Provincial governance and financial inclusion: micro evidence from rural Vietnam

Abstract

Do government institutions improve financial inclusion for households and wage earners in a transitional country? We answer this question in Vietnam, a socialist-oriented market economy that has seen rapid economic growth, while balancing economic prosperity with equity, social inclusion, and bolstering the state’s governance and public administration performance. Our micro-econometric analysis provides fresh evidence that households in provinces with better institutions are more likely to receive larger formal loans, and have bank accounts, savings books, and ATM cards. Also, wage earners living in provinces with higher quality institutions are more likely to be covered by compulsory social insurance. The finding is robust to the choice of econometric specifications and control variables. Our research result implies that improving the quality of provincial institutions (or governance) is an effective way of enhancing financial inclusion for households and wage earners in rural Vietnam.