and increased the importance of the provincial bureaucracy. Provincial leaders and bureaucrats are now intimately involved in how firms operate: from obtaining business and tax registration certificates to registration with the Municipal Department of Labor and local trade unions. Vietnam’s economic performance captured in the Doing Business indicators has dramatically improved since then: the number of days required to start a business reduced by more than half, from 62 days in 2004 to 20 in 2016. McCulloch et al. (2013) also find that investment levels in Vietnamese provinces were positively associated with increased transparency. In this paper, we examine the effects of the quality of bureaucrats on productivity through two channels: firm-level productivity and province-level resource misallocation.

# _2.2 Data_

The paper uses two main datasets to investigate this relationship. Both datasets cover all 63 Vietnam provinces from 2009 to 2012.<sup>6</sup> The first dataset is a panel of manufacturing firms from the Vietnam Enterprise Survey, which includes firm’s location, economic activity, employment and financial information. The survey sample has two components: the first is the census component that contains the universe of all firms with 20 or more employees and the second is a random, representative sample of 20 percent of firms below 20 employees.<sup>7</sup> There are 63 provinces and over 300,000 firms in the sample over the time period. The second dataset is the Vietnam Provincial Competitiveness Index (PCI) that surveys firms about the business environment (Malesky, 2006). The survey contains questions that examine eight broad modules: firm entry, land rights, transparency, administrative burden, informal payments, proactivity of bureaucrats, quality of labor, and quality of legal system. We link these two datasets to explore the effects of the overall PCI index and the individual PCI modules on firm outcomes.

We encountered two issues when examining the PCI data. First, while both datasets contain information about firms prior to 2009, we focus on the period between 2009 and 2012 due to the availability and reliability of the data. In the enterprise survey, there are key financial information (such as investment amount and expenditure on materials) unavailable prior to 2009 so calculations of firm-level total factor productivity (TFP) will not be possible. More importantly, in the PCI survey, there are multiple changes to the survey questions since the survey started in 2005. In particular, the PCI questionnaire changed significantly in 2009 where many questions in the preceding two years were removed, and new ones introduced. For example, in the module on entry costs, there were ten survey questions asked from 2006 to 2012, but three questions were dropped after 2008 and one was added from 2010, leaving six questions that were consistent throughout the period. In addition, we exclude questions in the PCI modules that capture the general business environment which are not entirely within the control of the provincial government but can be influenced by firm’s behavior. For example, the private sector development module contains questions are about the availability of trade fairs and whether firms intend to use certain business services provided by the provincial government. We selected questions that covers issues or areas that are within the control of the provincial governments. As a result, the number of questions that are included for each module differs and are listed in the appendix.

> 6 There were 64 provinces before 2009. Ha Tay province was merged with Hanoi in 2008. For estimations using provincial data before 2009, we merge Ha Tay’s data to Hanoi and treat them as one province.

> 7 The data do not include an indicator of whether the firm is in the census or the random sample component. All the firms are included in the estimation but with a firm fixed effect, the estimation results are effectively only for firms that appear at least twice in the data.

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