Dimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferencesDimensions of Entrepreneurship in Vietnam: Institutions, Economic growth, Education, and Risk preferences
Background and research gaps
1.1.1 The relationship between entrepreneurship, institutions, economic growth, risk preferences and education
Entrepreneurship is an intangible concept which be investigated from various disciplines such as economics, sociology, finance, psychology etc., with own term of reference In economics, entrepreneurship is considered as entrepreneurial activities of individuals that linked to the creation and destruction of industry as well as to the economic development (Schumpeter, 1934), or defined as the creation of new enterprises (Low & Macmillan, 1988) Entrepreneurship can be carried out at various levels from individual or team level to level of venture or even macroeconomic level. Because of the wide scope of entrepreneurship, the studies have pursued a variety of purposes and objectives, with different questions and adopted different units of analysis, theories and methodologies Low and McMillan (1988) stated that entrepreneurship could and should be carried out at multi-level of analysis, more than one of the individuals, group, organization or industry The reason for studying entrepreneurship at multi-level lies in the characteristics of the entrepreneurial phenomenon itself and its effects on different societal levels (Davidsson & Wiklund,
2001) Such multiple levels of analysis provides a much richer understanding of the entrepreneurial phenomenon Hoskisson et al (2011) called attention for more multi- level research to connect the micro and macro domain of entrepreneurship In this spirit, there is increasing in multi-level studying of entrepreneurship such as the studies of Saeed et al (2014), Hửrisch (2015), Yang and Wang (2020), and Crowley
& Barlow (2022) Although this is an interesting topic in entrepreneurship research, there has been few research at multi-level in the same empirical studies Therefore, that stream of research has been encouraged to examine more in future research programs
At macro level, it has been reported that the economic performance of countries could be explained by variations in entrepreneurship rates (Urbano and Aparicio,
2016, Bjornskov and Foss, 2016; Erken et al., 2018; Bosma et al., 2018; Urbano et al., 2020) Previous studies have also shown that while entrepreneurship stimulates economic growth in developed countries, it may hinder growth in low-income countries (Van Stel et al., 2005; Saute et al., 2013) The impacts may also vary with development stages of entrepreneurial activity (Nikolaev et al., 2018) Thus, the interconnections among institutions, entrepreneurship and growth vary at different stages of economic development In the past, most studies focused on comparing the differences of entrepreneurship among developed countries and not call attention much in transition economies where entrepreneurship plays an important key (Bruton et al., 2010; Stenholm et al., 2013) to foster economic development by creating the market competitiveness, and limiting the market power of public enterprises (Berkowitz & Dejong, 2001) The environment conducive to entrepreneurship development in transitional countries is remarkably different from that in developed economies (Smallbone & Welter, 2001; McMillan & Woodruff, 2002) In transitional economies, unique factors such as government’s commitment to market reforms, removal of institutional barriers, or local institutional reforms could be key for entrepreneurship development (He et al., 2018; Urbano et al., 2020). Entrepreneurship literature in developed economies may not focus on these factors, but they are worth investigating in transition contexts Therefore, studying entrepreneurship in the context of emerging economies or transition economies where entrepreneurship plays an important key is also worth to be conducted (Bruton et al., 2010; Stenholm et al., 2013)
Over the past twenty-five years, a large literature has developed the institutional-based approach to explain the variations of entrepreneurship According to the endogenous growth theory, entrepreneurship is considered one of the endogenous factors which are influenced by institutions It is assumed that institutional elements might encourage the entrepreneurship in order to achieve higher rates of economic growth (Aparicio et al., 2016a) Although institutional factors also play an important role in economic growth through influence of entrepreneurial activities, there is a limited understanding of its effects on the research chain running from institutions and entrepreneurship to economic growth.Prior studies have paid little attention to the important of institutions in entrepreneurial context to get higher economic growth (Bruton et al., 2010).
