The Impact of the Investment Climate on Total Factor Productivity (tfp) in the Agricultural Sector: the Case of Hanoi, Vietnam

This study measures the impact of investment climate factors on the total factor productivity (TFP) of agricultural manufacturing firms in Hanoi, Vietnam. Endogeneity of the production function and of the investment climate variables is addressed by using econometric models, based on individual firm information, and by aggregating investment climate factors by various business lines. Specifically, the analysis is conducted in two steps: first, an econometric production function is estimated to produce a measure of TFP at the firm level; in the second step, variation in TFP across firms is statistically related to indicators of the investment climate as well as firm characteristics. The result yields a number of insights on the factors that underlie productivity. In a variety of business lines, indicators of poor investment climate, especially the administrative clearance time variable which has significant negative effects on total factor productivity. Decreasing by one hour in administrative clearance time could increase TFP by 1.7 5.7%. Indicators such as time of land rent, certification of clean production, market competition, age of the firm, and educated labor have positive effects on TFP. However, levels of effects from investment climate factors on TFP are different among business lines.