Do FDI enterprises work more efficiently than domestic ones in Vietnam? Evidence from panel data analysis

This paper examines the performance of foreign vs. domestic enterprises in Vietnam. Specifically, it evaluates firm - level technical efficiency and identifies the determinants of technical efficiency of these enterprises. The paper uses an econometric approach based on a stochastic frontier production function with the transcendental form to analyse 25,411 panel observations of enterprises from five annual surveys conducted in 2005–2009. The results from the estimations reveal that, in general, enterprises in Vietnam have relatively high average technical efficiency ranging from 0.01 percent to 74.9 percent. Large-size manufacturing enterprises vary from a negligible percent to 96.11 percent; small and medium-size manufacturing from 0.05 percent to 60.92 percent. Average efficiency tends to increase in large size enterprises, but decrease in small and medium-size ones in period 2005–2009. The paper further examines factors influencing technical efficiency. It gains significant evidence that foreign enterprises do not always work more efficiently than domestic ones, depending on the types of ownership cooperation between domestic and foreign enterprises and on sub - industries. To be more specific, state - owned with foreign partner in (1) food product and beverages, (2) textiles, wearing apparel and footwear, (3) energy and chemical sectors have higher efficiency than other ownership cooperation. However, the highest group is belonged to (2) domestic private with foreign partner in metallurgical, machinery and other non-metallic mineral products sector, (2) 100% foreign capital enterprise in furniture sector, and (3) 100% foreign capital enterprise in construction sector. The paper also finds that firm age, capital to labour ratio, regional location, types of ownership, types of sub - industries and some possible interactions among them significantly relate to technical efficiency, albeit with varying degrees and directions.