However, up to now, the impact of institutions on entrepreneurship and the effects of entrepreneurship on economic growth have been investigated separately (Bosma et al., 2018; Urbano et al., 2019) Urbano et al (2019) suggested that the relationship between institutions, entrepreneurship, and economic growth in short and long – term is required to identify simultaneously
At micro level, entrepreneurship research has focus on explaining the impact of differences on personal traits psychological endowments such as attitudes, skills, action on the decisions to start a business and how cultural variables and educational system promote entrepreneurship Previous studies also have paid much attention to explore the various drivers of an individual’s entrepreneurial intention or decision to start a business (Hsu et al., 2019; Camuffo et al., 2020; Tomy & Pardede, 2020; Chanda & Unel, 2021; de Blasio et al., 2021; Ilevbare et al., 2022; Bergner et al.,
The decision to become a fixed-wage earner or venture into self-employment can be viewed as an occupational choice influenced by various factors, including individual aspirations and attitudes, abilities, opportunity cost, and external environmental elements (Shepherd et al., 2015; Nowiński et al 2020) Among these factors, risk preferences emerge as the main driver of entrepreneurial decision, delineating the processes, practices, and decision-making frameworks that lead to new entry (Li & Ahlstrom, 2020; Baluku et al., 2021) Given the inherent risk and uncertainty associated with entrepreneurial activities, individuals choosing self-employment often have a positive attitude toward risk as they identify opportunities or create a new business The predominant focus in entrepreneurial studies has been on risk- taking propensity, characterized as an individual's inclination or orientation toward taking risks (Antoncic et al., 2018) Previous research has been conducted to examine the relationship between risk and entrepreneurial intention or decision The majority merely compares the risk preferences of entrepreneurs with those of employed individuals to find potential differences (Barber, 2015; Hambửck et al., 2017; Chanda
& Unel, 2021) The role of individual’s risk preferences at the time the person decides to become self-employed remains largely untested (Acharya and Berry,2023).
Together with risk preferences, education is also one of the important elements that foster the entrepreneurial development at both micro and macro level At individual level, education can influence the cognitive processes that underlie entrepreneurial decision-making in several ways (El Shoubaki et al., 2020; Kerr et al., 2018; Unger et al., 2013) First, education can provide individuals with the knowledge and skills necessary to identify and evaluate entrepreneurial opportunities. Second, education can shape individuals’ attitudes and beliefs about entrepreneurship And at provincial level, Jafari et al (2023) suggest that there has been a positive relationship between new firm entry and educational level of population in the region They mean that new firm in the early stages preferred to locate in a region where they can access to a well-educated workforce Evaluating the impact of education on entrepreneurial decision has not been a new topic in entrepreneurship research However, previous studies have been conducted separately at micro and macro level The study at dual approaches is needed to conduct to explore deeper insights about the impact of education on entrepreneurial activities.
1.1.2 The context of Vietnam and research gaps
The motivation of this dissertation stems from the context of Vietnam, a nation that has experienced rapid economic development The entrepreneurial landscape in Vietnam has undergone a notable transformation due to economic reforms such as Doi Moi, which were introduced in the late 1980s This has resulted in the establishment of new businesses across various industries and sectors (Dinh, 2014; OECD, 2021) Over the past two decades, the number of new businesses in Vietnam has increased at an astonishing rate In 2020, only 14,500 enterprises were established within nine years after the introduction of the Company Law However, by the end of 2017, more than one million private enterprises had been registered. The number of newly registered enterprises has continued to increase remarkably, reaching the peak of nearly 140,000 enterprises in 2019 (5,2% higher than that of in
2018), with a slight decline in 2020 due to the effects of pandemic In 2022, 148,533 enterprises had been registered, increased 27,1% compared to 2021, and reached the highest point at 159,294 in 2023, witnessing the recovery of economy The number of newly registered enterprises in the period 2016-2023 are presented in Figure 1.
Major cities and provinces have become centres for entrepreneurial activity, witnessing a surge in the creation of startups and small enterprises To the statistical data in 2022, the majority of large-scale enterprises registered at Ho Chi Minh city,
Ha Noi and Binh Duong, respectively with 30,6%, 20% and 4,4 percentage of total newly registered
Vietnam's youthful and dynamic population, supported by government policies, legal reforms, and tax incentives, has played a pivotal role in fostering the growth of these new businesses (Vuong et al., 2020) Vietnam has emerged as a highly entrepreneurial economy with high total entrepreneurial activity rate, a high business churning rate, with a high total entrepreneurial activity rate, a high business mixing rate, and high rates of high-growth firms, as well as the high self-employment rate by international standards (OECD, 2021)
Number of newly registered enterprises (2016- 2023)
Figure 1 1 Number of newly registered enterprises (2016-2023)
Source: National Business Registration Portal
The private sector has been a key contributor to Vietnam’s economic performance in recent years The average annual growth rate of GDP is at 6.5% in the period 1987-2023, which is higher compared to the annual growth rate of some other transition countries In 2016, the private sector accounted for 38.6% GDP, and it is official recognized as the driving force of the national economy by the NationalCongress XII of the Communist Party in 2017 Since then, the government has focused much attention to enhance entrepreneurial activities Many factors of the business environment have been significantly improved in order to facilitate the development of the private sector such as reducing market entry costs, increasing business support activities or improving labor standards However, compared to countries of the same level of economic development, the start-up ecosystem in Vietnam still has many signs of weakness with 6 out of 12 indicators of business conditions ranked below average (GEM, 2018) Therefore, the question of whether institutions affect entrepreneurship and its impact on economic growth in Vietnam is necessary to be clarified.
