Do better institutions boost firm performance The case of manufacturing firms in Vietnam

Problemstatement

Acemoglu,R o b i n s o n , a n d W o r e n ( 2 0 1 2 ) ,i n t h e i r h i g h l y a c c l a i m e d b o o k ,WhyNationsFail?,re- emphasizedanimportantmessagethatthekeytoprosperity,growth,p r o g r e s s andd emocracyofanysocietyandcommunityisthroughinstitutionalreforms.P r e v i o u s st udies(Acemoglu,Johnson,andRobinson(2000);Aoki(2007);Chang(2006);G l a e s e r , LaPort a,Lopez-de-

Silanes,andShleifer(2004);and(North,1990a;North(1990,p 3 ) ))havealsoprovenandprovidedrichliter atureontherelationshipbetweeninstitutions,governance,a n d e c o n o m i c p e r f o r m a n c e T h e p o s i t i v e i m p a c t o f g o o d i n s t i t u t i o n s o n economicperformance,bothatmacroa ndmicrolevel,issubstantiatedbystrongevidence.H o w e v e r , themajorityofpreviousstudiesonthisrelati onshipwereconductedindevelopedcountriesd u e t o l o n g - e x i s t i n g i n s t i t u t i o n a l r e f o r m s a n d h i g h - q u a l i t y d a t a a n d m a i n l y o b s e r v e d thisrelationshipatthemacrolevelusingcross- countrydata(MilgromandNorth(1990).

Therefore,thereisarealneedforfurtherresearchonhowinstitutionsandinstitutional changesinfluenceeconomicperformanceatthemicrolevel.Afewtypicalr e s e a r c h e s stud yingthisrelationshipfocusedmoreontheenforcementissuesandqualityo f administrativepro cedures,forexample,BerkowitzandDeJong(2003)obversvedthatb u s i n e s s e s tendedto choosetooperateinregionsbelievedtoreceivemorepoliticalsupportf r o m localgovernmentsinRus sia, whereas L ae ven andWoodruff (2007)f o u n d e d thatl a r g e r companieswere attractedmoretoeffectivejurisdictionsinMexico.Obviously,thesuccessof thebusiness sectorinanycountrywouldleadtorisingemploymentrate,bettert r a d e , i n v e s t m e n t a n d n a t i o n a l c o m p e t i t i v e n e s s a s w e l l asg r e a t e r t a x r e v e n u e s T h e s e factorse v e n t u a l l y c o n t r i b u t e t o t h e n a t i o n a l s o c i o -

12 e c o n o m i c d e v e l o p m e n t T h e r e f o r e , m a n y c o u n t r i e s h a v e b e e n c o n s i d e r i n g a n d applyinga p p r o p r i a t e p o l i c i e s t o c a t a l y z e positiveinstitutionalchangesinordertoimprovethebusinessclimateandfacilitateth eop er ati ons ofthebusinesssector.

InVietnam,sincetheadoptionofDoiMoipolicystartingin1986,“institution alreform”hasalwaysbeenofgreatconcerntotheGovernmentofVietnam.Mostofrecentimpor tantpoliticaldocumentsconsistentlyemphasizedthekeyobjectivesofimprovingma rketeconomyinstitutionsandtheefficiencyofstatemanagementandenhancingthe e f f e c t i v e n e s s oftheruleoflaw.Morespecifically,“institutionalreform”issetasapriorityi n t he Governments administrativereform programfor the 2011-2020period and the13thC o n g r e s slegislativeagendauntil2016.TheGovernmentofVietnamhas,oflate,is suedimportantresolutionsreflectingtheirstrongdeterminationtoimprovethebusinesse n v i r o n m e n t , specificallyResolutionNo.19/NĐ-

CPdatedMarch12,2015,aimingtoadvancethebusinessenvironment( r e a c h i n g theASEA N-6’saveragelevelbytheendof2015andASEAN-

4’sbytheendof2 01 6) a n d s t rengthenn a t i o n a l c o m p e t i t i v e s s T h e s e a r e t h e t w o “ d e c i s i v e f a c t o r s ” f o r Vietnam’ssocio- economicdevelopmentasstressedbythePrimeMinisteratameetinginA p r i l , 2014.

AndwhiletheresultsoftheimplementationofResolutionNo.19/2015havenot b e e n a n n o u n c e d , t h e e n c o u r a g i n g o u t c o m e f r o m t h e i m p l e m e n t i o n o f R e s o l u t i o n N o 1 9 /2 0 1 4 washighlightedatthe2014VietnamDevelopmentPartner shipForum(VDPF)w i t h thetheme“Institutionalreformeconomy,enhancedautonomyandco mpetitivnessofVietnam’se c o n o m y ” o r g a n i z e d o n D e c e m b e r 5 , 2 0 1 4 i n H a n o i So mes p e c i f i c r e s u l t s includethestarting-a- businessrankingofVietnaminDoingaBusiness2014jumpedfrom1 0 9 to60andtheratioofenterpr isesadoptinge- taxdeclarationsamazinglyincreasingto95%from65%.Additionally,theGovernmentofV ietnamissuedDecree78/2015/NĐ-

Pp r o v i d i n g guidanceontheimplementationofthenewEnterpriseLawonSetempber1 4,2015.T h i s d e c r e e i s c o n s i d e r e d a s t e p f o r w a r d i n t h e g o v e r m e n t ’ s d e t e r m i n a t i o n a n d committmenttofaciliatetheeaseofdoingbusinessinVietnamandenhancethetranspar encyintheareaofbusinessregistration.Therefore, researchesoninwhatwayinstitutiona lreformsshouldbedesignedandgovernanceshouldbeexecutedtohelpboosttheperformanceofth ebusinesssectorbyimprovingthebusinessclimateandregulatoryframeworkseemtoattractg reaterattention.

In 2015, Vietnam entered several significant trade agreements, including the Vietnam-European Union Free Trade Agreement and the Trans-Pacific Partnership Agreement (TPP) The TPP, projected to liberalize 40% of the global economy, is anticipated to provide substantial benefits to its member countries, with Vietnam expected to be one of the primary beneficiaries The advantages for Vietnam extend beyond tariff reductions; the most significant impact lies in the strong impetus for necessary institutional reforms, as noted by both local and international economists.

Moreover,theASEANEconomicCommunity(AEC)iscomingintobeingbytheen doft hisyearwiththeobjectiveofmakingthisregionasingleproductionbasewithfreemovementofcapital,i nvestmentandlabor.However,itseemsthatVietnameseenterprisesa r e stillverypassiveinlearningaboutan dself- adjustingtobemorecompetitivefacedwithb o t h c h a l l e n g e s a n d o p p o r t u n i t i e s b r o u g h t a b o u t byt h e A E C R e c e n t surveysbyt h e V i e t n a m ChamberofCommerceandIndus try(VCCI)revealedthatmorethan

30percento f VietnameseenterprisessurveyedadmittednotknowingaboutVietnam’sentryt oTPPn e g o t i a t i o n s , 7 6 p e r c e n t h a v i n g n o i d e a o f t h e A E C , 9 4 p e r c e n t n o t h a v i n g A E C ’ s negotiationc o n t e n t s a n d 63p e r c e n t c o m p l e t e l y i n t h e d a r k a b o u t o p p o r t u n i t i e s a n d ch al l en g e s awaitingthemonceAECisofficiallyl aunched.Thisstressestheneedforbetteri n f o r m a t i o n - s h a r i n g m e c h a n i s m a c c e s s i b l e tob u s i n e s s e s a n d f u r t h e r r e s e a r c h i n t o institut ionsandtheireffectsoneconomicperformancetoequipeconomicactorswithgoodi n f o r m a t i o n a n d a d v i c e s n e c e s s a r y f o r t h e m t o d e s i g n a p p r o p r i a t e s t r a t e g i e s a n d t h u s benefitfromthesetradedealsandintegrationinitiativesaswellassuccessfullyintegrated e e p e r intotheglobaleconomy.

FordevelopingcountrieslikeVietnam,thequalityofinstitutionsandregulator yframeworksa n d t h e i r i m p l e m e n t a t i o n m a y d i f f e r amongr e g i o n s a n d p r o v i n c e s ( V i e t (2013)).Therefore,sub- nationalstudiesmayhavemoreadvantagesduetocertainsimilaritiesintermsofpoliticalandl egalframeworkandotheraspectssuchascultureandlanguagewithina p a r t i c u l a r r e g i o n ( Mc Culloch,M a l e s k y , & D u c , 2 0 1 3 ),w h i c h m a y e n a b l e thestudiestoproducemorereleva ntanalyticalresultsandpolicyrecommendationstherewithlocalgovernmentscanselectandeffectivel yimplementthemostefficientreformp a c k a g e s F o l l o w i n g t h e footstepsof

“giants”intheareaof developmenteconomics suchastherecentlynamedNobellaureate,AngusDeaton,whoprovedthathigh- qualitymicrod a t a canshedlightonimportantdevelopmentissues,thispaperattemptstofindanswersto t h e questionwhetherornotbetterinstitutionscanimproveeconomicperformanceatthefir m- levelbyl o o k i n g c l o s e l y a t h o w c o m p a n i e s r e s p o n d t o c h a n g e s i n t h e P r o v i n c i a l C o m p e t i t i v e n e s s Index(PCI)andtheirsub-indices.

Researchobjectives

(a) investigatet h e relationshipbetweeninstitutionsandt h e performanceofm a n u f a c t u r i n g enterprisesin63citiesandprovincesinVietnam.

(b) recommend appropriate institutional reforms to improve the businessenvironmentbasedonfindingsfromtheresearch.

Researchquestions

Thiss t u d y o b s e r v e s t h e impacto f i n s t i t u t i o n s o n f i r m p e r f o r m a n c e A p p l y i n g q u a n t i t a t i v e r e s e a r c h onapanel dataoffirmsinthe manufacturingsectorinVietnamandthePCIdata,thethesisattemptstoanswerthesetwoquestions :

Scopeof thestudy

Thisstudyattemptstoexaminetheimpactofinstitutionsontheeconomicperforman ceofmanufacturingcompaniesin63citiesandprovincesinVietnam.Firmdatai s takenfromtheViet namEnterpriseSurvey(VES)from2007to2012andthedataonprovinciali n s t i t u t i o n s i s g a r n e r e d fromt h e P r o v i n c i a l C o m p e t i t i v e n e s s I n d e x S u r v e y s (PCI). OthermacrodataisextractedfromtheGeneralStatisticsOffice’sreports.

