Description of the Explanatory Variables

The major characteristics of agro-enterprise surveyed as well as its manager who hold power to make investment decision are presented together with the variables included in the estimated models. They are outlined in Table 6.1. To explore the effect of rural investment climate factors on the agro-enterprise’s decisions to invest, we have included both the presence of investment decision-making by agro-enterprises as well as the level of investment as categorical variables. These variables are presented in the table for information purposes, but due to multicollinearity, indicators of the presence of investment decision-making as well as the level of investment cannot both be included.

Table 6.1 also contains the other independent variables that embrace both individual characteristics of the agro-enterprise and rural investment climate factors and they are divided into two sets based on variables identified as dependent and independent variables.

In comparison with the analytical framework of the study (presented in Figure 2.3, Chapter 2), some explanatory variables in the group of rural investment climate factors such as taxation, local endowments, political and economic stability were finally not included in the models because in the process of checking the validity of the variables for estimating the influences of the factors of rural investment climate on agro-enterprise’s investment decisions, these explanatory variables demonstrate multicollinearity in the models. In addition, based on the assessment of rural investment climate in Northern part of Vietnam, we found that most of the agro-enterprises which are complaining about tax system mainly focused on the cumbersome tax procedures that take a lot of their time and have excluded the complication of administrative procedures.

Table 6.1.Definition and Statistical Description of Variables used in Investment Decision Models

Variables Definition

Mean All

(n=200)

Invest-ment (n=96)

Non-investment

(n=104)

Chi-squared

test Dependent variables

Inv_choice Dummy (=1) if agro-enterprise decides to invest and (=0), others.

0.48 Tot_invest Total amount of investment by agro-enterprise

(mil.VND)

7,053.34 Explanatory variables

Man_edu Manager’s school-year who holds power to

make investment decision at the firm (year) 10.4 12.4 8.5 **

Man_age Manager’s age who holds power in making

investment decision at the firm (year) 45.5 45.9 45.2 ^NS

ROI Return on investment (percent) 20.4 27.7 8.2 ***

Capital Accounting value of assets annual financial

year (mil. VND) 34,527.1 56,037.4 14,671.2 *

Land_area Total agricultural area (hectare) 18.8 23.1 12.7 **

Ad_proced

Number of days needed to deal with administrative procedure for investment from administrative offices per year (day)

59.7 54.3 64.5 **

Acc_credit Number of days needed to take a loan from

credit institutions (day) 8.2 6.5 10.1 ***

Outage

Number of days to face with no electricity from the National Network of Electricity per year (day)

25.0 21.3 28.1 ***

Trans_cost Ratio of transport costs to market value of

products (percent) 1.9 1.7 2.0 **

Mar_compe

Grading for level of market competitiveness taken by the firm (point in grading scheme:

10)

7.7 7.1 8.2 ^NS

Land_tenure

Dummy (=1) if agro-enterprise has certification of land use in long-term and (=0), others.

97.0 66.0 31 ***

Firm_type Dummy (=1) if agro-enterprise is a private

firm and (=0), others. 102.0 54.0 48.0 ^NS

Source:Calculated from survey data

Data shown in Table 6.1 also provide the summary statistics of dependent variables in the models. We can see that 48% of all enterprises (96/200

agro-enterprises) in the sample decided to invest in 2010 with the average investment being over 7,053 million VND. Moreover, the statistics indicate the mean of a wide set of explanatory variables for both individual characteristics of agro-enterprise and factors of rural investment climate. The individual characteristics suggest that agro-enterprises with different ownership, manager’s age and educational level as well as the factor’sintensity and scale are covered in the survey. The two main manager’s characteristics which include the age and educational level are on the average of 45.5 years and 10.4 school-years, respectively. The average amount of capital is approximately 34,527 million VND while the return on investment across agro-enterprises is computed at an average of 20.4%. Similarly, total agricultural area is appropriately 18.8 hectares and the majority of agro-enterprises have private ownership with 51% of all observations while the rest are of state and foreign ownerships. Differences exist in terms of the rural investment climate factors as well. For example, the average number of days in dealing with administrative procedures for investment is approximately 59.7 days while the time spent for waiting in order to take a loan from credit institutions is around 8.2 days in average. Furthermore, in average, agro-enterprise takes nearly 25 days in facing outage per year while the ratio of transport costs to market value of the products is nearly on an average of 1.9%. The level of market competitiveness as graded by agro-enterprises is around 7.7 points in average.

In addition, 48.5% of observations have land use right certificate in long-term.⁹

The summary of statistics indicates clearly the means of wide set of variables for both individual characteristics of agro-enterprise and factors of rural investment climate.

However, there are differences in the mean values of the variables between the two groups of observation which are decided to invest or not. These differences are mainly in individual agro-enterprise characteristics such as the return on investment, manager's educational level, the size of agricultural land, operating capital, and the holding of certificate of land use right in long-term. Moreover, the mean values of the factors of rural investment climate also show large differences between the two groups of observation with and without investment respectively, especially in the number of days needed to deal with administrative procedures, to take a loan from credit institutions, to

9 In Vietnam, land is under collective ownership and the State issues land use right certificates for the people.

experience with absence electricity, and ratio of transport costs to market value of products. It suggests that these factors may affect agro-enterprise’sinvestment decisions.