shown in Table 1, the value of Korea’s
merchandise trade with Vietnam was US$9.8 billion in 2008, up from only US$0.5 billion
in 1992, or an average annual growth rate of 20.6 percent. During the period from 19922008, the momentum of bilateral trade had increased steadily except for the year of 1998
due to the Asian financial crisis. It is also worthy to note that Korea has maintained trade
surplus over Vietnam over the past 20 years. The scale of the bilateral trade relations
further deepened in 2007 when the Korea-ASEAN Free Trade Agreement was put into
effect. In October 2009, the two countries agreed to upgrade their bilateral relations from a
comprehensive relationship to a strategic partnership. Korea and Vietnam also agreed to
begin a joint feasibility study for a free trade agreement between the two countries.
Despite the significant increase in bilateral trade between the two countries, we hardly find
any study that focused on the understanding of the Korea-Vietnam bilateral trade relations
in the existing literature. Therefore, the main objective of this paper is to examine the
trends in bilateral trade between the two countries in recent years and to draw possible
implications for their future trade relations. This paper tries to answer the questions of
whether the trade relations between the two countries has been more or less intensive and
complementary, and whether there has been a change in trade composition or not, and
which products dominate the trade and have the tendency to export more to Korea. This
paper also examines whether those products are the ones for which Vietnam has a
comparative advantage. By doing so, this paper will analyze the prospect for developing
further bilateral cooperation between the two.
2
This paper is organized in the following way. In section II, the trends and changing pattern
of commodity trade between the two are discussed. Section III and IV examine the trade
intensity and intra-industry trade between Korea and Vietnam, respectively. Section V
investigates whether bilateral trade between Korea and Vietnam is complementary or
competition. Section VI presents the major findings of the study.
2. Korea-Vietnam Bilateral Trade Relations and its Changing Patterns
Bilateral trade between Korea and Vietnam began in small scale in the early 1980s when
Vietnam adopted the economic reform package known as the Doi Moi policy in 1986. The
bilateral trade between the two increased significantly in the late 1980s despite the lack of
formal diplomatic ties. As indicated in Table 1, Korea’s exports to Vietnam increased from
approximately US$35 million to US$199 million from 1986-1991, with an average annual
growth rate of 41.7 percent. Korea’s imports from Vietnam also increased by an average
annual growth rate of 9.3 percent during the same period, albeit of relatively small volume.
However, Korea-Vietnam trade during this period was unstable, especially in terms of
Korea’s imports from Vietnam. For instance, Korea’s imports from Vietnam decreased
sharply in 1987 (39%), then rose to approximately US$42 million in 1989, and fell again
in 1990. On the other hand, Korean exports to Vietnam experienced a stable growth during
this period.
After the normalization of diplomatic relations between the two countries, bilateral trade
has expanded stably, except for the period during the Asian financial crisis. In particular,
Korea’s imports from Vietnam increased more rapidly than Korea’s exports to Vietnam.
The average annual growth rate of Korea’s imports from Vietnam was 25 percent, while
Korean exports to Vietnam increased by an average growth rate of 19.8 percent per annum
3
during the 1992-2008. In terms of volume, however, Korea’s merchandise exports to
Vietnam rose from US$0.44 billion to US$7.8 billion while its merchandise imports from
Vietnam increased from US$0.06 billion to US$2.04 billion. As a result, Korea has
recorded trade surplus consistently throughout the period. In particular, Korea’s surplus in
its bilateral trade with Vietnam increased substantially, which was almost double from
2006-2008.
Table 1. Korea’s Trade with Vietnam, 1986-2008
Korea’s exports
Year
1986
1987
1988
1989
1990
1991
1986-19911
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1992-20081
Volume
(Mil. $)
34.9
38.5
61.9
44.9
116.8
198.9
436.2
728.3
1027.4
1351.0
1599.1
1603.1
1361.4
1445.2
1686.0
1731.7
2240.2
2561.2
3255.6
3431.7
3927.5
5760.1
7804.8
Inc. Rate
(%)
131.5
10.6
60.5
-27.5
160.2
70.3
41.7
119.2
67.0
41.1
31.5
18.4
0.3
-15.1
6.2
16.7
2.7
29.4
14.3
27.1
5.4
14.5
46.7
35.5
19.8
Korea’s imports
Volume
(Mil. $)
26.4
16.1
13.9
41.9
33.4
41.2
57.3
90.6
113.8
193.6
232.0
238.6
183.8
264.2
322.4
385.8
470.3
510.7
673.3
694.0
924.9
1391.6
2037.1
Inc. Rate
(%)
126.7
-39.0
-13.9
202.4
-20.3
23.3
9.3
39.3
58.1
25.5
70.2
19.9
2.8
-22.9
43.7
22.0
19.6
21.9
8.6
31.8
3.1
33.3
50.5
46.4
25.0
Total trade
Volume
(Mil. $)
61.2
54.6
75.7
86.8
150.2
240.1
493.5
818.9
1141.1
1544.6
1831.2
1841.7
1545.2
1709.4
2008.5
2117.4
2710.5
3071.9
3928.9
4125.7
4852.3
7151.6
9841.9
Inc. Rate
(%)
129.4
-10.8
38.6
14.6
73.1
59.8
31.4
105.5
65.9
39.4
35.4
18.6
0.6
-16.1
10.6
17.5
5.4
28.0
13.3
27.9
5.0
17.6
47.4
37.6
20.6
1) Average of the period
Source: KITA, 2009
4
Recently, the Korea-Vietnam trade has increased dramatically, with 47.4 percent and 37.6
percent growth rates in 2007 and 2008, respectively. The implementation of the KoreaASEAN FTA can be one of the factors contributing to this significant increase.
