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Learning to Compete: Industry Switching in Developing Countries

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Firm turnover (i.e. firm entry and exit) is a well-recognized source of sector level productivity growth across developing and developed countries. In contrast, the role and importance of firms switching activities from one sector to another is little understood. Firm switchers are likely to be unique both from newly established entrants and exiting firms that close down. We build an empirical model that examines switching behaviour based on data from Vietnamese manufacturing firms during the period 2001–08. Our diagnostic shows that switching firms have different characteristics and behaviour as compared to entry and exit firms. They tend, inter alia, to be labour-intensive and seek out competitive opportunities in labour-intensive sectors in response to changes in the market environment. We also show that resource reallocations resulting from switching form an important component of productivity growth.

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Carol Newman

Associate Professor at the Department of Economics, Trinity College Dublin; Non-resident Senior Research Fellow at UNU-WIDER


John Rand

Professor of development economics at the University of Copenhagen


Finn Tarp

Director - UNU-WIDER

Professor of Economics - University of Copenhagen


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