Trade liberalization and firms' productivity in Vietnam: the role of local business environment

This paper examines how frictions in the local business environment where firms operate alter the productivity gains from trade. Using Vietnamese firm-level data from 2006 to 2012, the analysis provides robust evidence of a positive effect of trade opening on firms' efficiency. However, distortions that operate through certain local market features in the form of unenforceable property rights, an ineffective land-titling system, bureaucratic hurdles and labour market frictions play a crucial role in the transmission of trade liberalization shocks. These findings have important policy implications because they suggest that complementary policies addressing local market constraints need to be implemented alongside trade reforms.

Automated summary

This paper examines how frictions in the local business environment can affect the productivity gains from trade. Using Vietnamese firm-level data, the analysis finds that trade opening has a positive effect on firms' efficiency. However, local market constraints such as unenforceable property rights, an ineffective land-titling system, bureaucratic hurdles, and labor market frictions play a crucial role in the transmission of trade liberalization shocks. These findings have important policy implications, suggesting the need for complementary policies to address local market constraints alongside trade reforms.