Academic journal article Journal of Southeast Asian Economies

Total Factor Productivity Growth of Industrial State-Owned Enterprises in Vietnam, 1976-98

Academic journal article Journal of Southeast Asian Economies

Total Factor Productivity Growth of Industrial State-Owned Enterprises in Vietnam, 1976-98

Article excerpt

I. Introduction

With the launch of comprehensive economic reforms under Doi Moi, Vietnam has been able to achieve a relatively high rate of economic growth, especially over the 1990s. The annual growth rate of the gross domestic product (GDP) averages 7.6 per cent for the 1991-2000 period. Contributing to this impressive result is a remarkable annual growth rate of industrial output of 13.7 per cent in the industrial sector, in which state-owned enterprises (SOEs) record the rate of 12.3 per cent and account for nearly half of the industrial output during the period (GSOa 1999, 2000). This contribution of the industrial SOE sector in the Vietnamese economy makes it the central focus of economic reform, and particularly so since SOEs are perceived to be relatively inefficient. This fact justifies the various rounds of reform that this economic sector has undergone in the 1980s and 1990s.

The process of SOE reform in Vietnam first started in the early 1980s, in which reform measures were confined to a number of moderate changes in the management and planning mechanism in the SOE sector. This partial reform, in spite of certain notable successes, was undertaken within the framework of the centrally planned economy and did not comprehensively and thoroughly address the real problems with the SOE sector in this economic regime, which later contributed to an economic crisis in the country from the mid-1980s. The economic crisis forced the government to officially abandon the centrally planned economic model in favour of a market-based one in 1986. The adoption of the new economic model ignited wide-ranging reforms in different areas, including the SOE sector, from the end of that decade. The SOE reform process since that time has focussed on liberalizing the SOE from the old management mechanism commercializing their operation, and diversifying their ownership. As a result, reform measures have been seen to record some encouraging achievements, evidenced by such indicators as the growth rate of the value of production and the growth rate of exports. Despite these successes many problems, however, remain as the SOE sector is largely seen as inefficient and uncompetitive Many SOEs also appear to be making losses. Those problems are becoming even more acute as Vietnam has committed to and is in the process of integrating itself into the region as well as the world economy, posing the government with a serious question of how best to continue with the SOE reform process. The answer to this question requires a careful analysis as well as empirical assessment of the entire SOE reform process.

While there have been several studies on the general economic reform in Vietnam, there have been only a few on the SOE reform (see, for example, Ng Chee Yuen et al. 1996; Gates 1996). In addition, these studies generally are limited to the description of the reform process without providing any empirical assessment of the reform measures. To fill this gap, this paper reviews the process of SOE reform in Vietnam and provides an empirical assessment of total factor productivity (TFP) growth for the industrial SOE sector for the 1976-98 period. The next section focuses on the reform process of the SOEs in Vietnam. Section III presents the data used for the calculation of the TFP growth, while Section IV reports the results. Section V shows the results of the sensitivity tests, and Section VI concludes.

II. Reform Process of SOE Sector in Vietnam

After the war ended in 1954, the SOE sector in Vietnam was quickly established with the aim to become the main economic sector of the socialist economic regime. Besides the nationalization of existing privately owned enterprises, the SOE sector was enlarged with new SOEs, which were developed according to the Soviet Union economic model, perceived to be able to quickly develop the backward agrarian economy of Vietnam at that time. (1) The operation of the SOEs was under the direct control and management of line ministries of central government or different departments of local government. …

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