This paper evaluates multiple indirect effects of trade liberalization on
performance and business behaviours of NFHEs during the transition period in Vietnam based on the industry and enterprise panel data. The paper shows that NFHEs in the benefited industries from trade liberalization had more opportunities to expand their operations or start up and were more likely to survive. However, this is only applicable for NFHEs in labour intensive and unskilled industries and the expansion of NFHEs in these industries did not go together with the improvement of their efficiency. On the other hand, NFHEs in the almost negatively affected manufacturing industries from trade liberalization
had to face with the fiercer competition and many of them had to shutdown their operations. Nevertheless, the survived NFHEs had better and high performance and had more chance to become formal SMEs. We also find that the more openness and the lower tariff increased the NFHE income in the industry but these effects were not the same for NFHEs in different industries. There are some concerns for the future role and development of NFHEs in the
face of increasing international competition in the market.