Nevertheless, Vietnam does not belong to Korea’s top 10 trading partners, while Korea is
regarded as one of Vietnam’s top 10 trading partners. For example, Korea was Vietnam’s
fourth biggest import source and the ninth largest export market during 2005-2007 (Kien,
2009). Vietnam was Korea’s twelfth largest export destination and was ranked 32nd in
Korea’s import markets in 2007. In contrast, other ASEAN countries had higher rankings
in Korea’s import markets such as Indonesia (9th), Malaysia (12th), Singapore (14th),
Thailand (20th), and Philippines (27th) (KITA, 2009).
Table 2. Top 10 Products of Korea’s Exports to Vietnam (SITC 3-digit of Rev.2)
1995
2000
2006
Woven man-made fibre
Special textile fabric
Petroleum products, refined
fabric (10.1)
products (8.9)
(13.3)
Polymerization etc. products
Polymerization etc. products
Telecommunication
(6.6)
(7.6)
equipment parts (7.7)
Special textile fabric
Woven man-made fibre
Knitted or crocheted fabrics
products (5.8)
fabric (5.8)
(6.7)
Lorries, special motor
Petroleum products, refined
Polymerization etc. products
vehicles nes (4.2)
(4.6)
(5.9)
Lorries, special motor
Special textile fabric
vehicles nes (4.4)
products (4.9)
Television receivers (4.2)
Petroleum products, refined
(4.0)
Leather (4.0)
Woven man-made fibre
fabric (3.8)
Iron, steel universal plate,
Leather etc. manufactures
sheet (3.4)
(3.5)
Textile & leather machinery
Knitted or crocheted fabrics
Iron, steel universal plate,
(3.3)
(3.5)
sheet (2.7)
Mach.& equipment for
Cycles, etc. motorized or not
Textile & leather machinery
Metal structures & parts (2.9)
5
special industries (3.3)
Cycles, etc. motorized or not
(2.8)
(2.9)
(2.5)
Textile yarn (2.7)
Lorries, special motor
vehicles nes (2.4)
Note: Numbers in the parentheses denote the percentage share of the product in Korea’s
exports to Vietnam.
Source: Authors’ calculation based on database of UNSD 2009
Regarding commodity trade, Table 2 and 3 present the top 10 products of Korea’s exports
to and imports from Vietnam. It is found that while the total trade volume between the two
increased significantly during the past decade, the commodity trade remained virtually
unchanged. This means that Korea’s major export items to Vietnam still consist of capital
goods and raw/subsidiary materials such as machinery, steel/metal products and textiles
for industrial use, while Vietnam mainly exports primary products such as agricultural and
fishery product and textiles for consumers over the past decade. This is a typical interindustry trade between a developed country and a developing country. The inter-industry
trade issue will be examined in detail in the next section.
Table 3. Top 10 Products of Korea’s Imports from Vietnam (SITC 3-digit of Rev.2)
1995
2000
Coffee and substitutes (17.1)
Shell fish fresh, frozen (12.8)
Woven man-made fiber
Vegetables, fresh, chilled,
fabric (7.6)
frozen (6.7)
Cotton fabrics, woven (7.5)
Coal, lignite, and peat (4.8)
Travel goods, handbags (4.3)
Shell fish fresh, frozen (3.8)
Men’s outerwear non-knitted
(6.1)
Coffee and substitutes (5.3)
Fish etc. prepared, preserved
nes (4.5)
Fish, fresh, chilled, frozen
(4.5)
2006
Shell fish fresh, frozen (12.9)
Textile yarn (9.2)
Footwear (8.0)
Furniture and parts thereof
(6.2)
Natural rubber, gums (5.3)
Coffee and substitutes (5.2)
Men’s outerwear not knitted
Furniture and parts thereof
Fish etc. prepared, preserved
(3.6)
(4.1)
nes (4.6)
6
Fruit, preserved, prepared
Natural rubber, gums (3.1)
Coal, lignite, and peat (4.5)
Aircraft, etc. (3.5)
Textile yarn (3.1)
Fish, fresh, chilled, frozen (4.1)
Headgear, non-textile
Headgear, non-textile
Women’s outerwear non-
clothing (3.4)
clothing (3.1)
knitted (2.8)
(3.5)
Note and Source: as in Table 2.
The top 10 products of Korea’s exports to Vietnam amounted to US$2.1 billion in 2006,
sharing nearly 53 percent of its total exports value. As the change in major export products
of Korea to Vietnam over time is examined, it is found that the technology level embodied
in these products has increased. For instance, telecommunication equipment parts replaced
leather and leather manufactures as the major export items from Korea to Vietnam.
Regarding Korean imports from Vietnam, the top 10 products accounted for approximately
63 percent of total Korean imports. This means that Vietnam’s exports to Korea were less
diversified as compared to those of Korea.
Another major change in Korea’s exports to Vietnam is that import substitution by
Vietnam for its imports from Korea has made progress in low technology goods such as
fabric products. For example, woven man-made fiber fabric ranked the first in top 10
products of Korean exports to Vietnam, but its ranking fell to the third in 2000, and further
fell to the sixth in 2006. This can be explained by the fact that Vietnam has upgraded its
production capacity of these products or it imported from other cheaper sources such as
China. Another explanation is that Korea’s comparative advantage in this product group
has deteriorated during the past decade (see Table 12).
