UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS PRODUCTIVITY GROWTH, TECHNOLOGICAL PROGRESS AND EFFICIENCY CHANGES IN VIETNAMESE HIGH-TECH INDUSTRIES BY DAO HOANG BINH THIEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, January 2015 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS PRODUCTIVITY GROWTH, TECHNOLOGICAL PROGRESS AND EFFICIENCY CHANGES IN VIETNAMESE HIGH-TECH INDUSTRIES A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By DAO HOANG BINH THIEN Academic Supervisor: Dr. TRUONG DANG THUY HO CHI MINH CITY, January 2015 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Recently, Vietnamese high-tech industries have been receiving attention from both the government, foreign companies, as well as the private sector due to the notable figures of export values (Ministry of Trade and Industry [MoIT] & United Nations Industrial Development Organization [UNIDO], 2011). This thesis attempts to estimate the productivity growth of Vietnamese high-tech manufacturers and its sources of growth. Stochastic Production Frontier (SPF) approach is applied to the 2000-2012 panel dataset of Vietnamese high-tech manufactures, which are divided in 5 sub-industries.
Total Factor Productivity (TFP) is then measured and decomposed to three sources, namely Technological progress (TP), Technical efficiency changes (TEC), and Scale change effects (SCE). Three different technical inefficiency effects models are also applied to investigate the determinants of technical efficiency. The empirical results show considerable controversy in both signs and magnitudes of TFP and its components, TE and its determinants across models. However, in general, maximum likelihood estimates show that TFP is not the main source of output increase.
Furthermore, the productivity and efficiency of Vietnamese high-tech manufacturers are unlikely to change largely over time. Nevertheless, there are differences of technical inefficiency effects across regions, sub-industries, firm sizes, and type of ownerships. Keywords: Vietnam, High-tech, manufacturing, productivity, TFP, Technological progress, Technical efficiency, Scale change effects iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT I have taken efforts in this thesis. However, it would not have been completed without supports of many individuals and organizations.
I would like to express my appreciation to all of them. I would like to give special thanks to my academic supervisor, Dr. Truong Dang Thuy, whose comments and encouragement helped me to write this thesis. Furthermore, I would also like to acknowledge the Scientific Committee and the staff of Vietnam-Netherlands Programme for their guidance and support as well as for providing necessary information regarding the thesis.
Lastly, my thanks also go to my family and my classmates for their precious support which help me completing this thesis. iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS ABSTRACT. iv LIST OF FIGURES. viii LIST OF TABLES.
viii LIST OF APPENDICES. Research objectives and hypotheses. Scope of study. Structure of thesis.
Total factor productivity (TFP). Technical change or Technological progress (TP). Scale economies and Scale change effects (SCE). Approaches to measure and decompose TFP growth.
Primal or dual approach with production, cost, or profit function. Stochastic and deterministic approaches. Parametric and non-parametric methods. A review of alternative Stochastic Production Frontier (SPF) models.
15 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Time-invariant models. Time-varying models. Exogenous inefficiency determinants.
TFP growth decomposition. OVERVIEW OF VIETNAMESE HIGH-TECHNOLOGY MANUFACTURING SECTOR. Overview of Vietnamese HT manufacturing sector. Hypotheses and testing.
Variables in the frontier model. Determinants of Technical inefficiency. Data source and filter process. Maximum likelihood estimates.
Results of hypothesis testing. Results of TFP decomposition. 54 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Limitations and future research.
64 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1: Value added of HT manufacturing industries of the world and selected regions during 1997–2012 (in billions of current dollars). 2 Figure 2: High-tech exports of Vietnam & other countries in Asia (1997-2012). 3 Figure 3: Production frontier, Technological progress, Technical efficiency, and optimal Scale of production. 10 Figure 4: Technical efficiency and Allocative efficiency.
12 Figure 5: World exports & value-added of HT manufacturing sector (2001-2012) 27 Figure 6: Exports of Vietnamese HT manufacturing sub-industries. 28 Figure 7: Proportions of HT firms operating in five sub-industries. 41 Figure 8: Percentage of HT firms divided by regions. 41 Figure 9: Number of firms of different sizes, during 2000-2012.
42 Figure 10: Change of HT WFOEs and SOEs during 2000-2012. 42 Figure 11: Kernel density of TE (3 models BC92, BC95, and HL94). 43 Figure 12: List of major obstacles chosen by Vietnamese manufacturing firms (in 2009). 50 LIST OF TABLES Table 1: Contribution of Vietnamese HT in value added of manufacturing sector during 2000–2012 (in percentage).
27 Table 2: Some main characteristics of three models. 33 Table 3: Criterion to divide HT firms into three kind of sizes. 36 Table 4: Definition and measurement of all variables in the study. 38 Table 5: Descriptive statistics of production function variables.
40 Table 6: Descriptive statistics of TI effects mean variables. 40 Table 7: Maximum Likelihood estimates of translog production frontier. 45 Table 8: Maximum Likelihood estimates of technical inefficiency effects model (Model BC95 and Model HL94). 46 Table 9: LR Tests of hypotheses.
48 Table 10: TFP & its decomposition in five HT sub-industries (model HL94). 49 Table 11: TFP change & its sources of change over time (model HL94). 51 Table 12: Growth rate of production inputs across HT sub-industries. 52 Table 13: Returns to scale across HT sub-industries during 2000-2012.
