Local governance, private investment and economic growth: the case of Vietnamese provinces

Abstract

This study examines the role of local governance in the relationship between private investment and economic growth at provincial level in Vietnam. The study data consists of 63 Vietnamese provinces in the period of 2005–2013. Provincial Competitiveness Index (PCI) is employed a proxy for local governance. The results estimated by two-step System Generalized Methods of Moments are interesting. First, local governance and private investment have significant effects on economic growth. Second, the growth effect of private investment is strengthened when interacted with the high level of PCI. Third, given the interaction between PCI sub-indices and private investment, the results indicate that some aspects of PCI are still barriers to the growth effect of private investment, namely entry cost, time cost, informal charges, and policy biases. Our findings also suggest that local governments should better local governance particularly to improve the growth effect of private investment