Firm markup and total factor productivity in Vietnamese manufacturing firms: evidence from firm-level data

Purpose This study examines the relationship between firm-level markup and total factor productivity (TFP) in Vietnamese manufacturing firms, with particular attention to heterogeneity across ownership types and firm-size groups. Design/methodology/approach The analysis utilizes data from Vietnam's Annual Enterprise Survey covering the period 2005–2019. Firm markup is estimated following the methodology proposed by De Loecker and Warzynski (2012). Using a panel dataset of Vietnamese manufacturing firms over the period 2005–2019, the study estimates firm-level TFP and markup and applies fixed-effects panel regressions supported by Hausman test. To address potential endogeneity, instrumental variable techniques (two-stage least squares) with robust standard errors are employed. Findings The finding reveals an inverted U-shaped relationship between markup and TFP across all samples, indicating that moderate markup is positively associated with productivity, whereas excessive markup is negatively associated with TFP. Forward linkages and trade integration are positively associated with TFP. Importantly, the positive and significant interaction between markup and FTA participation suggests that trade integration strengthens the positive association between markup and TFP, highlighting the conditional role of the trade environment in the markup–productivity relationship. These findings underscore the importance of considering firm heterogeneity, nonlinear market-power effects and trade integration in explaining productivity performance in Vietnamese manufacturing. Research limitations/implications The main limitations concern the measurement of firm-level markup and data coverage. The De Loecker and Warzynski (2012) approach relies on correctly specified production functions and flexible input adjustment, while measurement error, input market frictions, adjustment costs and financial constraints may affect markup estimates. In addition, the absence of direct innovation measures, such as R&D or patents, limits the ability to account for innovation effects. Finally, the firm-level data do not cover household businesses. Originality/value While a large body of international research has focused on estimating firm markup in developed economies, empirical evidence on markup behavior and TFP in developing countries remains limited. This study contributes to the literature by examining the relationship between firm-level markup and TFP in Vietnamese manufacturing firms.