139 The impacts of technological innovation and institutional quality on the productivity of Vietnamese manufacturing firms

Abstract

This research aims to assess the pivotal role of total factor productivity (TFP) in shaping the performance of manufacturing enterprises in Vietnam. It systematically examines the influence of technological innovation and the quality of economic institutions on the TFP of these firms. Employing robust methodologies such as control function (CF) and feasible generalized least squares regression (FGLS) models, a comprehensive panel dataset of Vietnamese manufacturing companies is meticulously scrutinized. The data, meticulously sourced from the General Statistics Office of Vietnam and the Vietnam Chamber of Commerce and Industry, spans the five-year period from 2015 to 2019. The findings of this study elucidate several key insights. First, it reveals that the manufacturing landscape in Vietnam is predominantly characterized by labor-intensive operations, with an apparent trend toward increasing returns to scale. Furthermore, the study underscores that TFP's contribution to manufacturing output remains relatively modest, averaging at 1.933 over the period from 2015 to 2019. Additionally, it identifies a concerning decline in the average TFP score, along with a widening gap between firms, which tends to exacerbate during the study period. Finally, the research establishes a positive correlation between investments in production technology and the quality of economic governance within provincial governments in Vietnam, both of which significantly bolster the TFP of manufacturing firms.

Total factor productivity and institutional quality in Vietnam: which institutions matter most?

“…The findings indicate no evidence of the relationship between government financial support and firm TFP, although they find that access to financial support improves technological progress and growth in firm size, but has a negative impact on improving technical efficiency. Finally, Dinh et al (2023) found that higher institutional quality improved TFP for manufacturing firms. To our best knowledge, these are the only three studies that closely investigate the impact of institutions on firm performance in Vietnam, in which one focuses on the cross-province effect of institutions, another focuses on SMEs only, while the third addresses only manufacturing firms.…”

“…However, in a study of 28 African countries, the positive relationship with firm productivity was not statistically significant (Amin 2013). In Vietnam, institutional quality has been found to positively impact manufacturing firm productivity (Dinh et al 2023). However, in a study of 13 lower middle income countries, including Vietnam, it was found to negatively influence overall economic growth (Ngo and Nguyen 2020).…”

The asymmetric impact of government expenditure on economic growth: Evidence from a NARDL model

“…The GE can affect the GDP through at least two channels: Directly, by investing in infrastructure and public firms, the economy can increase its capital stock. Indirectly, education, health, and other services contribute to the accumulation of human capital by increasing the marginal productivity of factors of production provided by the private sector (Connolly and Li, 2016;Akpan, 2005;Dinh et al, 2023). The theoretical research on the complex relationship between GE and economic activity is extensive.…”