Productivity and public expenditure: a structural estimation for Vietnam’s provinces

We propose a structural approach to investigate total factor productivity (TFP) and economic growth of 58 provinces and municipalities of Vietnam (known as one of the most dynamic emerging economies in the last few years). The analysis is applied to the provincial data that are available to us for the period 2000–2007. TFP is composed of three components: an autonomous technological change, an observed deterministic part depending on external factors, and an unobserved stochastic part. Estimation results do not show any evidence regarding the impacts of national and local public spending on TFP and economic growth of Vietnam’s provinces. On the contrary, human capital and industry share (compared to shares of agriculture and services) significantly increase the provincial TFP, helping to explain the cross-province differences in terms of productivity. Finally, TFP of Vietnam’s provinces does not converge in the long run as it displays a polarization feature around two main groups of provinces, a large group with low TFP levels and a much smaller group with high TFP levels. This bipolar pattern of TFP distribution supports the competitiveness disparity among the Vietnam’s provinces.