Forum “Equitization and Economic Growth in Vietnam”

[16 January 2017] — The privatization of state-owned enterprises (SOEs) have been vigorously performed in many countries across Eastern Europe, China and Vietnam since the early 1990s. Privatization can be considered in two aspects: 1) the expansion of the private sector in the national economy; and 2) the transformation from public enterprises to private ones.  


On 13 Jan 2017, Economica Vietnam organized a forum on “Equitization and Economic Growth in Vietnam”. At the forum, Dr. Pham Nguyen Hoang and Mr. Nguyen Cong Minh presented a research paper entitled “How has privatization promoted economic growth in Vietnam?”. The Forum had the honor to receive distinguished commentators and guests, including Mr. Phan Duc Hieu, Vice Presisident of the Central Institute of Economic Management (CIEM), Mr. Dau Anh Tuan, Director of the Legal Department of Vietnam Chamber of Commerce and Industry, Mr. Ngo Tien Lap, Lawyer of NHQuang &Associates, Mr. Nguyen Tu Giang of the Sai Gon Economic Times, Mr. Ngo Vinh Bach Duong of the Institute of State and Law and Mr. Le Anh Van of VINASME, Dr. Pham Viet Hung of the National Economics University. Attending the forum were also participants from various research institutes and universities.  




In the Vietnamese context, little is known in the literature about the effect of privatization on both dimensions of growth as aforementioned: economic growth and firm growth. Therefore, this research attempts to address the following research question: How has privatization promoted economic growth and firm growth in Vietnam? To answer this question, we examine the impact of privatization (proxied by the contribution value of private sector in gross domestic product - GDP) on GDP growth in Vietnam, and state ownership (proxied by the ratio of equity owned by the state) on the growth of listed firms on Vietnam’s stock market.  


In terms of macroeconomic situation, Vietnam has consecutively achieved positive economic growth since the 1990s, with a particularly high GDP growth rate during 10-year period from 1992 to 2008 (about 8% on average). In the most recent phase, the average GDP growth rate declined to about 5.9% during the 5-year period from 2011-2015. A noteworthy point is that the state sector is still dominant in the economy, contributing up to 32.26% of GDP (GSO 2016).



At the firm level, the there has been an increasing number of SOEs being privatized until recently. In the first phase of privatization (1989–1992), the number of SOEs in Vietnam dropped by a half, from 12,300 to about 6500 (Pham & Carlin 2008). According to GSO (2016), the number of privatized SOEs is nearly 500 over the last 5-year period (2011-2015), while the remaining SOEs are outperformed by private-owned and foreign-owned enterprises in terms of profitability ratios such as return on assets and returns on sales.  


The privatization of SOEs in Vietnam has been supported by the formation of two national stock exchanges in Ho Chi Minh City (in 2000) and in Hanoi (in 2005), respectively. The total market capitalization of both exchanges is recorded at more than 33% of GDP in 2015. Among nearly 700 listed companies, it should be noted that most of them are privatized SOEs.


Vietnam has been chosen as the case study in this paper for several other reasons, namely: 1) Vietnam is unique in having a newly-established stock market which is closely associated with the privatization programs of the SOEs. This is characterized by the dominance of privatized SOEs among listed firms on the Vietnamese stock market; and 2) the role of government ownership in firms is still an issue of great concern and heated debate in this country during the process of the privatization of SOEs.  


Using the Vietnamese data with time-series (2005-2015) and panel data (296 firm-year observations), we find that privatization has a significantly positive correlation with GDP and state ownership is significantly negatively related to firm growth over the last decade. The results of this research in part contribute to bridging the above-mentioned gap in knowledge about privatization in Vietnam and proposing some policy recommendations.  


The paper includes 7 sections. With Section being focused on overall context, Section 2 presents the country-specific characteristics of Vietnam relating to privatization; Section 3 reviews the most related literature on privatization, including the theoretical background of privatization; Section 4 explains the methodology employed in this research, including the empirical models and variables. Section 5 reports the results of research. Section 6 discusses the implications of research results. Section 7 concludes the research. 


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