POVERTY DYNAMICS IN RURAL VIETNAM: WINNERS AND LOSERS DURING REFORM PATRICIA JUSTINO AND JULIE LITCHFIELD Poverty Research Unt at Sussex and Department of Economcs, Unversty of Sussex, UK ABSTRACT Ths paper dentfes the transmsson mechansms of the mpact of trade reforms on household poverty dynamcs, based on data from a panel of rural Vetnamese households. Poverty dynamcs are modelled usng multnomal logstc regressons of poverty transton outcomes. These models are shown to provde mportant nsghts nto the behavour of poor households that cannot be explctly derved from household consumpton models. We fnd that changes n household poverty status n Vetnam are strongly correlated wth prce and employment changes nduced by the trade reforms. These results are robust to shfts n the poverty lne and changes n model specfcaton. JEL codes: C23; I32; O53. Keywords: Poverty dynamcs, trade lberalsaton, economc reform, panel data, Vetnam. Correspondng author: Patrca Justno, Poverty Research Unt at Sussex, School of Socal Scences and Cultural Studes, Unversty of Sussex, Falmer, Brghton BN1 9SJ, UK. Tel. +44 1273 877402. E-mal: a.p.v.justno@sussex.ac.uk Acknowledgements: We are grateful to Bob Baulch, Rhys Jenkns, Nel McCulloch, Andy McKay, Howard Whte and, n partcular, Alan Wnters, for useful dscussons and to Yoko Nm and Puja Vasudeva-Dutta for excellent research assstance. We would also lke to thank the partcpants of semnars and conferences at Sussex (November 2001 and January 2003), Nottngham (Aprl 2002), Hano (September 2002) and the 2002 Internatonal Assocaton of the Revew of Income and Wealth conference (Stockholm) for helpful comments. Ths paper s part of the project The Impact of Trade Reforms and Trade Shocks on Household Poverty Dynamcs (ESCOR- R7621) funded by the UK Department for Internatonal Development as part of ther Globalsaton and Poverty Research Programme. Vews and opnons expressed n ths paper are, however, those of the authors alone. We are grateful to the World Bank for makng the trade data avalable for the DFID-funded Globalsaton and Poverty Research Programme s projects on Vetnam.
1. INTRODUCTION One of the most vsble sgns of globalsaton s the expanson of nternatonal trade generated by ncreased trade lberalsaton and reductons n trade barrers. Ths tendency towards greater openness s beleved to provde opportuntes for many people, especally those n developng countres. At the same tme, certan ndvduals may not beneft from the opportuntes generated by trade lberalsaton, and may even suffer from trade reforms and the resultng vulnerablty to trade shocks. However, very lttle s known about the responses of households to economc shocks caused by recent trade reforms. 1 In partcular, the dynamcs of poverty,.e. movements nto and out of poverty, and the contrast between persstent and transent poverty have so far been largely overlooked n the development lterature n general and n the trade lterature n partcular. Ths paper s drven by two broad motvatons. The frst s the explct emprcal analyss of the transmsson mechansms of trade-nduced shocks on household poverty dynamcs. We examne how the macroeconomc changes that took place n Vetnam durng the 1990s were transmtted to each ndvdual household and why some households have benefted more than others from the reforms. Ths analyss s based on panel data for 3494 rural households collected n Vetnam n 1992-93 and 1997. Ths data set allows us to track the same households durng a perod of trade reform, and before and after the occurrence of trade shocks, thereby elmnatng unobserved dfferences between households that are fxed over tme. The second motvaton s largely methodologcal and refers to the modellng of poverty dynamcs. The drect modellng of poverty outcomes s usually subject to crtcsms, notably the fact that ts results are based on arbtrarly defned poverty lnes mposed on the total dstrbuton of household consumpton or ncome, the real behavoural varables. Focusng our attenton on poverty outcomes, rather than the whole dstrbuton, may, however, be preferable f the determnants of welfare have dfferent returns to 1 See Dercon (2000), McCulloch, Wnters and Crera (2001) and Wnters (2002). 2
