Vietnam State-owned Enterprise (SOE) Reform: A productivity and efficiency perspective

Abstract

State-owned enterprise (SOE) reform has been one of the important pillars of the overall economicrenovation of Vietnam since 1986. Vietnamese SOEs have been moving from a cumbersome commanddriveneconomic system to a market-driven system. This thesis measures changes in the productivityof Vietnamese manufacturing SOEs over a ten year period. The focus is on possible productivitychanges due to privatisation. The thesis seeks to answer four main research questions. Firstly, what isthe productivity level of manufacturing SOEs in each of twenty-four sub-sectors? Secondly, what hasbeen their productivity and efficiency performance over time? Thirdly, what have been the componentsof manufacturing SOE Total Factor Productivity (TFP) change over time? Finally, do we see anycorrelation between the productivity levels of manufacturing SOEs and changes in their ownershiptype?O’Donnell (2016) has shown how the Geometric Young (GY) TFP index can be decomposed intovarious measures of efficiency and technical change. This thesis applies the methodology to data on684 Vietnamese manufacturing SOEs from 2002 to 2011. The dataset records changes in ownership.The dataset was created from the results of the annual surveys of the General Statistics Office with oneoutput variable (revenue) and three input variables (capital, labour and material). Two-stage maximumlikelihood methods were used to estimate the parameters of a stochastic frontier model. The estimatedparameters were used to decompose TFP into various measures of output-oriented environmentalefficiency, output-oriented technical efficiency and output-oriented scale-mix efficiency.The empirical results indicate that the average annual rate of TFP growth across the 24 sectors overthe full sample was 5.1%. Beverage SOEs had the highest productivity growth rate at 13.98% peryear. There was also a large variation in productivity and efficiency measures across different sectors.The refined petroleum products sector was found to be the most technically efficient (94.08 % onaverage). The lowest technical efficiency levels were found in the beverage (90.79%), leather andrelated products (90.41%), wearing apparel (90.49%) and transport equipment (91.26%). Averagetechnical efficiency across firms in the sample reached a maximum in 2008 and then declined at anaverage rate of 0.56% per year from 2009 to 2011. Results for SOEs were similar to results for privatefirms. The empirical results show that changes in output-oriented scale-mix efficiency, and changes inenvironmental conditions, are the main drivers of productivity change in Vietnamese manufacturingSOEs whose ownership type was changed into private firms.Results of second-stage regression indicate that the higher productivity levels of the privatized SOEs arerelative to longer post-privatization periods. This suggests that one of the best policy options to improveproductivity of manufacturing SOEs is to privatize them within a short span of time. Additionally,sectoral productivity analysis in major manufacturing sectors indicates a link between productivityimprovements and export-oriented sectors. These outcomes suggest the government should implementpolicies that promote privatization of these sectors.