This paper is on its way to estimate the technical efficiency (TE) level and identify the
sources of technical inefficiency (TIE) of the Vietnam Manufacture of Chemicals and
Chemical Products (MCCP) or the chemical industry, using the stochastic frontier cost
function and the sample data of 95 MCCP’s firms drawn from the Economic Census for
Enterprises conducted by the General Statistic Office in 2002.

The empirical results show that the mean TE of the industry is 1.50, implying that the cost
of inefficiency of the MCCP is 50 percent above the costs defined by the frontier and also
provide that the such firm specific factors as the borrowing to total capital ratio, the service to
intermediate cost ratio, ownership and location are the determinants of TIE of the chemical
industry.

Based on the TE analysis, some policy implications are proposed for a better performance
of TE in the MCCP.

The manufacture of chemicals and chemical products – MCCP, is an important industry
that seems to attract the relatively considerable attention of the State of Vietnam. Despite of
certain achievements that contribute to scientific and economic development of Vietnam,
according to the Ministry of Industry, the chemical industry is of low competitiveness,
backward technology, leading to high production costs, high consumption of raw materials,
then high prices and poor quality of products. The TE improvement involves the identification
of TE level and determinants of TIE, raising the need for the quantitative study on the
industry’s efficiency performance. Based on the empirical results, appropriate policies are
proposed to minimize the level of the industry’s TIE.