Table 4. Korea’s Exports to Vietnam by Stage of Production (unit: percent)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Primary goods
Intermediate goods
Semi-finished goods
0.3
0.4
0.7
1.0
0.4
0.4
0.3
0.3
0.4
0.5
0.6
0.6
68.2
70.8
79.2
77.7
79.8
74.5
68.5
68.3
65.2
68.8
67.2
70.4
63.4
63.9
72.0
71.2
72.6
66.6
60.6
59.8
56.7
59.0
58.4
62.2
7
Parts & components
4.8
7.0
7.2
6.5
7.2
7.9
8.0
8.5
8.5
9.8
8.8
8.2
31.5
28.7
20.2
21.3
19.8
25.1
31.1
31.4
34.4
30.7
32.2
29.0
Capital goods
15.8
14.1
11.1
11.9
9.3
15.0
21.7
21.9
25.0
22.0
23.9
21.2
Consumption goods
15.6
14.7
9.0
9.4
10.5
10.1
9.4
9.5
9.4
8.7
8.3
7.7
Final goods
Source: Authors’ calculation based on database of UNSD 2009, using classification of
Gaulier, Lemoine, and Kesenci, 2005.
The structure of commodity trade between Korea and Vietnam is more apparent when the
bilateral trade is classified by stage of production. One of the clear patterns of trade
between the two is the high share of intermediate goods in Korean exports and of final
goods in Korean imports. In Korea’s exports to Vietnam of intermediate products, the
share of semi-finished products accounted for a large share, which hovered around 60
percent. On the import side, Korea’s imports of consumption goods from Vietnam
increased significantly from 37.8 percent to 51.9 percent during 1995-2006, mainly at the
expense of primary goods.
For Vietnam, the high share of semi-finished goods in Vietnam’s total imports and of
consumption goods in Vietnam’s exports indicates a deepening bilateral trade and
investment cooperation between Korea and Vietnam, of which Vietnam is in charge of the
final process in the whole value-chain of production. It can be said that this pattern may be
a result of the increase in foreign direct investment (FDI) inflows from Korea to Vietnam
as Vietnam offers abundant low-cost labor and land as well as favorable policies by the
government. This also implies that the value-added in Vietnam’s exports is low since the
major activity of final process of production is assembling.
Table 5. Korea’s Imports from Vietnam by Stage of Production (unit: percent)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Primary goods
32.6
28.3
24.2
38.7
27.6
18.8
19.0
14.8
18.3
27.3
19.0
20.3
Intermediate goods
25.0
26.4
24.2
26.3
30.7
27.0
20.9
22.8
21.5
20.6
22.5
22.1
8
Semi-finished goods
22.0
22.2
18.4
25.1
25.1
22.4
15.1
11.3
15.7
17.1
19.5
20.4
Parts & components
3.0
4.2
5.8
1.2
5.6
4.6
5.7
11.5
5.8
3.5
2.9
1.7
42.5
45.4
51.6
35.0
41.7
54.2
60.1
62.4
60.1
52.2
58.5
57.6
4.7
6.6
8.3
5.3
4.4
4.6
6.4
8.1
7.2
6.8
6.4
5.7
37.8
38.7
43.4
29.7
37.3
49.6
53.7
54.3
53.0
45.4
52.2
51.9
Final goods
Capital goods
Consumption goods
Source: Authors’ calculation based on database of UNSD 2009, using classification of
Gaulier, Lemoine, and Kesenci, 2005.
To understand the technological level embodied in Korea-Vietnam bilateral trade, exports
and imports are decomposed into four technological categorization: resource-based, lowtechnology, medium-technology, and high-technology (Lall 2000). Table 6 and 7 shows
the growth rates and market shares of Korea-Vietnam trade by technological level. There
are several important points to highlight from these results. Overall, Korea’s exports to and
imports from Vietnam reflect its trade patterns with a developing country. Almost all
Korean exports to Vietnam are manufactured goods, accounting for over 94 percent of the
total in 2006. Among manufactured goods, exports concentrated on mineral-based
products, fashion cluster, and process industries. Exports of high-technology manufactures
also increased from 8.9 percent to 12.2 percent of the total, or an average annual growth
rate of 13.4 percent during 1995-2006. During the period, exports of mineral-based
manufactures (mostly petroleum products) recorded the highest growth rate, which was
around 9 percent above the average level. The growing importance of Vietnam’s imports
of petroleum products may attribute to the rapid industrialization in the country.
