Outsoursing and total factor productivity: evidence from Vietnamese small and medium-sized enterprises

Abstract

This study aims to examine the impacts of outsourcing activities on firms total factor productivity of 4,549 Vietnamese enterprises by using a panel dataset of Small and Medium-sized Enterprises during the period from 2005 to 2013. It is supposed to contribute to existing empirical, literature by employing the complementarity and substitutability test to investigate the effect of outsourcing on firms’ total factor productivity. The total factor productivity in this study is calculated based on Levinsohn Petrin method. Furthermore, the Fixed Effects with Driscoll Kraay standard error model, which has the advantage of correcting the problem of autocorrelation and heteroskedasticity is applying to get the better result of outsourcing and firms’ total factor productivity relationship estimation. The finding proves a significant positive nexus between outsourcing and firms’ total factor productivity and confirms that firms spend more on outsourcing will get higher total factor productivity index. These results are supported by a majority of empirical papers about relationship of outsourcing and total factor productivity and outsourcing’s theories. From the findings, this study will give some discussion as well as some policy recommendations for firms to enhance their productivity.