Role of institution quality in the impact of government expenditure on economic development: a case study in Vietnamese provinces

Abstract

To examine the impact of fiscal policy through public spending at provincial level in Vietnam, this study uses the combination among different regression methods for panel data of 63 Vietnamese provinces during the period 2010–2020. The Feasible General Least Squares (FGLS) estimator and S-GMM estimator shows that there exists a positive effect of government expenditure on provincial economic growth. Moreover, the contribution of investment expense to supporting economic activity is expected more effective than that of current expenditure in the context of Vietnamese provinces. With techniques for analysing the marginal effects of interactive variables in research model, the role of local institutional quality is confirmed to improve the positive impact of government expenditure on provincial economic growth. In general, some policy implications are suggested based on the results to help local government stimulate the economic development in Vietnam.