~ - UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES ' ! HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM- NETHERLANDS PROJECT ON DEVELOPMENT ECONOMICS IMPACT OF R&D ON THE PRODUCTIVITY ?· ' GROWTH OF MANUFACTURING FIRMS IN VIETNAM By Duong Thi Phuong Ngoc Academic supervisor: Dr. Vo Van Huy TRUONG £),b,l HOC I"INH TE TP.HCM CHUONG TRINH HQ~ 1A~ £)~O }~ 0 CAO HQC KINH TE PHAT TRIEN. VI~T NAM- Hf> LAN (UEH-ISS! Ho Chi Minh City, November, 2008 '. UAN VAN CHAT LUONG download : add luanvanchat@agmail.co 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 degrees.
I also certify that, to the best of my knowledge, any help received in preparing this thesis, and all sources used, have been acknowledged in the thesis. Signature Duong Thi Phuong Ngoc i UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ACKNOWLEDGMENT In completing this thesis, I am indebted to numerous individuals but I cannot name them all here. First of all, I would like to thank all the staff and teachers of the Project for their valuable lessons, good learning facilities and warm attitudes during my school time. My deepest gratitude goes to my supervisors, Dr.
Vo Van Huy, and Dr. Nguyen Trong Hoai for their valuable comments and instructions concerning my thesis. I am also very grateful to Mr. Luong Vinh Quoc Duy, a teacher of the Project, for his support and lectures in econometrics.
Finally, I would like to thank my friends, my family who have been always behind me, given me moral support, encouragement, and sympathy that have helped me gain more strength to complete this work. UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ABSTRACT This study exammes the relationship between R&D expenditure and productivity growth of manufacturing firms in Vietnam. Data on 264 manufacturing firms having positive R&D, which was drawn from the data set of Vietnam Enterprise Survey conducted by the General Statistics Office in 2004, is used for analysis. A regression model is estimated based on the Cobb-Douglas production function and the R&D capital model with three main independent variables: physical capital, labor and R&D capital, and dummy variables reflecting type of ownership and size of labor.
R&D capital is measured in a simple way by using available R&D expenditure in the survey and ignoring the accumulation of R&D expenditure in the past, its deflation and obsolescence. However, a positive and significant impact of R&D expenditure on i productivity is found with the elasticity of productivity with respect to R&D expenditure per labor is about 0. Moreover, the effects of physical capital and labor on productivity are also positively and statistically significant. The elasticities of productivity with respect to physical capital per labor and total labor are around 0.
UAN VAN CHAT LUONG download : add luanvanchat@agmail.co TABLE OF CONTENT CHAPTER!: INTRODUCTION. RATIONALE OF THE RESEARCH. OBJECTIVE OF THE RESEARCH. 3 CHATPER 2: LITERATURE REVIEW.
Research and experimental development (R&D). Cobb-Douglas Production Function. The Law of Diminishing Returns. Suggested research model from economic theories.
R&D and Productivity in French manufacturing firms. R&D and Productivity Growth in Japanese manufacturing firms. The effect of R&D Capital on Danish Firm Productivity. 20 CHAPTER 3: OVERVIEW OF R&D AND FIRM PERFORMANCE IN VIETNAM.
R&D ACTIVITIES IN VIETNAM. STRUCTURE OF THE R&D SYSTEM IN VIETNAM. LINKAGE BETWEEN THE PRODUCTIVE SECTOR AND R&D INSTITUTIONS. 29 CHAPTER 4: RESEARCH METHODOLOGY.
Labor productivity based on output (Y/L). Physical capital per labor (K/L). R&D expenditures per labor (RIL). Types of ownership (STATE, FOREIGN).
36 CHAPTER 5: RESULT ANALYSIS. 37 UAN VAN CHAT LUONG download : add luanvanchat@agmail. 47 CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS. Experience of Korea.
LIMITATIONS OF THE RESEARCH. 57 Appendix 1: A System Model for Technological Innovation. 58 Appendix 2: Regression results. 59 Appendix 3: White Heteroskedasticity Test.
59 j UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ---------------------- • LIST OF TABLES Table 2.1: Overview of main productivity measures .1: Science & Technology Organizations in Vietnam by 31 Dec 2003 .2: Ranking of most wanted services (for firms) and most capable activities (for academic institutions) of enterprises .1: Industrial Classification of the Sample .3: Correlation matrix from the variables in the function .4: Coefficients and statistics for the productivity model. 45 LIST OF FIGURES • Figure 2.1: The effect oftechnology improvement.1: Percentage ofGDP spent on R&D in 1996 .2: Expenditure on R&D by Government and Business sector in 2002 .3: Sector-wise R&D Expenditure in Vietnam in 2002 .4: R&D Personnel per Thousand of Total employees in 2002 .1: R&D firms by ownership .1: Structure of firms by size .3: Total cost for research & development of technology by resources .4: Total cost for research & development of technology by purposes. 42 • UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ACRONYMS CBO Congressional Budget Office EU European Union GDP Gross Domestic Product MFP Multifactor Productivity MOST Ministry of Science and Technology NACE Classification of Economic Activities in the European Community NISTPASS National Institute for Science and Technology Policy & Strategy Studies OECD Organization for Economic Cooperation and Development OSTP Office of Science and Technology Policy R&D Research & Development SME Small and Medium Enterprise VES Vietnam Enterprise Survey VND Vietnamese Dong UAN VAN CHAT LUONG download : add luanvanchat@agmail.co CHAPTER! INTRODUCTION 1. RATIONALE OF THE RESEARCH In the modem economy today, technological progress has a quite central role.
