UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS THE VIETNAM- THE NETHERLANDS PROJECT FOR M.A PROGRAM IN DEVELOPMENT ECONOMICS THE IMPACT OF TRANSACTION COST ON COMPETITIVENESS LEVEL, CASE STUDY IN VIETNAM AT THE PROVINCIAL LEVEL "CJ so GIAO DVC fJAO T,;O TRVONG 8~1 HQC KINH TE TP.HCM By THUVIEN BUI QUANG HUY \ ) ·7 6t c:: 0 A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT ACAMEDIC SUPERVISOR: DR. NGUYEN TRQNG HOAI HO CHI MINH CITY, APRIL 2008 TIEU LUAN MOI download : skknchat@gmail.com CERTIFICATION "I certify that the substance of this thesis has not already been submitted for any degree and is not being currently submitted for any other degree. I certify that to the best of my knowledge and help received in preparing this thesis and all sources used, have been acknowledged in this thesis" Signature • BUI QUANG HUY • Date: April 2008 • I TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEDGMENTS This thesis is a very significant in my life. And this thesis would not have been finished without the best helps and supports from many people.
So, I wish to express my acknowledgments to them. Firstly, I would like to express my acknowledgment and thank to my academic supervisor, Dr Nguyen Trong Hoai, for his guidance and comments through # my thesis writing period. His scientific instructions make my thesis become. more clearly and concise.
I sincerely thank Mr Nguyen Duy Khanh, who has provided me to have the data set of GDP of The General Statistics Office; and Mr Nguyen Anh Tuan i. - the expert of the VCCI & VNCI for giving me help in the statistical and calculation issues of the PCI data for my thesis. I am very grateful to my teachers and staff in Vietnam -Netherlands Project, Mr Dao Xuan Due - my leader and friends of mine for their help and friendship. And finally, as for my family, specially my wife, I can not thank them enough for their unconditional support and love.
They has encouraged and supported me in during this program. Ho Chi Minh City, April2008. II TIEU LUAN MOI download : skknchat@gmail.com --- - - - - - - - - - - - - ABSTRACT The Transaction cost & Competitiveness include multidimensional feature of an economic entity operating in a market economy. In this thesis, therefore, different aspects of them can be explored.
The meaning of Transaction cost & Competitiveness for different economic entities will be determined and their I relationship will be shown on the provincial level. The major determinants of Transaction cost are presented. And, the main objectives of the thesis are \ firstly, to build a measurement regression model of the Competitiveness level basing on data which is collected from some resources (The VNCI & VCCI (2005-2006); General Statistics Office); and then to use that model to evaluate i the impact of transaction cost on the Competitiveness level. From which, t some important policies can be given so that the transaction cost can be reduced and the provincial competitiveness in Vietnam can be increased remarkably.
·- • III TIEU LUAN MOI download : skknchat@gmail.com LIST OF ABBREVIATION Co Competitiveness GDP/head or capita Gross Domestic Product per head or capita TC Transaction cost HK Human Capital QI Quality of Infrastructure • PM Proximity to Market EC Entry cost IC Informal charges Tc Time cost of regulatory compliance • TAl Transparency and access to Information PSD Pro-activity of Provincial Leadership X Time of researching The VNCI & VCCI The Vietnam Competitiveness Initiative & Vietnam Chamber of Commerce and Industry MICI Microeconomic Competitiveness Index PIB Produit Interieur Brut (meaning GDP/head) SWF social welfare function OLS Ordinary Last Square • VND Vietnamese dong % Percent IV TIEU LUAN MOI download : skknchat@gmail.com -------- --------------------------- TABLE OF CONTENTS CHAPTER 1: INTRODUCTION. 3 CHAPTER 2: LITERATURE REVIEW .1 The competitiveness model.2 Transaction cost model .3 Human capital, Quality of Infrastructure and Proximity to market:. Luis Guasch & Alvaro Escribano (2005). 28 v TIEU LUAN MOI download : skknchat@gmail.5 Empirical study of the USAID-funded Vietnam Competitiveness Initiative (VNCI) and the Vietnam Chamber of Commerce and Industry (VCCI) (2005-2006).
31 CHAPTER 3: DATA AND ECONOMETRIC MODEL FINDINGS .1 The Econometric Design .2 The Definition of variables .3 Data collection method .2 The determinants of Transaction costs on the Provincial Competitiveness .5 Estimation of result by regression equation .6 Explanation of coefficient. 54 CHAPTER 4: CONCLUSIONS AND POLICY IMPLICATIONS. 60 VI TIEU LUAN MOI download : skknchat@gmail.com APPEND IX 1. 74 f VII TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 2.1: Checklist for the Institutional Transaction Costs Framework 22 Table 2.2: Some Important Types of Transaction Costs .3: Transactions Cost Related to the Legal and Regulatory Environment .2: Descriptive statistics of ratio difference of the variable between 2005-2006 .3: The detail result of Provincial Competitiveness Sub-Indices in 2005 .4: The detail result of Provincial Competitiveness Sub-Indices in 2006 .5: The results of regression .6: The results of restricted regression .SO • VIII TIEU LUAN MOI download : skknchat@gmail.com CHAPTER 1: INTRODUCTION 1.1 Problem statement In recent years, globalization has brought new opportunity as well as challenges to both policy makers and enterprises of Vietnam.
