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

Abstract

The 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 a proxy for local governance. Estimated by two-step System Generalized Methods of Moments, the study shows interesting results. 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, interacting PCI sub-indices with private investment, the results show 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 suggest that local governments should make local governance better to improve the growth effect of private investment.