On the basis of two separate sets of
data collected in the 1999 and 2001 surveys
conducted by the Institute of Economics in cooperation with other research
institutions, this study uses some modern economic techniques to analyse the
productivity performance of Textile and Garment (T&G) industry.
Specifically, it estimates industry and firm’s level technical efficiency,
identifies their determinants, and decomposes Total Factor Productivity (TFP)
growth into technical efficiency change and technical progress.
The study has found that there is
high concentration of firms that are located close to the production frontier
in all 4 years (1997-2000), implying that T&G firms are good at learning
from the best practice, or in other words, knowledge and experience diffusion
has been working well in the T&G industry. At the same time, the TFP gap
between the best practice firm and the remaining firms tends to widen over
time. Next, smaller T&G firms are found to have achieved higher technical
efficiency in 1997-98, while larger and more experienced firms showed better
technical efficiency performance during the 1999-2000 period.
This implies that smaller firms appeared to better withstand the negative
impact of the Asian crisis in 1997-1998, while larger firms appeared to perform
better during “normal” times, thanks possibly to the economies of scale and
technological advantages which they posses. There is a robust positive effect
of experience on technical efficiency with older firms showing higher technical
efficiency throughout 1997-2000. Furthermore, productivity performance
considerably varies across firms with different ownership structure. Starting
from a low base, domestic private firms have caught up very fast with firms of
other ownership forms and have even become the top performers in terms of
technical efficiency towards the end of the study period. They have also shown
an outstanding performance in technical progress. Foreign invested firms have
showed a mixed picture, with technical efficiency performance being modest and
even falling, but with a higher rate of technical progress among firms with
different ownership forms. This confirms the technological superiority of
foreign firms, but at the same time indicates that there is something “unusual”
with their reporting systems which may possibly be related to the well-known
transfer pricing practice, and to a lesser extent, with their incentives to
move closer to the production frontier. Low efficiency of FDI firms may also be
explained by measurement problems caused by distorted prices of infrastructure
services that have been in disfavour of foreign firms. SOEs have lost their leading position in
terms of technical efficiency, yet have shown the slowest rate of technical
progress during the considered period.
With regards to the locational effect, central-based firms have found to
have achieved the lowest TFP, while firms in the North and the South have shown
similar productivity performance. Finally, in the period 1999-2000,
export-oriented firms appear to outperform inward-looking firms in terms
technical efficiency, and to a lesser extent, technical progress. The former
have thus achieved higher average TFP growth rate than the latter. But in the
crisis years of 1997-1998, the picture was opposite. This may suggest that
export orientation may also increase vulnerability and that there is trade-off
between higher returns and risks.
There are a number of policy
recommendations that may emerge from the above findings. First, priority should
be given to technical progress to shift up the production frontier. This in
turn implies that policy should aim to create an innovation-friendly environment
and provide adequate incentives for firms that play the role of an engine of
productivity growth. Second, evidence found in this study suggests that
policies in support of private sector development that have been actively
implemented since 1999 are highly effective and therefore should be
consistently pursued further. Third, evidence also suggests that the highly
competitive environment in the T&G industry has been beneficial to SOEs,
because competition provides an added incentive for firms to be efficient and
productive. Therefore promotion of competition should be considered as an
important part of the SOEs restructuring and should be carried out consistently
and expanded to all industries of the
economy. Fourth, as export-oriented
firms tend to show better productivity performance during “normal” times, trade
policy reforms towards a more neutral trade regime have an important role to
play. To mitigate risks and reduce
vulnerability, export firms should diversify their foreign customers
base and enhance international competitiveness.
Finally, the study recommends that the Government consider some types of
pro-active interventions to help regions in the Central Vietnam to solve the
acute problem of unemployment and under-employment through developing and
making more efficient labour-intensive manufacturing industries, most notably
in the form of disproportionately large public investments, particularly in
roads and education in the region.