Foreign small- and medium-sized enterprises and regional institutions

This study centers upon Vietnam's Law on Investment 2014—a place-based policy that offers investment incentives for foreign firms located in disadvantaged areas. Using the difference-in-differences method for 46,211 firm-year observations 2006–2021, we find that the policy increased the revenue growth of foreign SMEs located in such areas by 17 % more than that of comparable firms located outside. The positive impact is strengthened in regions with stronger governance institutions, namely more efficient business-support services and lower policy bias. Moreover, the impact of the place-based policy combined with business support (policy bias) is stronger in southern (northern) regions embedded in pro-capitalist (pro-socialist) values.