1 INTRODUCTION - Examining the effects of factors on misallocation and reallocation of resources in Vietnam's manufacturing firms The reason for choosing the thesis The question of why some countries are richer than others and some poor countries become richer after a few decades has extensively been investigated by economist for a long time Initially to answer this question, Solow (1957) indicates the growth of national output is attributed to the growth rate of factors of production (capital and labor) and technological change (later known as total factor productivity-TFP) According to Solow, differences in TFP are found to be the main source of cross-country difference in per capita income (Klenow and Rodriguez-Clare, 1997; Hall and Jones, 1999; Caselli, 2005) However, what determines these differences in TFPs among rich and poor countries? Recently, a new approach has highlighted the role of resource misallocation arising from various distortions in input and output markets across heterogeneous firms could cause difference in TFP (Hsieh and Klenow, 2009) A recent approach, typical of Hsieh and Klenow (2009), shows that aggregate TFP may be low because of misallocation of resources among heterogeneous production units Together with the existence of misallocation of resources explaining the differences in aggregate productivity across countries, the process of resource reallocation among entering, exiting and surviving firms plays a very important role in explaining a country's aggregate productivity growth and potential growth In addition to misallocation of resources, a new aspect of research in the world is to consider whether aggregate productivity growth also comes from reallocation of resources (capital and labor) among entering and exiting firms or not besides the main contribution from the firm's own productivity growth (Olley and Pakes, 1996; Melitz and Polanec, 2015; Restuccia and Rogerson, 2008) Productivity growth is an issue that all countries, especially developing countries are interested in, including Vietnam Current research papers on productivity growth in Vietnam not fully reflect productivity growth potential among firms, especially manufacturing firms which contribute mainly to gross domestic product If misallocation and reallocation of resources are studied abroad to explain productivity growth potential from the early 1990s, the current studies in Vietnam on misallocation and reallocation of resource are still very limited Drawing from the above reasons, the thesis "Misallocation, reallocation of resources and productivity growth in Vietnamese manufacturing fimrs" is choosen for researching This thesis will effectively complement current Vietnamese studies on misallocation and reallocation of resources then provide appropriate policies to minimize misallocation of resources for industries and select economic areas with development advantages Objectives of the research • General objective: The overall objective of the thesis is to provide a theoretical framework to clarify the level of misallocation of resources and the process of resource reallocation changing the aggregate productivity of Vietnamese manufacturing firms Since then, the thesis proposes solutions to minimize misallocation of resources and promote reallocation of resources towards productivity growth • Specific objectives - Evaluating the status of misallocation of resources and reallocation of resources that change the aggregate productivity in Vietnam's manufacturing sector in the period 2000-2015 - Providing suitable solutions in the context of Vietnam economy in order to reduce misallocation of resources and promote the process of resource reallocation towards aggregate productivity growth Subject and Scope of the research 3.1 Research subject Misallocation of resources, reallocation of resources and productivity growth in Vietnamese manufacturing firms 3.2 Limit the scope of the research Scope of the research: Vietnamese manufacturing firms from annual Enterprise Survey collected by General Statistics Office of Vietnam (GSO) since 2000 Time: secondary data collected from 2000 to 2015 The structure of the thesis In addition to the introduction, conclusion, list of tables and references, the thesis content consists of chapters: Chapter 1: Overview of studies on misallocation and reallocation of resources Chapter 2: Theoretical framework about the relationship among misallocation and reallocation of resources to productivity growth Chapter 3: Research methodology about factors affecting the misallocation and reallocation of resources in Vietnamese manufacturing firms Chapter 4: The status of misallocation and reallocation of resources in Vietnamese manufacturing sector in the period 2000-2015 Chapter 5: Policy recommendations for reducing misallocation of resources and promoting reallocation