Tài liệu Innovation and productivity in small and medium enterprises a case study of vietnam

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS INNOVATION AND PRODUCTIVITY IN SMALL AND MEDIUM ENTERPRISES: A CASE STUDY OF VIETNAM By PHAM DO TUONG VY MASTER OF ART IN DEVELOPMENT ECONOMICS HCMC, NOVEMBER 2016 University of Economics International Institute of Social Study Ho Chi Minh City The Hague Vietnam The Netherlands VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS INNOVATION AND PRODUCTIVITY IN SMALL AND MEDIUM ENTERPRISES: A CASE STUDY OF VIETNAM by Pham Do Tuong Vy A Thesis Submitted in Partial Fulfilment of the Requirements for the Degree of Master of Art in Development Economics Academic Supervisor: Dr. Vo Hong Duc HCMC, NOVEMBER 2016 DECLARATION I hereby declare that this thesis entitled “Innovation and Productivity in Small and Medium sized Enterprises: A case study of Vietnam”, which is written and submitted by me in accordance with the requirement for the degree of Master of Art in Development Economics to the Vietnam – The Netherlands Programme. This is my original work and all sources of knowledge carried in this thesis have been duly acknowledged. HCMC, November 2016 PHẠM ĐỖ TƯỜNG VY ACKNOWLEDGEMENT I would like to take this opportunity to express my deepest gratitude for the help, support and encouragement of the following people, who have contributed to the completion of this thesis in their very own ways. Above all, I would like to express my immeasurable appreciation to my supervisor – Dr. Võ Hồng Đức for his precious time, support and advices to make this thesis completed. Furthermore, I would like to send my great thanks to all the lecturers and staffs at the Vietnam – The Netherlands Programme for their knowledge and supports during my time joining in the program. In specific, I am extremely grateful to Dr. Phạm Khánh Nam and Dr. Trương Đăng Thụy for their valuable guidance and support in the courses and thesis writing process. To all of my friends in Class 21 and my colleagues at TPF, I could never thankful enough for your encouragement and support until the very end of this thesis. Last but not least, my deepest thanks and love to my parents, who have always been beside me. Without their unconditional love, none of this would have been possible. ABBREVIATION 2SLS Two Stage Least Squares. CDM Crépon, Duguet and Mairesse. FE Fixed Effect. GMM Generalized Method of Moments. GSO General Statistic Office. IV Instrument Variables. LP Levinsohn and Petrin. OLS Ordinary Least Squares. OP Olley and Parker. R&D Research and Development. SMEs Small and Medium-sized Enterprises. TFP Total Factor Productivity. ABSTRACT The majority of enterprises in Vietnam is categorized as small and medium sized (SMEs) firms which play an important role to the sustainable growth of the Vietnamese economy. As such, improving the productivity of the SMEs is essentially needed and this request becomes a crucial mission for the governments. It is generally accepted that innovation and technology improvement are key drivers of productivity (Bartelsman & Doms, 2000). However, they have not been well-acknowledged by the SMEs in Vietnam even though their huge contribution to firm’s productivity is unarguable. 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; and (ii) a determination of an innovation – productivity relationship. In the first stage, total factor productivity is estimated based on production function using the input and output approach. However, firms might adjust their input level according to expected productivity shock. As such, a potential endogeneity caused by possible relationship between input decision and productivity shocks (unobserved productivity shock) might exist. To deal with this problem of endogeneity, an approach developed by Levinsohn and Petrin is applied to estimate firm’s total productivity. In the second stage, the systemGMM approach is adopted to examine the relationship between innovation and productivity. 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. TABLE OF CONTENTS CHAPTER 1 ..............................................................................................................1 INTRODUCTION .....................................................................................................1 1.1. Problem statement .........................................................................................1 1.2. Research objectives .......................................................................................2 1.3. Research questions ........................................................................................2 1.4. Research motivations .....................................................................................2 1.5. Research scope and data ................................................................................3 1.6. The structure of this study .............................................................................3 CHAPTER 2 ..............................................................................................................5 LITERATURE REVIEW .........................................................................................5 2.1. Schumpeter Theory of Innovation – How does Innovation play its role in economic development? ..........................................................................................5 2.2. Productivity: concept and measurements ......................................................7 2.1.1. Concept ...................................................................................................7 2.1.2. Measurements .........................................................................................7 2.1.3. General productivity determinants .......................................................12 2.3. Innovation: concept and measurements.......................................................16 2.1.4. Concept .................................................................................................16 2.1.5. Measurements .......................................................................................17 2.4. How has the relationship between innovation and firms’ performance been analysed in the literature? ......................................................................................18 CHAPTER 3 ............................................................................................................23 RESEARCH METHODOLOGY ..........................................................................23 3.1. An overview of Vietnamese Small and Medium-sized Enterprises ............23 3.1.1. Statistic overview ..................................................................................23 3.1.2. Difficulties ............................................................................................26 3.2. Methodology ................................................................................................27 3.1.3. Conceptual framework ..........................................................................27 3.1.4. Model identification ..............................................................................29 3.3. Research hypotheses and concept measurements........................................34 3.1.5. Research hypotheses .............................................................................34 3.1.6. Concept and variable measurements ....................................................34 3.4. Data sources .................................................................................................36 CHAPTER 4 ............................................................................................................39 EMPIRICAL RESULTS ........................................................................................39 4.1. Total Factor Productivity of Vietnamese SMEs ..........................................39 4.1.1. Data descriptions...................................................................................39 4.1.2. Total factor productivity from production function estimation of Vietnamese SMEs ..............................................................................................42 4.2. Innovation – Firm’s productivity relationship .............................................45 4.1.3. Data descriptions...................................................................................45 4.1.4. The relationship between innovation expenditure intensity and firm’s productivity ........................................................................................................46 4.1.5. The relationship between high-quality labor share in total firm’s labor force and their productivity ................................................................................49 CHAPTER 5 ............................................................................................................52 CONCLUSION AND POLICY IMPLICATION ................................................52 5.1. Conclusion remarks .....................................................................................52 5.2. Policy implications ......................................................................................54 5.3. Limitation and potential future research ......................................................54 REFERENCES ........................................................................................................56 APPENDIX 1: Empirical studies on general productivity determinants ..........62 APPENDIX 2: Empirical studies on relationship between innovation and firm’s performance .................................................................................................65 APPENDIX 3: Durbin – Wu Hausman test for endogeneity ..............................69 APPENDIX 4: Durbin – Wu Hausman test for endogeneity ..............................71 LIST OF TABLES AND FIGURES Table 3.1: Classification of SMEs in Vietnam Table 3.2: Concepts and measurements of variables used in the study Table 3.3: Number of observation in selected industries in dataset Table 3.4: Number of observation after filtering Table 3.5: Number of observation after filtering in stage 2 Table 4.1: Descriptive statistics of production function variables Table 4.2: Comparison of OLS, Fixed Effect and LP estimators in Foods, Woods and Rubber and Plastics Table 4.3: Comparison of OLS, Fixed Effect and LP estimators in Non-metallic mineral, Fabricated metal and Furniture Table 4.4: Descriptive statistics of TFP and its determinants Table 4.5: Regression results of innovation expenditure intensity and firm’s productivity Table 4.6: Regression results of high-quality labor share in total labor force and firm’s productivity Figure 3.1: Number of enterprises at 31/12 (by size of employees) Figure 3.2: Conceptual framework CHAPTER 1 INTRODUCTION This chapter introduces the research topic and presents research objectives, research questions and motivation. Research scope and data requirement also are discussed in this chapter. 1.1. Problem statement In line with Decree No. 56/2009/ND-CP regarding assistances for the development of small and medium – sized enterprises (SMEs) in Vietnam, the SMEs defined as firms with total employee between 10 and 300, and total equity less than 100 billion dong. Following these criterion, up to Mar 2015, total SMEs in Vietnam account for over 90% of all enterprises. These firms have created more than half a billion of jobs every year. These firms also contribute appropriately 40% overall GDP. SMEs play an important role to the sustainable growth of the economy. Improving the productivity of SMEs is essentially and urgently needed and this need becomes a crucial mission of the Vietnamese Government because the growth of the economy depends significantly on the productivity of firms in the economy. Key drivers of firm’s productivity are innovation and technology improvement (Bartelsman & Doms, 2000). However SMEs in Vietnam have still struggled in their operations and therefore lead to inefficiency. One of the obstacles facing SMEs in Vietnam is the process of acknowledging the important role of creating innovation and applying new technology in production to increase their productivity. Innovation has not attracted great attention from the SMEs themselves even though huge contribution to firms’ productivity is widely confirmed. The common measurement for innovation in empirical studies is R&D expenditure of a particular firm. Various empirical studies have been conducted to quantify the relationship between R&D expenditure and firm’s performance. 