LEGAL SOLUTIONS FOR FINANCIAL SUPPORT TO SMALL AND MEDIUM ENTERPRISES IN VIETNAM

Abstract

Small and medium enterprises (SMEs) have a major role in promoting employment, innovation and economic growth in Vietnam. However, financial support and lack of access to finance is a persistent hindrance that limits their competitiveness and development. While existing research studies highlighted the importance of legal and institutional frameworks in easing financial constraints, there is scarcity of empirical research in the context of Vietnam. This study provides empirical evidences on the legal solutions for financial support to SMEs in Vietnam over 2000 to 2024 period. Drawing on the Theory of Institutional Quality, the study examines how legal solutions support financial access to SMEs controlling for inflation, economic growth and trade. The empirical analysis is conducted using ARDL Bound testing approach and Canonical Cointegrating Regression. The findings endorsed that legal solutions have positive and significant impact on financial support in the short run, however its effect is insignificant in the long run. Economic growth and trade impact financial support significantly and positively both in the short run and the long run. However, the effect of inflation is negative in the short run, but positive in the long run. These findings are found robust in Canonical Cointegrating Regression and Granger Causality analysis reveals that no causal association is present between legal solutions and financial support. The outcomes of the study provide new insights into the role of legal reforms and offer worthy policy recommendations to improve financial support for SMEs in Vietnam.