Table 6. Korea’s Exports to Vietnam by Technological Level
Export Category
Product Name
Percentage share in total
exports (%)
Growth rate p.a. (%)
1995
2000
3.0
2.4
5.8
-0.7
41.6
16.7
Manufactured
97.0
97.6
94.2
4.7
17.5
9.9
1. Resource-based
10.1
11.0
17.9
6.2
30.5
16.0
Primary products
2006 1995-2000 2000-2006 1995-2006
9
Agro-based
3.5
3.3
2.3
3.1
10.7
6.2
Mineral-based
6.6
7.7
15.6
7.7
36.2
19.0
31.2
36.7
32.4
8.0
15.4
10.5
19.3
27.2
21.9
11.9
13.3
11.4
Other products
11.9
9.5
10.5
0.0
20.7
8.9
3. Medium technology
46.7
43.2
31.7
2.9
11.2
6.3
9.9
10.4
4.0
5.6
-2.2
1.5
Process
22.8
19.9
16.9
1.7
14.5
7.2
Engineering
14.0
12.9
10.8
2.8
14.1
7.5
4. High technology
8.9
6.8
12.2
-0.9
33.0
13.4
Electronic and electrical
7.7
4.7
10.4
-5.5
38.9
13.1
Other
1.2
2.2
1.8
17.9
14.4
14.6
100.0
100.0
100.0
4.5
18.3
10.1
2. Low technology
Fashion cluster
1
Automotive
Total
Source: Authors’ calculation based on database of UNSD 2009
Table 7. Korea’s Imports from Vietnam by Technological Level
Import Category
Percentage share in total
imports (%)
Growth rate p.a. (%)
Product Name
1995
2000
2006
Primary products
41.3
37.2
38.2
8.4
24.2
14.5
Manufactured
58.7
62.8
61.8
12.3
23.0
15.8
1. Resource-based
7.3
10.6
10.6
19.3
23.6
19.3
Agro-based
6.9
6.8
7.4
10.3
25.6
16.0
Mineral-based
0.4
3.8
3.2
77.6
19.7
40.9
35.9
36.7
39.6
11.2
25.4
16.3
32.5
28.6
29.4
8.0
24.2
14.2
Other products
3.3
8.0
10.2
32.1
29.5
27.6
3. Medium technology
8.2
6.4
5.0
5.4
17.7
10.3
Automotive
0.0
0.0
0.1
43.6
27.5
31.6
Process
7.7
2.8
2.1
-9.5
17.0
2.7
Engineering
0.5
3.5
2.8
64.0
18.1
35.0
4. High technology
7.4
9.2
6.5
15.8
15.0
13.9
Electronic and electrical
3.9
9.0
6.3
30.9
15.1
20.5
Other
3.5
0.3
0.1
-34.3
10.1
-13.7
100
100
100
10.8
23.5
15.3
2. Low technology
Fashion cluster
Total
1
1995-2000 2000-2006 1995-2006
Note: 1/ Textile, garment and footwear
Source: Authors’ calculation based on database of UNSD 2009
10
Given Vietnam’s rich natural resource endowments and low–cost labor, it can be expected
that Korea’s imports from Vietnam would concentrate on primary products, resource–based,
and low–technology sectors. Indeed, primary products accounted for approximately 38
percent of total imports in 2006, while low–technology imports accounted for nearly 40
percent. When looking at the change in Korea’s imports by technological level, it is found
that there has been a structure shift between primary and manufactured products. That is the
share of primary products declined while the share of manufactured goods increased over
time. Among manufactured products, Korea’s imports of fashion cluster accounted for the
biggest amount, even though it decreased slightly during 1995-2006. In terms of growth
rates, the imports of resource-based and low technology manufactures grew faster than the
average growth rate of total manufactured exports. The increase in the share of
manufactured imports therefore can be largely explained by the high growth rates of these
products.
Next, export diversification index is used to examine the extent to which exports are
diversified. The export diversification index signals whether the structure of exports by
products of a given country differs from those of the world. Existing literatures show that
countries with high export diversification – particularly into manufacturing – should have
a greater positive impact of GDP growth owing to richer linkages and lower external
volatility (Sachs and Warner 1997). The index value closes to unity indicates a bigger
difference from the world average. Following Hoekman, Mattoo, and English (2002), the
export diversification index (DX) for a country is defined as.
DX j  ( sum hij  hi ) / 2
where hij is the share of commodity i in the total exports of country j and hi is the share of
the commodity i in total world exports.
Figure 1. Export Diversification Index for Selected Countries in Asia, 1997–2006
11
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
China
Korea
Thailand
Indonesia
1997
1999
2001
Malaysia
2002
Vietnam
Philippines Singapore
2003
2004
2005
2006
Source: Authors’ calculation from UNCTAD, 2009
The results show that Vietnam’s exports had been less diversified compared to Korea’s. In
fact, it showed the highest concentration among selected countries presented in Figure 1.
However, the export diversification index of Vietnam decreased from 0.68 to 0.62 over the
decade, particularly from 2004 to 2006. Korea, Thailand, and China are among the most
diversified of their exports, reflecting their ability to cope with both global market price
changes and potential protectionism pressures.
3. Trade Intensity of Korea-Vietnam Bilateral Trade
The intensity of trade can be export intensity or import intensity. Trade intensity index
(TII) is used in this paper in order to examine how strong the bilateral trade is between
Korea and Vietnam over time. Export (import) intensity of country i with country j is
computed as follows:
TII i j 
Tij / Tiw
T jw / Tww
12
Where: Tij is the country i’s total exports (imports) to (from) country j
Tiw is country i’s total exports (imports) to (from) the world
Tjw is the country j’s total imports (exports) from (to) the world
Tww is the world’s total exports (imports).
A value of TIIij greater (less) than unity has been interpreted as an indication of larger
(smaller) than expected trade flows between two countries concerned vis-à-vis the rest of
the world. Table 8 presents the results of export and import intensity between Korea and
Vietnam together with each country’s export and import share in the other country for the
period 1991-2007.
Table 8 shows that Vietnam’s share in Korea’s exports increased from 0.28 percent in 1991
to 1.55 percent in 2007 while its share in Korea’s imports rose as well, albeit from a small
base. On the other hand, Korea’s share in Vietnam’s exports fluctuated during the period
even though it increased slightly from 2.34 percent in 1991 to 2.58 percent in 2007. With
respect to Korea’s share in Vietnam’s imports, it rose from 6.13 percent in 1991 to 15
percent in 1995, and then it decreased gradually to 8.51 percent in 2007.
