Determinants of new firm formation The case of Vietnam.

Determinants of new firm formation The case of Vietnam.Determinants of new firm formation The case of Vietnam.Determinants of new firm formation The case of Vietnam.Determinants of new firm formation The case of Vietnam.Determinants of new firm formation The case of Vietnam.Determinants of new firm formation The case of Vietnam.

MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY N G U YE N VI ET H O A* DE TE R MI N A NT S OF NE W FI R M FO R M AT IO N: TH E C AS E OF VI ET N A MASTER THESIS DETERMINANTS OF NEW FIRM FORMATION: THE CASE OF VIETNAM Major: International Economics FULL NAME: NGUYEN VIET HOA Hanoi – 2020 MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS DETERMINANTS OF NEW FIRM FORMATION: THE CASE OF VIETNAM Major: International Economics Specialization: Master of Research in International Economics Code: 8310106 Full name: Nguyen Viet Hoa Supervisor: Assoc Prof, Dr Nguyen Thi Tuong Anh Hanoi – 2020 ABSTRACT This paper aims to investigate the determinants of new firm formation at 63 provinces of Vietnam employing a panel data set collected over the period of years from 2015 to 2018 The results highlight that the factors including population growth, population density, urbanization, income level, exit rate and mean establishment firm size (MES) have a positive correlation with new firm formation, whereas unemployment rate, Foreign Direct Investment (FDI) and Provincial Competitiveness Index (PCI) fail to emerge as significant influences on new firm formation rate in the case of Vietnam The findings of the research suggest that Vietnamese Government can facilitate new firm formation by implementing various macro and microeconomic policies, such as improving the attractiveness of some provincial urban centers or forcing some existing businesses who are unable to match their productivity to that of newly established firms to leave the market so as to make room for new firms Key words: New firm formation, Vietnam STATEMENT OF ORIGINAL AUTHORSHIP I, Nguyen Viet Hoa, declare that this thesis and the work presented in it are my own and has been generated by me as the result of my own original research “Determinants of new firm formation: The case of Vietnam” I confirm that: This work was done wholly or mainly while in candidature for a master research degree at Foreign Trade University; Where any part of this thesis has previously been submitted for a degree or any other qualification at this university or any other institution, this has been clearly stated; Where I have consulted the published work of others, this is always clearly attributed; Where I have quoted from the work of others, the source is always given With the exception of such quotations, this thesis is entirely my own work; I have acknowledged all main sources of help; Where the thesis is based on work done by myself jointly with others, I have made clear exactly what was done by others and what I have contributed myself; Either none of this work has been published before submission Signed: ……………………………………………………………………… Date: ……………………………………………………………………… ACKNOWLEDGEMENTS First of all, I would like to express my deep gratitude to my supervisor – Assoc Prof, Dr Nguyen Thi Tuong Anh, who supported and assisted me in completing my master dissertation This thesis has benefited substantially from her guidelines, comments, recommendations and encouragement as well Without her help, it could have been impossible for me to finish my research work Secondly, I would like to show my appreciation to the whole staffs in the Faculty of Graduate Studies – Foreign Trade University throughout my study process, especially Dr Cao Thi Hong Vinh for her thoughtful administrative arrangements, patience and tremendous encouragement during my thesis writing process Thirdly, I desire to show my heartfelt appreciation to all members in my family because they always stand by me no matter what happens and strongly encourage me to complete my whole study with patience, passion and caring thoughts