The impact of food safety standard on coffee export, the case in vietnam during 2005 2014

UNIVERSITY OF ECONOMICS

ERASMUS UNVERSITY ROTTERDAM

HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE NETHERLANDS

VIETNAM – THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACT OF FOOD SAFETY STANDARD
ON COFFEE EXPORT
THE CASE IN VIETNAM DURING 2005-2014

BY

TRUONG TAN TAI

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, OCTOBER -2016


ABSTRACT
The objective of this study is to scrutinize the impact of FSS on the quantity of
Vietnam’s coffee export. Meanwhile, the regulated number of pesticides or average maximum
residue levels is usually applied as a measurement of Food Safety Standard of a country. The
data covers 56 countries from 2005 to 2014 due to the data availability from AgrobaseLogigram’s Homologa database providing coffee FSS. The Fixed effect estimator is employed

in the panel gravity model. Furthermore, Driscoll – Kraay Standard Errors for Fixed effect
estimator is used for robustness checks.
Significantly, the primary findings determine that the regulated number of pesticides
has a negative impact while average maximum residue levels have a positive effect on the
export of Vietnamese coffee. Furthermore, GDP per capita of importing countries, domestic
consumption, and TWO member dummy variable demonstrate a contribution to Vietnamese
coffee export. Meanwhile, the real exchange rate depreciation and price*distance variable
indicate a negative influence on the quantity of Vietnam’s coffee export. Last but not least
important, there are not any significant evidences proving the effect of trade openness and
tariff on Vietnamese coffee export in the study.
Keywords: Food safety standard, Vietnam’s coffee export, panel gravity model.

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ACKNOWDGEMENT
Firstly, I would highly appreciate my advisor Dr. Nguyen Huu Dung for his valuable
advice, consideration, and agreeable methodology during the time for conducting this thesis.
If there are not such valuable things, I am unable to complete my thesis in time.
Secondly, I am grateful to Dr. Truong Dang Thuy providing me with precious
instructions and encouragement. Besides that, I also express my appreciation to dedicated
professors and staffs in the Vietnam – Netherlands Programme who always support me during
the time at VNP.
Thirdly, I wish to express my thankfulness to my classmates and my friendly group in
Class 20. The kind assistance, useful discussion, and wonderful memories together from them
will be imprinted in my heart.
Finally, I have no word to manifest my deep gratefulness to my loved family. They
have to sacrifice the best things for me to have this opportunity to study at VNP and complete
this thesis.

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ABBREVIATIONS
CEPII

The Centre d’Études Prospectives et d’Informations Internationales EEC
European Economic Community

EU

The European Union

FSS

Food safety standards

FTA

Free Trade Agreement

MRLs

Maximum Residue Levels of Pesticides

OLS

Ordinary least squares

SPS

Sanitary and Phytosanitary

TBT

Technical Barriers to Trade

TRAINS

The UNCTAD Trade Analysis Information System

UN Comtrade The United Nations Commodity Trade Statistics Database
WTO

World Trade Organization

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CONTENTS
ABSTRACT .....................................................................................................................
ACKNOWDGEMENT ....................................................................................................
ABBREVIATIONS .......................................................................................................
CONTENTS ...................................................................................................................
LIST OF TABLES ........................................................................................................
LIST OF FIGURES .....................................................................................................
CHAPTER 1: INTRODUCTION ....................................................................................

1.1. Problem statement ....................................................

1.2. Research objectives ..................................................

1.3. Research questions ....................................................

1.4. Scope and limitations of the study ............................

1.5. The structure of the study .........................................

CHAPTER 2: LITERATURE REVIEW.........................................................................

2.1. The definitions .........................................................
2.1.1

Pesticides ..............

2.1.2.A maximum residue level or limit (MRL)............................................................

2.2. Some contributions to gravity model theory ............

2.3. Empirical research ....................................................
2.3.1.Gravity model estimation using MRLs ................................................................
2.3.2.Gravity model estimation using the regulated numbers of pesticides ................

2.3.3.
Gravity model estim
pesticides ...........................................................................................................................
2.3.4.Distance and GDP per capita in gravity model ..................................................
2.3.5.Extended control variables in gravity model ......................................................

2.4. Literature review summary .....................................

CHAPTER 3: SITUATION OF VIETNAMESE COFFEE DURING 2005 - 2014 .....

3.1. Advantages ..............................................................

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3.2. Disadvantages .............................................................................

3.3. The top contribution rankings for the importing Vietnamese cof

CHAPTER 4: ECONOMETRIC MODEL AND DATA ..............................................

4.1. Specification of the model ......................................

4.1.1. Gravity model .......
4.1.2.Extended variables in gravity model ..................................................................

4.2. Data .........................................................................

4.2.1. Data source ...........

4.2.2. Data description ....

4.2.3. Descriptive statistic

4.3. Econometric models ................................................

4.3.1. Pooled OLS ..........

4.3.2. Fixed Effect Estima

4.3.3. Random Effect esti
4.3.4.Driscoll and Kraay estimation ............................................................................