the poor and the non-poor. 2 Our analyss makes use of multnomal logt regressons adapted to the analyss of dscrete and mutually ndependent poverty transton outcomes. 3 We compare the results of these models wth those of consumpton regresson models and show that multnomal logt regressons can successfully be used to model household poverty dynamcs wthout loss of nformaton. Our results show further that, by focusng on households below the poverty lne, rather than the whole dstrbuton, we obtan valuable nsghts on the behavour of poor households that cannot be derved from reducedform consumpton functons. The paper s organsed as follows. Secton 2 descrbes the household data sets used n the analyss. Secton 3 provdes a descrpton of the key trade and other economc reforms and dscusses how these have mpacted on the dynamcs of household poverty n Vetnam, usng both mcro-data from the household surveys and macroeconomc data. We focus on two mportant trade-related reforms: () lberalsaton of agrculture markets for outputs and nputs (ncludng prce controls on rce and other crops and fertlsers) and () lberalsaton of export markets, followng the removal of export quotas and tarffs. The bulk of our emprcal analyss s carred out n secton 4. Ths secton nvestgates the relatonshp between poverty dynamcs and trade reforms, controllng also for household- and communty-related characterstcs. Ths relatonshp s modelled usng a multnomal logt regressons adapted to the analyss of poverty transton outcomes. Those models allow us to estmate the probabltes of a household () stayng poor n both years, () escapng poverty, () fallng nto poverty or (v) remanng above the poverty lne n both years. Secton 5 provdes a decomposton of the mpact of trade reforms and other household characterstcs on the probablty of a household escapng poverty. The results of sectons 4 and 5 show a strong lnk between poverty dynamcs and shocks caused by the trade reforms. These results are compared to those of contnuous consumpton growth OLS regresson model and quntle regressons, n secton 6. Secton 7 concludes the paper. 2 See Appleton (2002) for a detaled dscusson of ths ssue and the applcaton of poverty functons to Uganda survey data. 3 Another example s Glewwe et al. (2002). Our paper takes however ths analyss some steps further by explctly testng the emprcal applcablty of the multnomal logt models and comparng ther results wth those of consumpton models. 3
2. DATA The results presented and dscussed n ths paper are based on mcro-data from the Vetnam Lvng Standards Measurement Survey (VLSS) for 1992-93 and 1997-98. The VLSS data s obtaned from naton-wde household surveys conducted n 1992-93 (October 1992 to October 1993) and 1997-98 (December 1997 to December 1998), and contans valuable nformaton on 4800 households and 120 communes surveyed n 1992-93 and 6000 households and 150 communes ntervewed n 1997-98. 4 These surveys are partcularly useful as they allow the constructon of a panel of 4303 households ntervewed n both years. Gven that only two tme perods are avalable, t s not possble to analyse the duraton of poverty spells or to determne the extent of persstent poverty n Vetnam. 5 However, the panel feature of the VLSS data allows one to track across the fve years those households that have remaned poor, have moved out of poverty or have fallen nto poverty and determne whch partcular household characterstcs are assocated wth those movements. Although the two VLSS samples are ndvdually representatve of the populaton, the panel s not truly representatve of the whole or rural populaton (see Haughton, Haughton and Phong, 2001). Whle ths s a common feature of panel studes n developng countres (see Deaton, 1997 for a dscusson), analyss of the panel does provde an mportant nsght nto what happened n rural Vetnam durng the 1990s. The VLSS contans a detaled expendture questonnare that allows the constructon of standard ndcators of lvng standards. Most of the analyss n ths paper s of household expendture per capta per year usng a general food and non-food poverty lne. 6 An ndvdual s defned as beng poor f annual 4 These surveys were conducted by the Vetnam s General Statstcal Offce and the Mnstry of Plannng and Investment, wth fnancal assstance from the Unted Natons Development Programme (UNDP) and the Swedsh Internatonal Development Agency (SIDA) and techncal assstance from the World Bank. 5 See Jenkns (1998) and Devcent (2000) for analyses of poverty dynamcs n the UK when several survey years are avalable. 6 Unfortunately the VLSS ncome data, ncludng data on wages, s rather weak, whch prevents an analyss of ncome (as opposed to expendture) poverty dynamcs or of the effect of trade reform on wages. 4
