Technical efficiency of FDI firms in the Vietnamese manufacturing sector

Hoang Duong Vu 1 , 2
  • 1 Student at Faculty of Management and Economics, Tomas Bata University in Zlin Viet Nam
  • 2 Researcher at Vietnam Institute of Economics, Vietnam Academy of Social Sciences, Viet Nam


The study examines technical efficiency of Foreign Direct Investment (FDI) firms in the Vietnamese manufacturing sector by applying stochastic production frontier model and making use of cross-sectional data in the period 2009-2013. The average level of technical efficiency of FDI firms is about 60% and it is higher than that of domestic firms (including private firms and state-owned firms). In addition, the study also analyses correlation between technical efficiency of FDI firms and other factors. It finds that there are positive correlations between FDI technical efficiency and net revenue per labour, firm’s age or export activities in 2013. However, the study is unable to find evidence of a relationship between FDI technical efficiency and infrastructure or firm’s investment activities.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Aigner, D., Lovell, C.A.K. & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics. 6(1), pp.21-37.

  • Aigner, D.J. & Chu, S.F. (1968) On Estimating the Industry Production Function. The American Economic Review. 58(4). pp.826-839.

  • Aw Bee-Yan, Sukkyn Chung & Mark J. Roberts. (2000) Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan. The World Bank Economic Review.14(1). pp. 65-90.

  • Badunenko, O., Fritsch, M. & Stephan, A. (2006) What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size. Available at:

  • Bernard, Andrew B. & J. Bradford Jensen. (1999) Exceptional Exporter Performance: Cause, Effect, or Both?.Journal of International Economics.47(1). pp. 1-25.

  • Blancas, L.C. et al. (2014) Efficient Logistics: A Key to Vietnam’s Competitiveness. Available at:

  • Burki, A. & T. Dek. (1998) Measuring Production Efficiency of Small Firms in Pakistan.World Development 26(1).pp.155-169

  • Caves, R. (1992) Determinants of Technical Efficiency in Australia. In: Caves, R. (ed.) Industrial Efficiency in Six Nations. MIT Press. p. 241-272.

  • Clerides, K. Sofronis, Saul Lach& James R. Tybout. (1998) Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco.Quarterly Journal of Economics. 8. pp. 903-947.

  • Farrell, M.J. (1957) The Measurement of Productive Efficiency. Journal of the Royal Statistical Society. Series A (General). 120(3). pp.253-290. DOI: 10.2307/2343100

  • Ferragina, A.M. & Mazzotta, F. (2014) FDI spillovers on firm survival in Italy: absorptive capacity matters! Journal of Technology Transfer. 39(6), pp.859-897. DOI: 10.1007/s10961-013-9321-z

  • Ghali, S. & Rezgui, S. (2011) FDI Contribution to Technical Efficiency in the Tunisian Manufacturing Sector: Evidence from Micro-panel Data. International Economic Journal. 25(2), pp.319-339. DOI: 10.1080/10168737.2010.504215

  • Girma, S. (2005) Absorptive Capacity and Productivity Spillovers from FDI : A Threshold Regression. Oxford Bulletin of Economics and Statistics. 67(3), pp.281-306. DOI: 10.1111/j.1468-0084.2005.00120.x

  • Gorg H. & Greenaway, D. (2004) Much Ado about Nothing? Go Domestic Firms really Benefit from Foreign Direct Investment? The World Bank Research Observer. 19(2): 171-197D

  • Gumbau-Albert M. &Maudos, J. (2002) Determinants of efficiency: the case of the Spanish industry. Applied Economics. 34. pp. 1941-1948

  • Ishita G. Tripathi, Yadav S.S. & Sharma S. (2009) Measuring the Efficiency of Pharmaceutical Firms in India: An Application of Data Envelopment Analysis and Tobit Estimation. Proceedings of the 9th Comparative Analysis of Enterprise (Micro) Data Conference Oct 2-4, 2009, Tokyo.

  • Kalotay, K. (2000) Is the sky the limit? The absorptive capacity of Central Europe for FDI K. Kalotay, ed. Transnational corporations. 9(3). pp.137-162.

