Differences in Total Factor Productivity Growth Between Industry and Services: A Case Study of Vietnamese Businesses Using Heterogeneous Panel Data

Abstract

Total factor productivity (TFP) reflects the efficient use of all factors and constitutes an important source of long-term sustainable growth. Therefore, TFP growth is a key indicator to evaluate the growth and development model. This study identifies TFP growth for enterprises in industrial and service sectors to examine the differences in TFP growth between these sectors in Vietnam. The estimation is used by the Cobb–Douglas production function with two basic inputs, capital and labor, and panel data for the period 2008–2020 of business in the tier-2 industry. Research results show that in the industrial sector, capital plays a much more important role than labor in explaining output value, but in the service sector, labor plays a slightly more important role. Output growth of enterprises is mainly due to capital increase, especially in the industrial sector. During 2008–2020, both the industrial and service sectors experienced TFP growth, but it tended to slow down. Overall, the service sector has a higher average annual TFP growth than industry for most of the study period. In addition, implications for enterprises in two sectors are also proposed from the research results.