In recent years, entrepreneurship research in country has increased, especially after the project “Supporting innovative startup ecosystems to 2025” was approved under Decision No 844 of the Prime Minister in 2016 All studies were approached in macro and micro level separately, in which individual level research is the majority In this approach, most research focus on discovering the factors that influence an individual’s intention or decision to start a business based on the fundamental theory of planned behavior (TPB), not based on economic theory. According to TPB theory, previous studies indicated that subjective norms, attitude toward behavior and perceived behavioral control are the main factors that positively impact entrepreneurial intention (Maheshwari, 2022; Maheshwari & Kha, 2022; X.
T Nguyen, 2020; X T Nguyen, 2020; Doanh & Bernat, 2020a; Hoang et al., 2021;
Research objectives
The goal of the thesis is to explore the entrepreneurship issue in Vietnam at both macro and individual levels
The specific objectives of the research are therefore:
(i) to analyze the relationship between institutions and entrepreneurship and it’s impacts on economic growth
(ii) to investigate the relationship between risk preference and entrepreneurial decision.
(iii) to analyze the effects of education on formal entrepreneurship.
Research questions
Based on the research objectives, the specific research question are as follows:
• Relationship between institutions, entrepreneurship and economic growth :
- Do institutional frameworks in Vietnam influence entrepreneurial activities?
- In what ways do regulatory environments affect entrepreneurship in Vietnam?
- Does the entrepreneurship in Vietnam impact economic growth?
• Relationship between risk preference and entrepreneurial decision:
- In what extent are individual risk preferences measured?
- Do individual risk preferences influence the decision to start a business in Vietnam?
• Effects of education on formal entrepreneurship:
- What is the impact of household’s educational attainment on the likelihood of engaging in formal entrepreneurship in Vietnam?
- In what ways does provincial education influence entrepreneurship inVietnam?
Scope of the thesis
The thesis focuses on exploring dimensions of entrepreneurship in Vietnam. The thesis is carried out at two levels: provincial level and individual level At the provincial level, the thesis evaluates the impact of institutional and educational factors on the establishment of new businesses in 63 provinces/cities in Vietnam using secondary data from GSO and VHLSS statistics At the individual level, the thesis explores whether risk preference and educational level have an impact on an individual's entrepreneurial intention by using secondary data and especially primary data which was collected from an experiment conducted on 216 UEH students.
The entrepreneurship concept in this thesis is emphasized as the decisions to establish a formal business (formally new business registration) and career choices to start a new business
The institutions mentioned here are also formal institutions, not including informal institutions.
The education is higher education and vocational training.
The thesis’ contribution
This dissertation provides empirical evidence that enriches the existing literature about the dimensions of entrepreneurship such as institutions, economic growth, risk preferences and education in Vietnam - a transition economy- where entrepreneurial activity plays a vital role in the economic development process There are main contributions as follow:
First, the biggest effort of this dissertation is to explore the entrepreneurship in Vietnam at both macro and micro levels The dual approaches provide deeper insights to understand what factors affect the individual’s decision to invest in a new business as well as how entrepreneurship influences economic growth
Second, at macro level, the dissertation explains the simultaneous effects of institutions and entrepreneurship on economic growth The contribution of this dissertation lies in its exploration of the simultaneous relationship between institutions, entrepreneurship, and economic growth, rather than examining their separate effects
Third, this research also makes some contributions to enrich the entrepreneurship literature in Vietnam at micro level It demonstrates the important role of risk preferences and educational elements to the decision to start a new business
Fourth, this research applied different experimental methods to measure individuals' risk- attitudes at the time he/she made entrepreneurial decisions instead of traditional self-assessment questionnaires which are commonly used in entrepreneurship studies Experimental methods with real monetary incentives are better able to predict actual risk behaviors, and therefore, give the more accurate results in assessing the impact of risk preferences on the decision to start a new business By using different “games” to measure risk preference, the results increase the reliability in measuring the impact of risk preference and enhance the impact of risk attitudes toward entrepreneurial decisions.
