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This article uses Vietnam as a case study to examine the linkage between a rising number of non-profit institutions and the improvement of good governance practice by analysing impacts of

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Original Article

Does Growth in Non-profit Institutions Improve Government Transparency? A Case Study from Vietnam

Abstract

Non-profit institutions have long been believed

to significantly contribute to good governance

practice, particularly in transitional or

authoritarian countries Nevertheless, there

has been a lack of sufficient empirical evidence

to support that claim This article uses Vietnam

as a case study to examine the linkage between

a rising number of non-profit institutions and

the improvement of good governance practice

by analysing impacts of non-profit institutions’

development on government’s transparency at

the provincial level from 2011 to 2014 To do

so, the article employs pooled ordinary least

squares, fixed effects and random effects

models with different sets of control variables.

On the basis of the quantitative results, we

conclude that the rise of non-profit institutions

does have a positive impact on the quality of

governance in Vietnam, at least in terms of

fostering its transparency.

Key words: Vietnam, non-profit institutions,

good governance, transparency, panel data

1 Background

Civil society is considered as the ‘big idea’ of the twenty-first century (Edwards 2004) and regarded among three main pillars of a society, together with the political and economic societies (Howard 2003) While there has been

no commonly agreed definition of ‘civil society’ and its components (Ehrenberg 1999), non-profit institutions (NPIs), or in other words, civil society organizations (CSOs), have been generally assumed to play

a positive role in pushing for a more democratic and accountable government (Fukuyama 2001) It was due to the perception that ‘civil society’, in the form of NPIs, would accelerate the democratization process in transitional countries that set these institutions

in the spotlight of democracy promotion policy, particularly from the United States, after the end of the Cold War The third sector,

as NPIs are called, is also believed to significantly contribute to the society and economy in general (Salamon 2004)

However, although a great deal of funding has been pouring into promoting ‘civil society’ around the world since 1991, there has not been sufficient quantitative evaluation of the impacts of NPIs on the society One study, conducted by the Johns Hopkins Comparative Non-profit Sector Project (CNP), uses data on

‘non-profit’ or ‘voluntary’ institutions in 41 different countries (Heinrich 2005) In their initial results, the research team estimates that the ‘third sector’ had a revenue of US$4,109 billion in 2012, ranked fifth in the world if it were a national economy, and employed

* Vietnam Institute for Economic and Policy

Research (VEPR), University of Economics and

Business (UEB), Vietnam National University Ha Noi

(VNU); email <nguyen.quangthai@vepr.org.vn>.

Received: 30 November 2016 | Revised: 4 April 2017 | Accepted: 16 April 2017

Asia & the Pacific Policy Studies, vol 4, no 2, pp 286–295

doi: 10.1002/app5.182

© 2017 The Authors Asia and the Pacific Policy Studies

published by John Wiley & Sons Australia, Ltd and Crawford School of Public Policy at The Australian National University This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License,

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5.5 per cent of the total work force of surveyed

countries (Salamon 2016) Nevertheless,

despite its rich data, the project simply

provides general statistics from NPIs around

the world while spending little to dig in to their

impacts on significant variables such as social

development, democratization and good

governance Other civil society research

studies, such as those from the World

Governance Assessment, the Civicus Civil

Society Index (CSI) and the United States

Agency for International Development, on

non-governmental sector in post-communist

societies, mostly concentrate on defining and

measuring civil society rather than its impacts

(Heinrich 2005) The CSI is another laborious

effort to combine data on civil society

organizations from 44 countries to analyse

their strengths and impacts on the society

Although this project has garnered gigantic

first-hand data on civil society in a wide range

of countries, it faces a fundamental issue in

assessment methodology because its scores

largely depend on benchmarks, criteria and

perceptions of different local markers (Biekart

2008)

In addition, these aforementioned research

projects are sometimes at odds with one

another on what actually constitutes ‘civil

society’ The CNP and United States Agency

for International Development take an

institutional approach, which considers

NPIs/NGOs as a main component of civil

society, while CSI and World Governance

Assessment call for a more comprehensive

approach that includes other factors such as

culture and environment

This article does not attempt to take part in

the debate around the definition of civil

society Rather, it seeks to examine possible

correlation between growth in NPIs’ number

and good governance, at least in the aspect of

governance transparency The choice of NPIs

as the main independent variable for the article

is due to its quantifiability, but does not

necessarily represent our own perception of

civil society

We also aim to zoom in a more specific case

to add to the enormous knowledge in the CNP

survey that has been conducting for over

20 years The lack of specific case studies is obvious limitation of cross-sectional studies, which have been carried out across a wide range of nations with very different characteristics and circumstances Using the institutional approach to identify NPIs in Vietnam, we examine the link between the number of non-profit organizations and good governance practice, especially transparency

at provincial level from 2011 to 2014 The estimation methodology involves pooled ordinary least squares (OLS), fixed effects and random effects models with different sets

of control variables Thus, we hope to contribute to the empirical literature on the impact of civil societies

