State-owned enterprises in Vietnam: are they ‘crowding out’ the private sector?

Abstract

This article assesses, on a province-by-province basis, whether state-owned enterprises (SOEs) are constraining the development of private firms in Vietnam. The analysis suggests the greater the density of SOEs present in a province, the more they enjoy favouritism, the lower is the proportion of bank loans that go to private companies, and the longer it takes for private firms to get access to land. There is also a negative correlation between SOE growth and private sector growth. But most importantly, the greater the density of SOEs in a particular province, the lower the GDP (and GDP per capita) growth recorded by that province. This evidence suggests that SOEs are indeed ‘crowding out’ private companies in Vietnam.

Acknowledgements

This article stems in large part from a study conducted for the Vietnam Competitiveness Initiative (VNCI), a USAID-funded economic growth project seeking to improve the competitiveness of small and medium-sized enterprises (SMEs) in Vietnam. The authors wish to express their appreciation to VNCI, and to Dr David Ray in particular.

Notes

1. See for example Tenev et al. (2003) and Carlier and Tran (2004a).

2. The term ‘initial conditions’ refers to a province's intrinsic endowments, which may give it an advantage over others in striving for economic development. For example, better infrastructure, a more skilled and literate workforce or closer proximity to large markets (whether in Vietnam or overseas). See Table A1 for more details.

3. See Steer and Taussig (2002).

4. ‘Equitisation’ is the term used in Vietnam for partial divestment of the state's stake in SOEs.

5. See Vietnam Economic News, 10 March 2003.

6. See MOLISA (2001, 2002, 2003).

7. These data can be downloaded as an Excel file at http://www.vnci.org/default.asp?act = Download&downloadID = 51.

8. See VNCI (2005).

9. The logarithm variable allows us to meet the normal distribution assumption, yet retain the direction of the relationship between independent variables and days spent waiting for land use certificates to be issued.