UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS - • VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS DETERMINANTS OF NON-FARM HOUSEHOLD INCOME IN RURAL VIETNAM A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By BUI THANH GIANG Academic Supervisor: Dr. NGUYEN NGOC THUY HO CHI MINH CITY, SEPTEMPER 2012 UAN VAN CHAT LUONG download : add luanvanchat@agmail.com ---------------------------------------------------------------------- ACKNOWLEDEMENTS This is the very means that gives me a chance to formally express my appreciation to people who have really created the concepts and methodology expressed in this research. I always keep in my mind the gratefulness to professors ofMDE Programme, executive programme administrations in Vietnam. Their enthusiasm about the experience and what they were teaching, was the most meaningful encouragement of mine.
I would like to express my deep and sincere gratitude to my supervisor, Doctor Nguyen Ngoc Thuy. His knowledge, logical way of thinking and encouragement has provided a good basic for the thesis presentation. I would like to express my great thanks to Professor Nguyen Trong Hoai, MDE programme who have eagerly supported during my study. BUI THANH GIANG ii UAN VAN CHAT LUONG download : add luanvanchat@agmail.co DECLARATION I declare that "Determinants of non-farm household income in rural Vietnam" is my own work, that it has not been submitted to any degree or examination at any other universities, and that all the sources used or quoted are indicated and acknowledged by complete references.
• Ho Chi Minh City, Septemper 2012 BUI THANH GIANG iii UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ABSTRACT Vietnam has made considerable progress in improving the living standards of its people since the reforms implemented under doi moi. However, the reform progress has made problems of society such as the pressure in rural - urban migration, an increase in unequal income distribution between different regions and unstable economy. Therefore, a development strategy should be more focused on promotion of rural non-farm sector in order to create more employment and income opportunities for rural populations. This paper estimated the non-farm income function of households in rural of Vietnam and evaluated the importance of rural non-farm activities in generating employment and income opportunities.
The econometric analysis is based on the primary data from Vietnam Household Living Standard Survey 2008. With 2117 observations (in rural area), the regression results show that the factors such as household characteristics, regions, infrastructure, occupation of household head. had strong impact to non-farm household income in rural area. From the regression results, this study gives some solutions to promote rural non-farm activities in Vietnam in the coming years.
iv UAN VAN CHAT LUONG download : add luanvanchat@agmail.co TABLE OF CONTENTS Page Chapter 1: INTRODUCTION 1 1. Research Structure 4 Chapter 2: LITERATURE REVIEW 5 2. Concepts and definitions 5 2. The role of non-farm sector 7 2.
The Push- Pull factor 7 2. The importance of rural non-farm sector 8 2. The experience in the development of rural non-farm sector 9 2. Theoretical basis of the determinants of non-farm household income 13 2.
Chapter remark 20 Chapter 3: METHODOLOGY AND MODEL SPECIFICATION 25 3. Data Collection 31 v UAN VAN CHAT LUONG download : add luanvanchat@agmail. Chapter Remark 32 Chapter 4: DETERMINANTS OF NON-FARM HOUSEHOLD INCOME IN RURAL VIETNAM 33 4. Non- farm activities in rural Vietnam 33 4.
The participation ofhousehold into non-farm activities 34 4. The contribution of non-farm activities in employment and household income 40 4. Determinants of non-farm household income in rural Vietnam 46 4. The models for comparison 47 4.
The result ofthe model and the explanation 50 4. 58 Chapter 5: CONCLUSIONS AND RECOMMENDATIONS 60 5. Summarize main finding 60 5. Future research 66 REFERENCE 67 APPENDICES 72 vi UAN VAN CHAT LUONG download : add luanvanchat@agmail.co LIST OF TABLES Page Table 2.1: Classification of farm and non-farm activities.2: The schemes for development of non-farm sector in India 14 Table 4.1: Participation of household into non-farm activities by income groups in nation 35 Table 4.2: Participation ofhousehold into non-farm activities by income groups in rural 35 Table 4.3: The participation ofhousehold into non-farm activities by regions and ethnic groups 36 Table 4.4: Business sectors participation by areas 38 Table 4.5: Business sectors participation by income groups 39 Table 4.6: Business sectors participation by ethnicity 40 Table 4.7: The distribution of sources of income to household income in 2008 41 Table 4.8: The result in urban and rural 42 Table 4.9: The result of income classified by ethnicity and gender 43 Table 4.10: Labor market participation by age and schooling level, 2008.11: Labor market participation by income groups 45 Table 4.12: Definitions of variables used in the regression model.13: Result of OLS model 48 Table 4.14: Result of Robust model 51 vii UAN VAN CHAT LUONG download : add luanvanchat@agmail.co • LIST OF FIGURES Page Figure 2.1: The framework of determinants of household income 17 Figure 3 .1: The framework of determinants of rural non-farm household income 25 Figure 4.1: The participation of household into non-farm activities 34 Figure 4.2: The participation of household into non-farm activities by education of head household 37 Figure 4.3: Labor shares by income sources in 2008 45 Figure 4.4: Histogram of residuals 50 APPENDICES Page Appendix 1: Model V- Regression without Age2 to remove Multicollinearity 72 Appendix 2: Applying Robust Method to remove Het for Model V 74 Appendix 3: Applying Robust Method with standardized Beta for Model V 75 viii UAN VAN CHAT LUONG download : add luanvanchat@agmail.co Chapter 1: INTRODUCTION The determinants of rural non-farm household income in Vietnam will be investigated in this chapter.
