Spatial effects of institutional quality on firm performance: evidence from Vietnam

Abstract

The impact of national institutions on the economy has attracted research attention for decades. However, research on the influence of subnational institutions at the firm level is modest. This paper examines the spatial effects of institutional quality on firm performance using evidence from Vietnam. The model employed in the research is the Spatial Durbin Model (SDM), which is used to test hypotheses on data collected from enterprise surveys in the provinces of Vietnam over the period 2011–18. The research results show that the institutional quality of a locality has a direct impact on firm performance in that locality and indirectly affects firms in adjacent localities. At the same time, enterprises in different localities not only interact spatially with each but also tend to cooperate and compete. The results also show that the control of corruption positively affects the profits of enterprises; and informal charges negatively influence firms' total factor productivity in Vietnam. These findings imply that improving the quality of subnational institutions in emerging countries such as Vietnam promotes the growth of enterprises.