Abstract

AbstractThis paper contributes to the home (market) bias literature where administrative or political borders limit trade across borders. Home bias is well documented at the national and subnational level. To sort out macro (e.g., location characteristics) and micro (e.g., enterprise characteristics) factors behind home bias, we use small and medium‐sized enterprise (SME) data from Vietnam. Using the fractional multinomial logit model, we find that the proportion of SME sales outside of their home markets is positively associated with enterprise size, age, number of business association memberships and the distance of SMEs' most important supplier. In contrast, the proportion of SME sales to neighbouring provinces is negatively associated with the share of SME production for final consumption. Besides enterprise‐level frictions, market characteristics matter too. The proportion of SME sales to customers in their home markets is negatively associated with home or neighbouring provinces' governance quality, while the proportion of sales to customers in neighbouring provinces is positively associated with these areas' governance quality. These suggest that good governance frees SME resources for use in selling to less familiar markets.

Highlights

  • INTRODUCTION AND BACKGROUNDSmall and medium‐sized enterprises (SMEs) are the backbone of Vietnam's economy

  • To recap our findings related to enterprise characteristics: we find that the proportion of sales outside an Scale Manufacturing Enterprises (SMEs)'s home province is positively associated with SME size, age, business network size and distance from its most important supplier, while the proportion of sales outside the home market is negatively associated with the share of SME production for final consumption

  • We find that a larger proportion of sales in home markets for smaller and younger enterprises

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Summary

Introduction

INTRODUCTION AND BACKGROUNDSmall and medium‐sized enterprises (SMEs) are the backbone of Vietnam's economy. SMEs contribute 50% of output and comprise 60–70% of employment and have been the main contributors to the industrialisation and growth of some countries such as Germany (International Trade Centre, 2015) Because of their relative contributions to output and employment, SMEs have the potential to be growth engines if the multitude of internal and external operational challenges they face are resolved through policies that allow SMEs to "connect, compete and change" (International Trade Centre, 2015). Recognising this potential, on 12 June, 2017, Vietnam's National Assembly passed the Law on Support for Small‐ and Medium‐sized Enterprises (KPMG, 2017).. Recognising this potential, on 12 June, 2017, Vietnam's National Assembly passed the Law on Support for Small‐ and Medium‐sized Enterprises (KPMG, 2017). The new law builds on two previous plans to develop and increase the competitiveness of the country's SMEs. The new law provides a wide range of general support, from credit access (Article 8) to human resource development

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