Thestructureofthestudy

Chapter1brieflyi n t r o d u c e s theproblemstatement,researchobjectivesandr e s e a r c h scopeanddata.

Chapter2reviews therelevantliteratureandempiricalstudiesontherelationshipbetweeni n s t i t u t i o n s a n d eco nomicp e r f o r m a n c e I t i n t r o d u c e s d e f i n i t i o n s o f somekeyc o n c e p t s a n d l i s t s o u t mainf i n d i n g s o f p r o m i n e n t s t u d i e s o n t h i s r e l a t i o n s h i p bybo th foreignandloc alresearchers.

Chapter3presentstheresearchmethodology withdiscussionsondatacollection,analysisandregressiontechniquestobeused.Thischa pteralsoprovidesdetailsonthec o n cep t u al framework,explainsthevariablesandhowthey aremeasured.

Chapter4 b r i e f l yp r e s e n t s a n o v e r v i e w o f t h e b u s i n e s s s e c t o r p e r f o r m a n c e i n Vietnam,basicinstitutionalreformsandtheirimpactsonbusinessperfor manceandther e s u l t s withstatisticaldescriptionsofthedata.Findingsarediscussedhere.

Chapter5summarizesthemainfindings,recommendpolicyimplementationsandou tlin eslimitationsaswellassuggestsdirectionsforfutureresearches.

Institutions

Definitions

Institutions,a s d e f i n e d byN o r t h ( 1 9 8 1 , p 2 0 1 ) ,a r e “ a s e t o f r u l e s , c o m p l i a n c e proceduresandmoralandethicalbehavioralnormsdesignedtoconstrainthebehavior ofindividualsi n t h e i n t e r e s t s o f maximizingthew e a l t h o r u t i l i t y o f p r i n c i p l e s ” Alsoa c c o r d i n g toNorth(1990,p.3),institutionsare“therulesofthegameinasocietyor ,moreformally,arethehumanlydevisedconstraintsthatshapehumaninteraction”.Concurrin gw i t h N o r t h ’ s v i e w , L i n a n d N u g e n t ( 1 9 9 5 , p 2 3 0 6 ) d e s c r i b e d i n s t i t u t i o n s a s “ a s e t o f h u m a n l y devisedbehavioralrulesthatgovern andshape theinteractionsofhumanbeingsi n partbyhelpingthemtoformexpectationsofwhatother peoplewilldo”.Therestillremain differentopinionsonthedefinitionof“institutions”;howev er,accordingtoChang(2006),mosto f t h e argumentss u p p o r t t h e i m p o r t a n t r o l e o f i n s t i t u t i o n s o n e c o n o m i c performance.

Itisnecessarytodistinguishbetweeninstitutionsandorganizations.Institutionsareg e n e r a l l y viewedtohaveabroadersense,beingthosewhichdeterminetheenvironmentinw h i c h organizationsarees tablishedandoperate.Organizationssuchasfirmsandbanksaremoreinclinedtobegoal- orientedeconomicactors(Ugur,2010).Institutionsmayguideorconstraintthechoicesandactionso forganizations.Focusoninstitutionsmeansfocusong o v e r n a n c e qualityandtheyhaveani mpactonnotonlytheeconomy asawholebutalsoindividualorganizationsoperatinginit.

North(1990a)distinguishedbetweeninformalinstitutionsandformalinstitutio nsa n d thenewinstitutionaleconomicsfocusedlargelyonformalinstitutions;however,recentinterestinthe relationshipbetweeninformalinstitutionsandeconomicdevelopmenthas

The distribution of authority, assets, and labor within a community and family is governed by specific rules and norms These include regulations concerning marriage, procreation, inheritance, and parenting, as well as guidelines for local decision-making and accountability.

Rules and norms shaping access to and participation in political structures and processes, including parliaments, public sector organisations, electoral processes and legal systems Economic relations

Rules and norms determining the degree of regulation, rent-seeking and corruption in economic relations, shaping access to assets, property, employment and credit.

Sources: Acemoglu & Robinson, 2012; Jones, 2009; Jütting et al., 2007;

Kabeer, 1994; Leftwich & Sen, 2010; Unsworth, 2010; World Bank, 2013a beenspotted L a u t h ( 20 05 ) o b ve r s e d th at there a re threety pes of r e l a t i o n s h i p b e t we e n informalandformalinstitutions.They canbecomplementary(coexistingandsupportinge a c h other),conflicting,orsubsitutive(informali nstitutionsdoworkwhiletheotherdonotan d viceversa).

Frominstitutions togovernance

GovernanceisdefinedbytheWorldBank(1992)as“themannerinwhichpoweri s exerci sedinthemanagementofacountry’seconomicandsocialresourcesford eveo pment ” a n d byt h e O E C D a s “ t h e e x e r c i s e o f a u t h o r i t y i n g o v e r n m e n t a n d t h e p o l i t i c al a r e n a ” L i n k i n g t h e n o t i o n s o f g o v e r n a n c e a n d i n s t i t u t i o n s , H u t h e r a n d S h a h (2005)definedgovernanceasthe“aspectsoftheexerciseofauthoritythroughformala ndinformalinstitutionsinthemanagementoftheresourceendowmentofastate.”Obviously,h a v i n g goodinstitutionsarenotenough.Goodinstitutionsneedtogoinlinewithgoodgovern ancet o a c h i e v e e x p e c t e d o u t c o m e s ofb o o s t i n g d e v e l o p m e n t o r g r o w t h

G o o d governancecanbeassessedthroughvariousaspects:accountability(governmentofficials’ actionsmustb e s u b j e c t t o o v e r s i g h t t o e n s u r e theya c t w i t h honestya n d i n t e g r i t y ) , governmenteffectiveness(goodqualityofpolicyformulation,capablecivilservan tsande f f e c t i v e publicservices),regulatoryquality(abilitytocreateandenforcego odpoliciesa n d regulationsthatcanpromotethedevelopmentoftheprivatesector),ruleoflaw(agents’confi denceinthelegalsystemandabidebythelawsandregulations),andothers.

Institutionsand economicperformance

Moredefinitionsandclarifications

First,the“ruleofthegame”approach,asfirst putbyCoase(1960)andlaterNorth(1990b),focusesoninstitutions’impactontransactio nsamongeconomicactors.These“ r u l e s ofthegame”enablepredictabilityofbehavior sofindividualsorcompanieseitherf r o m theangleoftheirlikelyactionsortheprobability oftheircomplianceduetowell-d e f i n e d andenforced sanctionrules, whichfacilitatecontractingbetweentheseeconomica c t o r s Transactioncostsaresignifica ntandinstitutionscansignificantlyinfluenceeconomicperformanceintwomainways:first,re ducingcostspertransaction,andsecond,increasingthenumberoftransactions(Wallis&North,1986).

Second,the“governancestructures”approach,asputforwardfirstbyCoase(1937)andlaterby Williamson(1975),emphasizesinstitutions’roleinenablingeconomicactorstostayawayfrompris oners’dilemmasituations,forinstancebyguaranteeingpropertyr i g h t s , andallevia tingagencyproblemswithwell-definedgovernancestandards.

Third,i n s t i t u t i o n s mayp r o m o t e c o o p e r a t i o n amongself- interestedactorseitherb u s i n e s s e s orindividuals,byadecentralizedwayofresolvingpro blemsrelatedtoi n f o r m a t i o n andsanctioning(Axelrod&Reisine,1984).

Improved institutions lead to reduced uncertainty, lower transaction costs, and increased transaction volumes for industries and firms Transaction costs encompass various factors such as information, negotiation, and contract-writing expenses Enhanced institutions also facilitate more effective and cost-efficient contract enforcement and dispute resolution, along with stronger property rights These elements foster greater confidence in the business environment, encouraging companies to invest more and engage in economic activities, while also providing incentives for employment and efficient resource exploitation.

Institutionsand economicperformance:theoreticalviews

Theimpactofinstitutionsoneconomicperformancehaslongbeenmentionedbyw e l l - k n o w n economists.Adam(1776),inhishighlyacclaimedbookWealthofNations,comm ented“Commerceandmanufacturers,inshort,canseldomflourishinanystateinw h i c h th ereisnotacertaindegreeofconfidenceinthejusticeofgovernment”.Obviously,accordingtoSmith,ins titutionsareanimportantfactorleadingtobettertradeandindustriald ev el op m en t T h i s e c o n o m i s t f u r t h e r e x p l a i n e d t h a t h i g h e r s e c u r i t y l e v e l a n d l o w e r exp ro pr ia tion risksarepositivelyrelatedwithhigherlevelofinvestmentthusgrowth.

Theimportantroleofinstitutionswassomehowunderestimatedbyneo- classicaleconomics,whichusedatechnicalproductionfunctionwithtwofactors(capitalandlabor)a n d u t i l i t y f u n c t i o n s toe x p l a i n e c o n o m i c g r o w t h H o w e v e r , t h i s v i e w f a c e d c e r t a i n ch al len ges tryingtoexplaintheco-existenceandinteractionofnon- marketinstitutionsandmarketi n s t i t u t i o n s Moreover,thistechnicalviewwasfound unablet o explain ther e d u c t i o n ofeconomicactivityduetouncleardefinitionofpropertyrightsorweakcontractenforce mentratherthanduetotechnicalproductionfunction(Rodrik,2000).Thisviewa l s o f ailedtoexplainthedevelopmentgapbetweendevelopinganddevelopedcountriesasp e o p l e , basedo

21 higheroutputandhelpsnarrowtheabove- mentionedgap.Inreality,the“yetright”policiesi n developingcountrieshavesomehowhinderedthe incominginflowandmobilizationofb o t h foreignanddomesticcapital.

