Resource misallocation of SMEs in Vietnamese manufacturing sector

Abstract

The purpose of this paper is to examine resource misallocation among Vietnam’s small- and medium-sized enterprises (SMEs) in the manufacturing sector. The paper also aims to consider selective factors on reducing the level of resource misallocation in SMEs. Resource misallocation and efficiency gains in total factor productivity (TFP) are assessed using Vietnam’s annual enterprise survey data for the period 2000–2015 and an appropriate productivity decomposition framework. Resource misallocation is found to be higher among SMEs than large scale enterprises. TFP is found to 116.3 per cent greater if there is no resource misallocation among SMEs. Smaller scale, lower market concentration, trade liberalisation and corruption control are found to be associated with lower level of resource misallocation in SMEs. The major limitation of this study is that it has only decomposed misallocation of resources arising from output and capital distortions and that it focusses on selective factors contribution to reducing misallocation level in SMEs. Resource misallocation is attracting attention in both developed and developing countries. However, knowledge about resource misallocation among SMEs is limited, particularly in the context of developing countries. This paper assesses the level of resource misallocation among SMEs in Vietnamese manufacturing sector.