household consumpton expendture per capta s below a poverty lne of 1160 thousand dongs per year per person n 1992-93 and 1790 thousand dongs per year per person n 1997-98. 7 The VLSS also contans a wealth of nformaton on household demographcs, ethncty, educaton, health, economc actvtes, producton and employment, assets and a range of communty level nformaton on nfrastructure and servces. The analyss developed n ths paper s based on the sub-panel of 3494 rural households. Vetnam s predomnantly a rural economy: 78% of all households n Vetnam n 1997-98 lved n rural areas (80% n 1992-93) and 61% of all Vetnamese households were employed n the agrculture sector n 1997-98 (65% n 1992-93). The decson to analyse rural households only s further supported by the fact that the two key economc reforms mplemented n Vetnam (reform of rce prcng and rce trade and decollectvsaton of the agrcultural sector) were amed at the rural sector. 8 3. TRADE REFORMS AND POVERTY IN VIETNAM Vetnam s one of the success stores n the attack on poverty n developng countres. The economc and socal changes experenced by Vetnam have been largely ascrbed to the do mo, or renovaton polces (World Bank, 1999; CIEM, 2000; Haughton, Haughton and Phong, 2001), desgned n 1986 and mplemented durng the early 1990s, 9 whch amed at transformng Vetnam nto an outward-orented economy. The do mo polces ncluded the removal of many prce controls, the decollectvsaton of land, the provson of greater autonomy to the prvate sector, the reducton or removal of trade barrers 7 The values are based on the cost of a basket of food tems that provde the mnmum amount of 2100 calores per person per day plus a non-food component. For a detaled dscusson of poverty measurement ssues n Vetnam see Ltchfeld and Justno (2003). 8 Our analyss does not consder movements between the rural and urban sectors. Although rural-to-urban mgraton s undoubtedly an mportant phenomenon, the VLSS do not track households that mgrate. The VLSS do, however, have data on remttances that wll be used n our analyss (see secton 4). Dang and Le (2002) report that remttances have become an mportant source of household ncome n Vetnam durng the later 1990s. 9 Economc reforms, n partcular agrcultural reforms, started earler n the late 1970s. However, the Do Mo process that started n 1986 comprsed a larger commtment to economc reforms and ther extenson to the whole economy (see World Bank, 1999). 5
and the openng up of the Vetnamese economy to foregn drect nvestment. 10 The largest and most vsble economc changes took place n Vetnam s export sector, partcularly n the rce market, where many tarffs were reduced or elmnated. Export rce quotas also ncreased sgnfcantly and the prvate sector was allowed a greater role n the producton and export of rce. Rce producton and rce exports ncreased sharply durng the 1990s (table 1), turnng the country from a net rce mporter to the world s second largest exporter of rce n 1997 after Thaland (n quantty terms). 11 Increases n land ttlng, removal of prce controls and other trade reforms have also affected the markets for other agrculture crops (partcularly coffee) and ndustral products (especally, marne products, textles and garments, footwear and food processng) (table 1). 12 Despte the commtment of the Vetnamese government to the new economc and trade lberalsaton programmes, the trade regme n Vetnam was qute restrctve untl qute late n the 1990s, and nvolved a hgh level of state nterventon (see Nm, Vasudeva-Dutta and Wnters, 2002; Nelsen, 2002). Notwthstandng these restrctons, Vetnam s gross domestc product per capta grew at an average of almost 7% per annum durng the perod between 1993 and 1998, real consumpton ncreased sgnfcantly and overall employment grew at a rate of almost 2% n the same perod (table 1). These economc mprovements were accompaned by sharp decreases n poverty across the rural and urban sectors and across most soco-economc groups (table 2) and to sgnfcant movements of households out of poverty (table 3). 13 The declne n poverty rates was, however, more pronounced for some groups: urban households, households lvng n the south of the country, 14 ndvduals belongng to a household wth a Knh head (the majorty ethnc group) 15 and ndvduals for whom the households 10 Although flows of foregn drect nvestment n Vetnam were close to zero durng the 1980s, they averaged around 5% of the country s GDP n the second half of the 1990s (Dollar, 2002). 11 Vetnam s exports of rce n volume terms made up 17% of total world rce exports n 1997. However, ths corresponded to 5% n value terms (whch puts Vetnam as the sxth largest exporter of rce n value terms n 1997). The lower value share s due to the nferor qualty of Vetnamese rce (Nelsen, 2002). 12 For a more detaled account of trade-related reforms n Vetnam see Nm, Vasudeva-Dutta and Wnters (2002). 13 Ltchfeld and Justno (2003) descrbe n more detals the trends n poverty n Vetnam durng the 1990s as well as testng the senstvty of the fall to choce of poverty lne and to choce of equvalence scale. 14 Vetnam s dvded nto seven admnstratve regons (from north to south): Northern Uplands, Red Rver Delta, North Central, Central Coast, Central Hghlands, South East and Mekong Rver Delta. 15 The VLSS specfes eght ethnc groups, usually categorsed for analytcal convenence nto the majorty Knh, the ethnc Chnese (a specal group that ncludes a small mnorty of qute well-off households) and the remanng ethnc groups 6
