[Podcast] Improving Total Factor Productivity in Southeast Vietnam: Institutions and Resource Efficiency

19 March, 2025

Keywords: Total Factor Productivity (TFP); Southeast Vietnam; Technology – institutions; Resource efficiency

In the context that the global economy faces uncertainties like the consequences of the pandemics, natural disasters, and conflicts, the key economic Southeast region of Vietnam is facing major challenges in terms of institutions and resource efficiency. A recent study by a researcher from the University of Economics Ho Chi Minh City (UEH) has illustrated significant room for improving Total Factor Productivity (TFP), increasing the region’s GRDP by thousands of billions of VND each year. How can Southeast Vietnam not only recover but also break through to become a sustainable growth driver for the whole country? Let’s find out in the following article!

Why is it necessary to study total factor productivity for the Southeast region?

Total Factor Productivity (TFP) measures the efficiency with which capital and labor are used to create economic value. TFP can be decomposed into several components. Typically, TFP consists of two main components: technology and resource efficiency. Note that technology here is defined more broadly than is commonly understood. Technology is not simply advanced software, tools, or techniques but also a system of methods or techniques to convert inputs into outputs. In practice, Christopher O’Donnell, professor of econometrics at the University of Queensland, Australia, compares technology to a “manual” or a “recipe” containing instructions for optimizing production or management processes. Therefore, technology is not just new tools or techniques; actually, this includes institutions, processes, and organizations. These institutions and processes have profound impacted resource efficiency and TFP. Therefore, technological improvement here is not limited to upgrading machinery, but also refers to reforming institutions, management, and the way the system operates to achieve optimal results.

The Southeast region, as the economic center of the country, is facing a serious decline in TFP in the period of 2016 – 2021, reflecting the existence of technology and resource efficiency. TFP growth in the whole region decreased by approximately 20% in 2021 compared to 2010, with provinces like Ho Chi Minh City and Ba Ria – Vung Tau recording negative growth in the context of the COVID-19 pandemic and global instability. This decline not only results from external impacts but also stems from the lack of effective organizational and management methods in the whole region. For example, Ho Chi Minh City, despite possessing the largest amount of capital and labor, has seen a decline in the efficiency of resource use, significantly reducing its ability to contribute to the overall growth of the region. On the other hand, the lack of synchronization in connecting infrastructure and the coordination policies among provinces has reduced the ability to exploit regional economic advantages. Key projects on transport infrastructure and road, waterway and air transport are behind schedule, while inter-provincial logistics centers have not been formed, causing supply chain disruptions and increased transportation costs. In addition, provinces like Binh Phuoc and Tay Ninh, with limited transport connections and high-quality labor, cannot take advantage of capital flows and spillover opportunities from more developed provinces such as Ho Chi Minh City or Binh Duong. These weaknesses hinder post-pandemic recovery and weaken the long-term competitiveness of the Southeast region, calling for strong reforms in regional management institutions and infrastructure investment to optimize input resources and to increase production value.

The current situation of localities – specific problems affecting sustainable growth

Figure 1. Aggregate productivity growth of provinces and cities

Although Binh Duong and Dong Nai have achieved high GRDP growth rates, averaging 6.5% to 8.1%/year, they are heavily dependent on labor- and capital-intensive growth models, leading to low added value. Industries rely mainly on unskilled labor while capital efficiency is poor because of a lack of technological innovation. These industrial provinces are having to overcome environmental consequences and other social costs because of the hot growth process in previous decades. Ba Ria – Vung Tau, an economy dependent on oil and gas and tourism, was severely affected by global economic fluctuations and travel restrictions in the 2019-2021 period, causing GRDP to decline sharply with a negative growth rate of 6.3% in 2021. Meanwhile, Binh Phuoc has the potential to develop agriculture and industry in harmony, but these sectors are greatly affected by fluctuations in agricultural product prices and limitations in processing and exporting. Similarly, Tay Ninh was once highly appreciated for its efficiency in resource use, with stable TFP growth in the 2010-2016 period. However, since 2017, the locality has fallen into decline.

Ho Chi Minh City, although maintaining its leading position in GRDP and investment capital, presents declining resource use efficiency compared to those of other centrally-run cities such as Hanoi and Hai Phong. During the 2010-2021 period, Hanoi and Hai Phong achieved great strides in total TFP growth thanks to a policy system that took advantage of economic opportunities. In contrast, Ho Chi Minh City recorded a negative growth rate of 6.8% in 2021 compared to 2020, reflecting the shortcomings in the economic development policy system and adaptation to new circumstances and the issue of policy implementation to improve resource use efficiency, especially in the context of the COVID-19 pandemic.