Institutionalperspective- guidedresearcheswerequitemodestuntilthemiddleof1 9 8 0 s , whenScully(1988)andK ormendiandMeguire(1985)publishedtheirpapersont h e relationshipbetweeninstitutions andcross-country investmentandgrowth.Theliberalizationreformsinlate1980sa n d 1990spainteda clearerpictu reoftheroleofinstitutionsandprovedthatallcountries,regardlessofdevelopingordeveloped,wer ebothsensitivetopricesignalsandpricesignal- relatedincentivescouldleadtoincreasedwelfareonlywhentherewereinstitutionsinplacethatensurethe predictabilityofpropertyrights,h i g h contractenforceabilityandeffectivemeasurestoreduc erisks,resolveconflictsands o l v e moralhazardproblems(Rodrik,2000).

Whichandhowinstitutionsimpactoneconomicperformancecanbesummarizeda s f ollows(Aron,2000;Rodrik,2000): i)Propertyrightsinstitutions:Theseincludenormsandrulessuchasruleoflaw,q u al it y oflawenforcement,riskofexpropriation,andothers.Theseinstitutionslaythefo u n d a ti o n fortrust- buildingthatwillreducetherisksrelatedtoinvestmentandcontractinga sw e l l asi n f l u e n c e o n e c o n o m i c a c t o r s ’ d ecisionsi n c l u d i n g t h o s e o n s a v i n g s a n d in v e s t m en t Johnson, McMillan,andWoodruff

Better property rights institutions enhance firms' ability to reinvest profits, significantly boosting productivity, as evidenced by research from Yasar, Paul, and Ward (2011) across 52 countries Regulatory institutions play a crucial role in economic performance by promoting efficient public policies and preventing anti-competitive behaviors, with accountability and independence from political influence being essential to fair competition Political rent-seeking activities, as defined by Krueger (1974), can create unfair advantages for favored businesses while hindering others lacking political connections Macroeconomic stabilization institutions reduce uncertainty and foster sustainable growth by minimizing volatility and enhancing the economy's resilience to external shocks; their effectiveness is linked to the independence of central banks and the transparency of budgetary processes Finally, conflict resolution institutions are vital for economic performance as they address various disputes and ensure internal security, thereby facilitating a stable environment for economic activities.

T h e s ei n s t i t u t i o n s , i f w e l l – enforced,c a n a d d r e s s t h e i s s u e o f d i s t r i b u t i o n f a il u r e s , c o o p e r a t i o n pr oblemsorthe inclusion or exclusion offirmsint h e f o r m a l economy.

Insummary,institutionshavetwomaineffectsoneconomicperformance:marketc r e a t i n g effectandmarketdeepeningeffect. a)Marketcreatingeffect:theinstitutionscanencourage andfacilitatethegrowtho f marketswhereeconomicactorscanengageinbeneficialactivities.Th e high qualityofinstitutions,asdiscussedabove,willlowertransactioncostsandincreasethevolumeoft ransactionsandencourageeconomicactorstoexploreandengageinnewareas. b)Marketdeepeningeffect:thiseffectreflectsenhancedefficiencyofthecurrentmarkets

.Onceeconomicactorscanfeeltheimprovementinthequalityofinstitutionsandg o v e r n a n c e , th eya r e morec o n f i d e n t i n g o o d r e t u r n s o n t h e volumeo f c o n t r a c t s theye n g a g e ina sthisinstitutionalimprovementcanminimizetherisksofagencyproblems,marketfail uresandcoordinationfailuresaswellasreducemacroeconomicinstabilityandt h e economywillbe lesslikelytosufferfromlossesduetomisallocationordistortionofscarceresources.

Thed i s t i n c t i o n b e t w e e n t h e s e t w o e f f e c t s i s u s e f u l i n a n a l y z i n g t h e impacto f institutions;however,itshouldbewellindicatedthatt h e s e t w o e f f e c t s a r e n o t t o t a l l y separate.Theycanco- existwithineachchanneldescribedinthediagrambelow.Intheotherd i r e c t i o n , e c o n o m i c p e r f o r m a n c e hasalsof e e d b a c k e f f e c t o n i n s t i t u t i o n s F o r example,Dang(2013),usingadatasetfromthePCIsurve yandflowofFDIintoVietnams i n c e thecountryjoinedtheWTO,foundthateconomicinstit utionsacrossVietnamarea s s o c i a t e d withtheflowofFDI.

This diagram illustrates two types of institutions and their impact on economic performance Type 1 institutions, which encompass property rights and conflict resolution, enhance economic performance by creating incentives that increase the volume of contracts among economic actors, known as the market-creating effect In contrast, Type 2 institutions, including macro-stabilization and regulatory institutions, have a market-deepening effect, enabling economic actors to achieve better returns on their activities.

Institutionsand economicperformance:empiricalstudies

Therelationshipbetweeninstitutionsandeconomicperformancehasbeenanalyzedinagrowingem piricalliterature.Thebulkoftheresearch,however,focusesmoreonproxyindicatorsofthebusinessenviron mentatthecountrylevelincluding,butnotlimitedto,t h e levelofeconomicf re ed om inacer taincountry (suchastheHeritageF o u n d a t i o n s ’ A n n u a l Report);competitiveness( theWorldEconomicForum’sGlobalCompetitivenessRepor t); transparency(Transparenc yInternational’scountryratings);governance(Kaufmann,Kraay,&Zoido-

Lobatón,2000);andregulatoryconstraints(Botero,Djankov,L a Porta,&Lopez).

Thereisalsoagoodnumberofempiricalresearcheswhichusedindustryorfirml e v e l datatoobservethelinksbetweeninstitutionsandeconomicperformance.Klappe randLove(2004),usingfirm-levelcorporategovernancerankingsof14newmarkets,foundthatthefirm- levelgovernanceislowerinmarketswherethelegalsystemsareweakerandt h a t thereisahighcor relationbetweenhighcorporategovernanceandoperatingperformanceaswellasmark etvaluation.

Numerous studies utilizing firm-level data from well-designed surveys, primarily conducted by the World Bank, have established a significant relationship between performance and institutional constraints Research by Maksimovic, Demirgüç-Kunt, and Ayyagari (2006) analyzed data from 80 countries, revealing that political instability, crime, and financial issues directly hinder firm growth Similarly, Hallward-Driemeier, Wallsten, and Xu (2006) examined a dataset of 1,500 firms across five Chinese cities, emphasizing the impact of the investment climate on firm performance and the importance of firm-level data in understanding these dynamics However, these studies also highlighted potential biases due to omitted variables, measurement errors, and the endogeneity of independent variables.

Many researchers have focused on the impact of institutional quality on firm performance, particularly productivity The operating environment, shaped by institutions, influences productivity through several channels: first, incentive mechanisms can promote increased investment in research and development, accelerate the convergence of domestic productivity levels to those of leading economic actors, and help close the technology gap Second, greater competition allows successful companies to capture larger market shares, creates opportunities for owners to monitor managers by comparing performances, and often leads to higher profits and revenues while providing more incentives for workers Lastly, improved market regulation is crucial, as poor regulations can create unreasonable incentives that detract from productivity.

AccordingtoAron(2000),Rodrik(2000),Loayza,Oviedo,andServen(2005),andBowenan dDeClercq(2008),goodinstitutionstendtoassociatewithhigheraccumulationo f capital, bothphys icalandhuman, encourage theadoption ofg oo d technologies andinvestmentinthe creationandtransferofknowledgeandexpertise.

InVietnam,sincetheintroductionoftheProvincialCompetitivenessIndex(PCI),w h i c h offersagoodmeasurementofinstitutionsatthe provinciallevel,therehavebeenanumberofstudiestrying toexplain thel i n k s betweeni nstitutions andeconomic performance,b o t h a t t h e macroa n d microl e v e l , byutilizing t h i s P C I T o b e g i n w i t h ,

M a l e s k y a n d Taussig(2009),usingPCIanditssub- indicestoexaminethelinksbetweenp r o v i n c i a l institutionsand businessformaliz ation,provedthat betterinstitutionsenable entrepreneurstobemoreconfidentingov ernmentpoliciesandselectthegrowth- orientedw a y offormalityandalso,betterprotectionofpropertyrightsencouragestheformalizationo f busi nessesastheyperceivelessrisksfortheirinvestment.Inanotherstudy,McCulloche t al.

A study conducted in 2013 utilized the PCI to examine the relationship between provincial institutions, governance, and private investment levels in Vietnam It revealed a strong correlation between transparency and the information access index, indicating that entrepreneurs are less likely to invest or expand their businesses without access to information on legal procedures and business opportunities Additionally, research by Anh, Thai, and Thang (2007) analyzed the impact of local legal incentives on attracting foreign direct investment (FDI) across 64 provinces from 2000 to 2005, concluding that a positive relationship exists between the investment environment and the attraction of FDI.

T r a n , G r a f t o n , a n d K o m p a s ( 2 0 0 9 ) ,u s i n g t h e P C I a n d f i r m - l e v e l d a t a ( t h e V i e t n a m E n t e r p r i s e Survey)in2005toexaminetheimpactofin stitutionalreformsonfirm- leveleconomicperformancewithlaborproductivityemployedasaproxyforfirmperformance,f o u n d t h a t t h e P C I c a n s i g n i f i c a n t l y e x p l a i n t h e d i f f e r e n c e s i n f i r m - l e v e l p e r f o r m a n c e a c r o s s provincesandthat“a1%pointimprovementingovernmentpractic ecouldincreaset h e dailyvalue- addedofanaveragefirmbyanamountequivalenttonearlythreetimespercapitalGDPperday”.T.V. Nguyen,Le,andBryant(2013),alsousingthePCIanddataf r o m theSmallandMediumEnter prises(SME)toexaminetherelationshipbetweentheinstitutionsandfirmperformance,fou ndthatbetterinstitutionsnotonlypositivelyimpactf i r m p e r f o r m a n c e butalsoincreasetheircompetitivenessbypushingthemtowardse f f e c t i v e developingstrategies.

However,t h e r e w e r e a l s o s o m e s t u d i e s i n v e s t i g a t i n g t h e r e l a t i o n s h i p b e t w e e n institutionsandeconomicperformancewhichfailedtofindsignificantlinksbe tweenthesef a c t o r s , f o r example,NguyenandNguyen(2007), using the PCIt o i n v e s t i g a t e thed e t e r m i n a n t s ofFDIinflowstoVietnam,foundnosignifi cantcorrelationbetweeninstitutionsandFDIinflows.McCullochetal.