Table 8. Trade interdependency between Vietnam and Korea:
share (%) and trade intensity
Vietnam's share in
Korea's exports
Korea’s export
intensity with Vietnam
Vietnam's share in
Korea's imports
Korea’s import
intensity with Vietnam
Korea's share in
Vietnam's exports
Vietnam’s export
intensity with Korea
Korea's share in
Vietnam's imports
1991
1993
1995
1997
1999
2001
2003
2005
2007
0.28
0.85
1.03
1.11
1.00
1.15
1.30
1.21
1.55
5.15
6.18
5.26
5.22
4.99
4.74
4.20
3.64
3.61
0.05
0.11
0.14
0.16
0.22
0.27
0.28
0.27
0.39
1.04
1.09
1.19
0.93
1.12
1.18
1.00
0.83
1.09
2.34
3.33
4.19
4.40
2.77
2.70
2.44
2.05
2.58
1.15
1.69
1.78
1.95
1.45
1.28
1.12
0.90
1.08
6.13 12.27 15.00 13.17 12.65 11.63 10.40
9.78
8.51
13
Vietnam’s import
intensity with Korea
3.27
6.03
6.52
5.81
5.09
4.64
3.93
3.43
3.05
Source: Authors’ calculation based on database of UNSD 2009.
As noted above, the trade intensity index shows whether trade between the two has
increased more rapidly than their respective trade with the rest of the world. As shown in
Table 8, Korea’s export intensity with respect to Vietnam has been very high during 19912007 even though it decreased gradually over time. This indicates that the growth rate of
Korea’s exports to Vietnam was higher than that to the world during the period. On the
other hand, Korea’s import intensity remained low and tended to decrease in recent years,
implying that Vietnam was not a main source of imports for Korea. Regarding Vietnam’s
import intensity with respect to Korea, it increased from 3.27 in 1991 to 6.52 in 1995, and
then declined to 3.05 in 2007. This means that Vietnam’s imports from Korea were greater
than its imports from other parts of the world. Vietnam’s export intensity with respect to
Korea also increased during the 1990s but it started to reduce in the early 2000s. Overall,
the bilateral trade between Korea and Vietnam has been less intense than their respective
trade with other countries in the world in recent years.
4. Intra-industry Trade of Korea-Vietnam Bilateral Trade
The intra–industry trade index (IIT) is used in this paper to measure changes in the structure
of trade at the sectoral level between Korea and Vietnam. The IIT is commonly measured by
Grubel–Lloyd index, which is based on commodity group trade classified by standard
international trade classification. The intra–industry trade index is defined as follows.
IITi  1 
Xi  Mi
Xi  Mi
where Xi and Mi are Korea’s exports to and imports from Vietnam of commodity i during a
14
particular time period, respectively. The index value ranges between zero and one, of
which the former shows a complete inter–industry trade, while the latter denotes a
complete intra–industry trade.
In order to have an overall understanding of the degree of intra-industry trade in KoreaVietnam trade, we summarize the distribution of IIT index in Table 9 for 3 years. It is found
that Korea-Vietnam bilateral trade has been mainly inter-industry trade. This suggests that
the economies of scale are not being exploited between the two countries. The results show
that there are only small numbers of product groups which registered high intra-industry
trade. For example, approximately 90 percent of the total 189 product groups were in the
range of 0.00 to 0.25 of IIT index (low intra-industry trade) in 1995. This is reasonable since
Korea and Vietnam do not belong to similar levels of development which may result in
similar demand patterns within both countries. In recent years, the degree of intra-industry
trade in Korea-Vietnam bilateral trade has gradually increased. The share of high levels of
IIT index (from 0.75 to 1.00) increased from 1.6 percent in 1995 to 8.5 percent in 2006
while the share of low levels of IIT index declined gradually to approximately 75 percent in
2006.
Table 9. Distribution of IIT Index of Korea-Vietnam Trade, 1995–2006
IIT Band
0.00 –< 0.25
1995
Number of
product
Percent
groups
170
89.9
2000
Number of
product
Percent
groups
167
82.3
2006
Number of
product
Percent
groups
160
75.1
0.25 –< 0.50
8
4.2
13
6.4
18
8.5
0.50 –< 0.75
8
4.2
15
7.4
17
8.0
0.75 – 1.00
3
1.6
8
3.9
18
8.5
189
100
203
100
213
100
Total1
Note: 1/ the actual number of product groups traded between Korea and Vietnam at the
three digit of SITC (total 266 product groups).
15
Source: Authors’ calculation based on database of UNSD 2009
Examining intra-industry trade product
that
almost
all
product groups
with
groups at the three-digit of SITC, we find
high
intra-industry
trade
fell within
product groups of SITC six, seven, and eight (at one-digit level), which are manufacturing
industries. This is not surprising since intra-industry trade is of greater importance in
manufacturing industries, in which product differentiation and scale economies are more
prevalent than in other sectors of the economy. The highest IIT index between Korea and
Vietnam trade was furniture and parts thereof (821) in 1995, pesticide disinfectants (591)
in 2000, and optical goods, n.e.s. (884) in 2006. It is noteworthy to mention that the top 10
highest intra-industry trade indices between Korea and Vietnam are different over time.
This means that the intra-industry trade between the two has been precarious.
Table 10. Top 10 Products with High Intra-Industry Trade Index between
Korea and Vietnam
Code Product Name
Furniture and parts
821
thereof
666 Pottery
895 Office supplies, n.e.s.
848
Headgear, non-textile
clothing
1995 Code Product Name
Pesticide
0.99 591
disinfectants,
Radio-broadcast
0.91 762
receivers
Photo apparatus and
0.77 881
equipment n.e.s.
Sugar candy non0.75 062
chocolate
634 Veneers, plywood, etc.
0.70
658 Textile articles n.e.s.
0.69
Pearls, precious semiprecious stones
Food processing mac727
hines (non-domestic)
667
652 Cotton fabrics, woven
0.68
0.67
0.64
2000 Code Product Name
Optical goods,
0.95 884
n.e.s.
