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 HOUSEHOLDS’ EARNED INCOME IN VIETNAM: EVIDENCE FROM VHLSS 2008 BY TRƯƠNG NGỌC QUANG MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, JANUARY 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS HOUSEHOLDS’ EARNED INCOME IN VIETNAM: EVIDENCE FROM VHLSS 2008 A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By TRƯƠNG NGỌC QUANG Academic Supervisor Dr. PHẠM KHÁNH NAM HO CHI MINH CITY, January 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT First of all, I would like to thank you to all professors in the teaching board of MDE program, who have helped me accumulate valuable knowledge to complete this study. I would like to express my thanks to Mr. Phung Thanh Binh, Mr.
Nguyen Khanh Duy, Mr. Truong Thanh Vu, and all other scholars participated for arranging and conducting training on the quantitative research with STATA & VHLSS 2008. Also, I would like to say thank you to Mr. Nguyen Van Phuong for his earlier comments on my paper.
I would like to express my gratitude to Prof. Nguyen Trong Hoai, who has inspired me to greater effort of thesis writing. I would like to express my sincere appreciation to Dr. Pham Khanh Nam, my current supervisor, who provides me directive suggestions, helpful advices and precious supports during my thesis writing.
To all my dear friends of MDE class 16, who give me sincere encouragement and support, I would like to express my heartfelt thankfulness. Finally, I would like to express my deeply appreciation to my dear parents, to my wife - also my best friend, and my family for their spiritual and physical supports. In particular, I dedicate this thesis to my grand-father, who used to be a teacher. His noble example is still inspiring me to further learning and going forward in my life.
LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT The most considerable element of households’ income structure on average is earned income which is one of the main drivers to improve the living standard of most Vietnamese households in recent years. However, there is an increasing tendency of income inequality and living standards’ difference between regions, rural and urban areas as well as between the richest and poorest households. This paper contributes to the understanding of the effects of Region-level characteristics, Community-level characteristics and Household and individual characteristics on household’s earned income. The determinants of earned income are considered at household, commune and regional levels.
While wage employment still constitutes the backbone of the urban economy, non-farm activities and income diversification are increasingly significant for rural households. It is recognized that households’ physical capital (housing), human capital (education), and local infrastructure are significant determinants in increasing their earned income. Key Words: earned income; household; semi-log model; poverty; inequality, Vietnam. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS CHAPTER 1: INTRODUCTION .2 Research objectives and research questions .3 Scope of study.
10 CHAPTER 2: LITERATURE REVIEW .1 Definition and concept review .2 Review of framework for livelihood and income analysis .3 Understanding the determinants of incomeError! Bookmark not defined.4 CHAPTER 3: RESEARCH METHODOLOGY .2 Specification of variables .1 Overview of earned income in Vietnam. 48 CHAPTER 5: CONCLUSION, RECOMMENDATION AND LIMITATIONError! Bookmark not defined.1 Conclusion and Recommendation. 62 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com APPENDIX Appendix 1. The Vietnam Development Goals.
66 Appendix 2: Map and economic regions of Vietnam. 69 Appendix 3: Expenditure poverty rate using the World Bank and GSO poverty line. 70 Appendix 4: New poverty line of the Government, period 2006-2010. 70 Appendix 5: Poverty rate using the new poverty line of the Government, period 2006-2010.
70 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 2.1: Classication of activities: sectorial, functional, spatial activities .1: Description of the variables .1: Wilcoxon rank-sum (Mann-Whitney) test for earned income per capita (without remittance): rural vs.2: Wilcoxon rank-sum (Mann-Whitney) test for earned income per capita (with remittance): rural vs.3: T-test for equality of means of earned income per capita .4: Correlation coefficient between log of earned income per capita and other exploratory variables .5: Regression result of Logarithm of Earned Income without remittances .6: Regression result of Logarithm of Earned Income with remittances. 55 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1.1: Vietnam poverty headcount ratio at national poverty line .1: The components of potential sources of income .2: Conceptual framework for livelihoods analysis .1: Monthly average income per capita, period 2002 – 2008 .2: Monthly earned income per capita by urban and rural sectors, period 2002 – 2008 .3: Monthly earned income per capita by region, period 2002 – 2008 .4: Monthly income per capita by quintile, period 2002 – 2008 .5: Structure of monthly income per capita by quintile in 2008 .6: Histograms for log of earned income per capita without remittances .7: Histograms for log of earned income per capita with remittances .8: Histograms for log of earned income per capita: rural vs.9: Histograms for log of earned income per capita with remittances: rural vs. 45 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF ABBREVIATIONS GDP: Gross Domestic Product GSO: General Statistics Office HH: Household MDG: Millennium Development Goals MOET: Ministry of Education and Training NA: Not Applicable OECD: Organization for Economic Co-operation and Development RE: Random-effects SIDA: Swedish International Development Cooperation Agency SNA: System of National Accounts UNDP: United Nations Development Program VDG: Vietnam Development Goals VHLSS: Vietnam Household Living Standard Survey VLSS: Vietnam Living Standards Survey VND: Vietnam Dong WB: World Bank 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION Since the economic reforms initiated in 1986, the United Nations and Vietnam’s other international institutions and partners have been recognizing the significant results in the execution of the Millennium Development Goals (MDG) and the poverty reduction program in Vietnam. The goal number 1 on reducing the percentage of poor and hungry households is the most vital and critical foundation for the successful implementation of other MDG.