Measurementofinstitutions

Asp a r t l y d i s c u s s e d a b o v e , i n s t i t u t i o n s a r e u s u a l l y m e a s u r e d t h r o u g h d e s i g n e d surveys,mostpopulararetheWorldBank’sWorldwideGovernanceI ndicators(WGIs),WorldBank’sDoingBusinesssurvey,WorldEconomicForums’GlobalComp etitivenessR e p o r t , T r a n s p a r e n c y I n t e r n a t i o n a l ’ s c o u n t r y r a t i n g s , a n d o t h e r r e g i o n a l a n d n a t i o n a l surveys.

InVietnam,manyr esea rc her s h a v e u s e d t h e P r o v i n c i a l C o m p e t i t i v e n e s s

I n d e x , j o i n t l y p r o d u c e d byt h e U S Agencyf o r I n t e r n a t i o n a l D e v e l o p m e n t ( U S A I D ) - f u n d e d V i e t n a m C o m p e t i t i v e n e s s I n i t i a t i v e ( V N C I ) a n d V i e t n a m C h a m b e r o f Commercea n d Industry;t h e V i e t n a m P r o v i n c i a l G o v e r n a n c e a n d P u b l i c A d m i n i s t r a t i o n P e r f o r m a n c e I n d e x (PAPI),jointlysurveyedandreportedbytheUnite dNationalDevelopmentProgram(U NDP) andtheCenterforCommunitySupportDevelopmentS tudies(CECODES);andtheUNDP-supportedPublicAdministrationReformIndex(PARI).

FirmPerformance

Definitions

Thereisyetanall- agreeddefinitionoffirmperformanceeventhoughthisisamajorthemei n a l a r g e n u m b e r o f manage mentr e s e a r c h e s a n d i t s s t a t u s o f b e i n g a commond e p e n d e n t v a r i a b l e ( Richard,D evi nn ey, Y i p , & Jo hns on, 2 0 0 9 ).St ud ie so n firm performanceusuallyfacechallengessuchasthelackofconsensus,convenience- drivenselectionofindicatorsandi g n o r a n c e o f t h e m u l t i d i m e n s i o n a l i t y off i r m p e r f o r m a n c e Basedontheavailabilityofdata,manyresearcherschosetomeasurethisperformancewith a singleindicator(Glick,Washburn,&Miller,2005).

AccordingtoVenkatramanandRamanujam(1987),corporateperformanceor,asu s e d inthispaper,firmperformanceisamultidimensionalconstructviewedfromthree categories:businessperformance,financialperformance,andorganizationaleffectiveness.Businesspe rformanceisamarketorvalue- basedmeasureandcoversbothoperationalandf i n a n c i a l performance.Indicatorsmeasuringb usinessperformanceincludemarketshare,s a l e s growth,productdevelopment,diversifi cation,andothers.Financialperformanceisanalyzedfromtheaccountingperspective.Itmeasure sfirmprofitabilitythroughindicatorss u c h a s R O A ( r e t u r n o n a s s e t s ) , R O E ( r e t u r n o n e q u i t y ) , a n d R O S ( r e t u r n o n s a l e s ) O r g a n i z a t i o n a l e f f e c t i v e n e s s measuresp e r f o r m a n c e t h r o u g h i n d i c a t o r s s u c h a s q u a l i t y , socialresponsibilityandemployees atisfaction.

Measurementoffirmperformance

Thispaperexamines t he relationshipbe tw een institutions an dfirmperfor mancewiththelatterbeingviewedfromtheproductivityangleandprofitabilityangle.

Firmproductivity:“productivity”reflectstheefficiencyofphysicalinputsbeingc o n v e r t e d intousefuloutputs.Dependingonthetreatmentofinputsandoutputs,r e s e a r c h e r s canchoosetoutilizesingle-factor productivityratiosormulti-factor andtotalf a c t o r p r o d u c t i v i t y r a t i o s ( L i e b e r m a n & K a n g , 2 0 0 8 ).Int h i s stu dy,t h e v a l u e a d d e d c o n c e p t - b a s e d productivitymeasureisused,whichmeansthedifferencebetweenfirm’ss a l e s a nditspurchasesofrawmaterialsandoutsideservices.Duetotheavailabilityofdata,laborproductivity(outp utperunitoflaborinput)iscalculatedhere.Anothersingle- factorp r o d u c t i v i t y r a t i o , c a p i t a l p r o d u c t i v i t y ( t h r o u g h t h e p r o x y o f v a l u e a d d e d p e r u n i t o f

Firmprofitability:ROAandROEarecalculatedandserveastoolstoreconfirmr e s u l ts o f t h e i n v e s t i g a t i o n o f b e t w e e n i n s t i t u t i o n s a n d f i r m p e r f o r m a n c e w i t h l a b o r pr od uctivi ty beingthemainproxy.

Analyticalframeworkfor the study

This paper presents a framework that clarifies the relationships examined, focusing on Type 1 institutions, referred to as "the rules of the game." Within the PCI index, these institutions encompass sub-indices such as Entry Costs, Land Access and Security of Tenure, Informal Charges, Legal Institutions, and Time Costs and Regulatory Compliance They establish the incentive and sanction structure that informs economic actors about encouraged actions, associated costs, and benefits This understanding influences the level of investment and contract intensity among economic actors, highlighting the "market-creating impact" of these institutions on firm performance.

Onthe right-handside areType2institutions,“the governancestructures”,which,w i t h i n thePCI,arecomposedofTransparencyandAccesstoI nformation,ProactivityofP r o v i n c i a l L e a d e r s h i p , B u s i n e s s S u p p o r t S e r v i c e s , a n d L a b o r a n d T r a i n i n g T h e s e a r e supposedtoenhancethe“marketcreating”effectcre atedbyType1institutions.Thesehelpe n s u r e economicactorswillachievehigherreturns ontheireconomicoperations,partlyd ue tothehighpredictabilityofthegovernancemec hanismsandbetterqualityofpublicp o l i c i e s , whicharebelievedtominimizeuncertaintiesand risks.

Datasources

VietnamEnterpriseSurvey

Conductedbyt he G e n e r a l S t a t i s t i c s O f f i c e o f V i e t n a m ( G S O ) s i n c e 2 0 0 0 o n a yearlyb a s i s , V E S i s a f a i r l y c o m p r e h e n s i v e s u r v e y c o v e r i n g a l l s t a t e a n d n o n - s t a t e enterprisesandforeigninvestedenterprisesin63provincesandcities inViet nam.Thed a t a s e t c o n t a i n s i n f o r m a t i o n r e f l e c t i n g f i r m pe rf or ma nc e, o w n e r s h i p , e m p l o y m e n t , p r o d u c t i o n situations,jobtraining,andotherdetails.Thissurveyisfrequently employedtos t u d y a b o u t t h e b u s i n e s s s e c t o r i n V i e t n a m withi t s i n c r e a s i n g l y b e t t e r q u a l i t y a n d e x p a n d i n g samples.

In2011and2012,thesurveyrecordednecessaryindicatorstwiceayear,onthefirstd a y ofJanuar yandlastdayofDecember.Thisstudyusestheindicatorsrecordedattheyeare n d M o r e o v e r , a s mentionedi n t h e r e s e a r c h o b j e c t i v e , t h e s t u d y o b s e r v e s t h e r e l a t i o n s h i p betweeninstitutionsandtheperformanceofmanufacturingfirmsinVietnam,only dataofmanufacturingfirms,whichwasfairlyrichandcategorizedinto33industries,i s used.Tohaveaf airlyconsistentpaneldata,muchtimehasbeenspentonthefilteringprocess.Inthisstudy,au nique codewascreatedbyaddingfourcodes(id):madn+macs

+nganhkd+yeartoeliminateoverlappingdata.Box- plotrulewasalsoappliedtodropo u t l i e r s fromthesample.Thefinalsamplehas4,118m anufacturing firmswith14,242o b s e r v a t i o n s

No.ofyears No.ofobservations No.offirms

When calculating firm-level value added, defined as total sales minus intermediate inputs (cost of goods sold), it is important to note that the cost of goods sold data was unavailable for the years 2007, 2008, and 2009 To address this, I calculated the average ratio of value added to total sales using more reliable data from 2010, 2011, and 2012 This ratio was then multiplied by total sales from 2007, 2008, and 2009 to estimate the value added for those years Additionally, data from the VES was utilized to compute dependent variables such as labor productivity, capital productivity, return on assets, and return on equity, along with control variables including the capital/labor ratio, firm size, and firm types.

ProvincialCompetitivenessIndex(PCI)

Firstdevelopedin2005,theProvincialCompetitivenessIndex(PCI)wasjoi ntlyp r o d u c e d byVNCIandVCCIinanefforttoprovideobjectiveassessmentofthequalityofprov incialinstitutionsandgovernance.AppraisedbyOxfordPolicyManagement’sDirect orforEconomicPolicyNeilMcCullochas“thesinglebestsub- nationalgovernancei n d e x intheworld”,thesurveyisconductedbymailingoutquestiona irestosamplesoffirms,selectedrandomly,ineachprovince.The questionsaredes ignedtoobtainfirmsp e r c e p t i o n s o f t h e q u a l i t y o f e c o n o m i c p e r f o r m a n c e int h e i r p r o v i n c e a s w e l l ast h e i r s p e c i f i c experienceofgovernance(Seethetablesandfigures below,andappendices1,2,3moredetails).

ThePCIisconstructedfollowingthreestepsasdescribedinthechartbelowwithsub -indicesstandardizedtoa10- pointscaleandthecompositeindexestimatedbyw e i g h t i n g themeanofallsub- indiceswitha100-pointscore.

