Fiscal decentralization and economic growth of Vietnamese provinces: the role of local public Governance

Abstract

This study offers an insight into the public governance role in the relationship between fiscal decentralization and provincial economic growth in Vietnam. Fiscal decentralization measures are assorted. Applying a sequential (two-stage) estimation for the panel data of 62 provinces of Vietnam over the 2006–2015 period, we find that first, fiscal decentralization is positively related to the economic growth of Vietnamese provinces. Second, the effects of public governance on economic growth vary across provinces depending on various levels of local public governance. Interestingly, the effect of fiscal decentralization is strengthened when this variable is added along with better quality of public governance. In a region of high public governance quality, fiscal decentralization exerts a positive effect on its economic growth. Our findings imply that the design of fiscal decentralization needs to be associated with local governments’ ability of public governance to improve the local economic growth.