The Effect of Local Governance on Firm Productivity and Resource Allocation: Evidence from Vietnam

24 Pages Posted: 24 Jul 2017 Last revised: 28 Aug 2018

Date Written: June 27, 2017

Abstract

Governance quality plays a key role in private sector development: competent bureaucrats not only create good policies and regulations, but also effectively implement them to shape the business environment. This paper exploit Vietnam?s decentralization of administrative tasks since the early 2000s to test this hypothesis. The paper examines how changes in the provincial administration of national business regulations affect firms through two channels: within-firm productivity levels and resource allocation across firms. The results show that better overall business environment has a positive impact on firm productivity, and this effect is driven by a reduction in corruption levels, the risks of land expropriation, and entry regulations. The analysis also finds that high-productivity firms are generally better able to take advantage of improvements in the business environment. However, better implementation of entry regulations matters most for less productive firms. The study does not find evidence for the impact of business environment quality on province-level market efficiency.

Keywords: Business Environment, Labor Markets, Social Accountability, Regional Governance, Local Government, International Trade and Trade Rules, Textiles, Apparel & Leather Industry, Pulp & Paper Industry, General Manufacturing, Food & Beverage Industry, Common Carriers Industry, Construction Industry, Business Cycles and Stabilization Policies, Plastics & Rubber Industry

Suggested Citation

Tan, Shawn and Tran, Trang Thu and Tan, Shawn Weiming and Tran, Trang Thu, The Effect of Local Governance on Firm Productivity and Resource Allocation: Evidence from Vietnam (June 27, 2017). World Bank Policy Research Working Paper No. 8118, Available at SSRN: https://ssrn.com/abstract=3006152

Shawn Tan (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Trang Thu Tran

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Shawn Weiming Tan

Independent

Trang Thu Tran

Independent

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
257
PlumX Metrics