Bycommonperceptions,awell- performingprovinceisonethathaslowerentryco st s andinformalcharges,easierlan dacccess,betterregulatorycompliance,andsoon,t h e PCIindexhasmadeiteasierforres earchersbycalculatingscoresinwaysthatanyp r o v i n c e scoresbetteronanindexmean sitperformsbetterinthatarea.Hereisatypicalexample:

Sub-Index Top Score Bottom Score

Datafortheinstitutionalvariablesofthisstudy’smodelwasextractedfromthePCIIndex.O therdatacharacterizingtwogroupsofcontrolvariablesincludingfirm- specificg r o u p s u c h a s firms i z e a n d firmo w n e r s h i p a n d p r o v i n c i a l i n i t i a l e n d o w m e n t g r o u p includingGDPpercapita,annualGDPgrowthrate,provincialindustrial productionindex, infrastructurei n d e x , e d u c a t i o n a l l e v e l , p o p u l a t i o n a r e e x t r a c t e d f r o m t h e V E S a n d t h e GS O’ s statisticalyearbooks.

Modelandvariable construction

TheModel

Thisstudyemploysabasicpaneldatamodeltoanalysetherelationshipbetween institutions andfirmperformance withhypothesesthatbetter institutions(higher PCIandsub- indicesscores)areposilivelyrelatedwithbetterfirmperformance: where:

Y ipt = β 0 +βX pt + δFF ipt + γP pt + ε t

Y iptis thefirmperformance(productivity/ profitability)offirmiinprovincepinyeartX ptis theexplanatoryvariables(hereareinstitutionalv ariables)ofprovincepinyeartF iptis avectoroffirmspecificcharacteristicsinprovincepinyeart

Variables1 DependentVariables(Proxies ofFirmPerformance)

Productivity can be measured in various ways, depending on the relationship between inputs and outputs These measurements can include single-factor ratios like labor or capital productivity, as well as multi-factor or total-factor productivity In this study, labor productivity, defined as value added per worker, is used as a proxy for firm performance due to data availability It is posited that stronger institutions will lead to higher labor productivity Additionally, capital productivity is measured to validate the findings regarding the relationship between institutions and labor productivity Binswanger (1980) suggested that institutions significantly impact the distribution of production factors, especially labor, in terms of output and income distribution.

Thereareseveralmeasuresoffirm’sprofitability,amongwhichROAandROEarep o p u l a r indicators.ROA,reflectinghowprofitable afirmcanberelativetoitstotalassetso r t hel e v e l o f management’se f f i c i e n c y a t leveragin gitsassetstogenerateearnings(Minichilli,Corbetta,&MacMillan,2010),canbemeasuredby dividingnetincomebyt o t a l assets.ROE,equallingnetincomeovershareholder’sequi ty,measuresthelevelofp r o f i t afirm cangeneratewiththemoneyinvestedbyshareholders(Dedrick,Gurbaxani,

Ln_VALipt Logoflaborproductivity(value-added/ labor)offirmiinp r o v i nc epinyeart

Ln_VAKipt Logofcapitalproductivity(value-added/capital)offirm iinprovincepinyeart

Assets.A s s e t s = ẵ (yearb e g i n n i n g a s s e t s + year -endassets)offirmiinprovincepinyeart

LCpt PCISub-index:LandAccess&SecurityofTenure +

TPpt PCISub-index:Transparency&AccesstoInformaiton +

TCpt PCISub-index:TimeCosts&RegulatoryCompliance +

Ln_KLipt Capital/laborratiooffirmiinprovincepinyeart +/- Smallipt Firmsize:smallfirms,employing10-200people

Mediumipt Firmsize:mediumfirms,employing200-300people

Largeipt Firmsize:largefirms,employingfrom300people

Firmownership:State-ownedenterprises,Private,FDI

HerearetheinstitutionalvariablestakenfromthePCIReports.Thesevariableswerewi d ely employe dbyresearcherswhoattemptedtoobservetheeconomicperformanceinVi etn am b o t h a t macroa n d microl e v e l T y p i c a l s t u d i e s i n c l u d e o n e s c o n d u c t e d by( M a l e s k y & Taussig,2009;McCullochetal.,2013;Tranetal.,2009;Viet,2013).When

40 thevaluesofthesevariables(scores)arehigher,thismeansinstitutionsandgovernancearep e r c e i v e d to bebetterandthusfirmperformanceisexpectedtoimprove(Seeappendix1and2formoredetails abouttheseinstitutionalvariables).

Thefluctuationofthisratiomayhaveacertainimpactonfirmperformance.Thisr at i o isexpectedly positivelycorrelatedwithlaborproductivity(valueaddedperworker)w h i l e negativelycorrela tedwithROAandROE(higherratiomeanslargertotalassets).

Thisindicatorisveryofteninterpretedasthesourceoforganizationcosts(She pherd,1972)Thisisalsoconsideredanindicatorofdiverificationandwasfoundtonegat ivelya f f e c t performance( Rumelt& Wensley,1 9 8 1 ;W e r n e r f e l t & M o n t g o m e r y , 1 988).ThefirmsizehereismeasuredbytheaveragenumberofworkersfollowingDecreeN o 56/2009 /NĐ-

CPdatedJune30,2009,whichdividesfirmsintothreecategories:Small(employingbetween10and2 00workers),Medium(200-300workers)andLarge(over3 0 0 workers).

OwnedEntprises(SOE),andForeignInvestedEnterprises(FIE).Viewsoftherelationshipb et w ee n firm ownershipandfirmperformancearequitecontroversialamongeconomists.Boycko,S h l e i f e r , a n d V i s h n y ( 1 9 9 6 ) a n d K r u e g e r ( 1 9 9 0 ) a r g u e d t h a t S O E s a r e l e s s e f f i c i e n t thanprivateenterprisesbecausetheyareunderpressuretoemploymorelabor i n p u t s thanneeded,andtendtoemploypolitically-

41 thanmaximumprofit.ThisperspectivewaschallengedbyVickersandYarrow(19 91),whoarguedthattheagencyproblemsarisewithbothSOEsandprivatefirms.Kolea ndMulherin(1997),however,presentedevidencetoprovethatSOEsarenolessefficientthanp r i v a t e ent erprises.InVietnam,PhungandHoang(2013),usingdatafrom thetwostocke x c h a n g e s t o i n v e s t i g a t e t h e r e l a t i o n s h i p b e t w e e n c o r p o r a t e o w n e r s h i p a n d f i r m performancef o r t h e 2 0 0 7 -

GDPpercapita isusedhereas aproxyof growthof provincesinaspecificyear.Itis expectedthath ig he rGDPper capitaispositivelyasso ciatedwithbet te r firmperformance.

Humanc a p i t a l h a s l o n g b e l i e v e d t o b e o n e o f t h e d r i v e r s o f f i r m grow tha n d performance.C r o o k , T o d d , Co mbs, Woehr,a n d Ke t c h e nJ r (2011),m eta - ana lyz in g 6 6 studiesonthehumancapitaland firmperformancerelationship,affirmedthatinvestmenti n humancapitalwillbringaboutbetterfirm performancealthoughhumancapitalmaytakem o n e y andtimeto develop,whichmaysomehowoffset itspositive effects.Itisassumedh e r e thatwhenemployeeshaveahigherlevelofeducationtheirproductivitywil limprovean dthiscontributestofirmperformance.

Infrastructureis oneofthekeyelements aninvestor willlook atwhenconsideringinvestingina certainlocation.Bettertransportationa n d telecommunicatio nssystems, reliables u p p l y o f p o w e r , e a s i e r a c c e s s t o l o g i s t i c s f a c i l i t i e s a n d o t h e r s a r e f a v o r a b l e conditionsforafirmtooperate,produceandexport.

IIP(ordenotedin thispaperasAIPI)isthe ratiobetweenthe quantityofindustrialproductionatthecurrenttimeandthatofthebasetime.AIIPiscalculatedstartin gwiththecalculationofproductionindexofcommodity,thenfromthattheproductioninde xesofV i e t n a m StandardIndustryClassification(VSICfour-digitandVSICone- digit)industriesw e l l asthisindexattheprovincialornationallevelarecalculated.AprovincewithahigherAIPIisbelievedtoofferamorefavorableenvironmentforindustrialproductionamongot herfactors.

Descriptive (InitialRelationship)

4 2 observations Table6provides thedescriptivestatisticsofthekeyvariablesin thedatasample.Tables7and8presentthemeanvaluesoftheabovekeyvariablesbytyp esofo w n e r s h i p andbyyears.

Variables Observation Mean Std.Dev Min Max

FromTable7,itcanbe observedthatSOEs,onaverage,havethehighestlabo rproductivity,capitalproductivityandthushighestreturnsonassetsandequity.Foreign- investedfirmscomesecondandlastareprivatefirms.Foreigncompaniestendtoinvestmore inmodernmachineriesandequipmenttoincreaseproductivity,whichexplainsthehi ghca pitalintensityratiohere.State- ownedcompanies,duetoeasieraccesstofinancialr e s o u r c e s togetherwithcertainfav orsgivenbythegovernment,alsotendtohavehighcapital- laborratio,whilethisisnotthecaseforthemajorityofprivatecompanies.

Variable VAL VAK ROA ROE KL

Whereastherearenobigfluctuationsinindicators suchasROAandROE,iti so b v i o u s , asseenfromTable8,thatlaborproductivityduringtheobservedperiodwasonth eri sep oss ib ly duetomoreat ten ti on t o hu ma n c a p i ta l i n v e s t m e n t an dl ab or tr ai n in gprograms.

Year VAL VAK ROA ROE KL Obs

Table9 d i s p l a y s t h e meanv a l u e s o f e x p l a n a t o r y v a r i a b l e s a n d otherc o n t r o l v a r i a b l e s includingfirm- specificcharacteristicsvariablesandprovincialinitialendowmento n e s Theaveragescoresforinstitutionssuch astimecosts,entrycostsorinformalchargesa r e abovethemiddlelevel(over5/10)whilescoresfor otherinstitutionsandgovernanceo n otheraspectssuchasproactivityofprovincialleaders hip,labortrainingandbusinesssupportsaremuchlowerthan.

Variable Obs Mean S.D Min Max

Table10displaysthemeanvaluesofthekeyvariablesbymanufacturingindustries.Itcanbeseenth roughthestatisticsbelowthattherearebigvariationsamongindustriesint h e manufacturingsector,po ssiblyduetodifferentcharacteristicsspecifictoeachindustrya n d qualityofthedatainthissample.

