The Impact of Recentralisation on FDI: Evidence from a Quasi-Natural Experiment

Luu, Hiep Ngoc, Minh Nguyen, Ngoc, and Nguyen, Hieu Thanh (2022) The Impact of Recentralisation on FDI: Evidence from a Quasi-Natural Experiment. Post-Communist Economies, 34 (4). pp. 543-563.

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Abstract

Although decentralised governance has been one of the most salient political regimes worldwide over the past few decades, many countries have started to realise various shortcomings associated with their decentralisation process. As a consequence, a number of central governments have attempted to pursue recentralisation reforms in order to reclaim authority from the localities. This government reform can lead to significant changes in institutional arrangements, and subsequently, may influence various aspects of socio-economic activities. However, the real impact of recentralisation reform still remains ambiguous. In this paper, we examine how recentralisation may affect foreign direct investment (FDI) inflows. We exploit the pilot recentralisation reform that temporarily abolished the intermediate legislative branches in some provinces in Vietnam as a quasi-natural experiment. The result shows that recentralisation leads to a significant reduction in FDI inflows. Our results are robust to a number of sensitivity analyses and falsification tests. Overall, our findings contribute to the literature on the determinants of FDI and provide new evidence on the real effect of recentralisation reform.

Item ID: 74732
Item Type: Article (Research - C1)
ISSN: 1465-3958
Keywords: difference-in-difference, FDI, Recentralisation, Vietnam
Copyright Information: © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Date Deposited: 29 Nov 2022 23:35
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380106 Experimental economics @ 100%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150209 Savings and investments @ 100%
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