A Provincial Analysis of Formal Economic Institutions and Growth in Vietnam

Formal economic institutions, which are incentive-motivated mechanisms under the control of government, have widely been accepted as an important driver of economic development. However, the relative significance of each constituent has still remained ambiguous, especially in developing economies. This paper aims to fill this gap by investigating the contribution of three important formal economic institutions such as market entry, the security of property right, and anti-corruption mechanisms on provincial economic performance in Vietnam. The empirical results suggest that deregulation of market entry is essential for private investment, employment, and sales of enterprises. However, both the security of property right and anti-corruption provides unexpected outcomes as their improvement impede provincial economic outcomes. Finally, further analysis strongly suggests the heterogeneity in the economic effect of those formal institutions between six regions of Vietnam. In particular, the economic outcomes are positive in South East, negative in the least developed regions like Mekong River Delta or Northern Midland & Mountain, and unclear in other regions.