The simultaneous relationship between labor productivity and exports: The case of small and medium-sized enterprises in Vietnam

Abstract

This study explores the simultaneous relationship between labor productivity and exports of Small and Medium-sized Enterprises (SMEs) in Vietnam, using data from the 2013 and 2015 SME surveys conducted by the UNU-WIDER in cooperation with the Institute of Labour Science & Social Affairs (ILSSA), the Department of Economics (DoE) of the University of Copenhagen, and the Central Institute of Economic Management (CIEM) of Copenhagen University. The Three-Stage Least Squares regression is estimated with time-demeaned variables to address the potential endogenous problem caused by the simultaneous relationship between the two variables of interest and to control for the fixed effects of firms in the panel dataset. This study confirms a simultaneous relationship between labor productivity and exports. Firms with higher productivity are more likely to become exporters, and at the same time, participating in exports boosts firms’ labor productivity. The findings suggest that SMEs should invest more resources in human capital, such as skill intensity, capital intensity, and wages, in order to increase labor productivity. This, in turn, may lead to a higher chance to participate in exports. Simultaneously, export-led strategies could further boost labor productivity, creating a mutually reinforcing loop that strengthens SME competitiveness in international markets.