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Paper short abstract

Economic growth alone does not ensure multidimensional poverty reduction. Evidence from Vietnam shows that foreign investment reduces poverty only where strong local governance enables improvements beyond income, shaping inclusive development outcomes.

Paper long abstract

Why does rapid growth fail to eradicate poverty in all its dimensions? Drawing on provincial-level evidence from Vietnam between 2016 and 2020, this study examines how macro-level economic integration and local governance structures shape multidimensional poverty outcomes. Moving beyond the dominant focus on monetary poverty, the analysis employs a Generalized Method of Moments (GMM) approach to assess the combined and conditional effects of foreign direct investment (FDI) and local governance on multidimensional poverty. The findings reveal that even in provinces experiencing high levels of investment and economic growth, progress in multidimensional poverty reduction remains uneven and contingent on governance quality. Improvements in administrative procedures and local-level participation—core dimensions of local governance—are strongly associated with declines in multidimensional poverty, while FDI alone shows no direct causal effect. Instead, the poverty-reducing potential of foreign investment is mediated by local governance capacity, shaping whether and how economic growth translates into improvements across non-income dimensions of wellbeing. These results speak directly to debates on anti-poverty programming, including Graduation-type and empowerment-focused interventions, by demonstrating how structural and institutional contexts condition the effectiveness of household-level strategies. The study highlights the central role of local governance in ensuring that economic integration and development initiatives foster inclusive, multidimensional, and sustainable poverty reduction.