Industr ycode Industryname VAL VAK ROA ROE

ThecorrelationmatrixinTable11,at initial observation,reveals positiverelationsbetweentheweightedPCIindex,anumberofsub- indicessuchasTransparency,LaborandTraining,LegalInstitutionswiththekeydependentvariable_la borproductivity.

Table 11 reveals a negative correlation between the Labor and Training sub-index and the education variable, which measures the ratio of high school graduates to the provincial population, a factor expected to be positively correlated This discrepancy may arise because the Labor and Training sub-index is primarily based on enterprise feedback regarding the quality of skilled workers and the effectiveness of vocational training programs in the provinces Although some provinces may boast a high ratio of high school graduates, these individuals often opt to pursue higher education or relocate, rather than entering the local workforce Furthermore, these provinces may lack adequate labor and training programs that align with employer demands.

AnalyticalApproach

Paneldataisusuallypreferredfortestingmodels.Reasonsare,accordingtoBaltagi(2008),thepan eldataenablesresearcherstoobversethebehaviorsandtrendsoffirmsoveryears.Acombinationofcross- sectionalandtime- seriesobservations,paneldatacanlimitc o l l i n e a r i t y amongvariablesandcreateshigherdegreesoff reedomandtherefore,increasesthereliabilityofestimations.Paneldataisalsousefulintrackingandmeasuring effectivelyt h o s e impactswherecross-sectionalortime-seriesdataalonemayfailtoobserve.

Panel data analysis primarily utilizes two approaches: the fixed effect model (FEM) and the random effect model (REM) FEM is advantageous as it allows researchers to estimate the net effects of explanatory variables on dependent variables by controlling for time-invariant differences across entities However, it has limitations, including the inability to measure time-invariant factors such as race and gender, as it absorbs these variables into the intercept Additionally, the presence of multiple variables can lead to multicollinearity and a reduced degree of freedom in the model.

REM,q u i t e contrary,assumest h e r e a r e randomv a r i a t i o n s a c r o s s e n t i t i e s a n d n o correlationbetweenexplanatoryvariablesandthesevariations.AlimitationoftheREMisi t can notcontrolthebiasofomittedvariables.Hausmantestisusedtoseewhichmodel,F E M orRE M,ismoresuitable.Theprinciplehereisifthep- valueissmallerthan0.05thenthenullhypothesisthattheestimationsofFEMandREMaresimil arwillberejecteda n d FEMisamoresuitablemodelandthusshouldbeselected.F- testisalsoconductedtoseewhetherallthecoefficientsinthemodelaredifferentthanzero.

“Robust”and“cluster”optionsarealsoadoptedwhenrunningtheregressionst oc o n t r o l f o r h e t e r o s k e d a s t i c i t y a n d e n s u r e t h a t o b s e r v a t i o n s c a n bec o r r e l a t e d within“ c l u s t e r ” butindependentbetween“clusters”.

Overviewof thebusinesssectorperformancein Vietnamduringtheobserved period:50 4.2 OverviewofBasicInstitutionalReformsand TheirImpactsonBusinessFormance524 3 Empiricalresults

7 5 n e w l y - r e g i s t er e d e n t e r p r i s e s b u t a l s o s a w o f f 5 4 , 2 6 1 e n t e r p r i s e s F r o m t h e o w n e r s h i p perspective, thenumberofworkersinnon- stateenterpriseswasslightlydecreasing.Theav erag e numberofworkersinanon- statecompanyfell26percent,from27in2007to20i n 2012.ThisratioinFDIcompaniesfollowedthe samedirection,decreasingfrom340in2 0 0 7 to303in2012.Onthecontrary,theaveragenumbe rofworkersinanSOEroseby10percentfrom402in2007to442in2012.

Intermsofcapitalgrowthduringthisperiod,theSOEsectorrankedtopwithahugeincreaseincapi tal(risingfrom285billionin2007to1,141billionin2012,fourtimesh i g h e r thanthe sameperiodthepreviousyear).TheFDIsectorrecordedthelowestgrowthrat e (67percent)andthepriv atesectordoubled(from13,4billionto23,4billion).

(3to4timeshigher) whileFDI enterprises’turnoverdecreasedby2billion,possiblyduetocompetitionstagedbystatemo nopolisticenterprisesorreportingissues( “t r ansf er p r i c i n g ” ,f o r e x a m p l e ) T h e r a t i o o f e n t e r p r i s e s t h a t c o u l d m a k e a p r o f i t i n 2 0 07 was70, 7 1a n d 9 5 perc entforF DI , p r i v a t e andS O E s e c t o r s r es p e c t i ve l y , butit plummetedd o w n t o 5 3 , 3

Therew e r e c h a l l e n g e s f r o m t h e g l o b a l economicd o w n t u r n a n d l a c k o f m a c r o e c o n o m i c stabilities;howeverthecoreandlongstandingchallengeshavetodomorew i t h policies(orinstitutions)andmanagementcapacity: i)Limitedaccesstocapitalsources:Enterprisesfindithardtoaccesstobigloansandbankstendtogivemorepri oritytolargeSOEs. ii) Landa c c e s s i o n:T h o s e e n t e r p r i s e s w h i c h a r e l o c a t e d o u t s i d e i n d u s t r i a l z o n e s f a c e ch a l l e n g e s ofdealingwithsiteclearanceissuesthemselvesandcumbersomeadminist rativep r o c e d u r e s

Poor management adversely impacts land prices, rents, and land tenure security Rising minimum wage mandates have increased labor costs, alongside higher social and medical insurance expenses, negatively affecting labor-intensive enterprises Additionally, escalating prices of essential input materials such as energy, transport services, and raw materials have further strained businesses, leading many to close or reduce production Furthermore, state-owned enterprises (SOEs) continue to dominate various sectors, hindering the creation of a level playing field for all economic actors There is a lack of initiatives to support innovation, capacity building, and market expansion for enterprises, while public spending on critical infrastructure projects is declining, leaving infrastructure conditions below business expectations.

Vietnamese enterprises face several subjective challenges that hinder their growth Firstly, most businesses in Vietnam are small to medium-sized, which limits their financial capacity Secondly, governance within these companies often relies on management's personal experience rather than a strategic vision, making it difficult to adapt to the rapidly changing global business environment Additionally, there is a significant shortage of skilled labor, with Vietnam's human quality index ranking near the bottom in Asia, according to a 2011 World Bank report Lastly, many Vietnamese manufacturing companies depend on imported raw materials, particularly in key industries like textiles, apparel, footwear, and furniture, which raises production costs and reduces profitability for manufacturers.

Otherchallengesincludelowlevelof technologicalinnovation,poorqualityofthed istribu tion systemandlowawarenessofandweak productionoftrademarks.

Agoodrangeofregulationswereissuedforthepastfewyearstofacilitateglobalecono mici n t e g r a t i o n T h e numbero f n e w l a w s p a s s e d in2 0 1 4 w a s particularlyh i g h b e c a u s e , afterthepromulgationofamendmentstotheConstitutionin2013,therewasar e a l demandfornewguidancedecreesandcircularstolayfoundationsformajor institutionalreformsingeneral,andeconomicinstitutionsinparticular.

Recently- issuedi n s t i t u t i o n s w h i c h a r e mostr e l e v a n t t o t h e i m p r o v e m e n t o f t h e busines senvironmentanddemandedbythebusinesscommunityinclude: i)TheamendedEnterpriseLaw,whichabolisheshalfofthenumberofprocedures(5outof10)forstarting businessesandsignificantlyreducesthebusinessregistrationtime,whiche n a b l e s Vietnamtojumpup60ranks ontheDoingBusinessrankings(StartingABusinessindicator); ii) TheamendedInvestmentLaw,whichabolishesagoodnumberofrequirementsforo b t a i n i n g aninvestmentlicenseandshortenstheinvestmentlicensegrantingtimeby30days(15daysnowinsteadof45days); iii)ResolutionNo.19/NQ-

CP,whichinitiatesactionstocutdowncompliancecostsandseveralmeasurestofacilitatebusiness activities.Timerequiredforcomplyingwithtaxandinsuranceproceduresisalsosubstantiallyredu ced,andlikewisetheamountoftimeforcustomsprocedures; iv)TheamendedBiddingLawandPublicInvestmentLaw,whichwasissuedwithstrictprovisions t h a t c a n i n c r e a s e t r a n s p a r e n c y andi n c r e a s e g o v e r n m e n t a g e n c i e s ’ accountabi lityintermsofapprovingprojects,selectingbidderforbiggovernmentprocurementcontra ctsandallowingbudget.

First,Itriedrunningboththefixedeffectsandrandomeffectsmodelswithlaborp r o d u c t i v i t y ( v a l u e addedperworker)asthedependentvariableandthekey institutionalv a r i a b l e (weightedPCI)anditssub-indicesandthendobothF- testandHausmantesttos e e whichmodelisbetter.ResultsfromtheF- testandHausmantestpointedtothesameconclusion:fixedeffectsmodelismoresuitableinthisstu dy.Forexample,atModel1,theF- testresult(Prob>F=0.000)issmallerthan0.05,whichtellsthatallthecoefficientsint h e mod elaredifferent thanzeroandthat weneedtouse fixedeffectsmethod.Theresulto f theHausmantestalsoshowsthatFEmodelispreferablewithProb

Table 12 presents the results of the first regression (Model 1) using labor productivity, measured as value added per worker, as a proxy for firm performance The findings indicate that improved institutions and governance, represented by the weighted PCI index, positively influence firm performance at a significance level of 1% Specifically, an increase of 1 point in the weighted PCI index, reflecting higher institutional quality in a firm's province, correlates with a 0.54% enhancement in firm performance The t-value for the key institutional variable is notably high at 3.61, surpassing the 1.96 benchmark, underscoring the variable's significance Additionally, "robust" and "cluster" options are utilized to address heteroskedasticity, ensuring that observations can be correlated within clusters while remaining independent across them.

Theresultsalsoprovedthepositivecorrelationsbetweenreformsinthechangesinthevalue softheTransparencyandLegalInstitutionssub- indicesandtheperformanceoft h e manufacturingbusinesssector.Thesignificantlevelsarevery encouraging,at5%and1 % respectively BetterLaborTrainingand B u s i n e s s Supp ort S e r v i ce s wouldresultin higherfirmperformancethoughatalowersignificancelevel(15

Theestimatedinfluenceofcontrolvariablesisfairlyinformativeandconsistentwithth e literature.Fac torssuchaseducationallevelofthelaborworkforce,averageGDPperc a p i t a intheobserv edlocalityandparticularlytheindustrialproductionindexallshowco nt ri bu ti on s tothepositiverelationshipbetweeninstitutionsandbusinessperformance.

