Ease of Doing Business Reforms in Vietnam: Implications for Total Factor Productivity in Manufacturing Industries

Abstract

This paper focuses on TFP analysis in the context of the impressive reforms of the ease of doing business in Vietnam using a novel and unique micro dataset of manufacturing enterprises between 2000 and 2010 for the analysis. The first phase of the reforms (2000-2005) observed the implementation of business start-up simplification, and the central governance of business regulations was decentralized to provincial authorities in the second phase (2006-2010). Results of this research are as follows. First, on average, larger firm-size and higher TFP growth rate were mostly observed in manufacturers at the TFP frontier (the fourth quartile of TFP). Second, the average ratio of female workers was higher in leading TFP manufacturers than in less productive firms in low-technology industries, especially in the second phase of the reforms. Third, the TFP catch-up of the least productive firms to the frontier firms was faster in the second phase (2006-2010) compared to the first phase (2000-2005) across all industries and economic regions. However, larger TFP gaps still existed in high-technology industries. Last but not least, the first-difference estimation of panel data comprising 63 provinces (in the second phase of the reforms) shows that local governments that performed better in the ease of doing business significantly fostered provincial manufacturing TFP in either for upper or lower productive provinces in Vietnam. Furthermore, a province gained significant spillovers from nearby elite provinces with leading productivity.