Determinants of firms’ total factor productivity in manufacturing industry in Vietnam: an approach of a cross-classified model

Abstract

This study investigates the determinants of total factor productivity in manufacturing firms in Vietnam using the cross-classified multilevel model. This model enables the study to provide a more proper estimation and to make clear distinctions between firms, region-specific effects, and sector-specific effects. This study combined a data set of Vietnamese manufacturing firms and sectoral variables gathered from the annual data of the Vietnam Enterprises Survey, Technology Competitiveness Survey, and some regional variables from the General Statistics Office’s Province Competitive Index during the period from 2011 to 2014. The study found that the main source of firm total factor productivity heterogeneity mostly originates at the firm level. In addition, the interaction between regional (provincial) and sectoral factors also contribute considerably to total factor productivity heterogeneity among firms. At the firm level, both firm size and expenses on technology have a significant positive effect on firm total factor productivity. In addition, firms with exporting activities seem to have a higher total factor productivity. At the regional level, the provinces with a high ratio of well-trained employees may have a positive impact on firm total factor productivity in that province. At the sectoral level, the concentration of sectors in a province may benefit firms belonging to that sector in that province. More interestingly, the study also indicates that the concentration of sectors in a province may benefit firms located in the provinces with a ratio of better trained employees. These findings could lead to policies not only at the firm level but also at the regional level and sectoral level to enhance total factor productivity.