4.4. Choosing between OLS, Fixed Effect, and Random
4.4.1.F Test for pooled OLS or Fixed Effect estimation .............................................
4.4.2.Breusch and Pagan Lagrangian Multiplier Test for Random Effect or OLS .....

4.4.3. The Hausman test .

4.5. Post-estimation tests ................................................

4.5.1. Multicollinearity ...
4.5.2. Heteroskedasticity

4.5.3. Serial correlation...

CHARTER 5: EMPIRICAL RESULTS .......................................................................

5.1. Correlation matrix of all variables in the model .....

5.2. Estimating the intuitive gravity model ....................

5.3. Empirical results .....................................................
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5.3.1.

The empirical results in the gravity model u
pesticides variable .............................................................................................................

5.3.2.
The empirical results in the model using av
variable.. ............................................................................................................................ 39

CHAPTER 6: CONCLUSIONS AND POLICY IMPLICATIONS .............................

6.1. Conclusions .............................................................

6.2. Main findings ..........................................................

6.3. Policy implications ..................................................

6.4. Limitations and future research ...............................

REFERENCES ..............................................................................................................
APPENDICES ...............................................................................................................

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LIST OF TABLES
Table 3.1. Top 10 importing countries (selected data on share export quantity during
2005-2014) .............................................................................................................
Table 4.1: Descriptive statistical analysis ....................................................................
Table 5.1: The empirical results using the regulated number of pesticides variable ............
Table 5.2: The empirical results using average maximum residue levels variable ...............

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LIST OF FIGURES
Figure 1.1: Vietnam’s coffee export value in the period of 2004-2014 ...............................
Figure 2.1 : Analytical Framework for Vietnam’s Coffee Export and its influencing factors. 17

Figure 3.1: Distribution of Vietnam’s coffee to the major importing countries in the period of
2005-2014. ............................................................................................................. 21

Figure 3.2 : The top ten rankings for the major importing Vietnamese coffee countries
annually. ................................................................................................................
Figure 5.1: The correlation matrix of variables .............................................................
Figure 5.2: The relationship between Pdistance and Vietnamese coffee export ..................
Figure 5.3: The relationship between GDP per capita of importing countries and Vietnamese
coffee export. ..........................................................................................................

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CHAPTER 1: INTRODUCTION
1.1. Problem statement
It is undeniable that Vietnam is an agricultural country although the government is
still moving towards industrialization and modernization in the future. Meanwhile,
agricultural products in general and coffee commodity in particular play a crucial position in
export turnover of Vietnam. To describe this matter, it may consider the total exports of
Vietnam in the period of 2004-2014 which has been increasing significantly recent years.

Figure 1.1: Vietnam’s coffee export value in the period of 2004-2014
The Vietnamese economy has been entering a new development stage after joining

WTO since 2007 wherein coffee export sector also adjusts to a great turning point. The value
of coffee export reached more than USD 2.1 billion in 2008. Subsequently, it dropped in the
two following years with the value export of nearly USD 1.76 and 1.90 billion respectively.
Nevertheless, there are also some years witnessing the decline in coffee export from Vietnam.
Specifically, demand from these countries and regions were also dropped slightly in 2010 and
2011 due to the change in food safety regulations. However, it resumes good performance
period from 2011 to 2014. Furthermore, Vietnamese coffee is noticeably exported to many
countries around the world.
At the same period times, the tariff barriers in the world incline to drop. Specifically,
as a result of WTO, FTA joining or agreements on bilateral and multilateral treaties among
countries, tariff is on the way to be lowered gradually. Predictably, it will not be the important
barrier in the coming time. In practice, Henson and Loader (2001) identify that it appears to
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play the less essential role in international trade due to its liberalization while the impact of
other barriers have been rising in the recent year. Therefore, non-tariff barriers become a
indisputably primary problem that Vietnamese coffee exporters have to encounter.
As a consequence, the paper of Otsuki et al. (2001) highlight that there are only 2.3
deaths every year if the EU harmonized Aflatoxin B1 standard of 2 ppb is applied for
commodities of edible nuts, dried and preserved fruits, and cereals which are replaced for
Codex guideline of 9 ppb. This death figure is extremely modest since there are 33,000 people
deaths of liver cancer in EU per year while the amount loss in the case of an application for
EU harmonized Aflatoxin B1 standard is approximately USD 670 million. Xiong and Beghin
(2011) also prove that the importing countries have a tendency to enhance the technical
barriers to exporting countries. In illustrating this, importing countries treat food safety
standard (FSS) as a reliable obstacle for protecting the health of the consumers in their own
countries. Furthermore, FSS is treated as a powerful tool to restrict imports of products from
the exporting country. In addition, Wei et al. (2012) discover that honey export from China
drops significantly since 2000 due to the strict regulation of food safety on this commodity.

