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 engaged in several significant trade agreements, notably the Vietnam-European Union Free Trade Agreement and the Trans-Pacific Partnership Agreement (TPP) The TPP is anticipated to liberalize 40% of the global economy, offering substantial advantages to its member countries, with Vietnam projected to be one of the primary beneficiaries The benefits for Vietnam extend beyond tariff reductions; the most significant impact is the strong impetus for institutional reforms, as highlighted 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 families and communities is governed by specific rules and norms These include guidelines on marriage, procreation, inheritance, and parenting, as well as local decision-making processes and accountability measures.

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 expenses, including information, negotiation, and contract-writing costs Enhanced institutions also facilitate more effective and cost-efficient contract enforcement and dispute resolution, while ensuring secure property rights These elements collectively boost companies' confidence in the business environment, encouraging greater investment, increased economic activity, and more incentives for employment and resource optimization.

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-related institutions significantly enhance firms' reinvestment of profits, leading to increased productivity, as evidenced by research from Yasar, Paul, and Ward (2011) across 52 countries Regulatory institutions play a crucial role in economic performance by improving public policy efficiency and curbing anti-competitive behaviors, with political rent-seeking activities creating unfair advantages for favored businesses Macroeconomic stabilization institutions reduce uncertainty and foster sustainable growth by minimizing economic volatility and enhancing resilience to external shocks; their effectiveness is tied to the independence of central banks and transparency in budgetary processes Finally, conflict resolution institutions ensure internal security and address disputes across various sectors, ultimately contributing to a more stable economic environment.

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, such as property rights and conflict resolution institutions, enhance economic performance by creating incentives that lead to an increased volume of contracts among economic actors, a phenomenon known as the market-creating effect In contrast, Type 2 institutions, which include macro-stabilization and regulatory institutions, have a market-deepening effect, helping economic actors 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 those conducted by the World Bank, have demonstrated a significant relationship between performance and institutional constraints Research by Maksimovic, Demirgüç-Kunt, and Ayyagari (2006) analyzed data from 80 countries and identified that factors such as political instability, crime, and finance directly impact firm growth Similarly, Hallward-Driemeier, Wallsten, and Xu (2006) examined a dataset of 1,500 firms in five Chinese cities, emphasizing the influence of the investment climate on firm performance and the importance of firm-level data in understanding these dynamics However, these empirical studies also highlighted potential biases in estimates due to omitted variables, measurement errors, and the endogeneity of independent variables.

Numerous researchers have explored the impact of institutional quality on firm performance, particularly focusing on productivity The operating environment, shaped by institutions, influences productivity through several mechanisms Firstly, effective incentive mechanisms can boost investment in R&D, accelerate convergence to the productivity levels of leading economic actors, and reduce the technology gap Secondly, heightened competition allows successful companies to capture larger market shares, fosters opportunities for owners to evaluate managerial performance, and often results in increased profits and revenues Additionally, competition can create greater incentives for workers Lastly, the quality of market regulation plays a crucial role, as poor regulations can lead to incentives that diminish 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 using the PCI highlighted a significant correlation between transparency, information access, and private investment levels in Vietnam It emphasized that entrepreneurs are unlikely to invest or expand their businesses without access to crucial information regarding legal procedures and opportunities Additionally, research by Anh, Thai, and Thang (2007) analyzed the role of local legal incentives in 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 article summarizes a framework derived from the literature review to clarify the relationships examined On the left side, Type 1 institutions, referred to as "the rules of the game," are highlighted within the PCI index, which includes sub-indices such as Entry Costs, Land Access and Security of Tenure, Informal Charges, Legal Institutions, and Time Costs and Regulatory Compliance These institutions establish the incentive and sanction framework that informs economic actors about encouraged actions, associated costs, and benefits This understanding shapes the investment and contract intensity of economic actors, ultimately demonstrating a "market-creating impact" 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 data for the years 2007, 2008, and 2009 was not available To address this, I calculated the average ratio of value added to total sales using data from the years 2010, 2011, and 2012, and then applied this ratio to estimate the value added for 2007, 2008, and 2009 Additionally, data from the VES was utilized to calculate dependent variables such as labor productivity, capital productivity, return on assets, and return on equity, along with several 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 through various methods, focusing on the relationship between inputs and outputs These measures 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 improved institutions can lead to higher labor productivity Additionally, capital productivity is measured to verify the findings regarding the relationship between institutions and labor productivity Binswanger (1980) suggested that institutions significantly influence the distribution of production factors, particularly 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 This counterintuitive result, where a positive correlation was expected, may stem from the fact that the Labor and Training sub-index relies heavily on feedback from enterprises regarding the quality of skilled workers and available training programs, particularly vocational training Even if a province has a high ratio of high school graduates, these individuals may opt to pursue higher education or relocate, rather than entering the local workforce Additionally, the province might lack effective labor and training programs that align with employer needs.

