Provincial divergence and sub-group convergence in Vietnam's GDP per capita

Abstract

In the Vietnamese context, this paper is the first application of Phillips & Sul’s (2007, 2009)’s approach to the examination of inequality in GDP per capita in a study of 61 Vietnamese provinces covering the period 1990-2011. The results show that provincial levels of GDP per capita diverged over the study period, and all provinces could be formed into five convergence sub-groups. However, the result of σ-convergence shows that there was a clear break in the trend around 2004 when it reversed itself. Further insights into the factors underlying the switch from divergence to convergence around 2004 were gained through an analysis of provincial-level data for foreign direct investment, public investment, and centralprovincial budgetary transfers. Estimates from an ordered probit model suggest that foreign direct investment, domestic investment, and transfers from central to provincial governments have played an important role in forming the sub-groups. Based on these results, several policy implications are discussed.