Average rates of change in TFP and its components, weighted by each firms
contribution to total value added in each sub-sector in each year, are presented in Table
7.
[TABLE 7 ABOUT HERE]
Estimated TFP changes vary considerably across sectors. Of particular note, is the
strong performance of ISIC 17 (Textiles), ISIC 26 (Non-Metallic Mineral Products) and
ISIC 35 (Other Transport), which experience TFP growth of between 10 and 12 per cent
per annum, driven by exogenous technological progress. In fact, where significant,
technological change drives the productivity performance of most sectors. The poorest
performing sectors are ISIC 22 (Publishing and Printing) and ISIC 36 (Furniture) where
productivity declines between 2001 and 2004. Scale effects, capturing how changes in
the input mix of firms improves output possibilities, make an important positive
contribution to productivity growth in many sectors, suggesting that productivity
enhancing reallocations of inputs is occurring in the Vietnamese manufacturing sector.
Changes in average relative efficiency levels make an important contribution to overall
productivity growth in ISIC 20 (Wood and Wood Products), ISIC 28 (Fabricated
Metal), ISIC 29 (Machinery and Equipment) and ISIC 32 (Radio and Communication
Equipment). Since we assume that firm level efficiency is time invariant, productivity
enhancing changes in the average efficiency of sectors can be attributed to the entry and
exit of firms. These results suggest that efficiency enhancing reallocations across sectors
are important.
In our analysis of the determinants of firm exit and switching, we rely on technical
efficiency as a measure of individual firm performance,26 but focus first on differences
between exits, entrants, switchers and incumbents by sector as presented in Table 8.
[TABLE 8 ABOUT HERE]
Column (1) documents mean relative efficiency differences between incumbents and
new entrants. Incumbents are on average more efficient than newcomers in all sectors,
26 Firm level efficiency is appropriate for this purpose given that, by construction, it benchmarks firms
against the best performing firms in each sector, controlling for the technology at hand and exogenous
technological progress which is assumed to affect all firms in the same way.
17