Likewise, Ling (2013) finds out that the vegetable export of China is undesirably triggered by
the increase in pesticide residue limits of the importing countries such as America, Europe,
and Japan.
On the other hand, tariff has an incontrovertible tendency to be the less vital role in
terms of a market-entry barrier for developing countries to confront with. Additionally, nontariff barriers become remarkably crucial. Apparently, even though the contribution values of
coffee export from Vietnam as well as the issue of FSS which is connected with non-tariff
barriers are incredibly critical, there are not any studies to analyze the effect of FSS on the
coffee export from Vietnam. That is the main reason which creates the great motivation for
studying the issues in this thesis.
1.2. Research objectives
This thesis mainly concentrates on the impact of FSS measured by the regulated
number of pesticides or average maximum residue levels on Vietnam’s coffee exports in the
years of 2005 - 2014. The thesis intends
i.

to study the effect of the regulated number of pesticides on the coffee

export of Vietnam.
ii.

to investigate the influence of average maximum residue levels on the

coffee export of Vietnam.
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iii.

to draw some practical policy implications for enhancing the coffee export

of Vietnam based on the findings of the thesis.
1.3. Research questions
In order to reach these objectives, there will be two following questions in the thesis.
Question 1: Do the regulated number of pesticides affect the quantity of Vietnamese
coffee export?
Question 2: Do average maximum residue levels affect the quantity of Vietnamese
coffee export?
1.4. Scope and limitations of the study
The scope of this study is confined to scrutinizing influences of FSS in terms of a
number of pesticides or average maximum residue levels on the coffee from Vietnam exported
to 56 primary importing countries in the period of 2005-2014 which is based on the data
availability.
Furthermore, the limitation of the study is the limited data for a number of pesticides
or average maximum residue levels imposed by importing coffee countries. The data that can
be retrieved from Agrobase-Logigram’s Homologa database are applied for only these 56
countries. These countries chiefly import Vietnam’s coffee in the period of 2005-2014.
1.5. The structure of the study
The study is organized into 6 chapters as follows.
Chapter 1 presents an overview of the study, the reason for choosing the issue of the
impact the FSS on Vietnamese coffee export.
Chapter 2 demonstrates an overview of previous research on the relationship between
FSS and exports together with the extended important explanatory variables. This chapter is
seen as the literature review.
Chapter 3 discusses the situation of coffee export from Vietnam in the period of 2005-2014.
Chapter 4 expresses a detail of the research methodology, measurement method of the

variables as well as data collection and process.
Chapter 5: Reports and discusses the findings of the study from the econometric models.

Chapter 6: Concludes and draws the noteworthy policy implication and suggests some

of the limitations of the study.

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CHAPTER 2: LITERATURE REVIEW
2.1. The definitions
2.1.1 Pesticides
There are some definitions of pesticides. However, it is well defined by The
International code of conduct of WHO (2010) as: “Any substance or mixture of
substances intended for preventing, destroying or controlling any pest, including vectors of
human and animal disease, unwanted species of plants or animals causing harm during, or
otherwise interfering with, the production, processing, storage, transport, or marketing of
food, agricultural commodities, wood and wood products or animal foodstuffs, or which may
be administered to animals for the control of insects, arachnids or other pests in or on their
bodies. The term includes substances intended for use as a plant growth regulator, defoliant,
desiccant, or agent for thinning fruit or preventing the premature fall of fruit, and substances
applied to crops either before or after harvest to protect the commodity from deterioration
during storage and transport.”
2.1.2. A maximum residue level or limit (MRL)
It is defined by Ferro (2013) as “the maximum amount of residue legally permitted on
food. Once residues are demonstrated to be safe for consumers, MRLs are set by independent
scientists, based on rigorous evaluation of each pesticide legally authorized. They act as an
indicator of the correct use of pesticides and ensure compliance with legal requirements for
low residues on unprocessed food. MRLs ensure that imported and exported food is safe to
eat.” Similarly, MRL also is used from a definition of The International code of conduct as
“the maximum concentration of a residue that is legally permitted or recognized as acceptable
in or on a food or agricultural commodity or animal feedstuff.”
Meanwhile, there are Codex standards which are internationally negotiated in order to
provide a benchmark for private and government to follow standards. To facilitate agri-food

trade, the Codex have to promote the international coordination of agri-food standards and
target to protect consumers’ health. In practice, although these levels are regulated by Codex
Alimentarius, they are regulated by countries in international trade. As a matter of this, these
limits are widely varied by trading countries which produce International harmonization of
MRL to not exist globally. Specifically, trading countries will establish a different number of
registered pesticides as well as MRLs. To illustrate it, Italia regulates 539 limits of pesticides