It contributes importantly to growth of economy and is a key factor to determine the competitiveness of firms in both national and international marketplace. Research and Development (R&D) is widely regarded as the core of technological advance, and innovative capacity of firms are reliably indicated by levels and rates of R&D expenditures growth. Countries belonging to the Organization for Economic Cooperation and Development (OECD) spend significant amounts on R&D activities. On average, OECD countries have spent more than 2 percent of GDP on annual 1 public and private R&D investments during the last two decades (OSTP , 1997).
In a traditional way, firms have paid attention to R&D because the technical advances resulting from innovation may allow them to improve productivity, succeed in competitive markets, and meet environmental and regulatory requirements. Besides, R&D has also had contribution to the development of new products and, in many cases, the creation of new markets. Within firms, economic returns are always taken into consideration on deciding the importance and nature of R&D performance. Firms usually take part in R&D activities only when the results are appropriate and offer higher rates of return than that of other available investment alternatives such as acquisition of new machinery, advertising, or purchase of speculative assets.
There are many sources for productivity improvements, but one strategy for enhancing productivity growth which is widely acknowledged is increasing the stock of knowledge. This stock of knowledge can be increased by formal investment in 1 OSTP is Office of Science and Technology Policy 1 UAN VAN CHAT LUONG download : add luanvanchat@agmail. In the private and public sectors, the allocation of resources toward the investment to generate new knowledge must be decided carefully. In spite of the importance of R&D in firms' productivity, R&D activities have not been taken into consideration for much investment in Vietnam, especially in business sector.
While most OECD countries and China devoted around 2% of their GDP to R&D activities, Vietnam spent only 0.5% of its GDP for this purpose (Nguyen and Tran, n. R&D expenditure of Vietnamese enterprises accounted for only about 20% of the total R&D expenditure of the country in 2002 (Nguyen, n. Whereas, according to OSTP (1997), companies in OECD countries finance more than 50% of all R&D expenditure and they conduct two-thirds of all R&D activities. SMEs make up the vast majority of registered companies in Vietnam, namely 96.
Nevertheless, the technology level across the SME sector in Vietnam is generally assessed as being two, three or even more times lower than both world and regional levels (Bezanson et al. One of main reasons under the assessment of the Ministry of Industry is that the labor currently lack of necessary skills to support technological upgrading and there are very little R&D activities appropriate for such upgrading. Indeed, only a small fraction of the country's R&D scientists and engineers are working in industrial enterprises. The rest are working in national centers for R&D, ministries and government agencies, universities or other institutions that perform research.
Another reason is that there is little market-oriented relationship between firms, R&D institutions and universities (Bezanson et al. Moreover, the most important reason for a little investment in R&D activities of Vietnamese enterprises may be their limitations in financial resources. The case of Vietnam raises a doubt if R&D has any relationship with productivity of manufacturing firms. Practically, there are many empirical studies at firm level that has emphasized the role of technological or knowledge capital in productivity growth.
Early studies focused on R&D investment and found that in most countries, R&D has 2 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co a significant contribution to productivity growth, especially in the cross sectional dimension. However, the conclusion has not been verified in Vietnam. OBJECTIVE OF THE RESEARCH Research and development (R&D) investment has been regarded as an important factor in the improvement of productivity levels of firms. This has been proved true by many empirical studies for many countries but neglected for Vietnamese case.
Therefore, based on previous studies, the research is going to examine the relationship between R&D activities and productivity growth of manufacturing firms in Vietnam to answer the following questions: Is there a positive impact of R&D on productivity growth in Vietnamese manufacturing firms? What should those firms do to increase their productivities? and What policies should be recommended to support them m improving productivity by increasing R&D expenditure? 1. RESEARCH METHODOLOGY The thesis studied the impacts of R&D expenditure to productivity growth of Vietnamese manufacturing firms ~y using data from the Vietnam Enterprise Survey 2004. The thesis used such methods as descriptive statistics, quantitative analysis and OLS regression to deal with the research questions. THESIS STRUCTURE The thesis consists of six chapters.
The first chapter is Introduction, which presents the rationale of the research, the objective of the research, research hypothesis as well as methodology, and the thesis structure. The next one is Literature Review. This chapter examines theories and empirical studies relating to the impact of R&D 3 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co expenditure on productivity growth of manufacturing firms. R&D activities of firms are discussed in the chapter 3: Overview of R&D and firm performance in Vietnam.
Chapter 4: Research Methodology focuses on model specification and variables choices justification. The practical results are analyzed via descriptive statistics and regression analysis in chapter 5: Result Analysis. Finally, conclusions and policy recommendations are provided in Conclusions and Recommendations chapter. 4 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co CHATPER2 LITERATURE REVIEW 2.
INTRODUCTION This chapter aims at reviewing literature related to the topic to make sure that the research is conducted based on a scientific background. The chapter will be presented in three main parts. In the part one, key concepts related to the topic such as R&D, productivity as well as manufacturing will be discussed. Economic theories supporting for the study are found out and stated in the next part.
At the end of this part, a research model which represents factors affecting productivity is suggested. Finally, empirical studies regarding effect of R&D on productivity growth of manufacturing firms in some countries are discussed in the last part. Through this chapter, impact of R&D expenditure on productivity growth is generally figured out on the basis of economic theories and empirical studies.