head had a whte collar job experenced much sharper falls than other groups (table 2). Furthermore, examnaton of the urban and rural panel households reveals that a sgnfcant number of Vetnamese (28.73% overall; 34.19% n the rural sector) remaned poor n 1997-98 and a small proporton fell nto poverty (4.74% overall; 5.34% n the rural sector) (table 3). 16 Agan, the aggregate fgures mask dfferences for sub-groups of the populaton. What s the assocaton between the macroeconomc changes nduced by the trade reforms mplemented n Vetnam durng the 1990s and these poverty changes? Although economsts have long been nterested n the welfare effects of trade lberalsaton, much of the emprcal analyss has focused on changes n wages and employment of dfferent categores of workers (for nstance, sklled versus unsklled workers as n Wood, 1994) and relatvely lttle s known about the mpact of trade reforms on poverty. Wnters (2002) provdes a conceptual framework for analysng the lnks between trade lberalsaton and household poverty. He dentfes a set of transmsson mechansms from trade reform and shocks to household poverty: drect effects va prces, wages and employment and ndrect effects va changes n publc revenues and expendture. The dentfcaton of these changes n the household data wll allow us to determne how each household has responded to the economc reforms. In the case of Vetnam, household lvng standards are lkely to have been sgnfcantly affected by the large ncrease n the exports of agrcultural crops (partcularly, rce and coffee) and ndustral products (especally, marne products, textles and garments, processed food and footwear) that took place n the country durng the 1990s (table 1). Our analyss focuses on two man mechansms of transmsson: () changes n the prces of agrculture crops and nputs (such as fertlsers), whch resulted from the elmnaton of trade tarffs and ncreases n export quotas, and () the creaton of new employment opportuntes n the man export ndustres. aggregated together. See van de Walle and Gunewardena (2001) and Baulch et al. (2002) for more detaled analyses of the socal and economc poston of ethnc groups n Vetnam. 16 Ltchfeld and Justno (2003) found further that consumpton nequalty ncrease n Vetnam between 1992-93 and 1997-98. 7
3.1. Agrculture sector changes The trade reforms mplemented n Vetnam trggered changes n the prces of commodtes for whch hgher export quotas were establshed and tarffs were removed. Changes n prces, n turn, were lkely to have affected nomnal and real ncomes of households n ther capacty as producers or consumers of agrculture crops, f prce changes were transmtted to the nternal markets. 17 The effect of prce changes (or shocks f the market s already open) depends on how households respond to these changes or, n other words, on whether they can accommodate shocks or adapt by, for nstance, swtchng to more proftable crops (Glewwe and Hall, 1998; McCulloch, Wnters and Crera, 2001; Wnters, 2002). Part of the do mo reforms were amed at encouragng small farm households to reduce dependence on rce producton and the new agrcultural household model advocated dversfcaton across rce, orchards and ponds,.e. more productve rce producton, cultvaton of frut trees and other tree crops and utlsaton of water for rearng ducks for eggs and other forms of aquaculture. Fertlser supply constrants were also sgnfcantly reduced wth the removal of restrctons on mports. 18 The success of the reforms and ther mpact on average lvng standards can thus be nvestgated by examnng shfts n producton, changes n productvty and changes n prces. Table 4 llustrates the changes n output and productvty of the chef agrcultural actvtes and table 5 shows the evoluton of prces of key crops over the perod. We dscuss frst changes n the producton of rce and then turn to other agrcultural products. Rce s the man staple for Vetnamese households, comprsng 42% of all food expendture (51% for households below the poverty lne) and 75% of all calorfc ntake of a typcal Vetnamese household (Mnot and Golett, 1998). Natonal rce securty was tradtonally provded by a restrctve rce export quota and most rural households n 1992-93 were engaged n the producton of rce: table 2 shows that of the 3494 rural panel households, 2986 cultvated rce. Snce some of the most sgnfcant and vsble do 17 Governments may contnue to fx the nternal prces of goods whch they have offcally lberalsed nternatonally (Wnters, 2002). See McCulloch, Wnters and Crera (2001) and Wnters (2002) for a theoretcal analyss of these transmsson mechansms. 18 After 1991, central and provncal state-owned enterprses that earned foregn exchange were allowed to mport fertlsers drectly (Benjamn and Brandt, 2002) 8