In the context of globalization, regional and international organizations have been established, growing and setting new standards to influence business activities and various sectors. It means that the competitiveness improvement becomes one of most important issue in the economy. So, what is competitiveness? And, why does competitiveness have important role in economy? According to the Reports of the National Council for Competitiveness and Development (2006); Competitiveness, as the ability to maintain and improve the standards of living in a country, advance the business environment, strengthen employment, cohesion, environmental protection, and to constantly upgrade productivity and increase market shares in a globalize context. Thus, when Vietnam becomes a member of WTO, competitiveness is the key to the further economic success.
Recently, Vietnam's Government focuses on • efficiency to enhance the national competitiveness of Vietnam as well as provinces. That is why more and more Vietnam has become an attractive destination for foreign investors. However, investors still complain about complicated procedures (vietnamnet. It is because they have to spend a lot of times and costs for overlapping law, regulation, and bureaucratic official staff.
And, they have to lose a lot of transaction cost before they get anything. So, what is • transaction cost? How is its role in modern social? And whether a reduction in transaction cost and an increase in competitiveness is a really urgent demand? 1 TIEU LUAN MOI download : skknchat@gmail.com Based on the ideas stated above, the objectives of the thesis are firstly, to build a measurement model of Provincial Competitiveness and then to use the model to evaluate the impact of transaction cost on provincial competitiveness, from which, some important strategies can be given so that the transaction cost can be reduced and the provincial competitiveness in Vietnam can be increased remarkably.2 Research objectives +Measuring the effects of determinants on Provincial Competitiveness. + Evaluating and giving conformable policies and strategies that can improve the Provincial Competitiveness. What factors will be directly influence to the Competitiveness level? 2.
How can these factors affect the Provincial Competitiveness? 3. How has the competitiveness level improved overtime? 4. What the policies that should be suggested to improve the Provincial Competitiveness? 1. Whether an increase in Entry cost; Informal charges; Time cost of regulatory compliance (transaction costs) will give lager negative effect on the Provincial Competitiveness? 2.
Whether an increase in Transparency and access to Information; Pro- activity of Provincial Leadership (transaction costs) will give lager positive • effect on the Provincial Competitiveness? 2 TIEU LUAN MOI download : skknchat@gmail. Whether a decrease the transaction cost will improve the Provincial Competitiveness? 4. Is there a positive improvement for competitiveness level in Vietnam provinces in the two different periods? 1.5 Research methodology: The main purpose of this thesis is to measure the impact of Transaction costs on the competitiveness level from 2005 to 2006 (and the case study is in Vietnam at the provincial level). So, some the data sources will be shown, such as: the determinants of the transaction cost on the provincial competitiveness (The VNCI & VCCI (2005-2006)); And the competitiveness is represented by GDP/capita (General Statistics Office (2002-2005)); After that they will be checked by the regression double-log econometric model in this thesis with Ordinary Last Square technique; Besides, the independent variables and dependent variable of the econometric model will be slightly analyzed by descriptive statistics and chart basing on the above sources of data to help this thesis become more richly, clearly and concise.6 Research limitation: About the economic aspect: The Transaction cost & Competitiveness include multidimensional feature of an economic entity operating in a market economy.
However, in this thesis is only to focus on measuring the impact of transaction costs on the competitiveness level, thus it can not evaluate exactly, specifically and all. About the data aspect: The determinants of Transaction cost on the provincial competitiveness only are colleted covered 42 provinces in Vietnam by the VNCI & VCCI 2005, accounting in total 90% of the national GDP while the Vietnam includes 64 provinces. This leads that the all other data in 2005-2006 3 TIEU LUAN MOI download : skknchat@gmail.com only also can be collected basing on these 42 provmces. Besides, the Competitiveness are measured by GDP per capita.
However, the data of GDP/capita only are taken in General Statistics Office from 2002 to 2005; so, data of GDP/capita in 2006 for 42 provinces in Vietnam, which will be calculated by estimation method from the data in 2002 to 2005. 4 TIEU LUAN MOI download : skknchat@gmail.com CHAPTER 2: LITERATURE REVIEW This literature review includes three main parts. The first part defines concepts related to the research such as competitiveness, transaction costs. The second part is the theoretical backgrounds, as in the competitiveness model, transaction cost model.
The competitiveness has to consider four problems including transaction costs, human capital, infrastructure, proximity to markets. The third part introduces different empirical studies in Vietnam and other countries, which bring about a conclusion of the most significant variables that can be employed to explain the competitiveness.1 Definitions f According to the World Bank (2006) the competitiveness for country, enterprise, and region level can be critically affected by the cost of business transactions. So in this part, some concepts will be defined to readers to avoid the confusion of its meanings. It includes competitiveness and transaction cost.1 Competitiveness The concept of competitiveness has always been subject to a great interest for both researchers and people involved in practical business because competitiveness is a multidimensional feature of an economic entity that operates in a market economic performance.
So, in the recent studies it has become widely used the term in economic literature. However, wide and frequent usage of the term is not always based on the clearly defined contents of the word, and this cause a lot of misunderstanding and contradiction based on terminological non-exactitude. In this study, it should be considered some concepts clearly & focus on various aspects of competitiveness as: 5 TIEU LUAN MOI download : skknchat@gmail.com According to Porter (1990); Trabold (1995); and Garelli (1997), competitiveness reflects a position of one economic entity (country, region, industry, enterprise. ) in relation to other economic entities by comparing the qualities or results of activities reflecting superiority or interiority and competitiveness can be defined both in a narrower and in a broader sense: + In a narrow approach, the competitiveness is explored in conditions where entities' interests are contradictory (achievement of the aim by one entity would make it impossible for another entity to execute its interests).