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Innovation and productivity in small and medium enterprises: a case study of Vietnam

(A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS, VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS)


By Pham Do Tuong Vy (VNP 21)

Academic Supervisor: Dr. Vo Hong Duc


This study aims to examine the relationship between innovation and productivity in the Small and Medium-sized Enterprises (SMEs) in Vietnam. To establish and quantify this relationship, this study employs the two-stage process: (i) the estimation of total factor productivity for each firm using Levinsohn and Petrin approach to correct the potential endogeneity caused by possible relationship between input decision and productivity shocks; and (ii) a determination of an innovation – productivity relationship in which the system-GMM approach is adopted to examine this relationship.

An unbalanced panel dataset from five Small and Medium-sized Enterprises surveys from 2005 to 2013 is used in this study. Findings from this study indicate that, in the context of Vietnam, when innovation is measured as innovation expenditure intensity and high-quality labor share in total firm’s labor force, innovation activities provide positive and significant impact on firm’s productivity. In addition, past value of firm’s productivity also has significant relationship with its current level. This finding implies that higher (lower) level of current productivity could lead to higher (lower) level of productivity in the future. The study also provides empirical evidence to confirm that larger firms might perform better than the relatively smaller firms. In contrast, capital structure provides negative impact on firm’s productivity. However, this study fails to provide any evidence to support the view that longevity of firm does provide significant impact on productivity of firms.

Key words: Vietnam SMEs; Total factor productivity; Productivity Shock; Innovation, GMM

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Full version is available at Library of Vietnam-Netherland Progamme: 1A Hoang Dieu, Phu Nhuan Dist, Ho Chi Minh city, Vietnam.