Tobacco
0.94 122
manufactured
Mineral manu0.90 663
factures, n.e.s
Outerwear knit
0.80 845
non-elastic
971 Gold, non-monetary 0.77
Hides, skins, exc.
furs, raw
Electrical
778
machinery n.e.s.
Gold, silver ware,
897
jewellery
Toys, sporting
894
goods, etc.
211
0.76
0.76
696 Cutlery
Rubber articles,
n.e.s.
Cereal etc.
048
preparations
628
0.76
651 Textile yarn
0.74
897
2006
0.98
0.96
0.96
0.96
0.94
0.93
0.92
0.86
Gold, silver ware,
0.84
jewellery
16
679
Iron, steel castings, unworked
0.63
716
Rotating electric
plant and parts
0.73
654
Other woven
textile fabric
0.83
Note: n.e.s.: not elsewhere specified
Source: Authors’ calculation based on database of UNSD 2009
5. Korea-Vietnam Bilateral Trade: Complementary or Competition?
There are two key concerns regarding the current bilateral trade between Korea and
Vietnam, namely whether Korea-Vietnam bilateral trade is consistent with the comparative
advantage principle and whether Korea-Vietnam trade is complementary or competition.
For these reasons, we calculate and compare the revealed comparative advantage indices
of Korea and Vietnam’s trade in 1997 and 2006.
The RCA indices for the top 20 products of Vietnam are presented in Table 11. The RCA
index is calculated for product groups at three–digit level of SITC and is ranked by values
of RCA index in 2006. Overall, Vietnam enjoyed a comparative advantage mainly in either
primary products or low–technology manufactures. High comparative advantage product
groups of Vietnam across the time span included rice (042), shellfish fresh, frozen (036),
natural rubber, gums (232), coffee and coffee substitutes (071), spices (075), footwear
(851), tea and mate (074), and men’s outerwear non-knitted (842). Several product groups
showed significant increases in their comparative advantage over time, namely pulpwood,
chips, woodwaste (246); fish, fresh, chilled or frozen (034); vegetable fiber (265); and
furniture and parts thereof (821). In addition, there are several product groups gained a
comparative advantage during 1997-2006, namely under garments non-knitted (844);
women’s outerwear non-knitted (843); outerwear knit non-elastic (845); steam boilers and
auxiliary plant (711); and natural abrasives n.e.s. (277).
Table 11. Vietnam’s Top 20 Products with High Value of RCA Index
Code
Product name
1997
2006
17
042
Rice
71.174
35.485
036
Shellfish fresh, frozen
22.028
25.798
232
Natural rubber, gums
21.316
22.814
071
Coffee and coffee substitutes
18.721
19.945
075
Spices
22.571
19.131
851
Footwear
13.764
16.028
246
Pulpwood, chips, woodwaste
5.359
11.521
074
Tea and mate
12.976
10.010
265
Vegetable fiber, exc. cotton, jute
4.259
9.997
844
Under garments non-knitted
0.000
8.778
034
Fish, fresh, chilled or frozen
2.931
8.699
842
Men’s outerwear non-knitted
12.914
8.473
037
Fish, etc. prepared, preserved n.e.s.
7.255
6.847
843
Women’s outerwear non-knitted
0.000
5.539
322
Coal, lignite and peat
3.292
5.336
035
Fish, salted, dried, smoked
4.394
5.309
845
Outerwear knit non-elastic
0.045
5.146
821
Furniture and parts thereof
1.023
4.770
711
Steam boilers and auxiliary plant
0.003
3.795
277
Natural abrasives n.e.s.
0.986
3.767
Source: Authors’ calculation based on database of UNSD 2009
Table 12. Korea’s Top 20 Products with High Value of RCA Index
Code
Product name
1997
2006
871
Optical instruments and apparatus
4.031
9.158
793
Ships, boats and floating structures
6.958
9.068
266
Synthetic fibers suitable for spinning
7.014
5.044
655
Knitted or crocheted fabrics
5.483
4.807
511
Hydrocarbons n.e.s., derivative
3.316
3.778
513
Carboxylic acids etc.
2.094
3.543
711
Steam boilers and auxiliary plant
0.322
2.928
764
Telecommunications equipment and parts
1.239
2.887
677
Iron/steel wire
2.884
2.659
656
Lace, ribbons, tulle, etc.
4.555
2.565
233
Rubber, synthetic, reclaimed
1.588
2.550
776
Transistors, valves, etc.
3.676
2.427
653
Woven man-made fiber fabric
6.831
2.416
724
Textile & leather machinery and parts
1.249
2.250
18
686
Zinc
0.894
2.223
269
Waste of textile fabrics
1.446
2.223
674
Iron, steel universal plate, sheet
2.005
2.209
781
Passenger motor vehicle excluding buses
1.400
2.064
692
Metal tanks, boxes, etc.
1.266
2.061
778
Electrical machinery and apparatus
0.842
1.975
Source: Authors’ calculation based on database of UNSD 2009
But when it comes to Korea, the country enjoys a comparative advantage primarily in
manufactured products and machinery and transport equipment. The main comparative
advantage product groups of Korea include optical instruments and apparatus (871); ships,
boats and floating structures (793); synthetic fibers suitable for spinning (266); and knitted
or crocheted fabrics (655). More importantly, Korea has been able to increase its
comparative advantage in high-technology manufacture product groups such as optical
instruments and apparatus (871); telecommunications equipment and parts (764); and
electrical machinery & apparatus (778).
