Misallocation and Productivity: The Case of Vietnamese Manufacturing

This paper attempts to measure the effect of resource misallocation on aggregate manufacturing total factor productivity (TFP), focusing on Vietnamese manufacturing firms for the period 2000–2009. One of the major findings of this paper is that there would have been substantial improvement in aggregate TFP in Viet Nam in the absence of distortions. The results imply that potential productivity gains from removing distortions are large in Vietnamese manufacturing. We also find that smaller firms tend to face advantageous distortions, while larger firms tend to face disadvantageous ones. Moreover, the efficient size distribution is more dispersed than the actual size distribution. These results together suggest that Vietnamese policies may constrain the largest and most efficient producers and coddle its small and least efficient ones.