Essays on exports and investment in vietnam

Essays on Exports and Investment in Vietnam Doctoral Thesis Thao Thi Phuong NGUYEN ————————————————- Jury members Prof Joe Tharakan (University of Liege) Prof Bernard Lejeune (University of Liege) Prof Mario Cools (University of Liege) Prof Luisito Bertinelli (University of Luxembourg) Prof Mark Vancauteren (University of Hasselt) i ii Contents Acknowledgements Introduction The Effect of Corporate Income Tax on Firm’s behaviors in Vietnam 13 1.1 Introduction 13 1.2 Literature Review 17 1.3 Econometric Approach 22 1.4 Data and variable measurement 26 1.4.1 Data 26 1.4.2 Variable measurement 27 1.5 Treatment and control groups 29 1.6 Data analysis and results 31 1.6.1 Capital stock and Investment rate 31 1.6.2 Employment and labor wage 37 1.7 Extensions 39 1.8 Conclusions 43 iii Determinants of Export Participation and the role of sunk cost: An analysis at firm-level data in Vietnam 47 2.1 Introduction 47 2.2 Literature Review 50 2.3 Econometric Approach 55 2.3.1 Econometric model 55 2.3.2 Empirical model 57 2.3.3 Initial condition 59 2.4 61 2.4.1 Dataset 61 2.4.2 Variable measurement 62 2.5 Export premium in Vietnamese manufacturing firms 65 2.6 Regression results 69 2.6.1 Checking multicollinearity 69 2.6.2 Regression results 70 2.6.3 Robustness check 76 Conclusions 79 2.7 Data and variable measurement Export, R&D, and Productivity in Vietnamese small and medium manufacturing firms 83 3.1 Introduction 83 3.2 Literature Review 85 3.3 Methodology 89 3.4 Data and variable measurements 94 3.4.1 94 Data iv 3.4.2 Vietnam 96 Variable measurements 98 Results 99 3.5.1 Differences in productivity distribution between firms 99 3.5.2 Regression results 102 3.5.3 Robustness check 108 3.4.3 3.5 3.6 Classification of Small and Medium-sized Enterprises in Conclusions 108 Determinants of Energy Intensity: Evidence from Manufacturing firms in Vietnam 111 4.1 Introduction 111 4.2 Literature Review 114 4.3 Energy consumption in Vietnam 118 4.4 Methodology and data 121 4.5 4.6 4.4.1 Methodology 121 4.4.2 Data and variable measurements 128 Results 132 4.5.1 Energy intensity in sub-sector manufacturing firms 132 4.5.2 Checking for multicollinearity 133 4.5.3 Regression results 134 Conclusions 140 Conclusions and policy implications 145 APPENDIX 163 v vi Acknowledgements This dissertation is the final output of a personal effort and the invaluable support and assistance of many people I would like to show my deep thanks to my supervisor, Professor Joe Tharakan, for all the advice that he has given to me I appreciate his agreement of being my supervisor, guiding me at the beginning of the study until the end He inspires me with the spirit of researching and a disciplined manner of working I am thankful for his sympathy as living and studying doctoral level in a foreign country and far away from my family made me facing many difficulties of language and interaction He understands my stress and tries to encourage me to continue finishing my thesis During the Covid-19 outbreak with many difficulties for direct discussion, Professor Joe Tharakan still managed his time for helping me completing my thesis I would like to thank all professors in the committee who followed my progress during the time of doing my PhD from the beginning until the end Professor Mario Cools and professor Bernard Lejeune have revised my papers and given many helpful comments on this thesis I appreciate the contribution of Professor Luisito Bertinelli from the University of Luxembourg and Professor Mark Vancauteren from the University of Hasselt for agreeing to be my doctoral jury members They have given so many helpful comments and suggested some related documents for me to improve my thesis I also give my respect to all the professors in the Economics department, HEC, Liege university for creating a warm working environment, friendly interaction and helpful support in sharing knowledge Besides, I cherish the time of working with my colleagues, who are also PhD students and researchers Especially, I thank Iman Salem, Jerome Schoen1 maeckers, Joé Lamesch and Hendrik Scheewel They supported me in sharing working experience, guided me to complete required administration documents and helped me to find the accommodation I am also very lucky to know and have made friends with many Vietnamese friends in Liege city Thanks to them, I did not feel being lonely in Liege They have held many meetings and parties in Vietnamese style which inspire my spiritual thought, release stress and feel happier in life I have a particular thought for Duy, Phai, Thu, Thanh, Ngoc, Dao, Que who often asked me to join for dinner and we had the pleasure to share many memories My thanks also goes to the Vietnamese government who granted the scholarship for me during the time I study in Belgium I greatly appreciate