ABSTRACT
Institutions play an important role in the acceleration of economic growth and the transmission of its effects across the economy. The literature on the tradepoverty relationship shows that institutions are crucial to the impacts of trade liberalisation on poverty (Rodrik, 2002). Acemoglu and Robinson (2012) conflate experiences of the development of nations and suggest that a country’s own institutions determine its success or failure. Vietnam transitioned into the market economy from the CPE with an underdeveloped institutional system. Its weak institutional framework rendered resource allocation inefficient and dampened the business incentives. The establishment of a business involved 11 administrative procedures and took 45 days in 2006. The number of procedures and the length of time to start up a business in 2010 were 11 and 39, respectively. In 2014, it took on average 34 days and 10 procedures to start up a business in Vietnam, compared with an average of 37.8 days and 7 procedures, respectively, in East Asia and the Pacific. 1 Although having made considerable progress in institutional reforms, Vietnam has been somewhat less attractive to foreign investors. Inadequate institutions made business costly, dampening the business environment and thereby the employment creation. Consequently, the poor may benefit only modestly from the liberalisation of trade and the acceleration of economic growth. Many studies on the trade-poverty link for Vietnam have yet to address the institutional effects on welfare. Generally, although institutions have been an important dimension of poverty, only few studies have taken into consideration the effects of institutional reforms on household welfare and poverty (see, for instance, Dollar and Kraay, 2003).