of resources among firms toward aggregate productivity growth CHAPTER 1: OVERVIEW OF STUDIES ON MISALLOCATION AND REALLOCATION OF RESOURCES 1.1 Overview of international studies related to the thesis 1.1.1 The international studies on misallocation of resources The role of misallocation has been analyzed and emphasized from the research of Restuccia and Rogerson (2008), Hsieh and Klenow (2009), and Bartelsman et al (2013) The researchers suggest that the misallocation of resources among countries creates a TFP gap between rich and poor countries Initially, the reasons for misallocation of resources are distortion of policies such as tax burden (production tax and capital tax) or subsidies, market power and inefficiency of financial markets which make firms feel difficulty to access the capital to expand their business and allow inefficient companies to exist in the same market Laterly, the causes of misallocation of resources include high interest rates, adjustment cost, fixed and sinking cost, trade barriers, markups and credit market deficiencies Eliminating such distortions can bring significant benefits to the economy CHAPTER 2: THEORITICAL FRAMEWORK 1.1.2 The international studies on reallocation of resources 2.1 Misallocation of resources If misallocation plays an important role in differentiating per capita income across countries, reallocation of resources among production units plays a critical role in explaining productivity growth growth In addition to the firm's own productivity contribution, the recent approach is to consider the productivity growth also comes from the reallocation of resources (capital, labor, market share) among entering and suriving firms with high productivity and exiting firms with low productivity The entry of new firms makes the low-productivity firms exit and the surviving firms must strive to innovate, improve productivity to survive and compete with new competitors in the industry (Jovanovich, 1982; Foster et al., 2001; Saso Polanec, 2004; Foster et al., 2005) 2.1.1 The concept and theory about misallocation of resources 1.1.3 Dynamic productivity model in reallocation efficiency analysis Most of the models used to analyze reallocation of resources mainly focus on static models but not dynamic models The static model does not separate the specific contribution of firm-level productivity change from entering, exiting and surviving frims The decomposition of dynamic model directly links components that measure aggregate productivity changes within the framework of heterogeneous firms The typical studies for dynamic productivity models include Olley and Pakes (1996); Griliches and Regev (1995); Fortes, Haltiwanger and Krizan (2001); Melitz et al (2015) 1.2 Overview of national studies related to the thesis 1.2.1 The studies on misallocation, reallocation of resources and productivity growth in Vietnam Previous studies have looked at the role of misallocation and reallocation of resources on productivity growth quite comprehensively, but mostly in developed economies In fact, not many studies have looked at this issue in the context of an emerging and transitional economy like Vietnam These developing countries often have high level of resource misallocation and experience high rates of entry and exit (high reallocation of capital) because of economic reforms and removal of growth constraints (Thang Bach, 2013; Fujin Zhou, 2014; Doan Thi Thanh Ha and Kozo Kiyota, 2015) 1.2.2 The issues of the thesis have not been solved by previous studies Firstly, domestic and foreign studies not yet have a systematic assessment of the causes of misallocation of resources Secondly, the models using to analyze reallocation of resources mainly are static models but not dynamic models Thirdly, quantitative research on misallocation of resources in Vietnam has focused research only on the manufacturing sector but not on a smaller level Fourthly, there has been no research to investigate the effects of misallocation on the reallocation of resources among firms in Vietnam and over the world Finally, policies for reducing the misallocation of resources as well as reallocating resources towards productivity growth have not been specifically and systematically proposed In economics, resource allocation is the allocation of production factors in the economy for different uses based on market demand Resources are effectively allocated when the proportion of inputs used to produce goods and services accurately reflects their relative costs so as to minimize production costs Meanwhile, output of goods and services accurately reflect consumer preferences for different types of goods and services In the context of the whole economy, resources can be allocated by many different means, such as markets or plans However, if the allocation of resources such as capital, skilled