52 viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF APPENDICES Appendix 1: HT manufacturing industries in International and Vietnamese Standard Industrial Classification. 64 Appendix 2: Provinces and Cities of Vietnam divided by regions. 65 ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATIONS AE Allocative efficiency AEC Allocative efficiency change CRS Constant returns to scale DEA Data envelopment analysis DRS Decreasing returns to scale GSO General Statistics Office HT High-technology IRS Increasing returns to scale LR Likelihood-ratio LS Least Squares MFP Multi-factor Productivity ML Maximum likelihood MLDV Maximum Likelihood Dummy Variable OLS Ordinary Least Squares PIM Perpetual Inventory Method SCE Scale change effects SF Stochastic frontiers SFA Stochastic Frontier Analysis SOE State-owned enterprises SPF Stochastic Production Frontier TE Technical efficiency TEC Technical efficiency change TFP Total Factor Productivity TI Technical inefficiency TP Technological progress VEC Vietnam Enterprise Census VND Vietnam Dong WFOE Wholly foreign owned enterprises x LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Dao Hoang Binh Thien Master’s Thesis VNP19 - 2014 CHAPTER 1. Problem statement Since last decades of 20th century, the world has experienced the unexampled evolution of advanced technology-intensive manufacturing industries such as pharmaceuticals, computers, telecommunications, precision engineering, or aircraft.
Those high-technology (HT) industries have contributed considerably in promoting human beings’ health and longevity, extending the ability of communication, and improving the knowledge accessibility (Hamburg Institute for Economic Research [HWWA], Kiel Institute for World Economics [IfW] & National Research Council [NRC], 1996). Moreover, people are convinced that these HT industries will bring the bright future of remarkable economic growth, including high value-added, high wage employment. From the microeconomic perspective, HT firms are believed to spend a large amount in R&D and innovation, which can lead to inventing new products, gaining more market shares, using resources more productively, and creating positive social returns that benefit other sectors (HWWA et al. Figures of global value added of HT sector during recent years show clearly the promising trend of its growth, especially in the dynamic Asia region (see Figure 1).
1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Dao Hoang Binh Thien Master’s Thesis VNP19 - 2014 Figure 1: Value added of HT manufacturing industries of the world and selected regions during 1997–2012 (in billions of current dollars) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 World North America European Union Asia Source: Appendix table 6-7 of Science and Engineering Indicators 2014 (National Science Board, 2014) The power of nations is also believed to not influenced by heavy industries like steels but the role is now played by HT manufacturing industries and knowledge- based services, which means that the national autonomy can be improved by developing these industries (HWWA et al. Indeed, the aging industrial economy has bowed out to give way to the promising knowledge-based and technology-intensive economy. Due to that importance, HT manufacturing industries are the target of industrial policies in many countries and regions, including Vietnam. HT manufacturing industries have been paid more attention in Vietnam recently with many high-tech FDI projects built up (MoIT & UNIDO, 2011), together with new Laws and Decisions approved to facilitate the science and technology activities.
Interestingly, even during the time of global crisis (2008-2009), this sector still had an increase of export values with about USD 593 million, while low-tech and medium-tech sectors experienced a reduction in exports (MoIT & UNIDO, 2011). Indeed, during the period 2000 to 2009, over half of total exports are HT products 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Dao Hoang Binh Thien Master’s Thesis VNP19 - 2014 (MoIT & UNIDO, 2011). Although Vietnamese HT manufactures account for only a small proportion of the world market share, its annual growth rate shows a potential of development for this sector (see Figure 2). Moreover, the government expects HT industries to play a key role in helping Vietnam economy develop and gain a higher position in the global value chain (Strategy on exports and imports for 2011-2020, with visions to 2030, 2011).
Figure 2: High-tech exports of Vietnam & other countries in Asia (1997-2012) 45% 40% 35% China 30% India Indonesia 25% Annual growth rate Japan 20% Malaysia Philippines 15% Singapore 10% South Korea Taiwan 5% Vietnam 0% Thailand -5% 0% 5% 10% 15% 20% 25% 30% 35% -5% -10% Proportion in World Market share (2012) Bubble indicates HT exports in 2012. Annual growth rate is the geometric average annual growth rate of exports during 1997-2012. Source: Appendix table 6-21 of Science and Engineering Indicators 2014 (National Science Board, 2014) It is obvious that the growth of Vietnamese HT manufacturing industries is remarkable and it seems to be consistent with expectations. However, most of HT firms in Vietnam are known to be operating as assembly lines rather than concentrating on R&D and inventing new products.
From another aspect, the large 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Dao Hoang Binh Thien Master’s Thesis VNP19 - 2014 proportion of imported components in HT products exported from Vietnam may affect considerably on the production of HT firms. Thus, the question is whether Vietnamese HT manufacturing industries perform as well as they look like or not. To answer it, productivity, which indicates how well the firms perform using given factor inputs, should be investigated carefully. Indeed, productivity is considered an important indicator of development, playing a key role to firms’ survival (Duong, Lai, Nguyen, Le, & Hua, 2014; National Science Board, 2014; Syverson, 2011).
More specifically, empirical researchers often estimate total factor productivity (TFP), a measures of firms’ overall productivity, in their analysis. Moreover, they do not stop at measuring TFP and its growth only, some authors try to examine what drives TFP growth. Theoretical literature indicates that TFP growth of HT firms stem mainly from the progressive technological change (Sun & Kalirajan, 2005).