Liberalisation reforms and manufacturing productivity in a transition economy: The Vietnamese experience

Abstract

This thesis examines the impacts of economic liberalisation reforms on manufacturing productivity in a transitional setting, using the Vietnamese Enterprise Surveys (VES) from 2006 to 2017. The reforms under consideration encompass trade liberalisation, foreign direct investment (FDI) policies, and ownership policy reforms, which have the potential to enhance productivity at the establishment level. Following the introductory chapter that spells out the purpose and scope of the study, Chapter 2 provides an overview of liberalisation reforms and the manufacturing sector's performance in the reform era. The chapter shows that reforms have brought about significant structural changes in the manufacturing industry: export-oriented industries have emerged as the primary source of manufacturing dynamism, with domestic private and foreign-invested sector firms playing an increasingly important role. Chapter 3 analyses the trends and patterns of total factor productivity (TFP), with emphasis on the role of changes in the ownership structure. The generalised moment of methods proposed by Ackerberg, Caves, and Frazer (2015) is used to estimate firm-level TFP. The results of the comparative analysis show a significant increase in TFP, with fully owned foreign firms (FOFs) exhibiting the highest productivity growth and the state-owned enterprises (SOEs) and their joint ventures with foreign firms (JV-SOEs) recording the lowest productivity growth. Private domestic enterprises (PDEs) closely followed the productivity patterns of FOFs and their joint ventures with foreign firms (JV-PDEs). Motivated by the results of Chapter 3, Chapter 4 examines whether ownership reforms have contributed to improving manufacturing productivity. The analysis yields three key findings: (1) the productivity of FOFs is higher than that of JV-PDEs, supporting the hypothesis that relaxing ownership restrictions on FDI has helped improve manufacturing productivity; (2) both SOEs and JV-SOEs are at the bottom of the productivity ranking by ownership structures, implying that partial divestiture of SOEs through forming joint ventures is not immune to various productivity-retarding factors affecting SOEs; (3) JV-PDEs perform better than JV-SOEs, suggesting that the choice between the state and private entrepreneurs as joint-venture partners is important in determining the productivity of joint venture firms. Chapter 5 examines spillover effects of the presence of foreign-invested enterprises (FIEs) on the productivity of domestic firms. The analysis sheds light on different channels of productivity spillover by constructing horizontal, backward, and forward productivity spillover variables. A non-competitive input-output (IO) table is used along with the VES to construct the productivity spillover variables. The results indicate that backward and forward linkages with FIEs increase productivity for local firms, with FIEs belonging to different ownership structures having different productivity spillover effects. There is also evidence that local firms operating within global production networks benefit more from the presence of FIEs than those involved in the horizontal specialisation. As a supplement to the previous chapter, Chapter 6 discusses the procedure for measuring intersectoral linkages by converting the competitive-type official IO tables for 2000, 2007, and 2012 into non-competitive IO tables. This chapter shows that intersectoral linkages computed using competitive IO tables, which lump together imports and locally produced inputs in an intersectoral matrix, can give an erroneous result in open economies like Vietnam. There are considerable differences between linkages using competitive and non-competitive IO tables. The final chapter summarises the key findings of the thesis and provides the policy implications for Vietnam for achieving long-term productivity growth. The chapter ends with suggestions of several important areas for future research.