labor, machinery and equipment, etc does not follow the appropriate ratio among firms or industries in the economy, it may lead to misallocation of resources Misallocation of resources (also known as misallocation) is understood that production inputs such as capital and labor are not allocated in such a way that output can be reached to the maximum with the available resources When the government intervenes and changes the ratio of production inputs according to policies or due to market failures and asymmetric information, these resources will be misallocated, which leads to less efficient production 2.1.2 The causes of resource misallocation 2.1.1.1 Distortions of input and output prices Banking system may offer preferential interest rates for loans leading to misallocation of credit across firms Young firms may face higher capital costs than older firms This is evidence of the presence of financial institutions’ credit constraints on young businesses due to unguaranteed credit history Output distortions can be caused by government subsidy of specific producers, special tax incentives, or lucrative contracts to promote large scale producers or the limits on the size of firms due to not expanding the market, so output good is less commercial (Hsieh and Klenow, 2009; Guner et al., 2008; Restuccia and Rogerson, 2008) 2.1.1.2 Adjustment costs In practice, firms face the cost of capital adjustment for production activities and are hit by idiosyncratic productivity shocks In such a framework, dispersion will arise naturally in the marginal revenue product of capital and cause misallocation of resources (Asker et al., 2014; Bartelsman et al, 2013; Song and Wu, 2013) 2.1.1.3 Trade barriers and firm-specific markups Imperfect competition takes place in almost all areas of economic activity When companies have monopoly power and set firm-specific markups for their firms, the imperfect market with firm-specific markup has also been proposed as a misallocation source (Syverson, 2004a) 2.1.1.4 Financial frictions The presence of financial frictions is considered as a third potential source of misallocation Due to the financial market failure that limits young businesses, these businesses not develop because they have no basis to guarantee access to credit equally Financial institutions may or may not be willing to provide credit for highly productive firms but small-scale or young firms, preventing them from extending their operations (Banerjee and Duflo, 2005; Caselli, 2005; Midrigan and Xu, 2010) 2.1.1.5 Corruption Corruption knows as the abuse of position, authority, or duty assigned for private gain will weaken the positive effects of competition in the market because ineffective firms can bribe, then they will be more favourable than those of other firms By extension, the corruption will make the economy deviate away optimal structure for growth Firms with political connections can be facilitated through many channels including lowinterest special loans, tax breaks, subsidies and measures to reduce competition from competitors (Camacho and Conover, 2010; Ahmad, 2011) 2.1.3 The measurement of resource misallocation The method used to quantify misallocation of resources in Vietnamese manufacturing sector is applied according to the approach of Hsieh and Klenow (2009) For measurement of resource misallocation, Hsieh and Klenow (2009) make a distinction between total factor productivity using real output (TFPQ), and total factor productivity using total revenue of the firm (TFPR): TFPQsi = Asi = To consider the reallocation of resources that change aggregate productivity, the thesis uses OlleyPakes (1996) dynamic productivity decomposition method to examine the contribution of entering, surviving and exiting firms to aggregate productivity 2.3.2.1 TFP estimation To estimate TFP, we use the semi-parametric estimation method of Levinsohn and Petrin (2003) Total factor productivity (TFP) is calculated using the following equation: ( TFPit = exp vait − βˆk kit − βˆl lit ) 2.3.2.2 Olley-Pakes (1996) dynamic productivity decomposition method for entering, exiting and surviving firms The change in aggregate productivity over time is defined as follows (from t=1 when the exit happens to t=2 when the entry happens): ∆Φ = (Φ S − Φ S ) + sE (Φ E − Φ S ) + s X (Φ S − Φ X ) Ysi K si (wLsi )1−α s TFPRsi = Psi Asi = 2.3.2 The measurement of resource reallocation = ∆ ϕS + ∆ cov S + s E (Φ E − Φ S2 ) + s X1 (Φ S1 − Φ X1 ) αs CHAPTER 3: RESEARCH METHODOLOGY PsiYsi K siα s (wLsi )1−α s 3.1 Data The dispersion of TFP presents misallocation and it is defined as the deviation of TFPR and TFPQ from its mean, log(TFPR si / TFPRs ) and log(TFPQsi M s1/(σ −1) / TFPQs ) The magnitude of the effect of misallocation of resources on aggregate factor productivity is shown in the following equation: θs θs σ −1 σ −1 S  S  