  • Khai, H. V., & Yabe, M. (2011) Technical Efficiency Analysis Of Rice Production. ISSAAS.17(1), 135-146.

  • Kumbhakar C.S & Knox Lovell C.A. (2004) Stochastic Frontier Analysis.Cambrigde University Press, United Kingdom

  • Le, V., & Harvie, C. (2010) How do Vietnamese SMEs perform ? Technical efficiency of SMEs in the manufacturing sector and its sub-sectors.Korea and the World Economy.IX, 1-37.

  • Lundvall, K. & Battese, E. (2000) Firm size, age and efficiency: Evidence from Kenyan Manufacturing firms. Journal of Development Studies.36(3). pp. 146-163

  • Mahadeven, R. (2000) How Technically Efficient are Singapore’s Manufacturing Industries. Applied Economics 32. pp. 2007-20014

  • Marcin, K. (2008) How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition. The Journal of International Trade & Economic Development. 17(1), pp.155-173.

  • Minh, N. K., Long, G. T., & Thang, B. N. (2007) Technical Efficiency Of Small And Medium Manufacturing Firms In Vietnam : Parametric And Non-Parametric Approaches. The Korean Economic Review. 23(1).pp.187-221.

  • Mitra, A., Sharma, C. & Veganzones, M.-A. (2011) Total Factor Productivity and Technical Efficiency of Indian Manufacturing: The Role of Infrastructure and Information & Communication Technology. Available at:

  • Sinani E., Jones D.C. &Mygind N. (2007) Determinants of firm level Technical efficiency: A stochastic frontier approach. Proceedings of the 29th European International Business Association Annual Conference. Copenhagen 2003

  • Tang, Y., & Zhang, K. H. (2016) Absorptive capacity and benefits from FDI: Evidence from Chinese manufactured exports. International Review of Economics & Finance, 42, pp. 423-429.

  • Tingum N.E. (2014) Technical efficiency and manufacturing export performance in Cameroon, A firm Level analysis. PhD. Dissertation.University of Dares Salaam.

  • Torii, S. (1992) Technical Efficiency in Japanese Industries. In: Caves, R. (ed.) Industrial Efficiency in Six Nations. MIT Press. pp. 31-120.

  • Tran, N. T. M. T. (2007) Technical Efficiency of The Vietnam’s Manufacture of Chemical and Chemical Products: A Dual Approach. DEPOCEN working paper 2007/17.

  • Vu Hung Cuong& Bui Trinh (2014) Doanhnghiệpngoàinhànước: vaitròvàthựctrạng [State-owned enterprises: the role and current state]. TạpchíNghiêncứukinhtế (10). pp. 38-44

  • Vu, Q.N. (2003) Technical Efficiency of Industrial State-Owned Enterprises in Vietnam. Asian Economic Journal.vol. 17(1). pp. 87-101. DOI: 10.1111/1351-3958.00163

  • Vu, T. B. L. (2012) Technical Efficiency of Vietnamese Manufacturing Firms and Its Determinants : A Preliminary Analysis. Proceedings of International conference: Sustainable Manufacturing and Environment Management, 2012.

  • Worthington, A. & Dollery, B. (2000) An Empirical Survey of Frontier Efficiency Measurement Techniques in Local Government. Local Government Studies. 26(2). pp.23-52.

  • Worthington, A.C. (2001) An Empirical Survey of Frontier Efficiency Measurement Techniques in Education. Education Economics. 9(3). pp.245-268. DOI: 10.1080/09645290110086126

  • Wu, Y. (2000) Measuring the performance of foreign direct investment: a case study of China. Economics Letters. 66(2), pp.143-150. DOI: 10.1016/S0165-1765(99)00225-6

  • Zhang, C., Guo, B. & Wang, J. (2014) The different impacts of home countries characteristics in FDI on Chinese spillover effects: Based on one-stage SFA. Economic Modelling. 38. pp.572-580. DOI: 10.1016/j.econmod.2014.02.007

  • Legislation Decision no. 879.QD - TTg dated 9th June, 2014 on approving the strategy on Vietnam’s industrial development through 2025, with a vision toward 2035.


Journal + Issues