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Investment climate and firm productivity: an application to Vietnamese manufacturing firms

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  • Nguyen Ba Trung
  • Taise Kaizoji

Abstract

The fundamental aspect of a national competitive advantage is a good investment climate. Understanding the role of the investment climate in generating firm productivity has received extensive attention by policymakers and economists in many countries. The article studies the effect of different dimensions of the investment climate on firm productivity. Using a large dataset of Vietnamese manufacturing firms, the article finds that deficiencies in the investment climate are prejudicial to firm productivity and competition. Furthermore, in examining the effect of corruption in association with the quality of the business environment, the study also investigates the possibility that corruption may compensate firms for a bad investment climate or at least may neutralize the negative impact of inefficient government regulations. In other words, corruption acts as ‘speed money’ to improve the efficacy of the provision of public services or provides leeway for entrepreneurs to bypass the inefficient regulations. This situation, however, is extremely harmful to the economy in the long run because it distorts the market and erodes the incentives for productive investments. Developing countries therefore need to put much more effort into institutional reforms, especially fighting corruption and efficiency in the provision of public goods and services.

Suggested Citation

  • Nguyen Ba Trung & Taise Kaizoji, 2017. "Investment climate and firm productivity: an application to Vietnamese manufacturing firms," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4394-4409, September.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:44:p:4394-4409
    DOI: 10.1080/00036846.2017.1282148
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    References listed on IDEAS

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    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
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    Cited by:

    1. Mai Huong Giang & Tran Dang Xuan & Bui Huy Trung & Mai Thanh Que & Yuichiro Yoshida, 2018. "Impact of Investment Climate on Total Factor Productivity of Manufacturing Firms in Vietnam," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    2. Canh Nguyen & Minh Le & Khoa Cai & Michel Simioni, 2021. "Technical efficiency of Vietnamese manufacturing firms: do FDI spillovers matter?," Post-Print hal-03145499, HAL.
    3. Dušan Steinhauser & Zuzana Borovská, 2022. "The Impact of Institutional Environment on Risk Assessment," Central European Business Review, Prague University of Economics and Business, vol. 2022(2), pages 61-79.
    4. Muhammad Farhan Bashir & Benjiang MA & Luqman Shahzad & Biao Liu & Qiangjia Ruan, 2021. "China's quest for economic dominance and energy consumption: Can Asian economies provide natural resources for the success of One Belt One Road?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 570-587, April.
    5. Mingzhi Zhang & Xiangyu Zhou & Chao Chen & Jianxu Liu & Jiaxi Li & Fuying Huan & Bowen Wang, 2023. "Enterprise Spatial Agglomeration and Economic Growth in Northeast China: Policy Implications for Uneven to Sustainable Development," Sustainability, MDPI, vol. 15(15), pages 1-17, July.
    6. Mai Huong Giang & Bui Huy Trung & Yuichiro Yoshida & Tran Dang Xuan & Mai Thanh Que, 2019. "The Causal Effect of Access to Finance on Productivity of Small and Medium Enterprises in Vietnam," Sustainability, MDPI, vol. 11(19), pages 1-19, October.
    7. Fakih Ali & Ghazzawi Nancy & Ghazalian Pascal, 2020. "The Effects of Power Outages on the Performance of Manufacturing Firms in the MENA Region," Review of Middle East Economics and Finance, De Gruyter, vol. 16(3), pages 1-28, December.
    8. I. Shovkun, 2019. "Investment climate as a factor of industrial development in Ukraine," Economy and Forecasting, Valeriy Heyets, issue 4, pages 70-103.

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