Ms  TFPs  Asi TFPRs   Y = ∏  = ∏∑    Y * s =1  TFPQs  s =1  i =1  AsTFPRsi    where Y* is an effective output, corresponding to an effective TFP To consider the gains of TFP from eliminating misallocation of resources, we have: Y *  − 1 *100 %TFPgain =   Y  2.3 Reallocation of resources 2.3.1 The concept Reallocation of resources is the way in which production resources are redistributed among manufacturers and goods and services are allocated to consumers In the event of reallocation of resources in the industry, capital and labor will move from one firm to another and lead to the entry of new productive firms, the survival of well-performing firm as well as the exit of low productivity firms Under this mechanism, aggregate productivity of the economy will tend to increase To calculate the dispersion, Hsieh and Klenow (2009) assume elasticity of substitution σ by and R by 10% The study also uses output elasticity of capital and labor in the US as a benchmark with assuming the absence of misallocation in US economy The data is taken from the National Bureau of Economic Research's NBER-CES industry database from 2000 to 2011 In addition, the thesis uses the average Most Favoured Nation (MFN) rate of the manufacturing sector from World Bank data and Vietnam provincial governance and public administration performance index (PAPI) 3.2 Steps to conduct the research Step 1: Reading and researching the General Statistics Office annual survey of enterprises from 2000 to 2015 Step 2: Retaining the necessary indicators for the study and eliminating firms with unreasonable information such as the number of employees or capital less than zero, interrupted apperance during the study period The annual data is then appended together from 2000 to 2015 Step 3: Estimating Total Factor Productivity (TFP) by semi-parametric method of Levinsohn and Petrin (2003) Step 4: Connecting the annual enterprise survey dataset with US output elasticity of capital and labor as a benchmark with assuming an effective US economy This data is taken from the industry database of the National Bureau of Economic Research (NBER - CES) from 2000 to 2011 These data will be used to calculate the misallocation of resources and the gains of total factor productivity in case the economy has no misallocation of resources Step 5: The data of average Most Favoured Nation (MFN) rate of the manufacturing sector from World Bank data and Vietnam provincial governance and public administration performance index (PAPI) continues to be added into the full data set in step From there, the thesis examines the effect of factors on the level of resources misallocation in Vietnamese manufacturing firms 7 Step 6: Assess the process of resource reallocation by the dynamic productivity decomposition method of Olley and Pakes (1996) from entering, exiting and surviving firms Step 7: Heckman selection model will be used to investigate the effect of factors on reallocation of resources through the entry and exit of firms TGist: Technology gap is measured as the distance to the productivity frontier and defined as total factor productivity of firm in the industry is divided by the highest total factor productivity in industry FDist: Financial development of firm i in industry s is measured by capital on total assets KList: Capital intensity is measured by capital stock per employee 3.3 The effect of factors on misallocation of resources Lcist: human capital is calculated by total wages and training costs per employee SD(TFPR)st= α0 +α1* Tariffratet + α2*Liquidityratiost + α3 *vng+ α4 *lnSizest+ α5*HHIst+ α6SOEsharest+ α7Corruptt+ ηs+ηs*t+ɛt Scaleist: Company size is calculated by the total of employees of firms SD(TFPR)st : the dispersion of TFPR in the industry s in the year t, representing misallocation Ageist: Age of firm Tariffratet: The average MFN rate of the industry s is derived from World Bank data Herfst: industrial concentration is measured by the Herfindahl index for firms Liquidityratiost: The liquidity ratio is calculated as the ratio of short-term assets to total assets Gst: the growth rate of industry s in year t Vngist: external capital that the firms must borrow from outside and determined by one minus the ratio of firm’s equity over total capital Horst: The horizontal spillover variable captures the level of foreign presence in the industry HHIst: Herfindahl–Hirschman index is a measure of market concentration and is calculated by the proportion of firms with the largest revenue to the total turnover of the industry Sizest: the number of employees represented by the size of the industry ∑ FS ∑Y ist H orst = Yist i∈ s ist i∈ s Backst: The backward spillover variable captures the extent of potential contracts between domestic suppliers in the industry and foreign customers SOEsharest: the value added share of state-owned enterprises (SOEs) in the industry Corruptt: the index of corrupt control taken from the Vietnam provincial governance and public administration performance index (PAPI) ηs: unobserved industry fixed effect ηs*t: the industry-specific time trend Backst = ∑ ask Horizontalkt k ≠s Forst: The forward spillover indicates the extent of potential contracts between foreign suppliers and domestic customers in the industry Forst = ∑a sl Horizontallt 1,1≠ s εst: an error term 3.4 The effect of factors on remisallocation of resources through the entry and exit of firms CHAPTER 4: THE STATUS OF MISALLOCATION AND REALLOCATION OF RESOURCES IN VIETNAMESE MANUFACTURING SECTOR IN THE PERIOD 2000-2015 Yist = f ( M is st , D t , Tit , liquidity st , T G ist , F D ist , K List , L c ist Scaleist , A geist , H erf st , G st , H orst , B ack st , Forst , ε ist ) Z ist = f ( M is st , D t , Tit , liquidity st , TG ist , F D ist , K L ist , Lc ist Scaleist , A geist , H erf st , G st , H orst , B ack st , Forst , µ ist ) 4.1 Descriptive statistics of Vietnamese manufacturing sector Yist is a binary variable that takes the value of if firm i leaves the industry s during year t and if firm i enter in the industry s Zịst is the profit of firm i in industry s in year t εịst and µịst are random variables that capture the effect of omitted variables The independent variables include: Misst: the level of resources misallocation in the industry s over the years Dt: dummy variable (the value is equal to since Vietnam joining the World Trade Organization WTO in 2007 and otherwise) Tit: tax policy measures Vietnam's corporate income tax over the years and is calculated according to the turnover rate of the enterprise Liquidityratiost: The liquidity ratio is calculated as the ratio of short-term assets to total assets [Table 4.1] Over the period under study, the average size of the firm, as measured by the size of its labor force is largest for survivors (about 534 workers per firm), followed by entrants (about 459 workers per firm) The smallest average size is exiters (about 177 workers per firm) The result also shows that the average added value of entering firms is higher than the added value of surviving firms and is times higher than the added value of exiting firms The average profitability of surviving, entering and exiting firms also shows similar results during the research period 4.2 Misallocation of resources in Vietnamese manufacturing sector 4.2.1 The level of resource misallocation during the period 2000-2015 [Table 4.3] 10 Table 4.3 indicates that the standard deviation of TFPR in Vietnam for the whole period of 20002015 is 0.80, while that of Thailand in 2006 (0.85); China during 1998-2005 (0.68); India during 1987-1994 (0.68); Japan from 1981 to 2008 (0.55) and the United States from 1977 to 1997 (0.45) aggregate productivity is increased by times from 38.117 to 73.286 due to resource reallocation towards firms with higher productivity 4.2.2 The efficiency gains in TFP from eliminating resource misallocation 4.4.1 Empirical results about the effects of factors on misallocation of resources 4.4 Empirical results assess the effects of factors on misallocation and reallocation of resources [Table 4.6] [Table 4.20] If Vietnam follows the assumption of moving to "US efficiency”, TFP gain in whole sample of Vietnamese manufacturing sector (81.2%) is higher than those for Thailand (73.40%); China (39.2%); India (46.93%) and Japan (3.02%) By Hausman test, the results from Table 4.20 specify panel data model with fixed effects (FE) Firstly, the coefficients of tariff rate MFN and corrupt variables are positive and statistically significant indicating that high tax rates and negative consequences of corruption increase the misallocation of resources Secondly, although liquidity ratio variable is only statistically significant in the random effect model, the negative coefficient of this variable and firm size indicates that when a firm has a better liquidity ratio and larger scale will reduce misallocation of resources Thirdly, the negative coefficient of capital ratio that firms borrow from outside shows that if firms can easily access external capital, the capital market is efficient and the level misallocation of resources in the industry is low Finally, the coefficient of HHI variable (controlling the market structure) is positive and statistically significant Due to market power of firms accounting for a large proportion of the total revenue of the industry, they will cause large distortions on inputs and outputs that lead misallocation of resources in the industry at high level 4.2.3 Misallocation of resources by geographical areas of Vietnam [Table 4.8] From the dispersion of TFPR and TFPQ in Table 4.8, it is found that misallocation of resources due to distortions is highest in the Central Highlands and Mekong