Luận văn thạc sĩ UEH do better institutions boost firm performance the case of manufacturing firms

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHIMINHCITY THE HAGUE

VIETNAMTHE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DO BETTER INSTITUTIONS BOOST FIRM PERFROMANCE?

THE CASE OF MANUFACTURING FIRMS IN VIETNAM

BY

NGUYEN THI NHA TRANG

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, NOVEMBER 2015

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHIMINHCITY THE HAGUE

VIETNAMTHE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DO BETTER INSTITUTIONS BOOST FIRM PERFROMANCE?

THE CASE OF MANUFACTURING FIRMS IN VIETNAM

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN THI NHA TRANG

Academic Supervisor:

Prof. Dr. NGUYEN TRONG HOAI

HO CHI MINH CITY, NOVEMBER 2015

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DECLARATION

“This is to certify that this thesis entitled “Do better institutions boost firm

performance? The case of manufacturing firms in Vietnam”, which is submitted by me

in fulfillment of the requirements for the degree of Master of Arts in Development

Economics to the Vietnam – The Netherlands Program (VNP).

The thesis constitutes only my original work and due supervision and

acknowledgement have been made in the text to all materials used.”

Nguyen Thi Nha Trang

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ACKNOWLEDGMENTS

Writing a thesis is like taking a long journey, which requires a lot of time and

effort. During this journey, sometimes we feel lost, exhausted and want to give up, and

to get to the destination we truly need guidance, cheers, encouragement and motivation

from instructors, families, friends, and even passers-by. Looking back at this journey, I

would like to extend my heartfelt appreciation to many people who have wholeheartedly

cheered me on and guided me through.

First and foremost, I would like to express my deepest gratitude to my

supervisor, Professor Nguyen Trong Hoai, who was always available to answer any

questions of mine and helped me stay focused on the research. Extremely busy, he never

failed to answer my calls or send me a text back. His knowledge, patience and

encouragement were the emotional and intellectual fuel that I needed to stand up and

step forward whenever I felt discouraged and wanted to stop halfway.

I would also like to extend my most sincere thanks to Dr. Tran Tien Khai, Dr.

Pham Khanh Nam, Dr. Pham Hoang Van, and Dr. Truong Dang Thuy for their valuable

suggestions and comments on my TRD, which kept me from straying away from “the

main road”. Without their support, I could never reach the finish line of this journey. My

special thanks also go to all the VNP teachers and support staff. Not only did they assist

me with my study and thesis drafting process, they also made me truly feel to be a part

of this wonderful community, to relive a beautiful and unforgettable college life.

I wish to thank, from the bottom of my heart, my wonderful classmates:

Khanh Vu, for guiding me through the complicated Vietnam Enterprise Survey and Stata

techniques, friends from my mini-group: Thien, Nhung, Hung, Ly, Viet for constantly

reminding me of not giving up so that we can proudly celebrate together as VNPers, and

other classmates for co-building a warm and bright C19 family. Finally, I thank you my

family, my husband and my little son for their unconditional love and support. I always

hope I can make them proud.

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ABBREVIATIONS

ADB : The Asian Development Bank

AEC : The ASEAN Economic Community

ASEAN-6 : Brunei, Indonesia, Malaysia,

the Philippines, Singapore, Thailand

ASEAN-4 : Malaysia, the Philippines, Singapore, Thailand

BTA : The U.S.-Vietnam Bilateral Trade Agreement

GDP : Gross domestic production

GSO : General statistics office of Vietnam

GVN : Government of Vietnam

OECD : Organization for Economic Cooperation and Development

PCI : Provincial Competitiveness Index

ROA : Return on Assets

ROE : Return on Equity

SMEs : Small and medium enterprises

SOEs : State-owned enterprises

TPP : Trans-Pacific Partnership

UN : The United Nations

US : The United States of America

VCCI : Vietnam Chamber of Commerce and Industry

VES : The Vietnam Enterprise Survey

VNCI : Vietnam Competitiveness Initiative

WB : The World Bank

WTO : World Trade Organization

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ABSTRACT

This paper explores how institutional reforms in Vietnam affect the performance of

manufacturing enterprises across 63 provinces by utilizing a unique dataset which includes

the 2007-2012 Provincial Competitiveness Index merged with a set of data on firm-level

performance extracted from the annual Vietnam Enterprise Survey. The results show that

provincial competitiveness significantly and economically explains the performance of

firms located in different provinces. Out of the nine subsets of institutional reforms, at least

four sub-indices significantly and positively associate with the economic performance of

the firms observed, which are Labor and Training, Legal Institutions, Transparency and

Business Support Services.

Keywords: provincial competitiveness index, firm performance, labor productivity,

ROA, ROE

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TABLE OF CONTENTS

DECLARATION.........................................................................................................................3

ACKNOWLEDGMENTS...........................................................................................................4

ABBREVIATIONS.....................................................................................................................5

ABSTRACT................................................................................................................................6

TABLE OF CONTENTS ............................................................................................................7

LIST OF FIGURES.....................................................................................................................9

LIST OF TABLES ......................................................................................................................9

LIST OF APPENDIX................................................................................................................10

CHAPTER 1. INTRODUCTION..............................................................................................11

1.1. Problem statement ......................................................................................................11

1.2. Research objectives ....................................................................................................14

1.3. Research questions......................................................................................................15

1.4. Scope of the study.......................................................................................................15

1.5. The structure of the study ...........................................................................................15

CHAPTER 2. LITERATURE REVIEW...................................................................................17

2.1. Institutions ..................................................................................................................17

2.1.1. Definitions...........................................................................................................17

2.1.2. From institutions to governance ..........................................................................18

2.2. Institutions and economic performance:.....................................................................19

2.2.1. More definitions and clarifications......................................................................19

2.2.2. Institutions and economic performance: theoretical views.................................20

2.2.3. Institutions and economic performance: empirical studies.................................25

2.3. Measurement of institutions: ......................................................................................28

2.4. Firm Performance .......................................................................................................28

2.4.1. Definitions:..........................................................................................................28

2.4.2. Measurement of firm performance:.....................................................................29

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2.5. Analytical framework for the study............................................................................30

CHAPTER 3. RESEARCH METHODOLOGY.......................................................................32

3.1. Data sources:...............................................................................................................32

3.1.1. Vietnam Enterprise Survey: ................................................................................32

3.1.2. Provincial Competitiveness Index (PCI).............................................................34

3.2. Model and variable construction ................................................................................37

3.2.1. The Model: ..........................................................................................................37

3.2.2. Variables 3.2.2.1 Dependent Variables (Proxies of Firm Performance).............37

3.2.3. Descriptive (Initial Relationship)........................................................................42

3.2.4. Analytical Approach............................................................................................48

CHAPTER 4. FINDINGS AND DISCUSSIONS.....................................................................50

4.1. Overview of the business sector performance in Vietnam during the observed period:50

4.2. Overview of Basic Institutional Reforms and Their Impacts on Business Formance 52

4.3. Empirical results.........................................................................................................54

CHAPTER 5. CONCLUSION..................................................................................................62

5.1. Main findings..............................................................................................................62

5.2. Policy implications .....................................................................................................63

5.3. Limitations and directions for further research ..........................................................67

REFERENCES..........................................................................................................................69

APPENDIX ...............................................................................................................................73

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