The case of Vietnam is of academic significance for two reasons First, Vietnam is

a transitional country (some would say a democratizing country) that has experienced tremendous market-oriented changes over the last 30 years It will be more statistically feasible to evaluate the impacts of NPIs in a transitional country than a more established one In 41 countries in the CNP project, there are no authoritarian regimes included Second, despite being dubbed as an authoritarian regime (The Economist Intelligence Unit 2016), Vietnam produces acceptable statistical sources that can be extracted to collect, examine and compare data for Vietnamese NPIs The rest of the article is organized as follows Section 2 discusses the concepts of NPIs and governance transparency After that, Section 3 describes our data and empirical strategy, while Section 4 provides regression results Finally, we will discuss the findings

as well as their implications in Section 5

2 The Concepts of Non-profit Institutions and Governance Transparency

2.1 Non-profit Institutions

While the definition of ‘civil society’ is controversial, scholars are more consensual

on the concept of ‘non-profit institutions’, which can be used interchangeably with volun-tary associations, charities, non-government organization or third-sector organizations

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(Anheier 2005) Anheier argues that this term

is ‘primarily economic in nature’ and refers to

their revenue behaviour that does not allow

them to redistribute financial gains for the units

that establish, control or finance them,

according to the System of National Accounts.

In this article, we will use the definition by

Anheier and CNP, which states that an NPI

must be

• organized, that is, institutionalized to some

extent;

• private, that is, institutionally separate from

government;

• non-profit distributing, that is, not returning

profits generated to their owners or directors;

• self-governing, that is, equipped to control

their own activities; and

• voluntary, that is, involving some

meaningful degree of voluntary participation

(Salamon & Anheier 1999, p 3–4)

This definition of CNP is appropriate for our

study, because our main goal is to empirically

examine the linkage between NPIs and

gover-nance transparency that requires the definition

to be as concise and quantifiable as possible

2.2 Good Governance and NPIs

Since the third wave of Democratization in the

late 1980s, NPIs are considered as significant

catalysts of civil society thanks to their

participatory and democratic approach

(Bratton 1989) It is believed that it could both

be a safeguard against excessive use of state

power (Diamond 1994) and strengthen the

state’s capacity for good governance by

‘ensuring its legitimacy, accountability and

transparency’ (Mercer 2002, p 6)

It is widely accepted that transparency is the

key to better governance (Hood & Heald

2006), because greater transparency will help

build a corruption-free environment and

institutions with clear and accessible rules

(Saladin 1999)

Therefore, one of the main goals of civil

society, particularly NPIs, is to make the state

as transparent as possible because they

function as representatives of social

organizations outside the state (Edwards &

Foley 2001) Salamon (1997) thus considers NPIs as value guardians for the society The development of NPIs, as a result, will promote government transparency

Furthermore, transparency can help push for better governance by improving accountability, which is also popularly regarded as a pillar for good governance (Doornbos 2006)

As Fukuyama (2011) points out, the state efficiently works only when it can produce an accountability mechanism that requires the state to restrict its own power That includes internal accountability among state branches

of power and external accountability that requires them to be held accountable before the society that they serve While internal accountability is the responsibility of state builders to build a system that holds the separation of power, external accountability requires the active participation of the public

To do this, the government needs a high level

of transparency to be easily checked among themselves and the public

In this article, we examine the Vietnamese Government’s transparency by evaluating its transparency at the provincial level from 2011

to 2014

2.3 Non-profit Institutions Development in Vietnam

Vietnam has remained a one-party state since its independence in 1945; thus, it has imposed tight control on civil society Especially after the collapse of the Eastern Bloc at the end of the 1980s and early 1990s, the Vietnamese Communist Party has tightened their grip over the society, in the fear of a ‘peaceful evolution

to overthrow the people’s state’ (di n bi n hoà bình nh m l t đ chính quy n nhân dân) Despite this, NPIs in Vietnam have grown significantly after the country diverted its development path from a centrally planned to

a more market-oriented approach after the Vietnamese Communist Party National Congress in 1986 In addition, thanks to the country’s recent deeper integration into liberal order, such as normalizing relations with the United States, obtaining membership in various international organizations such as the

