Productivity, efficiency and institutions : economic reforms and non-state manufacturing firm performance in Vietnam

Abstract

The domestic non-state sector is a potential core component of the economy of Vietnam. Many institutional changes have been made by the Vietnamese government during the transition to a mrket economy to support the development of the non-state sector. The thesis provides an in-depth investigation into the effects of privatisation on the new domestic non-state manufacturing sector's performance in Vietnam in a series of three core essays. The first essay (Chapter 3) examines the technical efficiency level of non-state small and medium manufacturing firms by using the stochastic frontier approach and data for small and medium enterprises in 1991, 1996, and 2001, from the Ministry of Labour, Invalids and Social Affairs of Vietnam. Both cross-section and panel models are estimated, showing a high level of technical efficiency of non-state small and medium manufacturing firms and an improvement in their technical efficiency level over the period studied. The results indicate that a greater use of family labour and a metropolitan location are associated with an improvement in technical efficiency, while direct government financial and non-financial assistance to businesses has few benefits. The performance of the non-state small and medium manufacturing firms is further investigated in the second essay (Chapter 4). In this essay, a new method called 'the error index decomposition method' is developed to analyse the contribution of productivity, firm size, and the prices of outputs and intermediate inputs to a firm's value-added. The method introduces an error term into the decomposition equation to capture measurement biases and white noise that are generated by using the industry deflator instead of the observed price to resolve the dimensionality problem. Empirical application of the method using the data set of non-state small and medium manufacturing firms in 1996 and 2001 indicates that total factor productivity is the most important factor contributing to a firm's value-added. The findings, again, reveal the ineffectiveness of the government assistance program. The third essay (Chapter 5) examines the impacts of institutional reforms with a particular focus on the second phase of the economic reforms in Vietnam since 2000 on non-state firms' economic performance. The results indicate that the improvement of government practices and institutional performance including information provision, land tenure security and labour training assistance is positively associated with non-state firm performance. By contrast, the presence of a weak judiciary system and administrative reforms impede growth of the non-state sector. The findings from the thesis imply that if the lack of a skilled labour force and capital shortages are addressed, administrative obstacles are overcome, and market information provision and the judiciary system are strengthened to promote cooperation among firms, the non-state sector in Vietnam will continue to improve overall economic performance.