1 Conclusions vary from these studies including strong correlation between the two (Siedschlag, Zhang and Cahill (2010); Belderbos, Carree and Lokshin (2004); Crespi and Pianta (2009)). However, in the Vietnamese context, small and medium-sized firms have not widely reported their spending on research and development activities. In addition, innovation activities of SMEs is less formal and involved in many different exercises as compared with larger firms. As such, research on the impact of innovation on SMEs productivity faces many obstacles in the Vietnamese context. A lack of interest in relation to the relationship between innovation and SMEs productivity in Vietnam has opened up the interest of deep investigation. It is especially essential in the context of the economy dominated by SMEs and technology level is still low. Therefore gaining further knowledge in this field is needed for policy makers to orient the development creation and application of innovative activities toward the growth of firms as well as country. 1.2. Research objectives This study is conducted to provide an additional evidence on the relationship between innovation and firms’ productivity for the Vietnamese SMEs. The main objective of this study can be summarized as Defining and quantifying the relationship between innovation and productivity in firm level in the context of Vietnamese SMEs. 1.3. Research questions The study aims to provide empirical evidence for the main questions emerged: Is there any relationship between innovation and productivity in the context of SMEs in Vietnam? If yes, then how does innovation can affect SMEs productivity? 1.4. Research motivations This study aims to provide the closer look at the Vietnamese SMEs’ productivity using the approach of Levinsohn and Petrin (2003), how it could be changed due to changes in the level of innovation making. Despite the fact that innovation play a crucial role in the development, the outcome of innovation activities are uncertainty. We do not know beforehand whether these activities would success 2 in creating value added to the firms. Research results provide policy makers some evidences on how to appropriately allocate the available resources to obtain the target productivity. This topic is interesting in the context of developing countries such as Vietnam for two reasons as suggested by Indjikian and Siegel (2005). Firstly the benefit of innovation might not be fully exploited in developing countries. Secondly, in these countries, national resources allocated to creating new innovation still are restricted despite the fact that innovation plays an important role in global growth. 1.5. Research scope and data The study aims to determine the relationship between innovation and productivity in Vietnam SMEs from 2005 to 2013 in six selected industries include: (1) foods; (2) wood and wood-related products; (3) rubber and plastic products; (4) non-metallic mineral products; (5) fabricated metal products and (6) furniture. The reason why these six insuctries are selected in the study is that data of these industries is biggest and have accounted for nearly 70% of total SMEs in the five-round survey, therefore can be representative for the whole dataset. At the time data used in this study was collected, the dataset of 2015 survey was not fully gathered and published. As such, data used in this study only ends in 2013. 1.6. The structure of this study This study contains five chapters which can be presented as follow: Chapter 2 provides theoretical and empirical studies on the relationship between innovation and productivity. Chapter 2 begins with Schumpeter Theory of Innovation that explains the role of innovation to economic growth. Then this chapter reviews the concept of productivity and the methods of how productivity can be estimated as well as its determinants. In addition, the definition of innovation and how it is measured are discussed in the chapter. The relationship between these two concepts has been reviewed through literature. Chapter 3 presents the methodology which is utilised in the study. An overview of Vietnam SMEs is discussed. On the ground of literature review in Chapter 2, the conceptual framework is constructed. The measurement of relevant variables and 3 regression techniques are described. In addition, this section also includes the process of how to filter data. Chapter 4 presents empirical results. Statistical descriptive of data is presented in this chapter. Then, the findings on Vietnam SMEs’ productivity are described and discussed. The results of regression in relation to the relationship between innovation and productivity are presented in this chapter. Chapter 5 provides the summary of the main results and proposes some policy implications based on the results described in Chapter 4. This Chapter also includes research limitation and suggests some further research direction in the future. 