After nearly 25 years of economic reform, Vietnam has attained a number of noteworthy achievements, including rapid growth in GDP per capita and significant poverty reduction. However, although all regions of the country have enjoyed growth, the benefits have not been spread equally. There is a lack of knowledge about provincial output disparities in Vietnam. Few (if any) studies have analysed trends in output per capita in each province relative to a reference economy, such as Ho Chi Minh City or the national average, and the main determinants of the dynamics underlying these trends. Further, there has been no systematic analysis of government responses to provincial output disparities through central-provincial government financial relations and issues arising in implementing these relations. To help address these gaps in the literature, this study uses a range of complementary methods including econometric analyses, analytical review of available official documents and in-depth interviews with policymakers. There are three main findings. First, the results of econometric analyses indicated that GDP per capita of provinces tended to diverge over the period 1990-2008 but there was a clear break in the trend around 2004, when the divergence trend began to reverse itself. Most of the provinces could be grouped into seven convergence clubs -- within each of these clubs, the members tended to converge, but the club averages tended to diverge. During the sub-period 1990-1997, almost all provinces diverged from Ho Chi Minh City, but in the latest sub-period (2005-2008) an overwhelming majority converged upward toward it. The turn-around which occurred in 2004, from a divergence trend to a convergence trend, appears to have been facilitated by significant movements toward a more even distribution of FDI across provinces, by major public investment programs in poorer provinces, and by substantial transfers from the central to some provincial budgets.
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