The effects of governance institutions on economic performance: Empirical evidence from the emerging economy

Abstract

This study examines the effects of local governance institutions on economic performance in Vietnam, an emerging economy where empirical evidence on this relationship remains limited. Using the Provincial Competitiveness Index (PCI) as a proxy for governance quality, the study investigates how different dimensions of local governance influence business performance at the provincial level. The findings reveal that governance institutions play a significant role in shaping economic performance. Market entry, access to land, and labor training have positive and statistically significant effects on business outcomes, while informal costs exert a negative impact. Among these factors, labor training has the strongest effect on economic performance. The study contributes to the literature by providing new evidence from a transitional economy and by demonstrating the usefulness of PCI-based indicators for evaluating governance quality at the local level. Furthermore, the findings also offer policy implications for improving governance quality, enhancing business performance, and promoting sustainable economic growth.