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Association of Southeast Asian Nations, the

World Trade Organization and Asia-Pacific

Economic Cooperation, the regime’s attitude

towards civil society has been considerably

softened

That, together with the rising economic

prosperity in the country, has given rise to a

budding civil society in Vietnam for the last

decade Only in the 3-year period from 2011

to 2014, the number of NPIs nearly doubled

from 3,370 institutions to 6,048 (Figure 1)

The calculation on NPIs’ numbers will be

clarified in Section 3

Admittedly, NPIs are only one among

many factors that constitute the Vietnamese

civil society sphere, including both

non-governmental and government-owned

institutions However, it would not be

overstated to say that independent NPIs are

playing increasingly important roles in the

society One area, that the authors want to

examine more closely in this article, is their

impacts on the government’s transparency

3 Empirical Model and Data

We conduct our empirical analysis using a

panel of all 63 provinces in Vietnam during

the 2011–2014 period

Based on the hypothesis that NPIs’

involvement enhances government’s

transparency, the main dependent variable in the empirical model is the transparency index

(TR), calculated in the Vietnam Provincial

Governance and Public Administration Performance Index.1This index includes three sub-dimensions on provincial transparency: (i) poverty lists; (ii) communal budgets; and (iii) land-use plan or pricing

The NPIs’ number per 100,000 people in each province proxies for the NPIs’ involvement Given the definition of NPI by Salamon and Anheier (1999), our main task is

to specify types of NPIs covered by it On the

Handbook on Non-Profit Institutions in the

Nations (2003) introduces two bases for NPIs’ classification: (i) economic activity and (ii) organizations’ function, in which the former

is more widely used To clarify the first basis, the United Nations suggests using suitable economy activity sectors listed in the International Standard Industrial Classification

of All Economic Activities Revision 3, which

is a classification in terms of production statistics Organizations in the suggested sectors

1 Conducted annually by the Centre for Community Support Development Studies, Centre for Research and Training of the Viet Nam Fatherland Front and United Nations Development Programme in Viet Nam Available

at <http://papi.org.vn/eng/index>.

Figure 1 Numbers of NPIs in Different Areas of Activities in Vietnam, 2011–2014.

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are considered to be fit for the NPI definition.

The United Nations also recommends a special

classification, the International Classification

of Non-Profit Organizations, to record NPIs

In 2008, the United Nations revised the

ISIC Rev.3 with more careful consideration

of sectors in which NPI can be included

Accordingly, NPIs are concentrated in service

activities such as education, social work and

human health; in principle, however, NPIs can

be found anywhere in the ISIC classification

Practically, because of the difference in

economic characteristics, countries select

different sectors covering NPIs Several

developed countries, while examining NPIs

such as Canada and Italy, have implemented

their own programs and used the International

Classification of Non-Profit Organizations

(United Nations 2008) Meanwhile, in

Thailand’s case, the Office of the National

Economic and Social Development Board

(NESDB) in cooperation with The Johns

Hopkins University Centre for Civil Society

Studies (JHU/CCSS) have studied the

country’s NPIs Satellite Account using

ISIC (NESDB & JHU/CCSS 2011)

Under the instruction of JHU/CCSS and

recommendations of the United Nations

(2008), the research classified non-profit

organizations in four sectors: education,

human health activities, social work activities

without accommodation and activities of

membership organizations, equivalent to the

divisions of 85, 86, 88 and 94 in ISIC This is

considered as an effort to match NPIs with

divisions in ISIC in developing countries, so

that comparative studies on NPIs in both

developing and developed countries are

possible Besides, this method is more suitable

to access and collect significant data in

developing countries that have much less

comprehensive data on NPIs

To figure out the number of NPIs in Vietnam,

we employ the methodology for NPIs’

calculation in the aforementioned study

(NESDB and JHU/CCSS 2011) Thanks to the

compatibility between ISIC and the Vietnam

Standard Industrial Classification 2007, the

system of economic activity classification used

in Vietnam, NPIs in this article are categorized

in the divisions of 85, 86, 88 and 94 in the Vietnam Standard Industrial Classification

2007 NPIs’ numbers are extracted from Enterprise Census, conducted by Vietnamese General Statistics Office (GSO) from 2011 to

2014, in which all of Vietnamese registered firms and economic institutions are surveyed

