The Hidden Costs of Trade: Institutional and Cultural Determinants of Export Efficiency for Vietnam’s Wood Products

Vietnam’s wooden forest products industry is an important export sector, contributing to industrial growth and employment. However, it is facing increasing pressures related to challenges such as forest and export sustainability. Despite its potential, Vietnam’s export performance remains uneven across destination markets, related to the presence of significant unrealized trade potential. This study examines the determinants of export efficiency in Vietnam’s wooden forest products sector by moving beyond traditional gravity variables to incorporate institutional and cultural dimensions. Using a panel of 70 trading partners between 2004 and 2023, covering more than 93% of Vietnam’s total wood exports, this study employs an instrumental-variable single-stage stochastic frontier gravity model (IV-SFGM) to estimate trade potential. The results show that economic size, favorable exchange rates, and shared borders significantly enhance export performance. Furthermore, geographical distance and land enclosure remain persistent structural barriers, particularly relevant for bulky and logistics-intensive wood products. Institutional and cultural distance constitute substantial non-tariff barriers, significantly reducing export efficiency across markets. Conversely, regional trade agreements, trade freedom, and foreign direct investment play a critical role in mitigating inefficiencies and facilitating market penetration. Export efficiency in Vietnam’s wooden forest products sector indicates considerable improvement, rising from approximately 25% in the mid-2000s to over 55% in recent years, indicating notable progress in the market and highlighting considerable untapped potential. So, integrating institutional and cultural factors into a frontier-based gravity framework, this study offers novel empirical evidence from an emerging, biodiversity-rich economy with evolving governance institutions. The findings provide important policy implications for aligning export growth with institutional reform and trade liberalization, thereby contributing to the achievement of SDGs such as Decent Work and Economic Growth.