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for coffee while Japan imposes 649 limits of pesticides for the same coffee commodity in
2014.
2.2. Some contributions to gravity model theory
Similar to the law of gravity of Newton, the basic gravity model suggests the flows of
trade between two countries are derived from the product of the two countries GDP to
geographic distance between them. Meanwhile, the economic scale is measured by GDP is
proxy for masses of countries and transportation cost is measured by geographic distance.
These two variables are considered as the primary ones in the gravity model proposed by the
pioneers like Tinbergen (1962) and Pöyhönen (1963) to study trade flows in the international
markets. After the initiative works by these two authors, the gravity model has been widely
employed in empirical studies of international commerce. Nevertheless, the models have been
subjected to criticism for their lack of clear theoretical foundation. As a result, gradual
improvements have been made over time not only to fill the theoretical gap but also to
develop the theoretical explanation of the gravity model.
Another development in overcoming the lack of theoretical underpinnings of gravity
model involves its derivation from relevant theories of international trade. Hence, Linnemann
(1966) is one the leading scholar who tries to provide some theoretical foundations for the
gravity model. His main contribution relates to the derivation of gravity equation for export
supply and import demand as a reduced form in the partial equilibrium model, where price
factor discarded. However, this early effort appeared to be inconsistent with the multiplicative

form of the partial equilibrium model.
Based on the hypothesis of indistinguishable homothetic preferences across regions for
the properties of the expenditure system, Anderson (1979) is the pioneer economist to make
an another contribution for deriving the gravity model. Following the assumption of
Armington, which said there will be imperfect substitutes in demand if two products of the
identical type originated from different regions. Thus, products are differentiated by the origin
of producing place in his model generate production place to be essential in relation to the
implied trade costs. Furthermore, under the concern of all other possible flows of trade,
Anderson constructs bilateral trade flows to further flexibly be estimated. As a reason, instead
of treating as an absolute formation of bilateral trading countries, the gravity model can be
interactions in a bilateral trade with a comparative analysis of trade flows.
As a replacement for nomothetic preferences from Anderson (1979), the conditions of
monopolistic competition among firms and increasing return to scale are assumed by
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Helpman and Krugman (1985). Likewise, they augment the utilization of gravity model in
light of these assumptions. In view of the economies of scale at the firm level, a monopolistic
rivalry is expected to clarify the reason that the manufacture of differentiated products are
specialized by firms. These authors attempt to make an explanation for the trade of products
relevant to the identical product class which is referred as intra-industry trade. With small
characteristics, products in this class can be distinguished from other products in different
class.
Meanwhile, with the assumption from Bergstrand (1989) the same price is charged in
the market by firms within the identical industry in a nation; therefore, labor and capital in
terms of input determinants are utilized with the same technology among firms. Because the
firms focus on manufacturing a differentiated product and a fixed supply of labor and capital
in a country which interacts in monopolistic competition, the products will be exported to
trading partners to maximize the profit in the case of a constant elasticity of transformation
function. He also provides the clarification that in the first stage firms can manufacture with

rising returns to scale. However, when firms export to trading partners, they face the
decreasing returns to scale due to transportation costs in the second stage in the light of
gravity model. In addition, authors handle data of 9 different industries in 16 industrial
countries in the year of 1965, 1966, 1975 and 1976. In the finding, income per capita from
exporters shows a sign of the positive relationship while distance variable indicates a negative
sign.
Conversely, the (H-O) model from Heckscher-Ohlin states that the different factor
endowments among countries lead to the trading of the countries due to a dissimilar
productivity in producing products. For instance, Vietnam will either export intensive-labor
products such as garment, shoes or agricultural product with comparative advantage. On the
contrary, Vietnam will import capital-intensive or technology product from trading partners.
With the assumptions of homogeneous products, homothetic preferences in addition to
differences in factor endowments in the perfect competition, Deardorff (1998) derives the
gravity model by applying Heckscher-Ohlin (H-O) model in two extreme scenarios of
frictionless and impediments in trade.
For the frictionless trade, it is based on that there are not any transportation cost and
barriers to trade in homogeneous goods. Constructed on the theory, expected trade flows that
correspond to simple gravity equation is attained by authors with these assumptions. In the
second scenario of trade impediments, he presumes that countries manufacture differentiated
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products, Cobb-Douglas preferences applied in the gravity model and Constant Elasticity of
Substitution (CES) preferences are derived. Basing the estimation of gravity model on
important hypotheses, the analysis is crucially supported. Furthermore, the author also
expresses that the transportation cost and elasticity of substitution could be the determinants
impacting the gravity model. Further specifically, if countries are adjacent to each other, there
will be more trade among them and vice versa. Similarly, the reduced transportation cost
because of advanced technology can be familiar with export values expected by the standard
gravity model.

