Resource misallocation in Vietnam’s manufacturing sector: Evidence from TFPR dispersion analysis and the role of provincial institutions

This study examines the extent of resource misallocation in Vietnam’s manufacturing sector using firm-level data from the Annual Enterprise Survey and the analytical framework of Hsieh and Klenow (2009). Firm-level dispersion in revenue total factor productivity (TFPR) is calculated and analyzed in relation to ownership structure, labor characteristics, and provincial institutional quality measured by the Provincial Competitiveness Index (PCI). The results indicate that state-owned enterprises exhibit significantly higher TFPR dispersion, largely explained by provincial characteristics. Decomposition analysis shows that SOEs are primarily affected through capital distortion, while foreign-invested enterprises exhibit lower output distortion. Among PCI sub-indices, legal institutions have the strongest negative effect on TFPR dispersion, followed by informal costs. Heterogeneity analysis reveals that foreign-invested firms are less sensitive to variations in provincial institutional quality.