Measuring the impact of the investment climate on total factor productivity (TFP) in agricultural sector: the case of Hanoi, Vietnam
2010
Tran Quang Trung | Tran Huu Cuong, Hanoi Univ. of Agriculture (Vietnam). Faculty of Accounting and Business Management
This study measures the impact of investment climate factors on the total factor productivity (TFP) of manufacturing firms on agriucltural area in Hanoi, Vietnam. Endogeneity of the production function and of the investment climate variable is addressed by using a variant of the control function approach, based on individual firm information, and by aggregating investment climate factors by various business lines. Specifically, the analysis is conducted in two steps: first, an econometric production function is estimated to produce a measure of TFP at the firm level, in the second step, variation in TFP across firms is statistically related to indicators of the investment climate as well as firm characteristics. The result yields a number of insights on the factors that underlie productivity. In a variety of business lines, indicators of poor investment climate, especially labor number and administrative clearance time, have significant negative effects on total factor productivity. Decreasing by one day in administrative clearance time could increase TFP by 1.2-3.3%. Indicators such as time of land rent, investment capital, land area, and stability of policies have positive effects on TFP. However, levels of effects from investment climate factors on TFP are different among business line.
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