Regional integration and product quality upgrading: The case of Vietnam's manufacturing industries

In this paper, I make use of Vietnam's enterprise surveys to estimate markups and product quality and investigate the effects of tariff preferences under the ASEAN and ASEAN+1 free trade areas (FTAs) on quality upgrading. The empirical results consistently show that Vietnam's manufacturing firms have moved toward high-quality products and speeded up the rate of quality upgrading in response to the increasing competition from regional imports. The quality responses by domestic firms are much stronger in the competitive industries with a low degree of concentration, but are insignificant in highly concentrated industries. This indicates the importance of the domestic competition condition in transmitting the effects of tariff reductions. The empirical results and findings remain robust when the margins of tariff preferences or imports are used to proxy for import competition.