Table 13 shows that the overlap of RCA index between Korea and Vietnam was
insignificant. There were only 4 product groups that exhibited a comparative advantage in
both countries in 1997, which accounted for only 4.41 percent of total exports of Vietnam
and 1.43 percent of total exports of Korea. The overlap of RCA index between Korea and
Vietnam increased to 10 product groups in 2006. However, their share in the total exports
of each country was minimal. For Vietnam, the share of products that competed with
Korea actually decreased from 4.41 percent in 1997 to 4.17 percent in 2006.
Table 13. Overlap of RCA Index between Korea and Vietnam
Vietnam
Year Code
1997 037
Product name
Fish, etc. prepared, preserved n.e.s.
Korea
RCA
Export
RCA
Export
Index
value1
Index
value1
7.255
110.04
1.557
374.60
19
831
Travel goods, handbags ,brief-cases
6.630
164.17
1.063
417.38
034
Fish, fresh, chilled or frozen
2.931
91.81
1.255
623.26
656
Lace, ribbons, tulle, etc.
1.383
10.20
4.555
532.67
Share of total exports (%)
2006
4.41
1.43
711
Steam boilers and auxiliary plant
3.795
53.01
2.928
333.30
233
Rubber, synthetic, reclaimed
3.138
149.40
2.550
989.69
773
Electrical distributing equipment
2.702
686.34
1.001
2072.09
612
Leather etc. manufactures
2.203
72.32
1.439
385.25
651
Textile yarn
2.086
321.33
1.111
1394.71
847
Textile clothing accessories n.e.s.
1.596
79.42
1.737
704.66
657
Special textile fabric, products
1.172
119.67
1.885
1568.69
266
Synthetic fibers suitable for spinning
1.112
23.01
5.044
850.52
653
Woven man-made fiber fabric
1.058
128.23
2.416
2385.48
677
Iron/steel wire
1.011
28.41
2.659
609.22
Share of total exports (%)
4.17
3.47
Note: export value is in million of U.S. dollar.
Source: Authors’ calculation based on database of UNSD 2009
From the results of Table 11, 12, and 13, it is found that the structure of bilateral trade
between Korea and Vietnam is complementary rather than competition as each country has
a very different comparative advantage. Specifically, Korea exhibited a comparative
advantage toward manufactured product groups whereas Vietnam has a comparative
advantage in primary product groups.
To assess the potential for expanding bilateral trade between Korea and Vietnam, we
construct the trade complementarity index (TCI) for Vietnam’s major trading partners,
including Korea using data on commodity trade at three–digit level of SITC from 1997 to
2006. The index shows how well the structures of a country’s imports and exports match.
TCI is measured as follows.
 mni  a nj
TCI ij  1   

2
n





where mni is the share of goods n in total imports of country i, whereas anj is the share of
20
goods n in total exports of country j. The index equals zero when no goods exported by
one country is imported by the other, whereas the index equals one when the export and
import shares are exactly matched. The more similar two countries’ export and import
structures are, the closer the value of the TCI is to unity. Therefore, changes in the value
of TCI over time can help us to understand whether two countries’ trade profiles are
becoming more, or less, compatible. In this study, the TCI is calculated for 26 main
trading partners of Vietnam. Taken together, these countries account for more than 90
percent of Vietnam’s total trade.
Table 14 shows the results of TCI during the 1997–2006. The results of TCI confirm the
study of RCA index, which showed that Korea and Vietnam bilateral trade is highly
complementary. Among estimated countries, Vietnam has high TCI values with Japan, the
United States, India, South Korea, France, and Spain. This means that the export structure
of Vietnam is compatible with that of Korea’s imports. In other words, Vietnam’s export
structure fits well with Korea’s import need. Therefore, Vietnam has a high potential to
increase its exports to Korea. On the other hand, there are low TCI values between
Vietnam and China, Malaysia, Mexico, and Argentina. This means that Vietnam’s export
structure is not complementary to these countries’ import structures.
Table 14. Vietnam’s Trade Complementarity Index with Major Trading Partners, 1997–2006
1997–2001
2002–2006
1997–2001
2002–2006
Japan
0.43
0.48
United Kingdom
0.34
0.33
United States
0.38
0.41
Canada
0.28
0.32
India
0.37
0.39
Brazil
0.26
0.32
South Korea
0.33
0.38
Indonesia
0.24
0.31
France
0.33
0.37
Hong Kong
0.31
0.3
Spain
0.33
0.37
Switzerland
0.27
0.29
Italy
0.34
0.36
Singapore
0.27
0.28
Netherlands
0.34
0.35
Philippines
0.28
0.27
Sweden
0.34
0.35
China
0.23
0.26
Denmark
0.35
0.35
Russia
0.26
0.26
Thailand
0.3
0.34
Mexico
0.24
0.25
Country
Country
21
Germany
0.36
0.34
Malaysia
0.22
0.24
Australia
0.3
0.34
Argentina
0.23
0.24
Source: Kien, 2009
6. Conclusion
This paper aims to examine the trends in bilateral trade between Korea and Vietnam over
the past decade and to draw possible implications for their future trade relations. The main
findings of this paper are as follows. First, the commodity trade patterns between Korea
and Vietnam remained virtually unchanged even though the bilateral trade between the
two has expanded significantly over the past decade. Second, there has been a high and
growing share of intermediate goods in Korean exports and of consumption goods in
Korean imports. This indicates deepening bilateral trade and investment cooperation
between Korea and Vietnam, of which Vietnam is in charge of the final process in the
whole value-chain of production. Third, the technological level embodied in Korea’s
exports to Vietnam is much higher than that of Vietnam’s export to Korea. Vietnam’s
exports of primary products to Korea still accounted for a large share of its total exports.