Last, this dissertation has clarified the relationship of education (formal higher education and vocational education) that impacts the decision to start a business at both the household and provincial levels By examining entrepreneurship at both the province and household levels, the dissertation provides a more comprehensive view of how education affects entrepreneurship Furthermore, analysis at various levels helps strengthen the reliability and robustness of research results.
Structure of the thesis
Theory and literature review
Theoretical background
Entrepreneurship is a phenomenon associated with entrepreneurial activity (Ahmad
& Seymour, 2008) Scholars have attempted to define the concept of entrepreneurship for almost three centuries The original definition of entrepreneurship came from Richard Cantillon who was the first to coin the term
“entrepreneurship” He defined entrepreneurship as self-employment and the entrepreneurs as risk-takers who purchased goods at certain prices in the present and sell at uncertain prices in the future Then, the Cantillon’s theory was developed into three main branches: German tradition, Chicago tradition, Austrian tradition The following graphic matches each tradition with its major writer.
Although these traditions share a common language, they focus on different functions of entrepreneurs Schumpeter’s theory is the most used to define entrepreneurship Schumpeter (1934) equates entrepreneurship with the concept of innovation in business, concentrate on the entrepreneur as a creator who implement entrepreneurial change within markets, called “creative destruction” by: (i) introducing a new good or distinct quality of this good; (ii) introducing a new production method, (iii) opening a new market; (iv) exploiting a new source of raw materials; and (v) creating a new organization
Schultz’s approach to entrepreneurship rooted from the neoclassical tradition.
He redefined entrepreneurship as “the ability to deal with disequilibria rather than ability to deal with uncertainty” In this point of view, there is no exclusive connection between risk and entrepreneurial activity In another thinking of Israel Kirzner, the essence of entrepreneurship has been defined as alertness to profit opportunities that always exist in the market (Hébert & Link, 1989).
German Tradition (Schumpeter) Cantillon Chicago Tradition (Schulltz)
Entrepreneurship is defined in various ways, so, there is no single definition of entrepreneurship The lack of unified definition of entrepreneurship is due to differences within the field of entrepreneurship research This multidisciplinary nature derived from many theories which have their roots in economics, psychology, sociology, anthropology, and management
Stevenson and Jarillo (1990) defined entrepreneurship is “a process by which individuals –either on their own or within organizations– pursue opportunities”.
They divided entrepreneurship studies into three main categories: what happens when entrepreneurs act, why they act, and how they act The first stream is dominated by economists in considering the effect of entrepreneurial function as responsible for economic improvement in our society The second emphasizes the entrepreneur as an individual in the view of psychological approach It is used to explain the causes of entrepreneurial action Finally, researchers analyze the characteristics of entrepreneurial management and how entrepreneurs can achieve their aims Table 2.1 presents the main streams of entrepreneurship research
Table 2.1 Main streams of entrepreneurship research
Line of inquiry Causes Behavior Effects
Main question Why entrepreneurs act How they act What happens when they act
Focus on Individual entrepreneurial behavior
The ways they are able to achieve their aims
The results of the actions
Sociological approach Management Economics approach
Gray and Ariss (1985) Quinn and Cameron (1983)
Economists (Richard Cantillon, Schumpeter, Kirzner…)
The impacts of existence and nature of management teams on positive outcome
Entrepreneurship is the function by which growth is achieved.
Distinction between entrepreneur and manager.
