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New Export Opportunities and Firm Performance in the Presence of a Large State Sector

by Brian McCaig, Nina Pavcnik | Wednesday, December 16, 2015

We investigate the impacts of new export opportunities on manufacturing firm performance in the presence of a large state-owned sector in a low-income country, Vietnam. We find that reductions in U.S. tariffs applied on imports from Vietnam, as mandated by the U.S.-Vietnam Bilateral Trade Agreement, caused an expansion of formal manufacturing in Vietnam and the relative contraction of the state sector within it. At the industry level, both revenue and employment grew more quickly in industries that experienced greater U.S. tariff reductions. However, the growth of revenue and employment was entirely due to non-state enterprises, foreign-invested and private, domestic enterprises. We find that the probability of a firm exiting between 2000 and 2004 is not related to U.S. tariff cuts. Firm entry, however,  is clearly related to the U.S. tariff reductions. While state-owned enterprises do not enter in response to the U.S. tariff cuts, both foreign-invested and private, domestic enterprises are more likely to enter industries that received larger tariff declines. We similarly observe important differences across ownership types for continuing firms. Revenue, employment, and revenue per worker within state-owned enterprises are not affected by the U.S. tariff cuts, but, revenue and revenue per worker fell in continuing foreign-invested enterprises in response to the tariff cuts, while they expanded among private, domestic enterprises. The heterogeneous responses across ownership groups suggest that the presence of a large stateowned sector may heavily influence the gains from trade as state-owned enterprises do not appear to respond to new export opportunities as strongly as other firms.

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