mo reforms took place n the rce market, where many tarffs on nputs were reduced and export quotas ncreased, t s lkely that the lberalsaton of the rce markets, the rsng trend n nternatonal rce prces and the declne n the prce of fertlsers (table 5) would have created ncentves for households to ncrease rce output and productvty. Table 4 shows that the quantty of rce produced n Vetnam ncreased by almost 35% between 1992-93 and 1997-98. There was also a sgnfcant ntensfcaton of rce productvty as the ncrease n rce producton was accompaned by a small decrease n the number of households producng rce and a dramatc fall n the area cultvated wth rce. 19 Ths s lkely to reflect mprovements n technology used n the cultvaton of rce, ncludng access to cheaper fertlsers, but also the dversfcaton of agrculture encouraged by the new agrcultural household model. 20 Although rce remaned a key crop for many farmers, the reforms do seem to have encouraged farm dversfcaton. Condtons for farm dversfcaton mproved as farmers experenced ncreases n rce productvty and were able to beneft from relaxaton of mport tarffs on nputs such as seeds, machnery, and fertlsers (Thang, 2002). As a consequence, the producton and area cultvated of nonrce crops and other agrcultural products ncreased sgnfcantly n Vetnam between 1992-93 and 1997-98, ndcatng an ntensfcaton of agrculture dversfcaton (table 4). 21 The largest producton ncreases were those of coffee (almost 200%), 22 annual ndustral crops and frut crops. Although rce producton grew at over 6% per year, producton of annual ndustral crops, coffee and frut crops grew over three tmes that rate. Furthermore, whlst the area of land cultvated wth rce decreased between 1992-93 and 1997-98, the area cultvated wth non-rce crops ncreased on average by over 200% n the same perod. 19 Note that the drastc decrease n the area cultvated wth rce between 1992-93 and 1997-98 (93.56%) hdes changes n land concentraton. Whle n 1992-93, 96% of all households n the rural panel dd not have any rce land, ths percentage decreased to 59% n 1997-98. Furthermore, n 1992-93, most (61.4%) rce plots of households that cultvated rce were over 5000m 2, whch explans the large average of land cultvated wth rce n 1992-93, n comparson wth the 1997-98 average. In 1997-98, most plots were between 100m 2 and 5000m 2. If we average the total area cultvated wth rce over the whole panel we get a value of 382.39m 2 for 1992-93 and 251.60m 2 for 1997-98, whch represents a lower - but stll sgnfcant - decrease (34.2%) n the average land cultvated wth rce. 20 In fact, rce productvty (measured by klos of rce harvested per square metre of land cultvated wth rce) for those households that produce rce ncreased by 14.3% between 1992-93 and 1997-98. 21 See Benjamn and Brandt (2002) for smlar results. 22 Vetnam started to produce coffee ntensvely n the Central Hghlands after 1995, followng a boom n the world prce of coffee (Thang et al., 2001). Ths resulted n a large ncrease n the exports of coffee from Vetnam, whch grew at an annual average of 58.2% between 1993 and 1998 (table 1). 9
Furthermore, prces of most agrcultural outputs ncreased sgnfcantly durng the perod. Wth the excepton of non-rce food crops and lvestock, 23 the prce of all agrculture crops produced n Vetnam ncreased sgnfcantly between 1992-93 and 1997-98. Table 5 shows changes n the prces 24 of rce and coffee between 1993 and 1998. The table shows a large ncrease n the nternatonal prce of coffee and n the unt values of coffee. The table also shows that the unt values of rce and paddy obtaned from the VLSS followed a smlar trend to nternatonal prces, although the unt values of rce have ncreased by more than three tmes the ncrease n the prce of paddy. 25 Coffee prces, both nternatonally and domestcally rose strongly between 1993 and 1998. The prce rses for the key staple (rce) and what can be seen as the key new crop (coffee), combned wth ncreased productvty n rce and other agrculture products, suggest that net producers at least wll have benefted from the do mo lberalsaton programme. 3.2. Employment changes Although t s lkely that the chef mpact of the do mo on poverty was va prces, gven that the majorty of the rural populaton s employed n agrculture, t s possble that the stmulaton of the rural economy, ncreased foregn drect nvestment and openng of the economy to mports may have affected poverty va employment and wages. Unfortunately, Vetnamese wage data s very scarce so the effect can only be measured va employment. 26 Ths effect s lkely to be partcularly strong n the man export ndustres: aquaculture, textles and garments, processed food and footwear all show a strong ncrease n the value of exports over the 1990s (table 1). 27 The rural panel data shows further an enormous ncrease n the land devoted to aquaculture, as well as sgnfcant ncreases n output values (table 4). 