Shane and Venkataraman (2000) defined entrepreneurship as a field involves the study of sources of opportunities, the process of discovery, evaluation, and exploitation of opportunities; while Acs et al (2004) consider entrepreneurial process as core topic of entrepreneurial study, embracing all business that are new and dynamic According to the European Commission (2003), entrepreneurship has defined as “the mindset and process needed to create and develop economic activity by blending risk-taking, creativity and/or innovation with sound management, within new or existing organization” It is defined more narrowly in the point of view of
Steveson (2004) as ‘‘the pursuit of opportunity beyond the resources you currently control.’’ Entrepreneurship is the activities of an individual or a group who aimed to establish economic enterprise in the formal sector under a legal form of business (World bank, 2010)
By reviewing all works of the winners of Global Award for Entrepreneurship Research which was initiated in 1996, Carlsson et al (2013) provided an analytical framework about the domain of entrepreneurship research by specifying elements, levels of analysis, and the process/context that is represented in figure 2.1
As seen in figure 2.1, there is no common paradigm or comprehensive theory of entrepreneurship Entrepreneurship is a domain of research that can be originated from a variety of academic disciplines, functions, and contexts The study of entrepreneurship in recent years has been integrated with theories in economics, finance, and organization (Carlsson et al., 2013) Entrepreneurship can be carried out at various levels from individual or team level to level of venture or even macroeconomic level
Figure 2.1 The domain of entrepreneurship research
Thurik and Wennekers (1999) defined entrepreneurship is the concept of individual’s ability and willingness to: “perceive and create new economic opportunities (new products, new production methods, new organizational schemes and new product- market combinations) and to introduce their ideas in the market, in the face of uncertainty and other obstacles, by making decisions on location, form and the use of resources and institutions”
At the individual level, one person needs a vehicle to transform their ambitions and personal qualities into actions which takes them to the firm level At firm level, the outcome of individual entrepreneurial activities generally related to newness The newness has to do with product, process, and innovation as well as the entry into new markets and starting up At the macro level such as industries, regions, and national economies the individual entrepreneurial action of separate person composed "a mosaic of new experiments" called variety There has been a process of competition between the new ideas and initiatives This process takes place continuously and leads to the selection of viables firms The obsolete firms will be replaced by the firms with higher productivity or by firms working in new niches and industries. This enhances the competition within an economy and therefore fosters the international competitiveness of an economy.
Figure 2.2 presents the framework analysis of Thurik and Wennekers (1999) about the linkage from individual level to aggregate level in linking entrepreneurship to economic growth This framework also provides the insight reaped from the fields of literature; therefore, it can be seen as the multilevel approaches in entrepreneurship research.
Figure 2.2 Multilevel approaches of entrepreneurship research
At individual level, they suggested that future research could focus on several questions remains and explain the impact of differences on personal traits psychological endowments such as attitudes, skills, action on the decisions to start a business and how cultural variables and educational system promote entrepreneurship At firm level, future research should attempt to explain the entry into new market of start-ups and their performance through innovation or firms’ survival And at macro level, the impact of entrepreneurship on economic development might be the major field to open up many highly questions for research such as:
- which role have institutions and policies played in the different entrepreneurship rates among nations?
- how can entrepreneurship affect economic growth of a country?
Entrepreneurship is considered separately under each of the three levels. Because there is the linkage of three levels, future research must be combination of these levels from the individual level to firm level and finally to macro level
Conceptual framework
Entrepreneurship is an intangible concept that is linked with a lot of other business activities and can be analyzed in multi-level from individual to firm to macro level. The goal of this dissertation is to explore entrepreneurship at both macro level and micro level and fill some main gaps in existing literature and empirical context which are presented in above parts At macro level, the dissertation investigates the nexus between institutions and entrepreneurship and its impact on economic growth At micro level, the dissertation examines the influence of risk preference and education on entrepreneurial decision-making Especially, this dissertation uses dual approaches to examines the relationship between education and entrepreneurship inVietnam on two distinct levels: at the provincial level and household level The author proposes the conceptual framework for this dissertation in figure 2.8 The next sessions of this dissertation include the content of three studies are named:
First study: Vietnam in transition: the nexus of institutions, entrepreneurship, and economic growth
Second study: Risk Preferences and Entrepreneurial Decision-making: Evidence from Experimental Methods in Vietnam
Third study: The Educational Pathway to Entrepreneurship: Insights from Provincial and Household Perspectives in Vietnam
Figure 2.8 Conceptual framework of dissertation
Introduction
Vietnam’s economic transition from a planned economy to a market economy since
1986 has been largely characterized by unleashing entrepreneurship and private enterprise development (Nguyen et al., 2015) Since then, Vietnam has been remarkably successful in achieving rapid economic growth Although scholars have identified several key determinants of growth, the specific impacts of institutional reform and entrepreneurship development on growth in developing and transition economies remain unclear (Urbano et al., 2020).
