The joint effects of financial development and the business environment on firm growth: evidence from Vietnam

Haschka, Rouven E. / Helmut Herwartz / Philipp Struthmann / Viet Tuan Tran / Yabibal M. Walle
External Publications (2021)

in: Journal of Comparative Economics, first published 17.12.2021

DOI: https://doi.org/10.1016/j.jce.2021.11.002
Information

This work examines the complementary effects of local financial development and the business environment on the growth of Vietnamese firms. For the period from 2009 to 2013, we combine firm-level data covering more than 40,000 firms from the Vietnam Enterprise Survey with province-level data from the Vietnam Provincial Competitiveness Indicators. Our estimation strategy builds upon a novel copula-based estimator that accounts for potential endogeneity biases without requiring external instruments. Our results show that financial development and a favourable business environment generally promote firm growth, but some components of the business environment, such as low entry costs, access to land and business service support, foster firm growth more strongly than financial development. Most importantly, financial development and the business environment interact positively in their effects on firm growth. The impact of local financial development on firm growth is higher in provinces with a competitive business environment. Conversely, improvements in provincial competitiveness have a greater impact on firm growth in provinces with a more developed financial sector. The results clearly show that policies to promote local financial development need to be coordinated with measures to improve the broader business environment.

About the author

Walle, Yabibal

Development Economics