The study examines the role of local governance in the relationship between private investment and economic growth at provincial level in Vietnam. The study data consists of 63 Vietnamese provinces in the period of 2005-2013. Provincial Competitiveness Index (PCI) is a proxy for local governance. | 4 Su Dinh Thanh & Bui Thi Mai Hoai / Journal of Economic Development, 24(4), 04-28 Local governance, private investment and economic growth: The case of Vietnamese provinces SU DINH THANH University of Economics HCMC – dinhthanh@ BUI THI MAI HOAI University of Economics HCMC – maihoai@ ARTICLE INFO Article history: Received: May 26, 2017 Received in revised form: Oct. 17, 2017 Accepted: Oct. 25, 2017 Keywords: Local governance Private investment Economic growth Sys-GMM estimation ABSTRACT The study examines the role of local governance in the relationship between private investment and economic growth at provincial level in Vietnam. The study data consists of 63 Vietnamese provinces in the period of 2005-2013. Provincial Competitiveness Index (PCI) is a proxy for local governance. Estimated by two-step System Generalized Methods of Moments, the study shows interesting results. First, local governance and private investment have significant effects on economic growth. Second, the growth effect of private investment is strengthened when interacted with the high level of PCI. Third, interacting PCI sub-indices with private investment, the results show that some aspects of PCI are still barriers to the growth effect of private investment, namely entry cost, time cost, informal charges, and policy biases. Our findings suggest that local governments should make local governance better to improve the growth effect of private investment. Su Dinh Thanh & Bui Thi Mai Hoai / Journal of Economic Development, 24(4), 04-28 1. Introduction Institutions are the rule of game in a society and imposes market rules or constraints on human behaviors (North, 1990; North & Thomas, 1973). Public governance refers to how public policies are made in the framework of institutions (Kaufmann & Kraay, 2002). Public governance affects economic performance because it is related to asymmetric information, transaction cost, and risk. Various recent studies have .