River Delta and smallest in the North Central and Central Coast 4.2.4 Misallocation of resources by economic sectors and technological level of Vietnamese manufacturing firms [Table 4.10] The results indicate that sub-samples of SOEs and low technology have highest level of resource misallocation and that gains in TFP are highest when eliminating misallocation Meanwhile, the lowest level of resource misallocation and gains in TFP are foreign direct investment (FDI) and high technology firms 4.2.5 Misallocation of resources by scale of Vietnamese manufacturing firms [Table 4.11] The result from Table 4.11 indicates that misallocation of resources and the gains in TFP if eliminating the misallocation in SMEs are larger than the large-scale enterprises and equivalent to the general sample of the entire manufacturing sector 4.2.6 Misallocation of resources by industries Industries dividing by technology level include low technology, medium technology and high technology Industries which have highest misallocation and gains in TFP mainly come from low and medium technology industries such as products from rubber and plastics; textile; basic chemicals, fertilizers and nitrogen compounds; rubber and plastics products; wood products; basic metals; food and beverage production; refined petroleum products and nuclear fuel; ship and boat building 4.3 The contribution of entering, exiting and surviving firms to aggregate productivity [Table 4.12] The result reveals the contribution to aggregate productivity change is highest for survivors, followed by entrants and exiters [Table 4.16] and [Table 4.17] The productivity decomposition shows the positive contribution of exiting, entering and surviving firms to aggregate productivity change Meanwhile, the change in the aggregate productivity is driven mainly by change in productivity among the surviving and entering firms because exiting firms have lower productivity (ΦX1) than the surviving firms (ΦS1) and entering firms in all years Over 16 year from 2000 – 2015, the 4.4.2 Empirical results about the effects of factors on reallocation of resources [Table 4.22] The coefficient of misallocation of resources (Mis) is negative and statistically significant in all samples involving the decision of entry and exit, which reflects the higher level of misallocation of resources, the lower the probability for new entrants into the industry and the higher probability exiting of active firms Although there is no statistically significant effect on profitability, higher misallocation level tends to reduce the profitability of operating firms The research result shows that the entry or exit decision and profit of firms are also affected by firm- and industry- level factors CHAPTER 5: PROPOSED SOLUTIONS TO REDUCE MISALLOCATION AND PROMOTE REALLOCATION OF RESOURCES TOWARDS PRODUCTIVITY GROWTH 5.1 The content and and requirements to reduce misallocation to improve productivity growth In a market economy, the allocation of resources is governed by many relationships from the state management entities and market mechanism The State and the market have become two forces together for the purpose of rational allocation of resources and socio-economic development The allocation of resources such as labor, income, inputs, etc must comply with market rules and government regulations However, in the current economy of Vietnam, the allocation of resources is still inadequate due to the lack of proper awareness and right actions in dealing with state-market relations 5.2 Policy recommendations to reduce misallocation and promote reallocation of resources towards productivity growth 5.2.1 Solutions for the Government and regulatory agencies To encourage productivity growth and reduce misallocation of resources in Vietnamese manufacturing sector, the government needs to remove financial barriers, input and output distortions; reduce 11 adjustment costs; enhance business environment and improve the importance of international trade The regulatory agencies should continue supporting investment in infrastructure, simplifying administrative procedures and improving credit and business markets so that new firms can join and develop in the market At the same time, it is advisable not to intervene when low-productivity firms exit from the market to improve the healthy competitiveness of the remaining firms as well as maintain productivity growth The state management agencies need to implement a number of measures for promoting industrial growth and sustainable development such as selective FDI attraction, reputable investor selection and long-term projects to not only increase the amount of investment capital but also protect young domestic industries The tax reduction is necessary to increase investment, improve the level of competition in the industry and encourage new firms to