4 CHAPTER 2 LITERATURE REVIEW This chapter provides the literature review on the relationship between innovation and productivity. At first, Schumpeter Theory of Innovation that explain the role of innovation in the economic growth is presented. Then the concept, calculation and determinant of productivity is reviewed. After that, this chapter presents the definition and measurement methods of concept innovation. In the end of the chapter, the relationship between innovation and productivity has been reviewed through empirical studies in the past. 2.1. Schumpeter Theory of Innovation – How does Innovation play its role in economic development? Schumpeter was seen as a person who built very first basic foundation to the theory of innovation and economic development. In his famous book The Theory of Economic Development (published first time in 1912), he has argued that the whole economy has its own business cycle in which technological innovations play an important role. When a new technology has been introduced and the economy is ready to adapt then the economy would alter itself to fully employ the new technology and resulted in the upward trend of the business cycle. If that new technology has been introduce at the time the economy is saturated and became more vulnerable to the any negative shock and easily get into depression then only new technology might not help out the whole economy. Schumpeter also argued that firms should willing to take risk and invest in new technologies to take advantage of the profit at the early stage of these new technological innovations when the other firms haven’t applied. Together with The Theory of Economic Development (1934), Capitalism, Socialism and Democracy (1942) and Business Cycles: A Theoretical, Historical and Statistical Analysis of a Capitalist Process (1939), Schumpeter has contributed to the economics theories with the role of innovation and entrepreneurship in the economic development. He believed that innovation is the core driver of development as well 5 as emphasized the role of entrepreneur of smoothing the mechanism in which revolutionarily technical changes occurs via innovation and push the economy out of its steady state. Schumpeter explained the development of the economy is mainly driven by innovation which he categorized into five types: (i) launching new products, whether these are about improving a part of products or totally new to the market, (ii) introducing new method of production, (iii) opening new markets which have not entered in the past yet, (iv) searching/discovering new sources/suppliers for raw material and other inputs in production process, (v) acquiring new market structures in any industry (i.e. changing the monopoly position). How innovation could become driven to the growth of economy? According to Schumpeter, innovation can be expressed in a process of four steps: invention, innovation, diffusion and imitation (Schumpeter, 1942) in which the first two steps have less impact while the last two have much more influence on the economic growth. His arguments relied on the vague of economic achievements in the early stage of innovation, after that economies would realize the potential of increasing sales or cost deduction when they come to the period of diffusion and imitation and at that time they invest more in these innovation. However purely ideas could not alone play the whole game, they need a power to implement these ideas. At that necessarily, entrepreneur play important role of allocating the resources to the process of replacing old technologies with new ones which Schumpeter labelled as creative destruction. In other words, Schumpeter explained the economic development through the process of creative destruction driven by innovations. 6 2.2. 2.2.1. Productivity: concept and measurements Concept Productivity is the efficiency of the process in which firm, industry and country convert input factors in to output. Therefore productivity is generally defined as the ratio between output and inputs in the manufacturing process. Productivity is a good indicator to economic performance of firm, industry or country as a whole. There are two things could affect productivity: through the availability of input resources and through value adding to the products in producing process. In a further details, firm’s productivity could be decreased in the circumstances of lacking inputs or inputs were not used efficiently. However through creating value added with available inputs and certain activities in manufacturing process helps to improve productivity. 2.2.2. Measurements There are many ways to measure productivity, but they could be classified into two groups: single factor productivity measures (in which productivity is the ratio of output over single input) and multifactor productivity/total factor productivity measures (a measure of output to several inputs). In the group of single factor productivity, there are two ways to measure productivity: labor productivity and capital productivity. In both ways, productivity has been expressed as quantity index of labor input/capital input over an index of gross output or value added. These measures are easy to calculate but they only reflect the partial productivity of workers’ capacity or capital intensity, how efficiency they are in combine with other input factors in production process. To have a better index of productivity in which take into account contribution of more than an input, multifactor productivity/total factor productivity turns out to be more efficient measure. Therefore in this research, total factor productivity has been used to estimate firms’ productivity. Estimating total factor productivity through Production function estimators have been regularly used to address many relevant issues in the literature: the 7 relationship between foreign direct investment and domestic firms’ productivity (Javorcik, 2004), impact of R&D (Hall et al., 2009), impact of information technology (Chun et al. , (2015). These relationships are mostly estimated based on simple Cobb-Douglas production function regression. 