Vietnam in Transition: The Nexus of Institutions, Entrepreneurship, and Economic Growth

Transition economies, marked by institutional reforms, often exhibit lower rates of entrepreneurial activity in comparison to both developed and developing economies. However, some transition economies have experienced sustained high economic growth, as observed in countries like China and Vietnam. In contrast, others have faced more volatile growth patterns, as seen in the former Soviet Union. A fundamental question arises: to what extent does institutional reform translate into entrepreneurial dynamics, and does the development of institutions and entrepreneurship contribute to long-term economic growth in transition economies? In this paper, we utilize the GMM 3SLS estimator for panel data and simultaneous equations to investigate the relationship between institutions and entrepreneurship and the impact of entrepreneurship on economic growth in 63 provinces of Vietnam from 2012 to 2019. We aim to provide a rigorous and comprehensive analysis of the factors contributing to successful entrepreneurship and economic growth in Vietnam. The results show that various institutional indicators such as business support services, labor quality, transparency, informal charge, time costs, and proactivity have significantly positive impacts on the entrepreneurial dynamic. Remarkably, these institutional factors also indirectly affect economic growth through entrepreneurship. The findings imply that policymakers must consider and prioritize these indicators to foster a conducive environment for entrepreneurship and long-term economic growth.