Institutional Quality and the Public Investment-Growth Relationship in Vietnam

Abstract

Questions concerning the relationship between public capital spending and economic growth under different institutional environments are of great analytical and empirical interest. This paper investigates the role of institutional quality in the public investment-growth relationship for a balanced panel data of 52 provinces in Vietnam during the period 2005-2014 through the estimation method of difference panel GMM Arellano-Bond. The results show twofold. First, public investment and institutional quality significantly promote economic growth, but their interaction term impedes it. Second, the public investment-growth relationship is positive under good institutional environment and negative under poor one. These findings suggest some important policy implications related to public capital spending in developing countries.