Institutions have an important role in shaping entrepreneurial context to achieve higher economic growth (Bruton et al., 2010; Acemoglu & Robinson, 2012). Previous studies focused on the impact of institutions on entrepreneurship which is separated from the effect of entrepreneurship on economic growth (Bosma et al., 2018; Urbano et al., 2019) In studies conducted in 2010s, Nissan et al (2011) and Méndez-Picazo et al (2012) applied two model specifications of institutions and entrepreneurship, and entrepreneurship and economic growth separately to explore the effects among the indicators This method does not account for the simultaneous impact of institutions and entrepreneurship on economic growth
Previous studies have also shown that while entrepreneurship stimulates economic growth in developed countries, it may hinder growth in low-income countries (Van Stel et al., 2005; Saute et al., 2013) The impacts may also vary with development stages of entrepreneurial activity (Nikolaev et al., 2018) Thus, the interconnections among institutions, entrepreneurship and growth vary at different stages of economic development The environment conducive to entrepreneurship development in transitional countries is remarkably different from that in developed economies (Smallbone & Welter, 2001; McMillan & Woodruff, 2002) In transitional economies, unique factors such as government’s commitment to market reforms, removal of institutional barriers, or local institutional reforms could be key for entrepreneurship development (He et al., 2018; Urbano et al., 2020). Entrepreneurship literature in developed economies may not focus on these factors, but they are worth investigating in transition contexts
This chapter focus on Vietnam, which presents a counterintuitive case This is a transition economy that underwent institutional reform but has had a lower rate of entrepreneurial activity compared to most developed and developing economies, as reported by Estrin and Mickiewicz (2010) Despite this, Vietnam has achieved high economic growth Similar to other transition economies, Vietnam has been characterized as having significant economic and social changes in recent years.Since 1986, Vietnam has been transitioning from a central planning system to a market-oriented approach with a positive trajectory, following the introduction of
“Doi Moi” – reform or renovation (Nguyen et al., 2015) The Company Law and Private Enterprise Law that were promulgated in 1990 has been seen as the first step in officially recognizing the private sectors as an integral sector of the economy The Enterprise Law of 2000 has created more favourable conditions for private businesses to participate, resulting in a remarkable increase in the number of new businesses over time Since the introduction of the Company Law, only 14,500 enterprises were established within 9 years However, by the end of 2017, over one million private enterprises had been registered The number of newly registered enterprises has significantly increased over time, reaching a peak of nearly 140,000 in 2019.
The private sector has been a key contributor to Vietnam’s economic performance in recent years The average annual growth rate of GDP is at 6.6% in the period 1987-2019, which is higher compared to the annual growth rate of some other transition countries In 2016, the private sector accounted for 38.6% GDP, and it is official recognized as the driving force of the national economy by the National Congress XII of the Communist Party in 2017 Since then, the government has focused much attention to enhance entrepreneurial activities Many factors of the business environment have been significantly improved in order to facilitate the development of the private sector such as reducing market entry costs, increasing business support activities or improving labor standards However, compared to countries of the same level of economic development, the start-up ecosystem in Vietnam still has many signs of weakness with 6 out of 12 indicators of business conditions ranked below average (GEM, 2018) This paper aims to clarify the research question “Are there a simultaneous effect between institutional factors, entrepreneurship, and its impact on economic growth in Vietnam?”.
The author utilized aggregated data from 63 provinces and cities in Vietnam,allowing us to examine the correlation between institutions, entrepreneurial activity,and regional growth within the economy The chapter contributes to the call for more regional studies on this nexus in developing and transition economies (Aparicio et al.,2016; Urbano et al., 2019b) Moreover, employing data from one country could avoid the inconsistency of variable definition across countries due to different statistical method (Li et al., 2012) The author uses a three-stage least-square (3SLS) and GMM3SLS methods to estimate the simultaneous equations model The 3SLS regression could help to overcome the endogeneity problem between entrepreneurship and economic growth (Aparicio et al., 2016; Bosma et al., 2018) The findings of this chapter could potentially contribute to the development of policy recommendations aimed at promoting entrepreneurship and economic growth not only in Vietnam but also in other transitional countries with similar socio-economic and institutional contexts.
Data and methodology
The author examines the relationship between institutions, entrepreneurship, and economic growth in a transition economy using a model of simultaneous equations that includes an entrepreneurship equation and a growth equation Following the empirical studies of Aidis et al (2009), Bruno et al (2013), and Autio and Fu (2015), the entrepreneurship equation incorporates key explanatory variables, namely the institutional environment, GDP growth rate, and unemployment The general equation is as follows: ln ENT it =β 0 +β 1 INS it +β 2 X it +ε it (3.1) where ENT it denotes entrepreneurship; INS it includes institutional variables, X it denotes the vector of control variables, including the growth rate of gross regional domestic product, gGDP it , and the unemployment rate, ln(UEMP) it ; i represents province or city, and t represents year The data for control variables are sourced from Statistical Yearbook of Vietnam (2019).
