Technical efficiency of rice production in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS TECHNICAL EFFICIENCY OF RICE PRODUCTION IN VIET NAM BY LE HOANG VIET PHUONG MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, DECEMBER 2012 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS TECHNICAL EFFICIENCY OF RICE PRODUCTION IN VIETNAM A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By LE HOANG VIET PHUONG Academic Supervisor: DR PHAM KHANH NAM DR PHAM LE THONG HO CHI MINH CITY, DECEMBER 2012 • DECLARATION I declare that "Technical efficiency of rice production in Vietnam" is my own works, it has not been submitted to any degree at other universities I confirm that I have made by effort and applied all knowledge for finishing this thesis in the best way HCMC, December 2012 LE HOANG VIET PHUONG i I ACKNOWLEDGEMENTS When working on this thesis, I had been given much valuable help and encouragement which is a strong motivation for me to go through difficulties and finish the thesis First of all, I kindly give my sincere thanks to Dr Pham Khanh Nam and Dr Pham Le Thong who wholeheartedly helped and guided me through the thesis I would like to give my thanks to Associate Prof Dr Nguyen Trong Hoai- Vice Principal of the University of Economics & Director of Vietnam - Netherlands Programme for MA in Development Economics who facilitated me when I was doing the thesis as well as in the past two year Postgraduate Program I would like to give my thanks to Dr Do Thi Loan - Deputy Chairwoman & Secretary General of HCMC Real Estate Association who wholeheartedly guided me to the thesis and allowed me to have valuable time to finish the thesis I would like to extend my thanks to: Dr Nguyen Huu Dung for his comments related to my TRD Dr Hay Sinh, Dr Nguyen Quynh Hoa, Dr Nguyen Ngoc Vinh, Dr Tran Tien Khai, Dr Le Van Chon, MA Truong Quang Hung, MDE Phung Thanh Binh and MBA Hoang Tuyet Thu who always encourage and support me during my study and my doing this thesis; 11 , MBA Nguyen Khanh Duy and MDE Nguyen Ngoc Danh for their proposal and guides related to my subject; Lecturers of Economics Development Faculty, HCMC University of Economics and other lecturers having participated in Vietnam- Netherlands Programme forMA in Development Economics who shared their precious experiences which I could apply to the thesis as well as to my work Lastly, I would like to express my heartfelt thanks to my family, my friends and my colleagues in HCMC Real Estate Association who are always by my side Ho Chi Minh City, December 2012 111 •, ABSTRACT This study estimates the technical efficiency of the rice farmers in Vietnam from the stochastic frontier production function using Vietnam Access to Resources Household Survey (2008) This study finds that the labour, machine, seed, fertilizer, pesticide and herbicide strongly affect rice productivity The mean technical efficiency of farmers is 60.28% The technical efficiency level of sampled farmers ranges from 17.79% to 89.38% Number of household members, age of farmer, experience, education, credit access, training program are predictors of technical efficiency Finally, joining associations or groups which is proxy variable of social capital also strongly affect technical efficiency However, the result is very interesting and different with my expectation In my study, the farmers who join more in Farmers' Union, Union and other groups will produce less than that in the other farmers lV TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii ABSTRACT iv TABLE OF CONTENTS v LIST OF TABLES vii LIST OF FIGURES viii LIST OF ABBREVIATIONS ix CHAPTER I INTRODUCTION 1.1 Problem statement 1.3 Research questions 1.4 Scope of study and data Thesis structure CHAPTER II LITERATURE REVIEW 2.1 Literature review on economic efficiency 2.1.1 Technical efficiency 2.1.2 Allocative efficiency 2.1.3 Graph explanation for technical efficiency, allocative efficiency and economic efficiency 2.2 Stochastic frontier analysis framework 2.2.1 Stochastic frontier model and technical efficiency measurement 2.2.2 Graph explanation for stochastic frontier model and technical efficiency 2.3 Social capital concepts 10 2.4 Empirical review 11 2.5 Chapter remark 21 CHAPTER III RESEARCH METHODOLOGY 22 3.1 Data 22 3.2 Empirical framework 23 v 3.3 Models Specification 24 3.3.1 Stochastic frontier production model 24 3.3.2 Technical efficiency model 31 3.4 Chapter remark 40 CHAPTER IV ANALYSIS AND RESULTS 41 4.1 Descriptive statistics 41 4.1.1 Descriptive statistics of rice production 41 4.1.2 Descriptive statistic of inputs contribution 43 4.1.3 Descriptive statistic of variables in technical efficiency model 44 4.1.4 Descriptive statistics of credit access 45 4.1.5 Descriptive statistic of social capital 46 4.2 Estimations results and discussions 47 4.2.1 Stochastic frontier production model 47 4.2.2 Discussion of stochastic frontier production model 49 4.3 Technical efficiency level and discussions 50 4.3.1 Technical efficiency level 50 4.3.2 Discussion of technical efficiency level 52 4.4 Technical efficiency model and discussions 52 4.4.1 Correlation matrix of independent variables 52 4.4.2 Technical efficiency model 53 4.4.3 Discussion oftechnical efficiency model .55 4.5 Chapter remark 58 CHAPTER V CONCLUSION AND POLICY IMPLICATION 59 5.1 Conclusion 59 5.2 Policy implication 60 5.3 Limitation and further research 61 REFERENCES 63 APPENDIX 67 VI LIST OF TABLES Table 2.1 Summary of empirical review 16 Table 3.1 List ofVariables in Stochastic Frontier Production Function 28 Table 3.2 List ofVariables in Technical Efficiency Model 37 Table 4.1 Rice production of the farmers in 12 months 41 Table 4.2 Descriptive statistics of inputs contribution 43 Table 4.3 Descriptive statistics of variables in technical efficiency model 44 Table 4.4 Descriptive statistics of credit access .45 Table 4.5 Descriptive statistics of joining groups .46 Table 4.6 Maximum Likelihood Estimation of Stochastic Frontier Production Function 47 Table 4.7 Frequency distribution of technical efficiency for rice farming 51 Table 4.8 Correlation matrix of independent variables 52 Table 4.9 OLS and FGLS estimation results of Technical efficiency model 53 Vll LIST OF FIGURES Figure 2.1 Input Oriented Efficiency Measures Figure 2.2 Technical efficiency of production Figure 2.3 Stochastic Frontier Production Function Figure 3.1 Empirical framework 23 Figure 3.2 OLS, MOLS, COLS and MLE deterministic production frontiers 30 Figure 4.1 Pie chart shows the structure of sellers .42 Figure 4.2 Pie chart shows the structure of buyers .43 Figure 4.3 The distribution oftechnical efficiency .51 vm 63 Coelli, T., Rao, D.S.P, O'Donnell, C.J and Battese, 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