Local government capacity and total factor productivity growth: evidence from an Asian emerging economy

Abstract

This study provides a vital understanding of how local government capacity affects total factor productivity (TFP) growth in the context of an emerging economy. The sample of the study is a panel dataset of 63 Vietnamese provinces over the period of 2006-2017. We find that provinces that are high in self-financing have a positive effect on TFP growth, while low self-financing provinces have a negative effect on TFP growth. More interestingly, the impact of public governance is negative on TFP growth for high self-financing provinces, but is positive for low self-financing provinces. Our findings imply that the Vietnamese decentralisation regime drives high self-financing and low self-financing provinces to pursue different paths. High self-financing provinces defy governance reforms, leading to a race to the bottom.