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.

Two primary methods for panel data analysis are the Fixed Effect Model (FEM) and the Random Effect Model (REM) FEM assumes that time-invariant differences among entities and explanatory variables may lead to correlations, allowing researchers to estimate the net effects of explanatory variables on dependent variables by controlling for these differences However, FEM has limitations, as it cannot measure time-invariant factors like race and gender due to its absorption of dummy variables in the intercept, potentially leading 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 significantly impacts land prices, rents, and security of land tenure The annual increase in minimum wage has contributed to rising labor costs, alongside escalating social and medical insurance expenses, adversely affecting enterprises, especially labor-intensive ones Additionally, surges in the prices of essential input materials, such as energy and transportation, have further strained businesses, leading to closures or reduced production Furthermore, state-owned enterprises (SOEs) continue to dominate many sectors, hindering the establishment of a level playing field for all economic actors There are limited initiatives to support innovation, capacity building, or market expansion for enterprises, and public spending on crucial infrastructure development is declining, leaving infrastructure conditions below business expectations.

Vietnamese enterprises face several subjective challenges that hinder their growth and competitiveness Firstly, most businesses are small to medium-sized, resulting in limited financial capacity Additionally, governance within these companies often relies on management's personal experience rather than strategic vision, which impedes their ability to adapt to international integration and rapid changes in the global market A significant issue is the severe shortage of skilled workers, with Vietnam ranking near the bottom in Asia for human quality, according to a World Bank report Finally, many manufacturing companies depend on imported raw materials, particularly in key industries like textiles, apparel, footwear, and furniture, which raises production costs and reduces profit margins 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 impact firm performance at a significance level of 1% Specifically, an increase of 1 point in the weighted PCI index correlates with a 0.54% improvement in firm performance The t-value for the key institutional variable is notably high at 3.61, surpassing the 1.96 benchmark, underscoring the relevance of this variable Additionally, robust and cluster options are utilized to control for heteroskedasticity, ensuring that observations are correlated within clusters while remaining independent between 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, which allows investors and business owners better access to planning documents and regulations, fostering confidence in the consistent interpretation of rules and predictability in regulatory changes Legal institutions play a crucial role by instilling confidence in the legal system for dispute resolution and providing avenues to appeal against corrupt practices by government officials Additionally, labor training is essential, as it offers better education and vocational training services that cater to the demand for skilled workers Finally, business support services are vital, ensuring that investors and business owners can depend on the quality of services provided by provincial authorities, including matchmaking, export promotion activities, and access to essential market information and consultation services.

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, Vietnam's education system must undergo significant reforms Education plays a crucial role in enhancing productivity, and when formal education and training do not meet labor market demands, new approaches must be urgently implemented Effective coordination among stakeholders, including the government, educational institutions, and enterprises, is essential to develop strategies that address current shortages Programs like Intel Vietnam’s Higher Engineering Education Alliance Program (HEEAP), which unites government, industry, and educational institutions to focus on training a technically skilled workforce through innovative educational solutions, serve as effective models In 2014, the Prime Minister approved a project (Decision No 761/QD) aimed at addressing these educational challenges.

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 utilized private providers for labor exchange services, demonstrating a reliance on external expertise Furthermore, many of these companies plan to engage the same service providers again for their labor exchange needs, indicating satisfaction with the services received Additionally, a noteworthy portion of total business costs is allocated to labor training, highlighting the importance of investing in workforce development.

A significant portion of total business costs is allocated to labor recruitment, reflecting the importance of hiring qualified personnel Overall, there is a high level of satisfaction among firms, with a notable percentage agreeing that their labor force meets operational needs Additionally, the ratio of vocational training school graduates to untrained laborers highlights the value of skilled workers in the marketplace Furthermore, secondary school graduates represent a substantial percentage of the workforce, indicating a solid educational foundation that contributes to business success.

Percentage of workers having completed training at vocational schools

The article assesses private sector 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 whether they believe these institutions are consistently effective.

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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Số trang	90
Dung lượng	816,91 KB