Government financial support and firm productivity in Vietnam

Highlights

• •

  Our study considers if receiving government financial support enables SMEs in Vietnam to become more productive.

• •

  Using the Färe-Primont index and instrumental variable fixed effect estimation for the data of small and medium-sized enterprises (SMEs), we find no evidence of linkage between financial support and firm productivity.

• •

  However, access to financial support improves technological progress and growth in firm scale but has a negative effect on improvement in technical efficiency.

• •

  The estimation results reveal that the use of productivity as an aggregated index in previous studies may hide the real effect of government support on firm productivity.

Abstract

Using the Färe-Primont index and instrumental variable fixed effect estimation for the data of small and medium-sized enterprises (SMEs), this study considers if receiving government financial support enables SMEs in Vietnam to become more productive. The paper discovers no evidence of linkage between financial support and firm productivity. However, access to financial support improves technological progress and growth in firm scale but has a negative effect on improvement in technical efficiency. The estimation results reveal that the use of productivity as an aggregated index in previous studies may hide the real effect of government support on firm productivity.