Alternatively, production technology and various costs are also referred as
comparative advantage. Developed from Ricardian trade theory with the assumption of
comparative advantage creates trade to be beneficial, Eaton and Kortum (2002) augment the
gravity model by establishing on different production technologies. They make the
assumption that the factor of labor is known as an only element of production that is not
moving internationally. The trading partners possess heterogeneity in their production
technology which differs from products are differentiated by factor endowments of the
Heckscher-Ohlin and by diversity preference of Helpman-Krugman models.
Anderson and Van Wincoop (2003) propose the fundamental theory for the gravity
model stating that fixed effect variables of exporting and importing countries can encounter
the resistance to trade from trading countries. In addition, these authors also discuss both of
the inward and outward multilateral resistance. The former can be explained as the barriers to
trade imposed by importing country on its potential trading exporters. Consequently, if the
trade barriers are increased will cause the product relative price of exporters reduces.
Meanwhile, the latter is said that the trade barriers of exporters are higher triggering their
products hard to be exported to the other countries which finally lead to the reduction in
product prices. In addition, their findings indicate that if trade barriers are enlarged, the
multilateral resistance of a large country is less affected than that of a small one. It is clearly
known that the small countries strongly rely on international market while big countries do
not since they have larger home markets.
Theoretically, the traditional variable in the gravity model such as distance, GDP per
capita replaced for GDP, population. Nevertheless, recently, other explanatory variables have
been further employed in the gravity models by other scholars at a various time. Thus, the
gravity model is still extended to analyze the added variables that researchers are interested in.
For this reason, the model is continually extended and developed to be able to gain an
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adequate explanation for the variations in the flow of trade thanks to the combination of
various essential variables.

Therefore, they make a great effort to justify the fluctuations in trade flows by
employing several explanatory variables. In practice, researchers are gradually introducing
extended variables in gravity model such as trade restrictions, domestic consumption,
exchange rate, trade policy regime, trade agreement, tariff rate and other determinants into the
gravity model. Additionally, dummy variable has been incorporated to apprehend the element
of trading countries’ cooperation that may produce trade in the international market. These
determinants are presented in the below empirical studies in details.
2.3. Empirical research
There are many kinds of gravity models in which they basically account for the
unilateral or bilateral trade between distances as well as an economic scale of trading
countries. Many approaches are used for modeling the influence of FSS on the exporting
volumes. However, there are three main models including the major explanatory variable of
FSS such as gravity model estimation using MRL, gravity model estimation using regulated
numbers of pesticides, and gravity model estimation either using MRL or regulated numbers
of pesticides as following 2.3.1 to 2.3.3 respectively.
2.3.1. Gravity model estimation using MRLs
MRLs are used in many studies to quantify the effect of MRLs in a framework of the
gravity model. Fundamentally, the changes in MRLs of certain pesticides are estimated to
obtain significant coefficient for evaluating changes in flows of international trade.
Nonetheless, it also relies on their institutional ability for implementing residue level limit
(Kim & Reinert, 2009) when calculating the standards.
Otsuki et al. (2001) apply gravity model to study EU Aflatoxin standard as MRL of
cereal and cereal preparations and fruit, nuts, and vegetables from 9 exporting African
countries and 15 importing EU countries. The data is covered between the year of 1989 and
1998. Authors mainly implement the new Aflatoxin standard established by these EU
countries. They take a logarithm of both sides for dependent and independent variables
together. The findings designate the elasticity of 1.10 and 0.43 for cereal and cereal
preparations and fruit, nuts, and vegetables correspondingly. Evidently, export volume is
positively correlated with MRL in their research. The results highlight that when the new
MRL is lower, which is more stringent, the export volumes from African exporting countries

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reduce. To emphasize it, if Codex standard is applied as a replacement for EU standard which
is referred as stricter standard, the trade value of these products exchanged by these countries
can raise around USD 670 million.
In the same published year, similarly, Wilson and Otsuki (2001) gather data of 15
importing countries including 4 developing countries and 31 exporting countries including 21
developing countries in order to evaluate the crucial factor of the Aflatoxin level requested by
these importing countries on the commodities of cereal, dried fruit, and nuts. The used method
in this paper is the gravity model with the fixed effect for each commodity. This result can
gain elasticity of these commodities corresponding with the standard of Aflatoxin B1 which is
estimated with the coefficient of 1.12, 0.34 and 0.09 for cereals, dried fruits, and nuts
separately. The findings show this substance positively affects export values of 31 countries
which imply the loose MRL leads to the higher export. This positive sign is also consistent
with the previously mentioned research of Otsuki et al. (2001). Furthermore, their model
forecasts that there will be an increase with a figure of USD 38.8 billion in total world export
if an international standard regulated by Codex is applied as an alternative of different
standards by importing countries.
Instead of using Alatoxin, Wilson et al. (2003) employ Tetracycline standards as MRL
to analyze the impact of this substance on beef export value. In their research, authors exploit
data covering 16 exporting countries including the developing and developed countries over
the period of 1995 - 2000. This applied approach is gravity model employing a fixed effect
regression which is able to allow the constant term to change across trading countries.
Moreover, these authors apply the dummy variable as a proxy for the Tetracycline standard
when the importers’ current standard is more stringent than that of exporters. Their outcome
points out that export value will be decreased by 5.9% when MRL of this substance lower by
10%. It is obviously found that Tetracycline standards imposed by importing countries lower
beef trade. Furthermore, in spite of the standards of exporters, the Tetracycline standards
required by the trading partners have the identical deterring impact on beef trade. Besides,