In addition, I feel very thankful for my friends even if they are my classmates in Master of Research in International Economics or not since they supported me sincerely and enthusiastically in many ways when I was embarking on this tough yet beneficial higher education path Last but not least, I would like to dedicate this Master thesis to my beloved Grandmother, who raised me and was my role model of hard-working spirit, positive attitude and morality Without her, I might not become who I am today I am writing these lines in tears of grief when I recall my memory about her funeral years ago I regret that I could not manage to let my grandmother see her granddaughter graduate before she left for the other side Now she has gone very far away, but I truly hope that she will still be there beside me and know that I love her and miss her so much Nguyen Viet Hoa June 2020 TABLE OF CONTENTS ABSTRACT ii STATEMENT OF ORIGINAL AUTHORSHIP iii ACKNOWLEDGEMENTS iv LIST OF TABLES AND FIGURES viii CHAPTER 1: INTRODUCTION 1.1 Rationale of the thesis 1.2 Object and objective of the thesis 1.3 Methodology 1.4 Scope of the thesis 1.5 Structure of the thesis CHAPTER 2: THEORETICAL FRAMEWORK ABOUT NEW FIRM FORMATION AND LITERATURE REVIEW 2.1 Overview about new firm formation 2.1.1 Definition of new firm formation 2.1.2 Steps for firm formation 2.1.3 Measurement of new firm formation 2.1.4 The importance of new firm formation 10 2.2 Literature review about determinants of new firm formation 20 2.2.1 Unemployment rate 21 2.2.2 Population growth 22 2.2.3 Population density 23 2.2.4 Urbanization 24 2.2.5 Income level 25 2.2.6 Exit rate 26 2.2.7 FDI inflows 26 2.2.8 Mean establishment firm size (MES) 29 2.2.9 Provincial Competitiveness Index (PCI) 29 2.3 Research hypotheses 30 CHAPTER 3: SITUATIONS OF NEW FIRM FORMATION IN VIETNAM 33 3.1 General situations of new firm formation in Vietnam 33 3.2 Situation of newly established enterprises by sector 35 3.3 Situation of newly established enterprises by region 39 3.4 Situation of newly established enterprises by type 40 3.5 Impact of new firm formation on Vietnam’s economy 42 3.5.1 Impact of new firm formation on Vietnam’s economic growth 42 3.5.2 Impact of new firm formation on Vietnam’s employment growth 44 CHAPTER 4: THE MODEL AND EMPIRICAL RESULTS 47 4.1 Research model 47 4.2 Variables description 49 4.2.1 Dependent variable 50 4.2.2 Independent variables 51 4.3 Data sources 55 4.4 Estimating procedure 56 4.5 Estimation results and discussions 57 4.5.1 Correlation matrix test 57 4.5.2 Regression results 59 4.5.3 Interpretations of the regression results 61 CHAPTER 5: POLICY IMPLICATIONS AND CONCLUSIONS 66 5.1 Recommendations 66 5.2 Conclusions 68 5.2.1 Research summary 68 5.2.2 Limitations of the study 69 5.2.3 Suggestions for further research 70 REFERENCES 71 APPENDICES 81 LIST OF ABBREVIATIONS FDI Foreign Direct Investment FE Fixed effects FEM Fixed effect model FIA Foreign Investment Agency FIEs Foreign Invested Enterprise GDP Gross Domestic Product GNP Gross National Product GSO General Statistic Office LM Lagrange multiplier MES Mean Establishment Size PCI Provincial Competitiveness Index POLS Pool Ordinary Least Square method RE Random effects REM Random effect model TFP Total Factor Productivity VCCI Vietnam Chamber of Commerce and Industry WTO World Trade Organization LIST OF TABLES AND FIGURES Figure 2.1 New business formation and the market process 17 Figure 3.1 The number of newly established enterprises in Vietnam over the period of years from 2011 to 2019 33 Figure 3.2 Total registered capital of newly established enterprises in Vietnam over the period of years from 2011 to 2019 34 Figure 3.3 Average registered capital of newly established enterprises in Vietnam over the period of years from 2011 to 2019 34 Figure 3.4 Total registered labor of newly established enterprises in Vietnam over the period of 11 months from 2015-2019 35 Figure 3.5 10 types of economic activities with the highest number of newly established enterprises in 2018 in Vietnam 38 Figure 3.6 