In particular, this chapter includes five sections. The first section will raise the problem necessary to make clear for the case of Vietnam. The second section will present the research objectives of this thesis. The next section will raise the questions to obtain the proposed objectives.
The fourth section will briefly describe the research methodology. And the structures of the thesis will be described in this chapter. Problem Statement For nearly 25 years, the government of Vietnam has been looking for the direction of socio-economic development in order to escape the rural from deprivation, poverty and backwardness. Government has many programs to promote the new rural construction to improve people's living standards.
Economic reform in Vietnam in the last two decades, characterized by the economic policy reform, opening and operating economy towards a market economy. According to Vietnam Economic Times (20 11 ), the average economic growth increased from 7.5 % in the period 1991 - 2002 to 8% in period 2002-2007. The economic structure has changed the direction towards industrialization and modernization. The proportion of agriculture in total GDP of the country declining from 27.53% in 2000 and to 21% in 2008.
The poverty rate fell consistently from 58% in 1993 to 29% in 2002 and to 14,5% in 2008 (Vietnam Academy of Social Sciences - 201 0). Economic growth and the stability of the macroeconomic environment has confirmed the correctness of innovation policy. In rural areas, the process of economic restructuring also has changed significantly. Due to the success of diversified occupations strategy, the leading position of agriculture in the rural household economy have no meaning as before.
The program of mechanization, modernization of irrigation has reduced labor time 1 UAN VAN CHAT LUONG download : add luanvanchat@agmail. in agriculture significantly. Because of the longer leisure time, the rural household can participate in the non-farm activities on a regular basis. Any economic activity which has effective may become the main activity of household economy in rural.
The rural economy shifted towards increasing industries, services and other activities of non-farm sector. The development of non-farm sector has contributed to creating jobs, increasing incomes, improving living standards for a certain part of residents, and creating a new face for rural area. This suggests that non-farm activities play the important role in the living of households and development of economy and society ofVietnam. The non-farm activities contributed to the improvement and diversification of people's income.
This has been widely recognized. Especially in rural Vietnam, the development of non-farm sector has great meaning in solving the poverty, underemployment and seasonal unemployment which are still the phenomenon of the rural area. Vietnam has gained remarkable achievements in improving people's living standards since the reforms implemented under doi moi. However, the reform progress has created problems of society such as the pressure in rural - urban migration, an increase in unequal income distribution between different regions.
Furthermore, the rural - urban gap has widened considerable. Therefore, an effective development strategy should be more focused on promotion of rural non- farm sector in order to create more employment and income opportunities for rural populations and improve other problems of society. It is widely recognized that income from non-farm activities likely to play increasingly significant role in the household income in rural. This study investigates the participation of rural households into non-farm activities to have an overview of non-farm activities in rural Vietnam; identifies the contribution of non- farm activities on household income; analyzes determinants of income of rural non- farm household to identify the important determinants of rural non-farm household 2 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co income; and gives some solutions to promote rural non-farm activities in Vietnam in the coming years.
Research Objectives The overall objective of the study is to assess the contribution of non-farm activities in rural area, and then investigate the factors that may have influence on non-farm household income and give some recommendations to promote non-farm activities. Overall objective of the study are detailed m the following specific objectives: * Objective 1: To identify the contribution of the non-farm activities on the household income in rural Vietnam. * Objective 2: To analyze the determinants of rural non-farm household income in Vietnam. * Objective 3: To gtve some recommendations to promote non-farm activities.
Research questions The thesis will focus on addressing four questions: 1. What are contributions of non-farm activities in rural Vietnam? 2. What are the major determinants of rural non-farm household income in Vietnam? 3. What are recommendations to promote non - farm activities in rural Vietnam.
3 UAN VAN CHAT LUONG download : add luanvanchat@agmail. Research methodology Quantitative analysis techniques such as descriptive statistics, regression analysis are used in this study. + Descriptive statistic: This method is mostly used in analysis of participation of household in non- farm activities and contribution of these activities in rural Vietnam. The statistical tables associated with the analysis in order to make qualitative assessment of the level, trends and relationships between elements.
Stata software is used to make this content. +Regression analysis: This study about determinants of non-farm household income can be carried out by two approaches: macro and micro approach. The data about non - farm household income in rural of Vietnam at macro level is not enough. Then, the micro approach is employed in this study.
The data from Vietnam Household Living Standard Survey (VHLSS) will be used in analysis. To test the hypotheses, quantitative method applying ordinary least square (OLS) technique is employed. This study also employed the primary data and secondary data. The primary data is mostly from VHLSS.
Secondary data come from other sources such as previous empirical studies, World Bank, General Statistical Office (GSO). Research Structures The content of this thesis is divided into five chapters: I. Introduction: This chapter provides the problem statement for the necessity of analyzing the determinants of non-farm household income in rural Vietnam. The research objectives, research questions and research methodology, research structures are presented in this chapter.
4 UAN VAN CHAT LUONG download : add luanvanchat@agmail. Literature review: This chapter presents some important concepts, various theories about determinants of rural household income and empirical studies m order to understand the theoretical review and to form an empirical framework.