Figure 2. TFP Growth of Central Cities

In general, the differentiation in growth models and resource use efficiency of provinces in the region has revealed major weaknesses in institutions, processes and policies. It is extremely necessary to establish a synchronous and flexible policy system at the local and national levels to quickly adapt to the above limitations. This not only helps provinces better exploit internal resources but also optimizes regional linkage efficiency, promoting sustainable development of the Southeast region and the whole country.

Solutions to improve TFP growth and to promote sustainable economy for the Southeast region

To overcome the stagnation in TFP growth and to maintain their role as an economic locomotive, the Southeast region needs to focus on comprehensive solutions to improve resource use efficiency, their institutions, and to take advantage of regional linkage opportunities. The solutions include:

* Improving technology – institutions: Establishing a regional linkage policy system

Regional coordination institution: It is necessary to build a common coordination mechanism to promote inter-provincial cooperation in managing labor, capital, and resources. A clear regional linkage institution will help reduce local competition, avoid duplication of investment, and facilitate projects with high spillover potential like logistics centers or inter-provincial industrial parks.

Technological innovation: there should be focus on applying new technology in production and management, especially technology related to automation, digitalization, and logistics management. Provinces like Binh Duong and Dong Nai need to shift from a labor-intensive growth model to industries with high and sustainable added value, taking advantage of technology to optimize production processes.

Transport connectivity: the implementation of key transport projects need to be accelerated such as Bien Hoa – Vung Tau Expressway, Ho Chi Minh City Ring Road 3, seaport system, Long Thanh Airport and public transport. These are backbone projects connecting the region internally and opening up international trade opportunities that increase the efficiency of the entire regional supply chain. In particular, the synchronization of projects should be guaranteed to promote socio-economic efficiency for the entire region.

* Strengthening policy implementation and management efficiency

The region should learn from domestic and international growth models. For example, Hanoi – Hai Phong – Quang Ninh is a regional linked area that has achieved outstanding TFP growth thanks to effective resource management and taking advantage of national policies. Ho Chi Minh City and the Southeast provinces need to learn from this model by improving management processes, making business support policies transparent, and enhancing operational capacity.

* Improving the quality of capital and labor resources

High-quality labor: there should be mechanism to promote an inter-regional vocational training system, focusing on key industries and high value-added services.

Quality investment capital: more attention should be paid to attracting high-tech investment projects, prioritizing green industries, renewable energy, and modern services.

* Promoting regional cooperation for sustainable growth

Regional economic linkage: there is a need for a comprehensive strategy to connect the strengths of each locality, from Binh Duong’s industry, Ho Chi Minh City’s services, Ba Ria – Vung Tau’s oil and gas to Binh Phuoc and Tay Ninh’s agriculture.

Investment in logistics: modern logistics centers should be built in key traffic areas listed as Ho Chi Minh City, Dong Nai, and Ba Ria-Vung Tau to reduce transportation costs and improve supply chain efficiency.

Conclusion: The role of institutional, process and policy system innovation

The Southeast region has great potential to make a breakthrough and to develop sustainably if this region effectively utilizes solutions to increase TFP and improve the economic growth model. However, to achieve this goal, innovation does not rely only upon new tools or techniques; more importantly, on building and perfecting institutions, processes and policy systems – factors that play a role as a fundamental “technology” in production economics. A comprehensive and flexible policy system, aiming at regional economic linkages and optimizing the way resources are organized, will be the key to helping the Southeast overcome current limitations. Effective institutions will better connect resources between localities and allow for the application of advanced technology to production and management. Concurrently, with investment in transport infrastructure, quality of labor and logistics, the region will recover from economic shocks and consolidate its leading position.

This study has provided a scientific basis for the Southeast provinces to reshape their development strategies. If these strategies are effectively implemented, solutions for technological innovation (including institutions, processes, and organization) and improving the efficiency of resource use will turn limitations into opportunities for the region to fully exploit their potential, maintaining their role as Vietnam’s economic locomotive and becoming a driving force for sustainable growth for the whole country.

The full-text research article on Efficiency and Total Factor Productivity of the Southeast region, Vietnam in the period of 2010 – 2021 can be accessed HERE.

Author: Dr. Ho Quoc Thong – University of Economics Ho Chi Minh City

This article is part of the series spreading research and applied knowledge from UEH with the message “Research Contribution For All”. UEH cordially invites readers to read the next UEH Research Insights newsletter.

News, photos: The author, UEH Department of Communications and Partnerships