In that sense, Vietnamese institutions such as

‘t ch c chính tr - xã h i’ (social–political mass organizations) and ‘h i đ c thù’ (specialized organizations), which are under the control of the Vietnamese Communist Party, are not considered as economic activity based and thus are not surveyed Similar to the NESDB and JHU/CCSS study (2011), Vietnamese firms in selected economic activity divisions are assumed to operate for non-profit purpose, so they are considered as NPIs

In an authoritarian country like Vietnam, there are many government-controlled NPIs Therefore, in order to filter private NPIs, organizations that are state owned by nature are excluded.2NPIs are counted according to the province where they register their headquarters Cross-provincial NPIs’ numbers are calculated accordingly

The effect of NPIs’ involvement on the transparency is investigated through a transparency determinants model that includes NPIs’ involvement as an explanatory variable Our main specification is

T R it¼ β0þ β1LNPI itþ δXitþ u it

where

1 i and t are province and time indicators,

respectively

2 ð Þ TR2 it is the transparency index of

province i at time t.

3 LNPI itis the natural logarithm of the NPIs’

number per 100,000 people in province i at time t.

4 ð Þ X4 it is a set of controls including: male

ratio (MR it ), urban population ratio (UR it),

square of urban population ratio ( UR2

it), population growth rate (PGR it),

in-2 Excluded types of firms are state-owned enterprise, provincial government-owned enterprise and state-controlled joint stock company.

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migration rate (IMR it) and labour force

participation rate (LFR it ) in province i at

time t.

Because of the limitation of short time

dimension in the panel data, the model is

established without lagged terms Data on male

ratio, urban population ratio, population

growth rate, in-migration rate and labour force

participation rate in 63 Vietnamese provinces

are collected from the Statistical Yearbook of

Vietnam 2014, a publication of Vietnam’s

General Statistic Office on Vietnamese basic

socio-economic data Table 1 shows the

descriptive statistics of the data

To make sure that there are no spurious

correlations, we conduct the Choi’s unit root

test to assess the time series property of

variables (Choi 2001) It should be noted that

if the null hypothesis is rejected in unit root test

for panel data, at least one series in the panel is

stationary P, Z, L*, Pm test results reject the

null hypothesis for all variables with the

exception of Z test for UR However, based

on P, L*, Pm tests, the null hypothesis of unit

root for UR is rejected, which means that UR

variable can be considered to be stationary

(Table 2)

For the OLS method, we conduct a robustness check by using different sets of control variables We also employ the fixed effects estimator and the generalized least square random effects estimator to estimate the transparency model By calculating changes in groups, both the fixed effects and random effects methods are used to remove time-invariant unobserved heterogeneity in the panel data (Wooldridge 2002) We employ the specification test of Hausman (1978) to determine the difference between fixed effects and random effects methods and investigate the suitable estimator for this model

4 Empirical Results and Findings

In baseline estimates, NPIs’ involvement is found to have significantly positive impacts

on the provincial transparency The

coefficients of LNPI in these regressions range

from 0.209 to 0.261 (Table 3)

The fixed effects regression estimators are generally not significant However, the Hausman test suggests that the random effects method is the preferred model We continue

to employ robust random effects estimate to test the hypothesis Findings show that random effects estimates in (7) and (8) also illustrate positive impacts of NPIs’ involvement on provincial transparency in Vietnam However,

the magnitude of the coefficient of LNPI in

the random effects method is lower than the pooled OLS Generally speaking, a twofold increase in the number of NPIs per 100,000 people causes the provincial transparency index to rise by roughly 0.2 points according

to the (8) regression

Table 1 Descriptive Statistics of Input Data

Table 2 Panel Data Unit Root Test

Variable Inverse chi-squared,P Inverse normal,Z Inverse logit t, L* Modified inv chi-squared,Pm

Note: *, ** and *** show significance at 10%, 5%, and 1%, respectively.

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Table 3 Vietnamese Provincial Transparency and Non-profit Institutions’ Involvement

Independent

variables

Pooled OLS with robustness

F-statistic or Wald

chi-square

F(3, 240) = 12.22

Prob > F = 0.000

F(4, 239) = 11.77

Prob > F = 0.0000

F(5, 238) = 9.47

Prob > F = 0.0000

F(6, 237) = 8.19

Prob > F = 0.0000

F(7, 236) = 9.18

Prob > F = 0.0000

F(7,62) = 1.55

Prob > F = 0.1662

Wald chi-square (7) = 32.48 Prob > χ2= 0.000

Wald chi-square (7) = 32.48 Prob > χ2= 0.0000

Prob > χ2= 0.5437

Note: Dependent variable is the provincial transparency index (TR it); values of standard error are in brackets; *, ** and *** show significance at 10%, 5%, and 1%, respectively.