they realize that the global export of beef can be risen by above USD 3.2 billion in the case
international standard of Codex is adopted by trading countries.
Furthermore, Moenius (2006, May) estimates a gravity model in which bilateral trade
value is regressed on a number of specific criteria shared standards. There are 15 countries
together with 80 different agricultural industries for the period of 1998 – 1995 in their data
set. The author divides data into two groups of outsider and insider which belong to non-EU
9


countries and EU members correspondingly. He discovers that bilaterally shared standards of
the same member group like EU members have useful protection for their imports from nonEU countries in addition to promoting their trade. Meanwhile, this shared standard within EU
members also lowers international cost trade as well as lower variety.
In addition, the recent study of Drogué and DeMaria (2012) investigate the regulation
of MRLs on specific commodities of apples and pears. For this reason, two authors have an
inquiry to the different regulations on MRL whether they affect trade or not. They collect the
panel data covering 38 exporting countries and 40 importing countries in the annual period of
2000 - 2009. These countries in a sample are based on criteria that the data is available for
MRL of pesticides possessing the consumption level related to these two kinds of fruits. As a
substitute for the simple estimation method of OLS regression, these authors also applied the
advanced estimation methods which are Poisson Pseudo Maximum Likelihood (PPML) and
the Negative Binomial Regression (NBR) to solve biased estimations on account of
heteroskedasticity from OLS regression. Their research specifies that similar regulations on
MRLs among countries will lead to increased value of international trade. On the contrary, a
rise in the strict regulations forces fruit trade from developing countries to be less competitive
than developed countries.
Another research of Atici (2013) applies pesticide regulations within the framework of
a gravity model. Using panel date of unilateral export flow between the year of 1995 and
2011, the author adopts this variable of food safety regulation for Aflatoxins compelled by EU
to observe its consequence for fig and hazelnut of Turkey exported to EU. According to the
author, the balance of payment problem in international trade can be avoidable thanks to the

aspect of the unilateral export flow. In addition, he applies the fixed effect in his gravity
model to prevent the bias of omitted factors by reason of unobservable multilateral
resistances. This finding of his paper reflects that the food safety regulation variable has the
deterring relationship with fig and hazelnut export for developing countries in the context of
Turkey.
2.3.2. Gravity model estimation using the regulated numbers of pesticides
Chen et al. (2006) challenge the influence of technical requirement at the enterprise
level. The authors handle data covering 17 developing countries internationally trading with 5
importing countries which are US, Canada, EU, Australia and Japan. Their empirical analysis
based on Technical Barrier to Trade Survey of World Bank providing the enterprise-level data
on standard and compliance costs. They exercise econometrical estimation of ordered logit
10


model to monitor effect of standards on trade from the perspective of specific exporters and to
concentrate on the technical regulations imposed by importing countries. The research
indicates that exporting firms from these 17 developing countries are seriously adversely
affected by various types of technical regulations such as the testing procedure, information
access, and testing process regulations.
Different countries will implement and enforce a different number of standards when
they are in foreign trade. Another research from Jayasinghe et al. (2010) studies the number of
SPS regulations imposed by trading importers. These authors are interested in the impact of
the number of SPS regulations on the corn seeds export from United of States. The data set
covers selected 48 importing countries over the period of 1989 – 2004. The explanatory
variables for the corn seeds export from United of States are applied in the gravity model are
tariffs, distance, and SPS regulations. By applying the OLS regression and Maximum
likelihood estimator, their findings infer that the number of SPS regulations have an adverse
consequence for United of States’ corn seeds exported to these selected countries.
One recent study embracing this variable method is Ling (2013) who evaluates the
effect of the number of vegetable pesticide limits regulated by collected countries on

vegetable export volume of China over the period 1995 - 2010. There are some such
explanatory variables as GNP per capita of exporting countries and importing countries, the
absolute distance between the capital of China and that of importing Chinese vegetable
countries, the primarily interested variable of the number of pesticide imposed in the
importers, and the number of pesticides imposed in the exporters for vegetable commodity.
Thus, there appear quite a few explanatory variables which can be regarded as the limitation
of this research. Besides, the author estimates a gravity model with estimation of OLS, fixed
effect, and random effect regression. He utilizes the results from fixed effect regression which
is the best winning method. This result indicates that the strictness of residue limits in terms of
regulated numbers rises by 10% will reduce China’s vegetable export by 4.16% significantly.
Consequently, the vegetable export volume of China is adversely caused by an increase in a
number of MRLs regulations which are the same outcome as mentioned study of Chen
(2006).
2.3.3. Gravity model estimation either using MRL or the regulated numbers of
pesticides
There are many papers researching either MRL or number of MRL regulations as the
interesting variables to estimate its influence on international trade of agricultural products.
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For that reason, Ferro et al. (2013) have an inquiry to the impact of agricultural product
standards on export from developing countries. Instead of employing MRL of specific
pesticides or number of SPS notifications from WTO Committee to monitor the product
standard as previous studies, they apply data set for MRLs from approximately 61 importing
countries which are collected from Agrobase-Logigram’s Homologa database in this paper. It
is indisputable that the data set from this organization is considered as the pioneer in utilizing
the time-series database of MRLs import restrictiveness.
In their study, they deeply investigate the impact of either average MRLs or the
number of MRLs of a specific product regulated by these importing partners based on the
valuable database which are provided by this organization. The important results for the

