Will the growing trade gap sink Viet Nam? some exploratory econometrics

Viet Nam's rising external deficit currently exceeds 10 percent of GDP, a level which although easily funded by capital inflows is causing alarm to donors. We argue that the problem may be self correcting where capital inflows are directed mainly to investment, where public and private investment are complementary and investment efficiency increases. Using pooled data, cointegration analysis and a 'general to specific approach, a non-conventional econometric model is estimated in its most parsimonious form and macroeconomic simulations run up to 1999. The results show the trade gap narrowing significantly. If these results are borne out in practice, current obstacles to trade reform and to fomenting faster private sector growth may prove easier to overcome.