This study analyses the effects of corruption on Vietnamese provinces and cities' economic growth using a dynamic panel data analysis with a system generalized method of moments approach. Although this study investigates both the direct and indirect effects of corruption, it focuses more on the direct effects. The estimation results consistently support the assertion that, in general, corruption is detrimental to economic growth. Disaggregating this total effect, however, reveals more noteworthy issues in the Vietnamese context. Corruption directly impedes growth rates by reducing the efficiency of investments, and this effect is more intense in provinces and cities with higher investment rates. However, the adverse direct impact of corruption may be alleviated by its positive impact on investment rates, which is an unexpected finding.

This study aims to identify the effects of corruption on the human capital accumulation process in Vietnamese provinces/cities. I employ labour quality assessments of firms as a proxy for human capital and divide human capital accumulation into the following two processes: an educational process and a process through which educational outcomes and worker training transform into labour quality. The estimation results have some notable implications for the Vietnamese context. Corruption has both negative and positive effects on human capital. On the one hand, corruption reduces the positive effect of local government spending on educational achievements and worsens labour quality. On the other hand, the prevalence of corruption in provinces/cities increases the advantages of local schools in the competition to obtain funds from the central government; hence, corruption enhances educational achievements in those regions. The results of this study indicate that corruption adversely affects human capital overall.