The Vietnam Provincial Competitiveness: An Efficiency-based Approach

The provincial competitiveness index (PCI) serves as an important measure for the efforts of localities in Vietnam in improving the business environment. However, the methodology of PCI excludes the influence of the traditional conditions on business growth, only measuring the “net” competitiveness at the provincial level. This study is conducted (1) to supplement the approach to measure the relation between the improvement of the business environment and the changes in the business results of the enterprises; at the same time and (2) to pay attention to factors that have been excluded in the PCI methodology. Measuring technical efficiency (TE) by data envelopment analysis, fixed effect model, and random effect model are employed to achieve these research objectives. The findings show that the impact of PCI to business growth has a lag of approximately 1 year. Furthermore, in the TE approach, the business growth indicators are affected not only by the improvement of the business environment created by the local government but also by the basic conditions of that locality. This approach seems to be “fair” across localities, especially those with low starting points. This theoretical approach, however, also needs to be further complemented, especially regarding data, to overcome its potential limitations.