enter the market and at the same time force surviving firms in the market for innovation In order to exploit the advantages of the North Central and Central Coast where have lowest level of resource misallocation among six geographical regions across the country, provinces need to promote cooperation among localities in the region with aiming to create a consensus towards building an area with attractive investment environment, healthy competition and branding for the whole region 5.2.2 Solutions for manufacturing firms Vietnamese manufacturing firms need to have policies to train workers to improve their skills as well as help workers access to high technology quickly Manufacturing firms need to more effectively restructure and reallocate their capital focusing on technology research and development, thereby promoting firm size growth and reducing the technology gap with effective firms in the industry Manufacturing firms also need to secure financial resources to expand production and improve their competitiveness as well as minimize risks from external negative shocks In addition, the level of capital for labor as well as the firm size need to be increased for higher profit and competition with FDI firms Collaboration with foregin suppliers and customers should be selective because in the negative conditions, foreign firms with technological advantages and their parent companies in foreign countries may affect the entry and profit of local firms Low-tech firms also need to restructure and reallocate capital more effectively focusing on technology research and development to compete with medium-tech and high-tech companies 12 CONCLUSION The above estimation results show that the thesis has achieved five important points Firstly, the level of resource misallocation in Vietnam manufacturing firms tends to increase over time and TFP will be increased by 81.2% if there is no misallocation with the assumption of moving to "US efficiency”, Secondly, the Central Highlands and Mekong River Delta are found to have the highest misallocation of resources Lowest misallocation of resources is found in North Central and Central Coast State-owned enterprises; low technology or small and medium enterprises have the highest level of resource misallocation and the gains of TFP when eliminating misallocation Meanwhile, the lowest level of resource misallocation and gain in TFP are found by FDI firms and high technology firms Thirdly, by the dynamic productivity method of Olley-Pakes (1996), the study finds the contribution of exiting, entering, and surviving firms to aggregate productivity change is positive during the research period In about 16 years from 2000 to 2015, reallocation of resources towards higher productivity firms increases aggregate productivity from 38.117 to 73.286 Fourthly, the study finds the effect of trade liberalization, financial barriers, industry concentration and corruption control on misallocation of resources Decreasing misallocation of resources also motivates high-productivity firms to enter and survive in the market while requires low-productivity firms to exit Finally, by using Heckman's two-step model, the research results show that the entering or exit decision of firms and their profits are affected by many factors including misallocation of resources and firm- and industry- level factors The results providing in the study open a new direction for research on misallocation and reallocation of resources This study finds that misallocation and reallocation of resources changes aggregate productivity In addition, misallocation of resources affecting reallocation of resources through firm’s decision to enter or exit from the industry has not been studied so far Although the study considers quite comprehensively causes of misallocation, the research method only stops at decomposing misallocation of resources through output and capital distortions Meanwhile, the misallocation can be derived from many different sources The results of Heckman's selection model are only clarified on the sub-sample of stateowned enterprises and low-tech firms Future studies, if addressing these shortcomings, will be a world-class economic study about resource allocation and productivity growth  ... resources 1.1.3 Dynamic productivity model in reallocation efficiency analysis Most of the models used to analyze reallocation of resources mainly focus on static models but not dynamic models The... decomposition of dynamic model directly links components that measure aggregate productivity changes within the framework of heterogeneous firms The typical studies for dynamic productivity models... reallocation of resources mainly are static models but not dynamic models Thirdly, quantitative research on misallocation of resources in Vietnam has focused research only on the manufacturing sector