the University of Danang for accepting me studying in Belgium Also, I thank all my colleagues in the Economics department, Danang University of Economics for their support and sharing the data set Without data set, my thesis could not have been done I especially thank my close friends: Van Anh, Thuy, Ngoc, Phai, Cuong for their spiritual encouragements Last but not least, I am indebted to my family who always unconditionally support me: my mom and dad, as well as my sister Special thanks goes to my husband, Khoa Nguyen, for his sacrifice and looking after the children when I am not at home To my children, Kim Khanh and Nam Khanh, I understand that it has been a hard time for you when I am not besides you and nothing can compensate for that Both of you are the engine for my success Introduction Country overview Vietnam has an area of 331,690 km2 and it is located in the East of the Indochinese peninsula, in the Southeast Asia Vietnam shares a border in the North with China, in the West with Laos and Cambodia, in the East with the East sea In 2019, Vietnam’s population was recorded at about more than 95 million people and was ranked 13th in the world Vietnam is an S-shaped country with eight specific regions: Northwest, Northeast, Red River Delta (in the North), North Central Coast, South Central Coast, Central Highlands (in the Center), Southeast, and Mekong River Delta (in the South) Hanoi, Ho Chi Minh and Danang are the largest and the most three developed cities in Vietnam Vietnam spent a long period under the war and was independent in 1975 to form a Socialist country Vietnam has recorded impressive economic development over the past 30 years The remarkable policy of changing from a centrally planned economy to a market economy in 1986 is a turning point that helped Vietnam grow economically Vietnam has become one of the most dynamic countries in Asia with high economic growth and deep international integration The GDP growth of Vietnam is constantly growing at an average of 7.26% during the period 2001-2010 and 5.91% during the period 2011-20151 , which is the highest average growth rate amongst ASEAN countries However, besides the impressive achievements in terms of economic The data is taken from Vietnamese General Statistics Office website: https://www.gso.gov.vn/ growth, Vietnam also experienced some lower growth rates during some periods During the periods 1997-1999 or 2008-2009 as the consequence of the Asian financial crisis and the World’s Great Recession respectively, the economic growth in Vietnam declined, but still maintained a high growth rate compared to other countries in Asean (shown in the figure (2)) Economic restructuring with the objective of industrialization and modernization in Vietnam also lead to significant changes The share of Agriculture sector’s contribution to national GDP has declined while the share of Industry and Services has increased Starting from a country with the domination of the state economy, Vietnam has pursued multi-economic types, in which non-state and foreign firms are encouraged through many incentives Moreover, with the aim of sustainable development, Vietnam has promulgated policies to reduce energy intensity and protect the environment The number of businesses in Vietnam is increasing rapidly In 2009, around 248,842 enterprises operated in the economy and ten years later, in 2019, this number was more than three times larger with 758,610 enterprises The development of these businesses has made a significant contribution to the industrialization and modernization of the Vietnamese economy However, the development of these firms still faces difficulties and challenges Generally, the markets for products are unstable due to the competition with firms in foreign countries; the firms’ labor qualification is not high and the product quality is not guaranteed R&D investment is less paid attention as firms not have enough resources or they not fully perceive the importance and benefit of R&D The consumption of energy in manufacturing firms is not efficient as well The low price of energy and lax governmental management on energy 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164 APPENDIX 2D: Non-exporters composition in 2011 2011 Number Existing firms and not 2010 Mean of capital Mean of capital intensity intensity 19,430 3.72 4.13 3129 4.628 4.711 708 4.25 4.06 12,184 - 4.23 10,731 3.37 - switch export status in 2011 Firms switch from non-export in 2010 to export in 2011 Firms switch from export in 2010 to non-export in 2011 Firms available in 2010 but stop in 2011 New non-exporting firms in 2011 165 APPENDIX 2E: IV-first differencing model by Anderson and Hsiao (1982) In general, the model is as: yit = β yi,t−1 + γxit + δ zi + αi + µit (4.8) where yit is the dependent variable, yi,t−1 is the lagged of dependent