Author(s): Quang Vu
In this paper, we analyze the impact of political capital (or political connections) and the quality of provincial institution on the productivity of private small and medium-sized enterprises (SMEs) in Vietnam - a lower middle-income economy. The study used a panel dataset from the period 2009-2015 and micro-econometric models. Robust to the choice of various control variables and controlling for potential endogeneity of political capital, we find that while political connections, as measured by a dummy variable, do not affect firm productivity, the intensity of political connections has a negative effect on firm productivity. We also find that higher productivity is found for firms with some types of innovation and those in provinces with better institutions. Our study implies that improving the quality of provincial institution, combined with government supports for firms’ innovations, can be an effective way of promoting firm productivity in Vietnam.