Fourth, Vietnam’s exports had been less diversified as compared to Korea. The top 10
export products of Vietnam amounted to approximately 63 percent of total of Korea’s
imports. Fifth, the bilateral trade between Korea and Vietnam has been less intense than
their respective trade with other countries in the world during the recent years. Korea’s
import intensity and Vietnam’s export intensity were not as intense as Korea’s export
intensity and Vietnam’s import intensity. Sixth, Korea-Vietnam bilateral trade has been
mainly inter-industry trade. This suggests that the economies of scale are not being
exploited between the two countries. Almost all product groups with high intra-industry
trade fell within product groups of manufacturing industries. Seventh, Vietnam enjoyed a
22
comparative advantage mainly in either primary products or low–technology manufactures
while Korea enjoys a comparative advantage primarily in manufactured products and
machinery and transport equipment. As a result, the structure of bilateral trade between
Korea and Vietnam is complementary rather than competition as each country has a very
different comparative advantage. This means that the structure of Vietnam’s exports is
compatible with that of Korea’s imports. Therefore, Vietnam has a high potential to
increase its exports to Korea.
The high degree of trade complementarity between Korea and Vietnam indicates that freer
trade between the two is likely to bring about greater benefits for Korea and Vietnam.
Also, tariff rates imposed on each other’s exports have remained high recently (see
Appendix 1). Therefore, Korea and Vietnam should explore the possibility of negotiating a
free trade agreement in the near future in order to boost the burgeoning trade relation
between the two countries.
23
Reference
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Paris:Research Center in International Economics.
Hoekman, Bernard M., Aaditya Mattoo, and Philip English. 2002. Development, Trade
and the WTO: A Handbook. Washington, D.C.: World Bank.
Kien, Tran Nhuan. 2009. Three Essays on Trade Liberalization and Development in
Vietnam, unpublished Ph.D. dissertation, Sogang University, Korea.
KITA. 2009. Trade Statistics by Country. Seoul: Korea International Trade Association.
http://global.kita.net/.
Lall, S. 2000. The Technological Structure and Performance of Developing Country
Manufactured Exports 1985–98. Oxford Development Studies 28: 337–369.
Sachs, J.D. and A.M. Warner. 1997. Fundamental Sources of Long–run Growth. American
Economic Review 87 (2): 184–88.
United Nations Conference on Trade and Development. 2009. Trade Analysis and
Information
System
(TRAINS).
http://r0.unctad.org/trains_new/index.shtm
(accessed July 19, 2009).
United Nations Statistics Division. 2008. United Nations Commodity Trade Statistics
Database. http://comtrade.un.org/db/default.aspx (accessed December 22, 2008).
24
Appendix 01. MFN Tariff Rates Classified by Broad Economic Categories (unit: percent)
BEC
Code
1
11
111
112
12
121
122
2
21
22
3
31
32
4
41
42
5
51
52
53
6
61
62
63
Product Name
Food and beverages
Primary
Mainly for industry
Mainly for household consumption
Processed
Mainly for industry
Mainly for household consumption
Industrial supplies not elsewhere specified
Primary
Processed
Fuels and lubricants
Primary
Processed
Capital goods (except transport equip.), parts & acc.
Capital goods (except for transport equip.)
Parts and accessories
Transport equip. & parts and accessories thereof
Passenger motor cars
Other
Parts and accessories
Consumer goods not elsewhere specified
Durable
Semi-durable
Non-durable
Korean tariff rates on Vietnam's products Vietnam's tariff rates on Korea's products
1996
2007
1999
2007
Simple Weighted Simple Weighted Simple Weighted Simple Weighted
Average Average Average Average Average Average Average Average
60.96
235.2
44.44
27.86
44.04
31.91
38.66
33.99
85.06
327.55
85.18
29.88
27.08
32.61
26.58
29.89
148.02
436.44
158.68
62.54
2.5
2.5
10.47
2.72
65.17
22.64
60.68
17.75
32.0
36.43
31.77
35.21
27.48
28.32
21.49
19.58
47.12
31.89
43.21
35.76
n/a
n/a
13.09
18.2
16
19.65
19.33
11.53
27.48
28.32
23.03
19.62
52.68
36.51
49.59
40.76
7.22
7.33
8.45
10.17
15.46
19.57
12.73
17.3
4.82
5.06
4.13
0.82
5.79
4.67
5.1
4.7
7.54
7.92
8.84
14.02
15.71
19.65
13.14
17.41
2.67
3.92
3.24
2.25
16.75
39.4
8.59
11.61
3.0
4.0
1.0
2.1
n/a
n/a
5.0
5.0
2.0
2.0
5.49
3.34
16.75
39.4
8.99
11.61
7.99
8.0
6.14
5.88
5.02
8.87
5.35
4.45
8.0
8.0
6.23
5.73
5.35
6.2
5.87
3.39
7.97
8.0
6.0
6.48
4.29
12.26
4.17
7.88
8.1
7.95
7.67
7.95
30.56
49.09
26.33
31.07
10
10.0
8.0
8.0
60.0
60.0
67.83
59.97
8.0
8.0
8.25
8.02
26.46
55.81
21.09
27.72
7.8
7.9
7.35
7.8
25.36
27.38
24.16
22.49
7.98
8.0
10.02
9.41
34.27
21.75
32.89
29.63
7.53
8.0
5.8
2.68
33.33
38.27
30.6
40.74
8.03
8.0
11.17
11.96
35.96
20.57
35.23
26.34
7.96
8.0
9.12
9.48
32.33
19.58
31.3
28.78
Source: TRAINS 2009
25