Local Governance and Business Performance in Vietnam: Transaction Costs Perspective
LOCAL GOVERNANCE AND BUSINESS PERFORMANCE IN VIETNAM: TRANSACTION COSTS PERSPECTIVE (3rd round to the Regional Studies Journal) Bach Nguyen – Aston University Mickiewicz, Tomasz – Aston University, U.K. Enterprise Research Centre Jun Du – Aston University, U.K. Enterprise Research Centre Abstract: The (generalised) transaction costs perspective that comprises both a view on institutions and on organisations is adopted in order to explain why growth of small and medium-sized enterprises (SMEs) may vary across regions of an emerging economy. Furthermore, again based on the transactions costs argument, it is argued that young and small private firms gain more from improvement of local governance than old and large firms do. Next, regions differ not only at the level of regulation and policy, but also at the level of informal institutions. It follows, that depending on the institutional history in different parts of the country, SMEs are expected to respond differently to the incentives provided by local governance. Empirical results based on more than 300,000 SMEs in Vietnam during the 2006-2012 period show that the higher quality local governance positively influences local SMEs revenue growth, and consistent with the transaction costs argument this effect is stronger for young and small firms. In addition, it is found that local governance matters more where institutional history suggests less support for entrepreneurship. JEL codes: D02, H73, L25, L26, N95, P37, P48, R58 Key words: Transaction costs, governance, institutions, local government, entrepreneurship, Vietnam 1 1. Introduction Williamson (1985), in his seminal work on transaction costs builds on Coase (1937), and argues that when the type of organisation matches the attributes of its chosen economic activity, this leads to superior performance.
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