Governance quality plays a key role in private sector development: competent bureaucrats not only
create good policies and regulations but also effectively implement them to shape the business
environment. We exploit Vietnam’s decentralization of administrative tasks since the early 2000s to test
this hypothesis. We examine how changes in the provincial administration of national business
regulations affect firms through two channels: within firm productivity levels and resource allocation
across firms. Our results show that better overall business environment has a positive impact on firm
productivity, and this effect is driven by a reduction in corruption levels, the risks of land expropriation,
and entry regulations. We also find that high productivity firms are generally more able to take
advantage of the improvements in business environment. However, better implementation of entry
regulations matters most for less productive firms. We do not find evidence for the impact of business
environment quality on province-level market efficiency.