Study on the evaluation of local innovation capacity under Vietnam's two-tier local government model

Abstract

In 2025, Viet Nam is implementing a landmark administrative reform that restructures the national governance model. This article analyses the implications of two major changes: (i) the merger of 63 provinces and centrally governed cities into 34 provincial-level administrative units under Resolution No. 202/2025/QH15; and (ii) the dissolution of district-level administrative units and the shift to a two-level local government model (province-commune) under Resolution No. 203/2025/QH15. The study focuses on how these reforms affect local innovation capability. Drawing on qualitative policy analysis, literature review and comparative case studies, it constructs a baseline of Viet Nam’s innovation capability using the Global Innovation Index (GII) and the Provincial Innovation Index (PII) for the period 2023-2024. The findings suggest that the reform creates a “high reward-high risk” scenario. On the opportunity side, the emergence of “mega-provinces” with larger economic scale may enable the concentration of R&D resources and reduce fragmented competition. However, the reform also generates several risks: (i) short-term institutional shocks that may disrupt existing innovation networks; (ii) a governance void arising from the removal of the district level, which has been the key node for implementing innovation policy at the grassroots; and (iii) widening innovation gaps between urban cores and rural areas within the enlarged provinces. The article concludes with policy recommendations to narrow institutional gaps - strengthening digital governance, introducing flexible decentralisation and promoting polycentric development-to minimise disruption and maximise the benefits of the two-level local government reform for enhancing local innovation capability.

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