average MRLs and regulated the number of pesticides specify the negative and positive
correlation with exports respectively. For instance, the exports will be reduced when average
MRLs is lower; whereas, the regulated number of pesticides increase will lead to a decline in
exports into given destination markets.
Similarly, Dong and Zhu (2015) question the effect of Fenvalerate and Endosulfan
pesticides which are proxy for MRL as well as a number of SPS on Chinese tea export
established by developed countries. The annual time for this data set is covered in the period
of 1992 – 2013. They apply the OLS, FE, RE and PPML models to estimate the effect of these
two substances and SPS numbers in addition to control variables of GNI, distance, tariff so
forth. Their research advances that the tea export from China is significantly affected by the
different numbers of SPS. To specify it, the regulated MRLs raise by unit, the tea export from
China will go down by 0.6%. Moreover, if there is a rise in 1ppm, Chinese tea export will be
reduced by 1.6% and 0.7% for MRLs of Fenvalerate and Endosulfan respectively.
2.3.4. Distance and GDP per capita in gravity model
The distance is regarded as one of the primary explanatory variables in the gravity
model. Brun et al. (2005) have an inquiry to the influence of distance in the context of
globalization and the flat world which means the distance is not as vital as previous time. For
that reason, “the death of distance” is the term that is also discussed in their paper. Data
during the period of 1962-1996 from a large sample of 130 countries are collected. Besides
the main interested variable of distance, there are predictors such as population and the
trading partners’ incomes. These authors employ estimation by using a fixed-effects estimator
in panel gravity model. Their finding specifies the significant effect of distance variable on
two-sided trade over the period of 35 years which is raised by 11 percent as an alternative of
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the expected fall. Besides, Drogué and DeMaria (2012) realize that distance is a significantly
influencing factor on trade. To illustrate it, the trade volumes among these countries will be
negatively affected by physical distance with the coefficient figure of -0.54.
Another research from Sarker and Jayasinghe (2007) examine the trade flow of six

agricultural products trading from European Union (EU). Even though the extended gravity
model is applied with more extended regressors in their model, the estimation methods are
merely generalized least squares and pooled data. Additionally, they divide the data into the
interval of three years during 1985-2000 for each of the six agricultural commodities to
analyze the effects of regressors on the trade flow. This finding from the three-year interval
for each of estimation model indicates that the distance effect is identical impediments to the
flow of trade for each of agri-food products. Similarly, Chen et al. (2008) apply fixed effect
regression to monitor the effect of non-tariff barriers on agricultural export of China. The
findings also discover that the distance element has a significantly negative effects on five
agricultural commodities exported from China.
On the other side, it can be expected that the high national income in term of GDP per
capita will demand further products in international trade. Bergstrand (1989) points out that
importers’ incomes deliver knowledge about spending abilities, as well as of purchaser
inclinations in the import markets. Consequently, Lee and Park (2007) also take GDP per
capita to observe its effect on trade of East Asian. They replicate the data from Rose (2005)
which include 175 countries over the time year of 1994 – 1999. They uncover that there is a
significantly positive impact of this variable in the gravity model by using both random effect
and fixed effect regression.
Meanwhile, Khan and Kalirajan (2011) collect cross section data in the year of 1999
and 2004 from Pakistan’s trade data to study the export growth of Pakistan. The GDP per
capita is included in the gravity model to explore the effect of this variable. The coefficient of
this variable is displayed as a positive sign of 0.57 and 0.53 for the year of 1999 and 2004
respectively in his research. However, the limitation of this model is just applied for cross
section data as a substitute for panel data due to the lack of data.
2.3.5. Extended control variables in gravity model
In the light of gravity model in order to consider trading volumes, domestic
consumption is one of control variables. As the matter of that, Mangelsdorf et al. (2012) apply
the variable of domestic consumption as a proxy for potential demand to be measured for
agricultural and food products from China. They manipulate seven Chinese products exported
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to 132 countries in the period of 1992-2008 in a panel dataset. Furthermore, their result is able
to confirm the positive effect of this variable represented as domestic consumption of
importing countries on the export of these seven Chinese products. Particularly, the coefficient
of this variable is significantly sign of 0.127 which implies domestic consumption has a
positive effect on Chinese seven products in this study.
In the meantime, it is undeniable that real exchange rate is one of the determinant
variables in explaining the outcome of trade in gravity model. Commonly, export performance
of certain country can be enhanced when the exchange rate is really depreciated due to an
increase of their competitive products in the international markets. Nevertheless, there are
disagreement among the findings from the previous research that the real exchange
appreciation will create either a growth or fall in export. Therefore, Fang and Miller (2007)
collect monthly data in the year time of 1979-2002. The bivariate GARCH-M model is
applied to conduct investigation into the significance of depreciation of exchange rate and risk
of exchange rate on export for Singapore. Their outcome indicates the real exchange rate is an
insignificantly positive sign due to the weak correlation between Singaporean export and
depreciation of exchange rate. Meanwhile, exchange rate risk can create an impediment to
Singaporean export.
On the other hand, Nowak-Lehmann et al. (2007) gather the data during 1988-2002 to
scrutinize the sectorial trade flow between Turkey and EU. They apply some important
predictors such as GDP per capita, GDP, real exchange rate, and transportation costs in their
gravity model. They claim that real Turkish exports in most sectors are enhanced by an
appreciation of Turkish real exchange rate. For instance, this variable in the full sample
reports positive sign with the coefficient of 1.14 at the significant level of 1%.
Nonetheless, Aristotelous (2008) finds out the diverse result for real exchange rate that
Greek export performance to Eurozone countries is negatively affected by the appreciated
exchange rate with statistically significant at the level of 5% after this nation has applied the
European Monetary Union since the year of 1999. Consistently, Thorbecke and Zhang (2009)
also indicate a same evident that export of Chinese labor-intensive products is remarkably

