Diverging perceptions, converging outcomes? The role of provincial governance in corporate innovation in Vietnam

Abstract

The objective of this study is to analyze the impacts of subnational governance on innovation at the corporate level in Vietnam using the Provincial Competitiveness Index (PCI) and the Provincial Governance and Public Administration Performance Index (PAPI) as principal indicators. The analysis uses panel data from the 63 provinces for the years 2011 to 2021. Regression analysis is conducted to evaluate the relationship between business R&D investment and PCI and PAPI. Both indices measure the same phenomenon but from different angles: the PCI is based on governance perceptions from the business community while PAPI is based on participatory citizen assessments. The findings suggest that both indicators of PCI and PAPI are significantly relevant for corporate R&D investment decisions but in different ways. While PCI clearly encourages higher R&D, PAPI does not seem to have substantial influence on empowerment. Additionally, the relationship between PCI and PAPI rankings is weak, showing that there is some disconnect between business and citizen views of the effectiveness of local governance. The results support that innovation at the firm-level is primarily driven by governance quality, as measured by PCI, while citizen governance measure, PAPI, is not as strongly linked to innovation-relevant corporate outcomes. Policymakers can enhance the local innovation ecosystem by prioritizing improvements in governance dimensions such as transparency, regulatory quality, and administrative support as measured by the PCI.