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Impact of Investment Climate on Total Factor Productivity of Manufacturing Firms in Vietnam

Mai Huong Giang (), Tran Dang Xuan (), Bui Huy Trung (), Mai Thanh Que () and Yuichiro Yoshida ()
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Mai Huong Giang: Graduate School for International Development and Cooperation (IDEC), Hiroshima University, Kagamiyama 1-5-1, Higashi Hiroshima 739-8529, Japan
Tran Dang Xuan: Graduate School for International Development and Cooperation (IDEC), Hiroshima University, Kagamiyama 1-5-1, Higashi Hiroshima 739-8529, Japan
Bui Huy Trung: Banking Academy, No 12 Chua Boc Street, Dong Da District, Hanoi 1000004, Vietnam
Mai Thanh Que: Banking Academy, No 12 Chua Boc Street, Dong Da District, Hanoi 1000004, Vietnam

Sustainability, 2018, vol. 10, issue 12, 1-18

Abstract: Investment climate has been acknowledged as a key factor that significantly influences economic performance. Improving the investment climate may foster the development of the private sector by creating sustainable jobs and opportunities for entrepreneurs, which contributes to sustained poverty reduction in developing countries. This research examined the relationship between the investment climate and firm productivity by exploring a unique panel dataset of 1310 enterprises operating in the manufacturing sector in Vietnam. Productivity was measured as the total factor productivity (TFP) obtained by production function estimation using Levinsohn and Petrin’s approach. Investment climate factors included infrastructure, labor skills, regulatory governance and institutions, and access to finance. It was shown that restrictions on the investment climate were harmful to firm productivity. The lack of Internet and financial accessibility, low educational level of employees, administrative burden and the cost of bribery were negatively associated with firm TFP. The results indicate that access to Internet and finance, and quality of labor should be further enhanced while administrative burden and corruption should be significantly reduced to strengthen the TFP. The findings of this study may provide insights for policymakers who aim to improve the investment climate and firm productivity and thereby contribute to the sustainable growth of the country.

Keywords: investment climate; total factor productivity; small and medium enterprises; Vietnamese manufacturing sector (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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