For better integration into Vietnam’s national and provincial socio-economic development strategies and programs, eight MDGs have been translated into Vietnam Development Goals (VDG) (see appendix 1) to bring them closer to the country’s situation.1 Problem statement As one of the poorest countries in the world 25 years ago, Vietnam proudly became a lower middle income country with per capita income of $1,130 in the end of 2010 and the poverty rate at national poverty line has dropped remarkably from 58. Five of MDG targets has already achieved and most of social welfare indicators have been improved, thus Vietnam is making progress in attaining two more targets by 2015 (World Bank, 2008).1: Vietnam poverty headcount ratio at national poverty line Source: World Bank (2008) 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Nevertheless, policy makers have realized that results of some poverty reduction programs are not sustainable because the ratio of household falling back under the poverty line remains high, especially in some rural and remote areas1. Moreover, there is very high rate of household closely above the poverty line in accordance with the new poverty criterion. Since early 2008, Vietnam has faced some economic difficulties due to the global financial crisis, thus many new obstacles rise from the present poverty reduction programs.
Consequently, the government has to consider how to reach a more balanced achievement in all of VDG, economic regions and social communities to improve the sustainable development. In another word, rural poverty reduction must be evaluated as an effectiveness measure and a vital section of any poverty reduction strategy, as well as rural development policy. Any policy that focused on subsidy package was already proved as band – aid solution having less impact on sustainable rural development and its resources should be diverted to pro-poor policy. Every government’s pro-poor policy, directly or indirectly, seeks to create employment opportunities for the poor or improve productivity and earning capability on a sustainable basis, especially in the sectors employing most of the poor.2 Both elements raise the incomes of the poor and hence speed up the pace of poverty reduction.
The strategies which households often use to strengthen income have been a topic for research in recent times (Ellis, 2000). Studies on rural income growth suggests that diversification of income sources is a key strategy which individuals and households use to strengthen their income sources and thus this way reduces poverty (Minot et al. Among the sources of households’ income, earned income (comprising wages or salary and net revenue from both agricultural and non-agricultural self-employment) is the most important component of sustainable development and engine to higher living standards. However, there is an increasing 1 Rural area is “a local community with a population density below 150 habitants/ km2 (500 in the case of Japan).
Typology of regions according to the share of rural population: “predominantly rural” = more than 50%; “significantly rural” = 15-50%; “predominantly urbanized” = below 15%” (OECD, 1994). 8 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com tendency of income inequality and living standards’ difference between regions, between rural and urban areas and between the rich and poor. Fast urbanization, industrialization and high unemployment rate in rural areas of Vietnam has led to increasing internal migration since the last decade of the 20th century. The role of remittances has become more and more important in improving households’ living standards because of its immediate impact on households’ well-being (Pfau and Giang, 2008).
GSO of Vietnam estimated that mean domestic remittance is about 38% of households’ wage income in the period of 2002 to 2006. For “economic motive” (e.g, investment and savings) as well as family support, households’ members send remittances directly to their family for starting self-employment and enhancing the performance of the existing businesses. Moreover, if domestic remittances can stimulate the formation of household businesses in rural areas, the problems of rural unemployment and city’s overcapacity can be gradually reduced; and nationwide rural-urban migration flow can be mitigated.2 Research objectives and research questions The general objective of my paper is to investigate the determinants of households’ earned income in the whole of Vietnam. Specifically, my thesis will focus on investigating the difference between household’s earned income in rural and urban areas.
Moreover, this study will investigate the determinants of earned income with regard to domestic remittance. My thesis questions are as follows: What factors determine Vietnamese household’s earned income nationwide? What factors determine household’s earned income in rural areas and urban areas of Vietnam respectively? What are the determinants of earned income with regard to domestic remittance? 9 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.3 Scope of study My paper draws on data from the Vietnam Household Livings Standards Survey (VHLSS) conducted in 2008 to examine the determinants of households’ earned income. The survey was divided into two phrases in 2008 and carried out nationwide by direct interviews with household heads and key commune officials. VHLSS 2008 has a sample size of 45,945 households in 3,063 communes or wards, in which the income survey for 36,756 households and both income and expenditure surveys for 9,189 households.
My focus is on studying determinants of earned income by linear regression method with the support of Stata software and the backup of VHLSS 2008 data on income survey. Data will be classified as pooled, urban, and rural respectively with interest in domestic remittance. SUMMARY Vietnam has gained significant results in the execution of the Millennium Development Goals (MDG) and the poverty reduction program since 1986.