Market power, resource misallocation and productivity in an emerging export economy: evidence from Vietnam
Phuong Thi Nguyen, Huy Xuan DangPurpose
This study aims to investigate the relationship between firm-level markups, resource misallocation and total factor productivity (TFP) among Vietnamese manufacturing exporters.
Design/methodology/approach
Firm-level markups are estimated following a production-based De Loecker and Warzynski (2012) approach using panel data from 2012 to 2020. Resource misallocation is measured by the dispersion of markups within industries.
Findings
The results reveal a robust inverted U-shaped relationship between markups and productivity, suggesting that moderate market power supports upgrading, whereas excessive markups are associated with resource misallocation and lower efficiency. Resource misallocation is negatively associated with TFP among Vietnamese manufacturing exporters. Productivity is higher in firms with greater liquidity flexibility, technological catch-up, capital intensity, human capital and larger firm size, while excessive external borrowing and firm age are linked to weaker TFP performance. Industry characteristics also matter, as forward linkages, foreign ownership and market concentration positively affect productivity, whereas horizontal and backward linkages reduce TFP. At the macro level, number of free trade agreements, exchange rate depreciation and government effectiveness enhance exporters’ productivity, while inflation weakens the productivity gains associated with export activities.
Research limitations/implications
The estimation of markup and resource misallocation relies on production function approaches that may be sensitive to measurement error and model specification. The De Loecker–Warzynski (2012) approach assumes cost minimization and freely adjustable intermediate inputs, which may be restrictive in the Vietnamese context due to credit constraints and input market frictions. The sample focuses on exporting manufacturing firms, which are typically more productive and internationally connected than non-exporting firms, thereby limiting the generalizability of the findings. Future research could apply alternative estimation approaches and broader samples to address these limitations.
Originality/value
The study provides new firm-level evidence on market power and allocative efficiency in an emerging export-oriented economy. It contributes to the literature by jointly analyzing markups, productivity and resource misallocation using a rich firm-level dataset from Vietnam’s manufacturing export sector, offering context-specific evidence from a rapidly integrating developing economy.