Labor Productivity in a Developing Economy: A Case Study of Vietnam

Abstract

Vietnam is transitioning toward a productivity-driven growth model. This study evaluates the effects of four structural factors, namely sectoral transformation, gross capital formation, foreign direct investment, and the services sector, on labor productivity from 1990 to 2023. Using time series data, the analysis employs three quantitative methods, including the Autoregressive Distributed Lag model, the Quantile-on-Quantile Regression, and the Bayesian Time Varying Coefficient VAR model. The results indicate that structural transformation and foreign direct investment exert significant positive effects on labor productivity, particularly in low and medium productivity groups. Conversely, gross capital formation and the services sector display negative or unstable effects, suggesting inefficiencies in investment and service quality. The Bayesian TVC VAR model further reveals that structural transformation is the only factor with a stable long-time influence. These findings highlight the importance of shifting labor toward higher value-added industries, strengthening technological absorption, and modernizing services to sustain productivity growth. The study contributes new empirical evidence and an integrated methodological approach that elucidates heterogeneous effects across different productivity levels and time-varying impacts of productivity determinants in a developing economy.