Dependentvariable:laborproductivity(ln_VAL)-Modelselected:FixedEffect

PCITO TP LI LT BS EC TC IC PRO LC

Robuststandarderrorsarereportedinparenthesis.Significanceat1%,5%,and10%levelasnotedby***,**,*respectively

Table13displaystheresultsofthesecondregression(Model2)wheretheproxyfo rf i r m p e r f o r m a n c e i s r e p l a c e d byt h e c a p i t a l p r o d u c t i v i t y i n d i c a t o r ( l n _ V

Dependentvariable:capitalproductivity(ln_VAK)-Model selected:FixedEffect

PCITO TP LI LT BS

Robuststandarderrorsarereportedin parenthesis.Significanceat1%,5%,and10%levelasnotedby***,**,*respectively

Inordertoreconfirmtheresultsobtainedfromthefirsttworegressions,I,again,r e p l a c e d thepreviousdependentvariablewith twofirmprofitabilityindicators(ROAandROEinturn).Theestimatedresultssolidlyconfir medthepositiverelationshipbetweeninstitutionsandfirmperformance,particularlywhe nlookingattheweightedPCIIndex.T h e r e arestillsignificantrelationsbetweenfirm performanceandTransparency,LaborTraining andBusinessSupportsub- indicesbutthisrelationshipwithLegalInstitutionsisn o t a s s i g n i f i c a n t a s t h e f i r s t t w o models.E n t r y C o s t s a n d P r o a c t i v i t y o f P r o v i n c i a l L e a d e r s h i p sub- indicesemergedinthisregressionasonesthathavepositiveimpactonfirm performanceat5%significancelevel.Thiscanbeexplainedthatlesstimeandcostsspento n businessr egistrationandlandrentingprocessesforexampleaswellaslocalauthorities’incentivess u c h astaxbrea ksorlandrentalsupportcanboostf i r m p e r f o r m a n c e a n d subsequentlyprofit.

Dependentvariable:profitability(ROA)-Modelselected:FixedEffect

PCITO TP LT BS EC PRO

Table15showstheresultsofthelastmodelwhereROEisthedependentvariable.Theonly differencefromthisregressionistheappearanceofanothersub- indexwhichisp o s i t i v e associatedwithfirmperformance:TimeCostsofRegulatoryCompliance.

Dependentvariable:profitability(ROE)Modelselected:FixedEffect

PCITO LI LT BS TC

Mainfindings

Ith a s b e e n l o n g a r g u e d amongs c h o l a r s t h a t i n s t i t u t i o n a l c o n t e x t impactst h e economicperformancebothatthemacroandmicrolevel.Goodinstitu tionsandg o v e r n a n c e influences firms’propensitytoinvestandtheirabilitytogr owandexpand( D i M a g g i o &Powell,1991;Knack&Keefer,1995;North,1990,p.3).D evelopingfromp r e v i o u s p a p e r s i n v e s t i g a t i n g t h e r e l a t i o n s h i p b e t w e e n i n s t i t u t i o n s a n d economicperformanceu t i l i z i n g t h e P C I I n d e x byr e s e a r c h e r s w h o h a v e g o o d k n o w l e d g e a n d e x p e r i e n c e about

(2013),t h i s paperinvestigateshowinstitutionsaffecttheeconomicperformancedowntothefirm- levelandcanfindthatgoodinstitutionsandgovernance,overall,significantlya n d p o s i t i v e l y improvesthebusinessenvironmentandfromthathelpboostfirm- levelp r o d u c t i v i t y andprofitability.

Key aspects of institutions that positively influence business performance include transparency, where investors and business owners have better access to planning documents and regulations affecting their operations, fostering confidence in consistent regulatory interpretation and predictability of changes Legal institutions play a crucial role by instilling confidence in the legal system for dispute resolution and combating corrupt practices by government officials Additionally, labor training is vital as it provides access to quality education and vocational training services, ensuring the development of a skilled workforce Lastly, business support services offered by provincial authorities, such as matchmaking, export promotion, and essential market information, are critical for investors and business owners to thrive.

Policyimplications

Fromtheresultsabove,thispapercanechofindingsbyotherresearcherswhohavestudiedand concludedonthepositiver e l a t i o n s h i p b e t w e e n i n s t i t u t i o n s a n d e c o n o m i c perfo rmance.T h e G o v e r n m e n t o f V i e t n a m , s i n c e D o i M o i , w a s f u l l y a w a r e o f w h a t c h a n g e s i n i n s t i t u t i o n s a n d p o l i c i e s c a n b r i n g a b o u t f o r t h e c o u n t r y a n d t h e b u s i n e s s communityandhasfollowedtherightdirectionofissuingandapplyingm orepoliciesandr e g u l a t i o n s t h a t f o c u s moret h e s u s t a i n a b l e g r o w t h o f t h e p r i v a t e s e c t o r A d i s t i n c t i v e f e a t u r e oftheinstitutionalreformsinVietnamisthedifferentleve lofimplementationofc e n t r a l policiesandregulationsbythelower(provincialordistrictlevel)auth oritiesacrossv a r i o u s regionsinthecountry.

Therefore,itisadvisablethattheGovernmentofVietnamVNcontinuesfollowingt h e refo rmofinstitutionsandpolicieswhichareinlinewithinternationalstandardsandgoodpr actices,particularlystandardsthatVietnamhascommittedtofollowwhenenteringi n t o investmentortr adeagreementswithothercountries.Theenforcementoflawsandr e g u l a t i o n s isst illabottleneckintheimprovementofbusinessenvironment.Thisstressestheneedfortimelyissua nceofguidingdecreesorcircularandeducationofnewinstitutions,policiesforthebusinessc ommunityandrelevantstakeholders,andcapacityb u i l d i n g forenforcementofficials.

Tobuildbusinesses’andinvestors’confidence,itisimportantthattransparencyint h e b u s i n e s s e n v i r o n m e n t , w h i c h meansi n p o l i c i e s , a d m i n i s t r a t i o n a n d p r o c e d u r e s , b e improved.Firmsn e e d betteraccesst o n e w l e g a l d o c u m e n t s , p l a n n i n g d o c u m e n t s a n d informationnecessaryforbetterpredictability oftrendsfortheirplanningandbusi nessactivities.Bestpracticesinimprovingtransparencymayinclude:

.Strengtheningtheroleofbusinessassociationstofacilitateeffectivedialoguesbetweenl o c a l a u t h o r i t i e s andbusinesses.Feedbackfromt h e b u s i n e s s communitys h o u l d bec o n s i d e r e d andreflectedinfuturepoliciesandregulati ons.

Onegoodexampleisthee- regulationsystemlaunchedatbigcitiesandprovincesinVietnamtoprovidetransparentinvest mentprocedures.ThisisdevelopedwiththeU.N.ConferenceonTradeandDevelopment’stechnicalassist ance.Atoollikethis,ifmultiplieda n d madeavailable,isveryusefultobusinessesandinvestors.

Toclimbhigherontheglobalproductionchain,itiscriticalforVietnam’sindustriest o possessaskill edlaborforce.However,thesupplyofskilledlaborinVietnamisstillfarf r o m demand.Accordin gtothe2014PCIreport,foreign investedenterprises,between 2 0 1 0 and2014,ha dtoprovideadditionaltrainingto20-35%ofnewemployees,whichincurred3 6 % -

7 8 % ofb u s i n e s s c o s t s High- techc o m p a n i e s s u c h a s I n t e l , S a m s u n g , repeatedly mentionedthelackofcapablew orkersasoneoftheirbiggestchallengeswheno p e r a t i n g inVietnameventhoughthesecorp orations’factoriesarelocatedinbigcities.IntelVietnamhadtorecruitgoodfreshgra duatesfromtechuniversitiesandsendthemo v e r s e a s fortraining.Otherbigcompanieshave chosentofollowthissamemodel.Besidest h e lackoftechnicalskills,Vietnameseworkersarealsoindir eneedofotherskillssuchaslanguage,behavioralandcognitiveskills.

To ensure sustainable development of the labor force in Vietnam, significant reforms are necessary within the education system Education plays a crucial role in enhancing productivity, and when formal education and training fail to align with labor market demands, innovative approaches must be implemented promptly Effective coordination and collaboration among all stakeholders, including the government, educational institutions, and enterprises, are essential to devise strategies that address current workforce shortages Initiatives like Intel Vietnam’s Higher Engineering Education Alliance Program (HEEAP), which unites government, industry, and educational bodies to focus on training a technically skilled workforce through integrated education and technology solutions, serve as valuable models In 2014, the Prime Minister approved a project aimed at improving this alignment, highlighting the commitment to reforming education and training in Vietnam.

Maintainingharmoniouslaborrelationsisalsoimportantfortheimprovementofp r o d u c t i v i t y andbusinessefficiency.Thiscanbeachievedbyputtinginplacegoodandtra nsparentlawsandregulationsaswellaseffectiveeducationandupdateofnecessarylegalknow ledgeforbothemployersandemployees.

Enterprisesappreciateprovincialauthoritiesthatprovideagoodrangeofsupport servicesfromindustrialparkswithitsservicepackagestotechnologicalservices.Info rmationoninvestmentandtradepromotionorbusinessmatch- makingactivitiesshouldb e madeavailabletobusinessessothattheycanreducethetimeand financialcostsofsearchingordoingpromotionbythemselves.Frequentdialoguesbetweent heauthoritiesandthebusinessrepresentativeswillenabletheauthoritiestoknow whatcompaniesneeds o thattheycanselectandprovideappropriatebusinesssupportse rvices.Developingast ro ngservicesectorto supportenterprisesisvital:servicessuchasaccounting,financial,legalconsultingandothers,parti cularlywhenmorefreetradeagreementsaresignedtherew o u l d likelybeasurgeintradeprotectio nismandenterprisesshouldbewell-preparedford e a l i n g withlawsuits.

