Determinants of the productivity gap between Japanese and Vietnamese firms in the Vietnamese manufacturing sector

Abstract

This article examines the productivity gap between Japanese and Vietnamese manufacturing firms in Vietnam from 2005 to 2018. The Kitagawa-Oaxaca-Blinder method is applied to decompose the productivity gap into endowments, coefficients, and interaction effects. The results show that the gap between Japanese and Vietnamese firms is significant, explained by the differences in endowment of the two groups. Also, investing in human capital seems to be the most efficient way to reduce the endowment gap and the productivity gap. Vietnamese firms should expand their business size as the marginal effect increases the coefficients’ effect and reduces the productivity gap to Japanese firms.