variable, xit is the time-varying exogenous variables, zit is the time-invariant exogenous variables, αi is individual specific-effects and µit is the error term A two-step instrumental variable is implemented by firstly taking the first difference to eliminate the firm’s unobservable heterogeneity and time-invariant exogenous variables: yit − yi,t−1 = β (yi,t−1 − yi,t−2 ) + γ(xit − xi,t−1 ) + µit − µi,t−1 (4.9) Anderson and Hsiao (1982) suggest using either yi,t−1 or (yi,t−2 −yi,t−3 ) as the instruments for (yi,t−1 − yi,t−2 ) The instrument variable method can estimate the parameter of β and γ As explained by Anderson and Hsiao (1982), βˆIV and γˆIV are consistent and independent of the initial condition In the second step, using βˆIV and γˆIV and substitute into the model (4.8) to estimate γ by OLS method To implement this methodology, we also run the regression in differences instead of the level to eliminate firm’s unobservable heterogeneity Then we employ IV variables to correct for endogeneity Based on the suggestions of Bernard and Jensen (2004b) and Bernard and Wagner (2001), we use the lags of two years of dependent variables (export status) and lags of two years of firm’s characteristics variables as instruments 166 Chapter APPENDIX 3A: CALCULATING TFP BY LEVINSOHN & PETRIN (2003) METHODOLOGY Total factor productivity (TFP) estimation in this paper is from methodology of Levinsohn and Petrin (2003) The approach of Levinsohn and Petrin (2003) stems from Olley and Pakes (1996) methodology, but use intermediate input proxy rather than the investment for controlling the endogeneity between input level and unobserved productivity Cobb-Douglas production function in logs as: yt = α0 + βl lt + βk kt + βi it + ωt + ut (4.10) where yit is the log of output; lit is the log of labor, kit is the log of capital and iit represents the intermediate input (such as the materials or energy that the firms use); ωit denotes productivity and uit is the error term which captures the measurement error or shocks uncorrelated to the input choices The intermediate input demand can be written in the function as below: it = it (ωt , kt ) (4.11) We assume that the intermediate input demand is monotonic in productivity ωit for all kit so that the equation (4.11) can be inverted to obtain ωit : ωt = ωt (it, kt ) (4.12) We then rewrite equation (4.10) as: yt = βl lt + φ (it , kt ) + ut (4.13) φ (it , kt ) = α0 + βk kt + βi it + ωt (it, kt ) (4.14) where 167 The equation (4.13) with the estimators are linear in lit and non-parametric in φ (iit , kit ) To deal with non-parametric estimators, Levinsohn and Petrin (2003) take the expectation of equation (4.13) with respect to material input and capital: E[yt |it , kt ] = βl E[lt |it , kt ] + φ (it , kt ) (4.15) due to uit is the error term uncorrelated with it and kt and E[φ (it , kt )|it , kt ] = φ (it , kt ) Subtracting (4.15) from (4.13): yt − E[yt |it , kt ] = βl (lt − E[lt |it , kt ]) + ut (4.16) At the first stage, the equation (4.16) is estimated to obtain consistent parameter of βl In the second stage, ωt is assumed to follow a first-order Markov process Moreover, capital is supposed not to be responsive to the productivity in the last period’s expectation (υt ): υt = ωt − E[ωt |ωt−1 ] (4.17) ωt = υt + E[ωt |ωt−1 ] (4.18) yt − βl lt = α0 + βk kt + βi it + ωt + ut (4.19) or From (4.10): Denoting yt∗ as output minus labor’s contribution and replace ωt from (4.18) into (4.19) yt∗ = yt − βl lt = α0 + βk kt + βi it + E[ωt |ωt−1 ] + ut∗ where ut∗ = ξt + ut 168 (4.20) At the second stage, we estimate the regression to obtain the parameters of βl , βk and βi Then TFP is calculated by taking the residuals of the production function 169 Chapter APPENDIX 4A: Vietnam’s exporting by destinations Unit: million USD 2011 2012 2013 US 16955.4 16955.4 23852.5 EU 16541.3 20302.0 24324.1 ASEAN 13656.0 17426.5 18584.4 China 11613.3 12836.0 13177.7 Japan 11091.7 13064.5 13544.2 Korea 4866.7 5580.9 6682.9 Total 96905.7 114529.2 132032.9 2014 2015 2011-2015 US 23852.5 33451.0 122558.8 EU 27895.5 30928.3 119991.2 ASEAN 19106.8 18195.1 86968.8 China 14928.3 16567.7 69123.0 Japan 14674.9 14100.3 66475.6 Korea 7167.5 8915.4 33213.4 Total 150217.1 162016.7 655701.6 170 ... of promoting production, encouraging export, investment, technological innovation, economic restructuring, ensuring a high and sustainable economic growth, contributing to stabilization and improvement... tax on employment and labor income are quite rare in Vietnam also In 2011, the United Nations Industrial Development Organization (UNIDO) and Vietnam Ministry of Planning and Investment conducted... aspects: (1) Information on firm’s identification (name, address, type of business, economic activities), (2) Information on labor and labor income, (3) Information on asset and business performance