Entrepreneurship, ENT it , is proxied by net firm entry, which is a measure of newly registered firms minus dissolved firms in a given province for a given year. Firm entry rate and net entry rate, which is the flow of entry and exit firms, are important features of the entrepreneurial process and therefore are considered as a good indicator of the level of entrepreneurship in a given country Holtz-Eakin and Kao (2003) used the rate of births and rate of deaths of firms as proxied for entrepreneurship to determine whether variations in entrepreneurship affect economic growth Dejardin (2011) measured entrepreneurship by three indicators such as stock of firm, net entry in terms of firm births and deaths, and net entry rate Similarly,Zhou (2011) measured entrepreneurship by using net entry rate that take into account both firm formations and firm failures to examine the effects of deregulation on entrepreneurship
I obtain data on net firm entry from the National Business Registration Portal
(2019) New firm entry and dissolved firm data have been registered with government authorities in 63 provinces/cities in Vietnam during the period 2012-
The data on institutional variables, INS it , is taken from the Provincial Competitiveness Index (PCI), which is the outcome of a long-standing collaboration between Vietnam Chamber of Commerce and Industry (VCCI) and the U.S Agency for International Development (USAID) Based on a widespread survey of private firms operating and investing across provinces and cities, the PCI report provides an assessment of the ease of doing business and the effectiveness of administrative reforms implemented by local governments The information about the firm’s entry and exit is published at the end of the year, while the PCI survey is conducted in the early period of each calendar year Therefore, I utilize one-year-lagged PCI data, then merge it with net firm entry and GSO data The PCI has been used in a large number of studies examining institutions in Vietnam, including Tran et al (2009); Malesky and Taussig (2009); Su et al (2019) and Nguyen (2021)
The PCI consists of ten sub-indexes, graded on a scale of 1 to 10, where a higher score indicates better institutional performance These sub-indexes include the following variables: Entry Costs (PCI1), Land Access and Tenure Security (PCI2), Transparency (PCI3), Time Costs of Regulatory Compliance (PCI4), Informal charges (PCI5), Policy Bias (PCI6), Proactivity (PCI7), Business Support Services (PCI8), Labor Policy (PCI9), and Law and Order (PCI10) A province that demonstrates strong performance on the PCI exhibits the following characteristics: 1) low entry cost for business start-up; 2) easy access to land and security of tenure in case the land is confiscated; 3) transparent access to business environment and business information; 4) minimal informal charges; 5) limited time that firms waste on bureaucratic compliance after registration; 6) minimal crowding out effects to private firms from policy bias; 7) proactive and creative provincial leadership in solving problems; 8) developed and high-quality business support services; 9) effective labor training policies; and 10) fair procedure for deputing resolution
(Malesky et al 2018) In addition, we use the composite PCI index (PCI) as an aggregate institutional variable, which is the unweighted mean of ten sub-indices with a maximum score of 100 points Since PCI sub-indices are closely related, we enter each institutional variable into the model separately in order to address the multicollinearity issue (Desai et al., 2003; Aidis et al., 2010).
Unemployment rate is considered as control variable in model 3.1 According to Fritsch and Schroeter (2011), unemployment rate can influence the propensity to start a new business by stimulating new business formation by unemployed persons. Higher unemployment rate reduces the chances of finding a salaried job which incentivized self-employment (Posada and Sanguinetti, 2015) Therefore, in this study, I expected a positive impact of unemployment rate on net entry rate
To estimate the effect of entrepreneurship on growth at the provincial level, this study based on the endogenous growth theory, which treats innovation and technological change endogenously, arising directly from local investment in the creation of new knowledge and human capital That knowledge is assumed to be automatically transformed into commercial opportunities through entrepreneurial activity It is entrepreneurship that plays an important role to transfer knowledge in society (Audretsch & Keilbach, 2005; Noseleit, 2013) and has positive effect on national or regional economic development and growth (Audretsch & Keilbach, 2005; Méndez-Picazo et al., 2012; Urbano & Aparicio, 2016) The growth equation is expressed as: gGDP it =α 0 +α 1 lnE NT i, t +α 2 lnINV it +α 3 lnLabor it +α 4 lnTECH it +ε it (3.2) in which, g GDP it is defined as the growth rate of gross regional domestic product in constant price 2010 According to growth theories, this thesis propose some control variables for growth equation such as INV it, TECH it, and Labor it INV it is the share of physical capital investment in income, it is the ratio of investment to GDP TECH it is the expenditure on science and technology, Labor it denotes the percentage of trained employees in each province These variables are in natural logarithms.
