Effects of Changes in Provincial Governance on the Economic Performance of the Business Sector: An Empirical Study Using Vietnam's Provincial Competitiveness Index

Abstract

This study explores how changes in provincial governance affect the economic performance of the business sector by utilizing a unique unbalance panel dataset that includes the 2006-2010 Vietnamese Provincial Competitiveness Index (PCI) merged with two different datasets on firm economic performance. We find evidence that there is a significant positive relationship between provincial governance reforms and the business-sector economic performance. Out of nine sets of provincial governance reforms defined in the PCI, we find that the following reforms positively associate with the economic performance of the business sector: (1) improvement in private support services, (2) more pro-activity of provincial leadership in solving problems for enterprises, (3) easier land access and more security of tenure (a proxy for better property rights-of-uses), and (4) reduction of informal charges (a proxy for less corruption). However, the effects of easier land access - more security of tenure and reduction of informal charges are less robust with some estimation techniques and model identifications. This study contributes evidence to current literature on subjects of institutional changes (or governance reforms) and their effects on economic performance at the province-firm level.

Keywords: provincial governance, institutions, economic performance and provincial competitiveness index (PCI), Vietnam

JEL Classification: H70, L25, L53