23 Ths was possbly due to smaller than expected ncreases n the demand between 1992-93 and 1997-98 for non-rce foods (meat, ols, fsh, frut and vegetables) (Benjamn and Brandt, 2002). 24 The VLSS surveys do no report household-level prces but allow for the calculaton of unt values nstead. Although these may be subject to measurement error (see Deaton, 1997), commune prces, collected by VLSS researchers, may also suffer from measurement error as the observatons dd not necessarly nvolve an actual purchase (VLSS, 2001:21). For completeness we report both sets of prces here. 25 Edmonds and Pavenk, 2002, fnd a smlar dvergence between paddy and rce prces. 26 As stated earler, the VLSS s very weak on ncome data. The only other source of wage data s the labour survey conducted by the Mnstry of Labour, Invalds and Socal Affars from 1995 but unfortunately mcro-data was not publcly avalable. 27 See Nm, Vasudeva-Dutta and Wnters (2002) for more detaled analyss of these changes. 10
However, employment effects seem lkely to have been small. Table 6 llustrates the employment n the man export sectors of members of the rural panel 28 and shows that only a very small number of rural households has any members workng n one of the four export ndustres. Gven the large changes n the exports of seafood, processed food, textles and footwear, a much bgger employment shft would have been expected. There are a number of possble explanatons, ether that much of the predcted ncreased employment s of exstng famly labour, or of prevously underemployed pad labourers, or that the employment effects are found mostly n urban areas and thus not captured n our analyss (see Nm, Vasudeva-Dutta and Wnters, 2002). 3.3. Movements n and out of poverty It s possble to examne f the ncreases n producton of rce, coffee and other agrculture crops, combned wth strong rsng prces for many products, and productvty gans for some, are reflected n movements n and out of poverty. Table 6 llustrates these movements for household that produce rce, coffee and other crops. The table shows that more rce-producng households are poor n both years than households that do not produce rce. However, fewer rce producng rural households fell nto poverty and more rce producng rural households moved out of poverty n 1997-98. Smlar results were obtaned for households that produce non-rce crops, partcularly coffee. Furthermore, the percentage of coffee and other crops producng households that fell nto poverty n 1997-98 was sgnfcantly lower than that of households that produce rce, whlst the percentage of coffee producng households that moved above the poverty lne n 1997-98 was sgnfcantly hgher. Ths suggests that, although ncreases n rce output, prces and productvty have benefted a sgnfcant number of Vetnamese households, ncreased dversfcaton nto other crops between the two survey years has also contrbuted sgnfcantly towards the reducton of poverty n Vetnam durng the same perod. 28 The varables that represent the number of household members workng n export ndustres were constructed usng the lst of professon codes provded n the household surveys. Seafood ncludes n 1992-93 fshermen, hunters and related workers and aquaculture and fshng n 1997-98. Food processng ncludes food, food stuff and beverage processors n 1992-93 and food processng n 1997-98. Textles ncludes spnners, weavers, kntters, dyers and related workers and talors, dressmakers, 11
Employment effects are less obvous (table 8). In general, ndvduals belongng to rural households that had at least one member workng n one of the man export ndustres had a hgher probablty of havng fallen nto poverty n 1997-98 than households wth no members employed n the export sectors. However, the probablty of escapng poverty s also hgher for those rural households. Of these, households wth members workng n the seafood ndustry had the hghest probablty of havng fallen nto poverty n 1997-98, whereas households wth members workng n the footwear ndustry regstered the lowest probablty of havng fallen below the poverty lne and the hghest probablty of havng moved out of poverty n 1997-98. In summary, the analyss developed n ths secton shows some tentatve lnks between the economc reforms mplemented n Vetnam after 1986 and changes n poverty status of rural Vetnamese households. The dscusson of trends n output, employment and prces suggest that the strongest effects wll be found va the agrcultural producton rather than va ncreased employment. Ths analyss does not, however, take nto consderaton the fact that, over a perod of fve years, household characterstcs such as demographc composton, educaton attanment and so forth may have changed and households may have been subject to shocks (for nstance, llness and weather and other covarant rsks). 