Thequalityofthejudiciarysystemneedstobeimprovedwithoutdelays.Atpresent,n o t fewforei gncompanies,despitechoosingtoinvestinVietnamtotakeadvantageofc h e ap lab orandresources,tendtorelymoreonoverseascourtsandarbitrationsystemswh er ethe ycan.Aneffectivejudiciarysystemisonethatbusinessescanconfideinandcometosee ksolutionsfortheirdisputes.Judgesandcourtemployeesneedpropertrainingt o confidentlyhandle complicateddisputesandmakefairdecisions.Thesystemshould alsob e p r o v i d e d w i t h n e c e s s a r y e q u i p m e n t t o w o r k moree f f i c i e n t l y , s h o r t e n i n g c a s e reviewingtimeandthusreducingcostsincurredtobusinesses.

Limitationsanddirectionsforfurtherresearch

Theunavailabilityofdataisoneofthebiggestlimitations.WealreadyhavethePCId a t a for2014b utthelatestavailableVESdatastopsat2012.Thequalityofdataisalsoani ss u e: inconsistenciesanderrors oftenfoundintheVES,particularlypriorto2010,possiblyd u e tocarelessdatainputworkers.Dataf romtheGSOsuchasprovincialGDPgrowthr a t e s , educationaldevelopmentratiosan dothersarealsoinconsistentsometimesandthecalculationmethodsa r e b e i n g q u e s t i o n e d T h i s s a m p l e a l s o f a i l s t o e s t i m a t e c o n t r o l v a r i a b l e s thatmayalsoh elpbetterexplaintherelationshipbetweeninstitutionsandfirmperformances u c h ast h e I

C T i n d e x , R & D intensity,ori n d u s t r y – specificindicators(Wernerfelt&Montgomery,1988).

Anotherlimitationofthisresearchisyettoaddresstheissueofendogeneity.Thewei g ht ed PCIanditssub- indicesmaybeendogenouslydecidedbyunobservablefactorsint h e model.Wecancontrolforth isissuebyusingstronginstrumentvariables.However,t h e i n d e p e n d e n t v a r i a b l e s i n t h e d a t a b a s e providel i m i t e d s e c t i o n o f potentialg o o d instruments.Theuseof weakinstrumentsmayleadtotheinconsistentestimationoftheinstitutions- performancerelationship.

Thisstudyonlyinvestigatestheinstitution- firmperformancerelationshipwithinthesampleo f a f e w t h o u s a n d m a n u f a c t u r i n g c o m p a n i e s , t h i s r e l a t i o n s h i p c a n b e e x p l o r e d further,oncedataisavailable,byincludingmoreindus tries.Theimpactofinstitutionswillbe betterobservedoveralongerspanoftime.WhilethePCIref lectstheassessmentof thequalityofinstitutionsandgovernanceofprovincialauthoritiesbytheprivatesector, thereareothergoodmeasuresofinstitutionsandgovernanceavailablesuchasthePAPIa ndPA R O neca n a l s o use moreco mp re he nsi vep ro xi es o f f i r m performances u c h a sm u l t i - f a c t o r productivityortotalfactorproductivity.

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Ameasurecombiningtwodimensionsofthelandproblemsconfrontingentrepreneurs:howeasyitist o accessl andandthesecurityoftenureoncelandisacquired,including:

Ameasureofwhetherfirmshaveaccesstotheproperplanningandlegaldocumentsnecessaryto runtheirbusinesses,whetherthosedocumentsareequitablyavailable,whethernewpoliciesandlawsarecom municatedtofirmsandpredictablyimplemented,andthebusinessutilityoftheprovincialwebpage.

Ameasureofhow muchtimefirmswaste onbureaucraticcompliance,aswellashowoftenandforh o w longfirmsmustshuttheiroperationsdownforinsp ectionsbylocalregulatoryagencies.

Ameasureofhow muchfirmspayininformalcharges,howmuchofanobstaclethoseextrafeesposef o r theirbusinessoperations ,whetherpaymentofthoseextrafeesresultsinexpectedresultsor"services,"andwhetherprovincialofficialsus ecompliancewithlocalregulationstoextractrents.

Ameasureofthecreativityandclevernessofprovincesinimplementingcentralpolicy,designingtheirowninitiat ivesforprivatesectordevelopment,andworkingwithinsometimesunclearnationalregulatoryframeworkstoas sistandinterpretinfavoroflocalprivatefirms.

- The PPCisflexiblewithinthelegalframeworktocreatefavorablebusinessenvironmentfor non- statefirms(%StronglyAgreeorAgree)

Usedtobenamed"PrivateSectordevelopmentservices",thisisameasureofprovincialservicesforprivatesector tradepromotion,provisionofregulatoryinformationtofirms,businesspartnermatchmaking,provisionofindus trialzonesorindustrialclusters,andtechnologicalservicesforfirms.

Services provided by provincial agencies: general education (% Very Good or Good) Services provided by provincial agencies: vocational training (% Very Good or Good) Firm has used labor exchange services (%)

A significant percentage of firms utilize private providers for labor exchange services, indicating a reliance on external expertise Moreover, many of these firms express their intention to continue using these service providers for future labor exchange needs Additionally, a notable portion of total business costs is allocated to labor training, highlighting the importance of workforce development in sustaining business operations.

A significant portion of total business costs is allocated to labor recruitment, highlighting its importance in operational expenses Overall satisfaction with labor, measured by the percentage of firms agreeing that their workforce meets needs, is crucial for maintaining productivity Additionally, the ratio of vocational training school graduates to untrained laborers emphasizes the value of skilled workers in the labor market Furthermore, the percentage of secondary school graduates within the workforce reflects the educational foundation available to employers, influencing hiring decisions and overall workforce quality.

Percentage of workers having completed training at vocational schools

The article assesses the private sector's confidence in provincial legal institutions, focusing on their effectiveness in resolving disputes and addressing corrupt official behavior It highlights the percentage of firms that view the legal system as a reliable mechanism for appealing against corruption, indicating a significant reliance on these institutions for justice.

Firm confident that legal system will uphold property rights and contracts (% Strongly Agree or Agree)

Cases filed by by non-state entities at Provincial Economic Court per 100 firms.

Business used courts or other legal institutions to resolve disputes (%)

Non-state claimants as a percentage of claimants at Provincial Economic Court.

Median months to resolve court cases

Median formal and informal costs as a percentage of case

Provincial court judge economic cases by the law (% Agree or strongly agree)

Provincial court resolve economic cases quickly (% Agree or strongly agree)

Court judgements are enforced quickly (% Agree or strongly agree)

Legal aid agencies support business to use laws to sue when disputes arise (% Agree)

Formal and informal costs are acceptable (% Agree or strongly agree)

Judgement by the court is fair (% Agree or strongly agree)

Willingness to use court in case a dispute arises (% Yes)

Appendix 5:BoxplotChartforeachVariable(VAL,KL,ROA,ROE)byIndustry

xtreg ln_VALKL SmallLargeSOEPriForeduln_GDPPpopAIPIinfras1PCITO, fenote:Foromittedbecauseofcollinearity

Fixed-effects(within)regression Numberofobs =

R-sq: within =0.1515 Obspergroup:min= 1 between=0.0024 avg= 3.5 overall=0.0190 max= 6

- ln_VAL| Coef Std.Err t P>|t| [95%Conf.Interval] -+ -

KL| 0022102 0001978 11.17 0.000 0018224 002598 Small| 1796411 0292918 6.13 0.000 1222234 2370589 Large| -.3403873 0434991 -7.83 0.000 -.4256542 -.2551204 SOE| -.1699426 1237747 -1.37 0.170 -.4125657 0726805 Pri| -.0246781 102832 -0.24 0.810 -.2262493 176893

xtreg ln_VALKL SmallLargeSOEPriForeduln_GDPPpopAIPIinfras1PCITO, renote:Foromittedbecauseofcollinearity

Waldchi2(11) = 2375.76 corr(u_i,X) = 0(assumed) Prob>chi2 = 0.0000

- ln_VAL| Coef Std.Err z P>|z| [95%Conf.Interval] -+ -

KL| 004073 0001619 25.16 0.000 0037557 0043902 Small| 0307675 0261538 1.18 0.239 -.020493 0820281 Large| -.0870062 0321515 -2.71 0.007 -.1500219 -.0239906 SOE| -.1681656 0835684 -2.01 0.044 -.3319566 -.0043747 Pri| -.3752542 0622469 -6.03 0.000 -.4972558 -.2532525

Note:therankofthedifferencedvariancematrix(9)doesnotequalthenumberofcoefficientsbein gtested(11);besurethisis whatyouexpect,ortheremaybeproblemscomputingthetest.

Pri| -.0246781 -.3752542 350576 081852 edu| 1.124686 4.874216 -3.74953 1.012615 ln_GDPP| 1.005992 876932 1290601 0087497 pop| -4.86143 7686163 -5.630046 6797207

xtreg ln_VAKln_KL SmallLargeSOEPriForeduln_GDPPpopAIPIinfras1

PCITO,ferobustcluster(id) note:Foromittedbecauseofcollinearity

Fixed-effects(within)regression Numberofobs 14242Groupvariable:id =

| Robust ln_VAK| Coef Std.Err t P>|t| [95%Conf.Interval]

For| 0 (omitted) edu| 7407915 1.716669 0.43 0.666 -2.624808 4.106391 ln_GDPP| 9266834 0439221 21.10 0.000 8405724 1.012794 pop| -4.634087 1.612768 -2.87 0.004 -7.795983 -1.472191

xtreg ROAln_KL PCITOSmallLargeSOEPriForeduln_GDPPpopAIPIinfras1

Fixed-effects(within)regression Numberofobs 14242Groupvariable:id =

Tiêu đề	Do Better Institutions Boost Firm Performance? The Case of Manufacturing Firms in Vietnam
Tác giả	Nguyen Thi Nha Trang
Người hướng dẫn	Prof. Dr. Nguyen Trong Hoai
Trường học	University of Economics Ho Chi Minh City
Chuyên ngành	Development Economics
Thể loại	Thesis
Năm xuất bản	2015
Thành phố	Ho Chi Minh City

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