decreased by appreciated Chinese RMB by using panel data set for Chinese labor-intensive
products exported to 30 countries.
Besides, the trade agreement in terms of joining World Trade Organization (WTO) is also
interested by researchers. They pose a question that becoming WTO member will
enhance trade of countries or not. Rose (2005) utilizes the gravity model with the large data
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during 1950-1999 to treat a variable of becoming WTO member as dummy one. Nonetheless,
the outcome from research determines that there is not an influence of this WTO member
variable.
In the meantime, Subramanian and Wei (2007) apply the gravity model including
country fixed effects for their regression to search this question and find out that there is a
strong impact of this variable on developing countries’ export. Additionally, Liu (2009)
gathers data including 210 countries or region in the period of 1948-2003 to research the
effect of variable dummy of WTO member. His results confirm that WTO member improves
trade of the existing trading partners together with building connections of trading which are
referred as intensive margin and extensive margin separately.
In view of trade policy regime, trade openness is considered as how much that one
country is open to trade with other partners. Moreover, this variable is also important in
gravity model to research its effect on international trade. Therefore, the effect of trade
openness of importing countries on the agricultural export of Egypt is hypothesized by Hatab
et al. (2010). They apply the gravity model with data of 50 countries which import the
agricultural export of Egypt in the period of 1994-2008. However, this variable is shown as
statistically insignificant result which indicates this variable does not account for Egypt’s
agricultural export. Meanwhile, Jongwanich (2009) finds out the distinctive outcome for trade
openness with a statistically significant coefficient of 1.93.
The tariff rate has not been more important as NTMs recently. Nevertheless, the
variable is still not omitted in investigating foreign trade in gravity model. According to
Wilson and Otsuki (2004), they also consider this variable in their model to monitor its

consequence on the agricultural product of banana. They examine the applied ad valorem as
tariff variable and uncover that there is the negative link between the tariff and value of trade
flow.
Meanwhile, the stronger influence of food safety trade than tariff barriers are also
found in the research of (Drogué & DeMaria, 2012). In addition, Dong and Zhu (2015)
manipulate the simple average tariff as a control variable to measure its contribution to
China’s tea export. The findings also statistically confirm that there is a negative relationship
between this variable and tea export from China. Furthermore, this result is consistent with the
finding of this variable researched by Wei et al. (2012).

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2.4.

Literature review summary

Although gravity model can be applied to other fields of studies such as human
migration and investment flows across countries, the gravity model is one of the most crucial
empirical models in the measurement of trade in international markets. In view of that, there
are surplus numbers of literature reviews which have been published using this model. This
extended gravity model applies the panel data to exploit the values or volumes of export of
unilateral and bilateral trades.
Basically, it bases on some major explanatory variables such as GDP per capita,
distances, FSS, domestic consumption, real exchange rate, openness and tariff of trading
countries. Possibly, some trading policy variables can be omitted due to lack of data in the
model. Therefore, countries specific fixed effects can be applied to correct the omitted trading
policy variables together with all other countries specific influence in this case. These
differences are also solved in the extended gravity model by using the countries specific fixed
effect based on the previous papers.

Furthermore, many scholars employ the regulated numbers of MRLs or average MRLs
as variable represented for FSS to measure the stringency of standards in gravity model. The
findings in these studies determine there is the positive relationship between the regulated
numbers of MRLs and trade which implies this variable is further imposed by countries on
importing commodities will reduce the export quantities of exporting countries. Meanwhile,
average MRLs manifest the negative bond with export volumes which imply that the low
average MRLs will reduce the export volumes. However, it is obviously seen the tendency
that most of the researchers make efforts to concentrate on one specific MRL on one product
because of the data availability shortage. This issue can be viewed as the limitations of the
mentioned research in literature reviews.
Finally, to obtain the appropriate explanatory variables in the gravity model for this
thesis, analytical framework for Vietnam’s coffee export and its influencing factors can be
also retrieved and summarized from the previously discussed studies as the below figure.

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