Technology, Institutions and Productivity: Vietnamese Manufacturing Evidence

By Long, Pham Dinh; Thang, Ton Duc | Journal of International Business Research, September 2012 | Go to article overview

Technology, Institutions and Productivity: Vietnamese Manufacturing Evidence


Long, Pham Dinh, Thang, Ton Duc, Journal of International Business Research


INTRODUCTION

Vietnam is in the early stage of industrialization process with the importance of manufacturing activities in the economy. The manufacturing industries occupy the largest share in the GDP growth, but their contributions get a signal of stagnation (31.9 percent of overall GDP growth in the period 2006--2009 compared with 31.7 percent in 2001--2005). Among many reasons highlighted the problems of low capital efficiency, labor productivity and the inefficiency as well as the obstacles from the recent institutions (Nguyen & Pham, 2010).

The literature to-date relating to firm productive performance effects of technology and institutions is a somewhat shortcoming in Vietnam. After a short period of over-excitement in the first time of WTO member from early 2007, GDP growth of the whole economy and GDP growth by manufacturing industries decreased tremendously. Recent achievements are lower than state's potential and capability. Economic growth quality, productivity, efficiency and competitiveness are low and improved slowly (The Ninth Central Committee Conference, 2009).

It is agreed that the weaknesses of the economy and the manufacturing in the context of global economic crisis could be overcome to some extents if the technological and institutional factors had not created obstacles to economic development (see Vietnamese Business Forum Report, 2011). However, the empirical evidence on these constraints on the productivity of Vietnamese enterprises is rather limited. For examples, Nguyen and Nishijima (2009), using firm level cross-section data Vietnamese manufacturing industries derived from the World Bank survey in 2005, find that obstacles in policy, administration and social environment hinder firms from increasing their intensity of exports, but not the cases of constraints from physical infrastructure and factor markets. Basing on time-varying inefficiency models for the World Bank Investment Climate surveys data in 2005 and 2009, Long (2011) empirically indicates a good quality of infrastructure and finance, an investment-friendly and transparent environment, a safe society encourage firm technical efficiency. The results highlight that foreign firms attain improvement in production efficiency over time compared to domestic firms and large firms as well as foreign firms get benefits from their exports.

Given the above limited results, this paper provides evidence on the link between technology, institutions and productivity using firm level data collected in Vietnam as part of the World Bank Enterprise Survey 2009. The empirical results document that some technological variables, for example, investing in research, patenting and licensing, labor training and educational level of top manager are insignificant. However, other technological factors such as foreign ownership, ISO certificate, owning a website and educational level of employee appear to have impact on firm productivity. For institutional factors, there is no evidence that access to finance, labor issues affect firm performance and other institutional variables such as practices of competitors in the informal sectors, obstacles in policy and administration have different impacts depending on firm level productivity.

The remainder of the paper is organized as follows: the next section outlines literature review and issues to be explored. Section 3 describes research methodology. Section 4 is for data and variable descriptions. Econometric results are discussed in Section 5 and section 6 concludes.

LITERATURE REVIEW AND ISSUES TO BE EXPLORED

One way of increasing productivity is through innovative activity such as inventing new technologies or investing in research, patenting and licensing (Baumol, 2002). However, this kind of activity acquires large efforts and faces risks of failure. Innovation in less developed countries (LDCs) may be more suitable in using existing technologies than creating new ones.

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