29 The next secton provdes a formal analyss of the effects of trade reforms on household poverty dynamcs, whle controllng smultaneously for demographc and other household-specfc characterstcs. sewers, upholsterers and related workers n 1992-93 and textle and garment worker n 1997-98. Shoemakng ncludes shoemakers and leather goods makers n 1992-93 and leather and shoemakng ndustry worker n 1997-98. 29 In Ltchfeld and Justno (2003), we found that households n Vetnam have undergone changes that may be assocated wth the reducton n poverty observed n the country between 1992-93 and 1997-98: there has been a sgnfcant decreased n the percentage of households headed by a younger ndvdual (and thus more prone to be poor), the number of very large households decreased by over four percentage ponts, the number of households wth a large number of young chldren also decreased sgnfcantly (ndcatng that fewer chldren were born), the educaton level of household heads and ther spouses mproved sharply and the number of household heads employed n sectors other than the agrculture sector ncreased. Although some of these changes may be assocated wth the economc reforms that took place n Vetnam after 1986, they reflect, to a large extent, ntergeneratonal changes wthn the household (panel attrton) as well as the mpact of non-economc polces such as those promotng one-chld famles and lteracy-orented programmes. 12
5. MODELLING POVERTY DYNAMICS IN VIETNAM The analyss of household poverty dynamcs s usually based on models that assess the rsk of a household or an ndvdual remanng poor for a gven perod of tme (Jenkns, 1998; Devcent, 2000). However, those models are not sutable for analyss of poverty dynamcs between two ponts n tme. Movements n and out of poverty n Vetnam between 1992-93 and 1997-98 must therefore be modelled nstead usng dscrete outcome models. We estmate a multnomal logt model of poverty dynamcs for rural Vetnam. Multnomal logt regressons are commonly used to model processes that nvolve a sngle outcome among several alternatves that cannot be ordered (for example, choces between modes of travellng, occupatonal choces, etc). 30 Poverty dynamcs between two perods can be dvded nto four mutually exclusve outcomes: () beng poor n both perods, () beng non-poor n the frst perod and poor n the second perod, () beng poor n the frst perod and non-poor n the second perod and (v) beng nonpoor n both perods. Multnomal logt models may not, however, be the most adequate method for analysng household poverty dynamcs between two perods f t s beleved that there s an mplct orderng of the four poverty transton outcomes. Although formng a complete rankng of poverty outcomes nvolves arbtrary judgements, t may be reasonable to assume that each household wll have a set of preferences regardng the four states. 31 Hence, multnomal logt regressons can only be used to determne the probablty of any gven household beng n one of the above outcomes, f we can show that the four poverty transton outcomes are ndependent. We have tested the assumpton of ndependence of rrelevant alternatves usng Hausman tests (Greene, 2000), whose results are reported n the regresson tables. We have also, addtonally, estmated a set of condtonal logt models, where the rural panel was 30 Ths s what dstngushes the multnomal logt model from a smple logt model, whch analyse factors affectng a bnary outcome, and from ordered logt models, whch model outcomes that can be ranked. 31 However, Nm, Vasudeva-Dutta and Wnters (2002) estmate a number of ordered logts smlar to the specfcatons here wth not very satsfactory results. 13
splt nto ntally poor and non-poor and used a standard bnary varable (logt) model used to analyse the probablty of beng poor or non-poor n the end year. We dd not fnd sgnfcantly dfferent results between these models and the multnomal logt models. In fact, t can be easly shown that the two types of model are equvalent (except for sample sze and thus standard errors) for outcomes 2 and 3 of the multnomal logt models, wth the advantage that the multnomal logt model estmates smultaneously the varous error terms and thus ntroduces less measurement error nto the analyss. 32 The multnomal logt model determnes the probablty that household experences one of the j outcomes above. Ths probablty s gven by: P( Y j e = j) = J e k= 1 ' β x ' βk x, for j = 0,1,2,..., J. (1) where Y s the outcome experenced by household, β k are the set of coeffcents to be estmated and x ncludes aspects specfc to the ndvdual household as well as to the choces. The model s, however, undentfed snce there s more than one soluton for β 1,..., β J that leads to the same probabltes Y = 0, Y = 1, Y =2,..., Y = J (Greene, 2000). In order to dentfy the model, one of the β coeffcents must be set to zero (the base category), and all other sets are estmated n relaton to ths benchmark. For convenence we have set β 0 = 0. In ths case, the probablty functon above becomes: P( Y and e j) = 1+ = J ' β j x k= 1 e ' βk x, for j = 1, 2,..., J. (2) 32 Results of ths analyss are avalable from the authors n a more extensve workng verson of ths paper (Justno and Ltchfeld, 2003). These models are also crtcsed for the use of arbtrarly defned poverty lnes. Ths ssue wll be dscussed n secton 6. 14
