Vietnam's Responses to Provincial Economic Disparities Through Central-Provincial Government Financial Relations

Abstract

The paper examines key changes in central-provincial government financial arrangements and their effects on provincial economic disparities in Vietnam over the period 2000-2008. We find that after 2004, transfers from the central to provincial governments conformed much more closely to objective and pre-determined criteria than before. Econometric estimations indicate that in the post-2004 sub-period, poorer provinces obtained more-than-proportionate assistance from the central government, and the favourable treatment was statistically significant. Responses from interviews and statistical data suggest that transfers from the central government played an important role in reducing poverty and provincial output disparities after 2004. The difficulties experienced by the central government in securing adequate resources to finance such transfers, the over-reliance of some provinces on the transfers, and related policy implications are also discussed in the paper.