State ownership, quality of sub-national governance, and total factor productivity of firms in Vietnam

Abstract

ABSTRACT Inter-firm productivity differences are not only explained by internal and external institutions, but also interactions between them. Using data adapted from enterprise surveys and Provincial Competitiveness Index (PCI) surveys 2011–2017, this study investigates the impacts of ownership, quality of sub-national governance, (proxied by corruption control and transparency), and their interactions on total factor productivity (TFP) of firms in Vietnam. The empirical findings indicate that: (i) state ownership is negatively associated with TFP; (ii) corruption control hinders TFP, but the interaction of corruption control and state ownership benefits the TFP of state-owned enterprises (SOEs) more than that of private counterparts; and (iii) transparency is positively associated with TFP, and transparency promotes the TFP of private enterprises more than that of SOEs. The empirical results shed light on policy designs that should accelerate SOE reforms and improve the quality of governance to enhance TFP in a transition economy like Vietnam.