Fiscal Decentralisation and Externalities on Economic Growth: Spatial-provincial evidence from Vietnam

Duy Tung Bui, Canh Nguyen and Thanh Su Dinh
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Duy Tung Bui: University of Economics Ho Chi Minh City, Vietnam
Thanh Su Dinh: University of Economics Ho Chi Minh City, Vietnam

Journal of Economic Development, 2021, vol. 46, issue 4, 31-64

Abstract: This paper aims to investigate the impacts of fiscal decentralisation on the provincial economic development in 62 Vietnamese provinces from 2011-2018. We estimate a Spatial Durbin Model (SDM) based on a growth model with spatial externalities. The focus of the paper is on the spatial spillover effects of fiscal decentralisation on the provincial income levels. The results confirm the existence of spatial interdependency among Vietnamese provinces. The findings indicate that fiscal decentralisation and physical capital not only affects the income level within one province, but also contribute positively to the outputs of nearby provinces. The study does not find significant effects of human capital on provincial income. We also show that these effects vary across five main economic regions of Vietnam. There is also evidence that the total effects are stronger in high institutional quality levels, which points out to the “sand the wheels” effect. Policy implications are also discussed.

Keywords: Fiscal Policy; Fiscal Decentralisation; Economic Growth; Spillover Effects; Vietnam (search for similar items in EconPapers)
JEL-codes: E62 O43 R12 (search for similar items in EconPapers)
Date: 2021
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