GEP 17/10: Globalisation and state capitalism: Assessing Vietnam's accession to the WTO

Summary

Can we expect substantial efficiency gains from trade liberalization in economies with a strong presence of state-owned enterprises (SOEs)?

The authors embed some key features characterising SOEs operations in a model of trade with firm heterogeneity and show that they can hinder the selection effects of openness and tame the aggregate productivity gains from trade. They empirically test these predictions analysing the response of Vietnamese firms to the 2007 WTO accession. The results show that WTO accession is associated with higher probability of exit, lower mark-ups, and substantial increases in productivity for private firms but not for SOEs. Domestic barriers to entry and preferential access to credit are key drivers of the different response of SOEs to trade liberalization.

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Authors

Leonardo Baccini, Giammario Impullitti and Edmund J. Malesky

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