When investigating the interconnections among institutions, entrepreneurship,and economic growth, potential endogeneity problems may arise such as reverse causality, omitted variable bias, unobserved heterogeneity While institutions may influence entrepreneurship and economic growth, entrepreneurial activities and economic growth can also shape institutional development Within the provincial data model, the potential for endogeneity arises from unobserved variables, such as geographical location or cultural and social influences These unobserved factors can simultaneously impact both independent variables, such as GDP growth or institutional variables, and the dependent variable "net entry firm" in model 1 or model 2 in which the position of independent variable and dependent variable are reversed.
To address the endogeneity and estimate the two equations simultaneously, this study utilizes both the traditional 3SLS and GMM 3SLS estimators However, post- estimation analysis of the 3SLS reveals the presence of heteroscedasticity and autocorrelation, indicating a poor fit of the model To overcome these challenges, I employ the GMM 3SLS estimator, which accommodates both heteroscedasticity and autocorrelation issues while generating consistent estimates under orthogonality(Wooldridge, 2010).
Results and discussions
Tables 3.1 and 3.2 report the descriptive statistics and correlation matrix of all variables used in this study Table 3.2 reveals significant correlations between net firm entry and various institution variables (PCI), as well as the unemployment rate and GDP growth rate Furthermore, economic growth is significantly correlated with the share of investment in GDP and the expenditure on science and technology.
Variables Measurement unit Obs Mean Std.Dev Min Max Source*
Net firm entry (ENT) Number of firms 504 1240.30 3876.97 -1784 33195 NBRP
Composite PCI (PCI) Scale, 0 - 100 504 61.02 4.60 46.95 74.16 VCCI
Business support services (PCI8) Scale, 0 - 10 504 5.94 0.80 3.94 7.95
* National Business Registration Portal (NBRP) https://dangkykinhdoanh.gov.vn PCI Vietnam Chamber of Commerce and Industry (VCCI) https://pcivietnam.vn General Statistics Office (GSO) https://www.gso.gov.vn/
The GMM 3SLS results in relatively larger coefficients than the traditional 3SLS The entrepreneurship equation shows that the composite PCI variable has a positive and statistically significant effect on entrepreneurial activity That is, a 1- point increase in composite PCI index would result in 5.6% increase in net firm entry Taking the mean net firm entry of a province is 1,240, this estimated coefficient translates into roughly 70 new firms for one point improvement in the composite PCI, which ranges from 1 to 100 Is this effect very high? A closer look at Table 3.1 reveals that this result is reasonable Given the standard deviation of 4.6 and mean of 61.0, 95% of the composite PCI varies in a narrow range between 51.8 to 70, which approximates a scale of 20 Therefore 1 point change, or 5% of the adjusted scale, in institutional quality translates into a 5.6% increase in the net number of firms entering the market
Other institutional variables such as Transparency, Time cost, Informal charge,Proactivity, Business support services and Labor quality have positive and statistically significant effect at 1% level Among these indices, Business support service has the highest impact on net firm entry: One point improvement could translate into 35.3% increase in the number of new firms in a province Given the average new firm of a province is 1,240, this raise is equivalent to 436 new firm. Policies that provide good services such as trade promotion, provision of regulatory information, business partner matchmaking, provision of industrial zones or industrial clusters, and technological services is worth to invest to promote entrepreneurship Labor quality index also has a substantial impact One point increase in provincial’s services in general education, vocational training, skills development, and assistance in the placement of local labor could increase 32% net firm entry in that province
If the Transparency index, which measures the access to proper planning and legal documents for running businesses, improves by 1 point, it could result in a 29.2% increase in the net firm entry of a province Similarly, if the Informal charge index, which measures the extent of informal charges paid by firms and rents extracted by provincial officials, changes by 1 point, it could lead to a 26.7% increase in the number of firms operating in a province The time cost index, which is a measure of wasting time on bureaucratic compliance and inspections by local regulatory agencies, gives a rise of 19.2% in the number of new firms for its one- point change Proactivity of provincial leadership also play a role in promoting entrepreneurship: one point improvement in the index, which refers to creativity and cleverness in implementing the central policies, translates into 18.3% increase in the net firm entry in that province.
Note: * p