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Findings from control variables are also of

academic significance While we do not find

evidence on effects of demographic variables

like male ratio, population growth and

in-immigration rate on government transparency,

labour force participation rate consistently

influences the transparency index in each

province It can be said that a rise of labour

force in Vietnam enhances the governance

transparency

It is noteworthy that urban population

ratio (UR) has a negative impact on the

transparency, but square of UR, UR2, has a

positive effect on this index This means that

the relationship between the two variables

follows a U-shape Initially, the urban growth

obstructs transparency in Vietnam However,

when the UR comes to a threshold ratio, an

increase in urban population rate promotes

the Vietnamese provincial government’s

transparency This threshold ratio in Vietnam

is roughly equal to 2.004/(2 * 1.960) = 0.511

according to the (8) regression

5 Discussion and Conclusions

This article is an attempt to examine the effects

of NPIs’ involvement on provincial

transparency in Vietnam The pooled OLS,

fixed effects and random effects methods with

the Hausman test for model specification are

employed to run the transparency determinants

model This study takes into account the

stationary properties of variables to avoid

spurious correlations in panel data regressions

The empirical analysis confirms a positive

impact of a rise in NPIs’ involvement

in Vietnam on provincial authorities’

transparency as predicted in the theoretical

framework The random effects estimator is

the preferred model, in comparison with the

fixed effects estimator according to the

Hausman test The effect of NPIs’ involvement

on the provincial transparency is relatively

substantial A twofold increase in the number

of NPIs per 100,000 people causes the

provincial transparency index to rise by

roughly 0.2 points

This article contributes to the current

literature in two ways First, empirical findings

in this article confirm the correlation between growth in NPIs and good governance, in particular governance transparency, by using the small and homogenous sample of all Vietnamese provinces that share the same political system Second, this study makes use of different estimation strategies in a transparency determinants model to deliver robust findings

From this article, it is evident that Vietnam needs more suitable policies to create incentives for NPIs’ development in order to enhance good governance, in particular transparency

Currently, the Vietnamese one-party regime’s attitude towards civil society in general and NPIs in particular remains vague Newly elected leadership in the Vietnamese Communist Party holds a conservative stance

on civil society, labelling it as one of 27

‘dangerous tendencies’ that party members and the society should avoid (Vietnamese Communist Party 2016) However, while warning against the danger of ‘civil society’, the regime has increasingly given NPIs more space to participate in the country’s socio-political life for the last 30 years The Vietnamese Government emphasizes the role

of NPIs, social organizations as they are called,

in promoting economic development, erasing poverty and supervising the state’s activities

in various official documents and leaders’ speeches It seems that the regime is ambiguous on how to treat NPIs: on one hand,

it wants to keep NPIs under strict control in fear of subversive activities planned by foreign agents; on the other hand, it also wants NPIs to help solve increasing social issues that the country is facing with after embracing the market economy approach

That explains why the Vietnamese Government does not have a comprehensive policy on NPIs After the Executive Order No 102/SL-L004 by the National Assembly in

1957 on Associations, Vietnam has not had a specific law to govern activities of NPIs The government has consistently used decrees and ministry’s directives to control the activities

of NPIs, which makes the legal environment for NPIs extremely unstable The Vietnamese

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National Assembly has reviewed 13 draft

laws on associations since the late 1990s to

2016, but all were rejected The most recent

draft law was delayed in 21 November

2016 Different from developed countries,

particularly ones surveyed in the CNP project

conducted by John Hopkins University in

which the government support accounts for

around a third of its source of funding

(Salamon et al 2012), the Vietnamese

Government gives almost no economic

resources to independent NPIs, in favour of

state-sponsored mass organizations (Thành

et al 2015)

We believe that the conservative approach

from the regime might result from a lack of

meaningful evidence on its roles in the

economy and society Thus, this article aims

to set the initial background for more

evidence-based policy discussions on impacts

of NPIs on the Vietnamese society, in doing

so helping push further the debates on their role

for better governance

Obviously, as the research only focuses on

the correlation between NPIs’ development

and transparency, it will have serious setbacks

on fully evaluating actual impacts of NPIs on

good governance, which combines many

factors other than transparency In addition,

even the notion of ‘good governance’ itself is

not universally accepted and might never be

(Doornbos 2006) Therefore, the authors

consider this article as the very first step in

analysing the roles of NPIs in fostering

better governance, particularly in transitional

countries In order to gain more empirical

knowledge on this issue, there is a need for

more concrete theoretical background as well

as empirical evidence

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