Global Value Chain Participation and Labour Productivity among Manufacturing Firms in Vietnam

Abstract

This study assesses the state of global value chain (GVC) participation by manufacturing firms in Vietnam and examines the impact of GVC participation on labour productivity. Utilising firm-level data from the Vietnam Technology and Competitiveness Survey and Vietnam Enterprise Survey from 2009 to 2018, we employ panel fixed-effect regression to analyse the dynamics. The findings show that Vietnam’s GVC participation has been driven mainly by backward rather than forward linkages, signifying a reliance on foreign inputs for exports. The study found a positive impact of backward and forward GVC participation on labour productivity. However, the results show a stark contrast when considering the degree of GVC participation (i.e. GVC participation index). While forward GVC participation positively impacts labour productivity, backward GVC participation demonstrates a negative effect. The results partly reject the learning-to-learn hypothesis while supporting the notion that productivity improvements in Vietnam are associated with learning-by-exporting and learning-by-supplying. We suggest that the prioritisation of forward GVC participation should be accompanied by well-designed backward participation strategies to promote labour productivity. The study concludes with a few policy implications.