Vietnam’s GDP over the period of years from 2011 to 2019 42 Figure 3.7 Vietnam’s economic growth rate over the period of years from 2011 to 2019 43 Figure 3.8 Vietnam’s economic growth rate by sectors over the period of years from 2015 to 2019 43 Figure 3.9 Vietnam’s number of employed people over the period of years from 2011 to 2019 45 Figure 3.10 Vietnam’s proportion of employed labors by sectors over the period of years from 2011 to 2019 45 Table 3.1 The number of newly established enterprises by sector in Vietnam over the period of years from 2015 to 2018 36 Table 3.2 Total registered capital by sector of newly established enterprises in Vietnam over the period of years from 2015 to 2018 37 Table 3.3 The number of newly established enterprises by region in Vietnam over the period of years from 2015 to 2018 39 Table 3.4 Total registered capital by region of newly established enterprises in Vietnam over the period of years from 2015 to 2018 40 Table 3.5 The number of newly established enterprises by type in Vietnam over the period of years from 2015 to 2017 41 Table 3.6 Total registered capital by type of newly established enterprises in Vietnam over the period of years from 2015 to 2017 41 Table 3.7 Total registered labor by type of newly established enterprises in Vietnam over the period of years from 2015 to 2017 41 Table 4.1 Summary the list of dependent and independent variables 49 Table 4.2 Descriptive statistics of the variables in the model .55 Table 4.3 Summary the list of variables’ data source used in the model .55 Table 4.4 Correlation matrix of the dependent and explanatory variables 58 Table 4.5 Summary of regression results 60 Table 4.6 Regression result of POLS model 81 Table 4.7 Result of VIF test 82 Table 4.8 Regression result of REM 83 Table 4.9 Result of Breusch and Pagan Lagrangian multiplier test 84 Table 4.10 Regression result of FEM 85 Table 4.11 Result of Hausman Test 86 Table 4.12 Result of Wald test for heteroskedasticity 86 Table 4.13 Robust regression result of FEM 87 Table 4.14 Robust regression result of REM 88 Table 4.15 Robust regression result of POLS 89 Verheul, I., Wennekers, A R M., Audretsch, D B., & Thurik, A R (2001), “An Eclectic Theory of Entrepreneurship: Policies, Institutions and Culture”, Unpublished manuscript from http://hdl.handle.net/1765/6873 Verhoeven, W.H.J (2004), Firm Dynamics and Labour Productivity, in: G Gelauff, L Klomp, S Raes and T Roelandt (eds.), Fostering Productivity: Patterns, Determinants and Policy Implications, Amsterdam: Elsevier B.V., 213-241 Vivarelli, M., 1991, The Birth of New Enterprises, Small Business Economics 3(3) Wang, S (2006), Determinants of New Firm Formation in Taiwan Small Business Economics, 27 (4–5): 313–323 Wennekers, S., and Thurik, R (1999), Linking Entrepreneurship and Economic Growth, Small Business Economics, 13(1), 27-56 Witt, U (1998), Imagination and leadership - The neglected dimension of an evolutionary theory of the firm, Journal of Economic Behavior and Organization 35(2): 161-177 APPENDICES Table 4.6 Regression result of POLS model Table 4.7 Result of VIF test Table 4.8 Regression result of REM Table 4.9 Result of Breusch and Pagan Lagrangian multiplier test Table 4.10 Regression result of FEM Table 4.11 Result of Hausman Test Table 4.12 Result of Wald test for heteroskedasticity Table 4.13 Robust regression result of FEM Table 4.14 Robust regression result of REM Table 4.15 Robust regression result of POLS ... achieve the aim of increasing the number of acting enterprises in Vietnam 1.2 Object and objective of the thesis The thesis aims at examining the determinants of new firm formation in the case of. .. selecting the topic "Determinants of new firm formation: The case of Vietnam" as the topic for master thesis so as to provide a systematic study on the key determinants of new business formation. .. affected by the challenge of an entrant 2.2 Literature review about determinants of new firm formation There are massive studies on the economic role of entry and the determinants of new firm formation