Provincial governance and foreign direct investment in Vietnam: an empirical study at sub nation level

Abstract

Purpose: This paper explores the role of provincial governance in attracting Foreign Direct Investment (FDI) in Vietnam across provinces. Methodology: This study uses unbalanced panel data for a period of 9 years (2006-2014) in order to examine the significance determinants of Provincial Governance Index (PCI) in attracting FDI in Vietnam at sub nation level. The research takes into account Entry Costs, Land Access and Security of Tenure, Transparency and access to information, Time Costs of Regulatory Compliance, Informal charges, Proactivity, Business Support Services, Labor & Training, Legal Institutions, which are 9 indices of Provincial Competitive Index as potential determinants of FDI. Findings: The empirical results show what Transparency, Time costs of regulatory compliance, and Business Support Services are significant determinants of FDI inflow across provinces in Vietnam. Research limitations/implications: The paper does not take into consideration cultural and historical factors at the province level which may play a role in encouraging inward FDI. Furthermore, reverse causality between FDI inflows and governance quality is not discussed. Values: Our results have significant implications for policy, given the assumption that the changes in the quality of local economic governance will improve economic performance.