Local Competitiveness and Labour Market Returns in a Transition Economy: Evidence from Vietnam

This paper examines the relationship between the quality of provincial governance and labour market returns in Vietnam. We find that better provincial governance has a positive effect on labour market wages for wage-earning workers. The finding is consistent across estimators, even after controlling for worker characteristics, geographic regions, urban context, economic sector and industry type. A better competitive environment for business attracts more firms to enter the market, which in turn creates greater demand for labour. Subsequently, higher demand for labour pushes up wages. Our unique contribution is that we considered the influence of provincial governance on the business environment and labour market returns.