LOCAL INSTITUTIONAL QUALITY AND THE FOREIGN DIRECT INVESTMENT-ENTREPRENEURSHIP NEXUS: INSIGHTS FROM VIETNAM

Entrepreneurship is a driver of a country's economic growth and innovation. This study explores the mediating role of institutional factors in the relationship between foreign direct investment (FDI) and entrepreneurship (ETP). Using panel data from 63 Vietnamese provinces from 2018 to 2022, the Feasible Generalized Least Squares (FGLS) estimation shows that FDI has a direct positive effect on promoting entrepreneurial activities. Additionally, institutional quality, measured by the Provincial Competitiveness Index (PCI) and the Provincial Governance and Public Administration Performance Index (PAPI), plays a significant mediating role in FDI's effect on entrepreneurship. Moreover, the inflows of FDI also helps improve the province's institutional frameworks, improving the business environment and fostering preferential policies that support entrepreneurship. These findings advance the knowledge spillover theory of entrepreneurship and provide practical insights for policymakers on FDI attraction, institutional development and entrepreneurship promotion in Vietnam.