The political economy of small and medium-sized enterprises in Vietnam.

Abstract

The thesis includes four key papers, in addition to the introduction and conclusion chapters, on the political economy of SMEs in Vietnam. The first paper examines the relationship between political connections and firm survival of manufacturing SMEs. I use the Communist Party membership of firms' owners as a proxy for political connections. This paper employs the Cox model for firm survival analysis, and the results show that politically connected firms can survive better than their peers when controlling firm characteristics. However, political connections are not associated with firms' productivity and growth. This paper raises a discussion for firms to consider the trade-off between investment in social capital and physical capital. This paper suggests that the Vietnamese government should create a level playing field for firms in which non-connected firms should have equal chances to survive. The second paper investigates the impact of political networks on firm innovation. Here, I use the number of contacts with politicians and public servants as a continuous-value proxy for political networks. This paper combines Probit models and instrumental variables to control for possible endogeneity biases, i.e., innovations require more political networks and political networks also has some impacts on innovations at the same time. The results show that political connections positively impact firms' innovation. In particular, firms with more contacts with politicians are more likely to improve their current products, introduce new products or new production processes. The results also show that government assistance plays an intermediate role in this relationship as politically connected firms are more innovative when receiving government support. The last two papers investigate corruptions in Vietnam. The third paper examines the impact of corruption on export. The analysis is undertaken by fitting the Probit and Tobit models to the Vietnamese SME panel data from 2007 to 2015, with an instrumental variable to correct corruption's possible endogeneity. I find a positive correlation between corruption and firms' participation in export markets. Firms engaged in corruption are more likely to export. However, corruption does not have significant impacts on the share of export over total revenue. This paper suggests that a transparent and low transaction cost business environment is important for all SMEs to enhance their competitive capacity and efficiency and participate in international supply chains. The final paper examines the relationship between corruption and gender in business. This paper fits the random effect logit and Tobit models to the Vietnamese SMEs' panel data from 2011 to 2015. The results show that female-owned firms are less associated with corruption, compared to their male counterparts. Also, household businesses and firms that do not register with local governments have fewer corruption incidences than non-household and formally registered firms. Moreover, firms that spend more time with government officials are more likely to engage in corruption. The paper suggests that gender equality programs may help improve the business environment in Vietnam. Overall, my thesis points out that in a weak institutional and inconsistent legal framework, firms tend to pursue various informal channels such as political connections and corruption to compete and survive. The results of the four papers suggest that Vietnamese SMEs may need to rely on their political relationships and corruption to smooth their business activities. However, my view does not support firms' reliance on political connections and corruption to survive and grow, even though these channels benefit firms in the short run. In contrast, firms should consider the trade-off between investing in social capital and physical capital and a non-corrupt business strategy based on improving internal competitiveness and efficiency. Show more