suggests that this will depend on firm turnover, and focus is typically on how inefficient
firms can be closed down (exit) and be replaced by new and more efficient ones
(entrants). The findings of this paper suggest that differences between firms that exit
and firms that switch sectors are critical and should be considered explicitly in
formulating policy. In particular, firm ability to reallocate activity across sub-sectors
(rather than simply close down) appears crucial.
Finally, we have in this paper (i) aimed at identifying important characteristics of firm
dynamics in Vietnam in the run up to the WTO liberalisation process that are likely to
be broadly applicable in other countries in transition, (ii) shed some light on the
characteristics of reallocating firms, and importantly (iii) established how they differ
from firms that exit. This is a necessary first step in arriving at policy suggestions that
are an appropriate guide in the challenging years ahead. Further research on the nature
of firms, what motivates them and what makes the reallocation process easier in sector
specific contexts is a next step and a challenge to future research.
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