𝛽 𝛽 𝑌𝑗 = F(𝐴𝑗 , 𝐾𝑗 , 𝐿𝑗 ) = 𝐴𝑗 𝐾𝑗 𝑘 𝐿𝑗 𝑙 (1) Where 𝑌𝑗 represents firm j’s output, 𝐾𝑗 is physical capital stock, 𝐿𝑗 is labor input and 𝐴𝑗 denotes for firm’s level of efficiency, 𝛽𝑘 and 𝛽𝑙 are output elasticities with respect to capital and labor. Based on the definition of productivity above, 𝐴𝑗 is referred to Total Factor Productivity and could be derived by taking natural logs of (1): 𝑦𝑗𝑡 = 𝛽0 + 𝛽𝑘 𝑘𝑗𝑡 + 𝛽𝑙 𝑙𝑗𝑡 + 𝜀𝑗𝑡 (2) Where t subscript denotes time series and lower case letters are represented for log value. In equation (2), Total Factor Productivity has two components: 𝛽0 and 𝜀𝑗𝑡 , in which 𝛽0 is average productivity for all firms across time and 𝜀𝑗𝑡 captures firm’s deviation productivity from that average caused by unobserved factors affect firms’ output outside of inputs. 𝜀𝑗𝑡 then can be separated in two components: firmlevel productivity 𝑤𝑗𝑡 and i.i.d component 𝑣𝑗𝑡 : 𝑦𝑗𝑡 = 𝛽0 + 𝛽𝑘 𝑘𝑗𝑡 + 𝛽𝑙 𝑙𝑗𝑡 + 𝑤𝑗𝑡 + 𝑣𝑗𝑡 (3) Therefore researchers can get firm’s productivity from estimating (3) and solving for 𝑤𝑗𝑡 : ̂ ̂ 𝑤 ̂ 𝑗𝑡 = 𝑦𝑗𝑡 − 𝛽𝑘 𝑘𝑗𝑡 − 𝛽𝑙 𝑙𝑗𝑡 (4) Then, the exponential of 𝑤 ̂ 𝑗𝑡 is the result of firm-level productivity. Mainly there are two trends of approach of research in how to calculate total factor productivity, non-parametric and parametric. With non-parametric technique, growth accounting is the most used based on a paper of Robert Solow in 1957 about technical changes and production function. Under the assumptions of constant return to scales and competitive factor markets, growth accounting method expresses how 8 much changes in output growth can be explained by changes in different types of input and changes in total factor productivity. Although growth accounting technique is well–established and consistent, it cannot address the problem of causality, which is investment in technological changes can be driven and resulted of productivity growth at the same time. With parametric technique, econometric method has been applied to estimate total factor productivity in the relationship between production inputs and output (production function estimators). There are several benefits by using econometric techniques: the parameters can be check for the statistical significance; solving problem of endogeneity. 2.2.2.1. Growth accounting method Non - parametric growth accounting method was developed by Robert Solow in his paper about the technical change through analyzing aggregate production function (Solow, 1957). Growth accounting approach aims to determine how much economic growth was due to contribution of inputs (growing by the movement along the production function) and how much growth was due to the improvement in technology (shift the production function) (Nelson, 1973). This approach has the assumption of constant return to scales, which means total elasticities of all input factors in production function equal one (from the equation (1), 𝛽𝑘 + 𝛽𝑙 = 1). Typically these input factors are weighted by their income shares (in case of calculating productivity at country level) (Cardona et al., 2013), or by their cost shares (when calculating firm’s productivity). Productivity is calculated by solving equation (4) without econometric sense. 𝑤 ̂ 𝑗𝑡 is called “Solow residual”, has positive value whenever the growth rate of output rises faster than the growth rate of input factors. “Solow residual” not only reflects growth by changes in technological progress but also other factors that affect the efficiency in general outside of input factors (Schreyer, 2001) 2.2.2.2. Production function estimator methods As mentioned above, there could exist problem of endogeneity caused by possible relationship between input decision and productivity shocks (unobserved 9 productivity - 𝑤𝑗𝑡 ), which means firms might adjust their input level according to productivity shocks. For example, firms tend to increase their investment if they observe a lucrative productivity shock, in another way, if an unfavorable shock occur, firms might reduce their level of workforce. Therefore the result of input coefficients in the OLS regression might be biased and inconsistent (Eberhardt and Helmers, 2010). After the problem of endogeneity arises in production function estimation, there are several solutions have been developed and applied in the literature: Instrumental Variables (IV) regression; ‘dynamic panel estimators – developed by Arellano and Bond (1991) and Blundell and Bond (1998), commonly known as Generalized Method of Moment (GMM) approach and the works of Olley and Pakes (1996) which is categorized as ‘structural estimators’, then been further developed by Levinsohn and Petrin (2003). In the standard IV regression, to generate the consistent and unbiased coefficients, independent variables that causing endogeneity (in this case is input quantities - K and L) need to be instrumented by variables that satisfy two conditions: these variables have relationship with input quantities, but are exogenous with unobserved productivity. With the assumption of perfectly competitive input and output markets, input prices (r, w) have been introduced as instruments for input quantities. However input prices seem not to be good instruments as summary by Eberhardt and Helmers (2010) and Van Beveren (2012) for the following reasons. (i) Lack of information about input prices in most of dataset. Even those information exist, they do not vary across firms enough to estimate the production function. (ii) The assumption of perfectly competitive inputs market seems hard to be hold because of the argument that productivity shocks might create market power for firms, then in turns affect to input prices, causing the relationship between instrument variables and error term. (iii) Even the perfectly competitive inputs market assumption is strictly hold, input prices might correlate with unobserved productivity in other ways. That is the changes in ‘input price’ wages might be because of the unobserved labor quality, and this unobserved labor quality become a part of unobserved productivity, then wages could not act as valid instrument for labor input in production function 10