P( Y = J 0) = 1+ 1 k= 1 e ' k β x. (3) In the case of the analyss of poverty dynamcs J = 3, where P(Y =0) s the probablty that an ndvdual belongs to a poor household n both years, P(Y =1) s the probablty of beng non-poor n 1992-93 and poor n 1997-98,.e. fallng nto poverty, P(Y =2) s the probablty of beng poor n 1992-93 and nonpoor n 1997-98,.e. escapng poverty, and P(Y =3) s the probablty of a household beng non-poor n both years. The multnomal logt model descrbed above mples that t s possble to compute J log-odds ratos ln ' [ Pj P 0 ] β j x =. The log-odds ratos (also called relatve rsk ratos) can be normalsed on any other ' probablty, whch wll yeld ln[ P P ] x ( β β ) j = (Greene, 2000). For convenence 0 j j k ln [ P ( Y 2) P( Y = 0) ] and ln [ P ( Y 1) P( Y = 3) ] are calculated. These model, respectvely, the rsks = = of a household escapng and fallng nto poverty. 33 Ths paper presents estmates of three specfcatons of the multnomal logt model. The frst model s parsmonous n terms of ts use of data avalable n the VLSS but serves as a useful comparson wth other analyss of Vetnamese poverty dynamcs, beng smlar to that of Glewwe, Gragnolat and Zaman (2002). 34 In ths model, exts from poverty and entres nto poverty are explaned by ntal characterstcs only: 33 β e j ' x n equaton (3) s thus the relatve rsk rato for a unt change n the varable x: a relatve rsk rato (rrr) of less than one means that the varables ncreases the probablty of the household to be n the base category, whereas an rrr of more than one ncreases the probablty of the household beng n the alternatve state. The probablty s gven by the rrr mnus one, multpled by one hundred. For example, n table 9, the value of 1.329 for the Red Rver Delta means that an household lvng n the Red Rver Delta n 1992-93 (n relaton to those lvng n the North Central provnces, the base for the dummy varable) has a 32.9% ncrease n the probablty of havng escaped poverty n 1997-98 (n relaton to stayng poor n both years). Contnuous varables have been normalsed and ther rrr can be nterpreted as the effect of a one standard devaton change n the varable on the probablty of a household escapng or fallng nto poverty. 34 The two models dffer, however, n the choce of explanatory varables and the way they were constructed. Detals are provded n Justno and Ltchfeld (2003). 15
ln k [ P( Y 1) P( Y = 3) ] = φ( F, D, L, I, E, A, S, C ) = (4) where F s a vector of fxed household characterstcs (regon and ethncty); D are household demographc characterstcs (household composton) n 1992-93; L s the occupaton of the head of the household n 1992-93; I t s an llness shock dummy for 1992-93; 35 E s a vector of educaton levels of the head of the household and spouse n 1992-93; A proxes for household wealth (the net value of monetary assets, 36 land rghts, remttances receved and access to electrcty) n 1992-93; and C s a vector of commune level nsttutonal and nfrastructure characterstcs n 1992-93. Fnally, n order to control for nose n the data orgnatng from samplng methods, S represents the quarter n whch the household was ntervewed. Model 1 can be thought of as the demographc model. k Model 2 s the demographc model wth reforms and ncorporates nto the above specfcaton R, a set of varables thought to be drectly affected by the reforms: producton of rce and coffee, a measure of agrculture dversfcaton (total area cultvated wth non-rce crops), whether or not the household has members employed n at least one of the four man export sectors and the number of household members workng n the man export ndustres (seafood, food processng, textles and footwear), plus a set of varables that account for technologcal changes possbly nduced by the economc reforms. These are rce productvty (for households that produce rce), the area of land rrgated per capta and the use of fertlsers. 37 The potental mpact of land reforms s also ncorporated wth a dummy varable that takes the value 1 f the household has extended rghts over the land t uses. 38 35 Ths s a dummy varable that takes the value 1 f the head of the household lost more than 7 days of work due to llness n the month pror to the ntervew and 0 otherwse. 36 Net ncome assets represent total savngs mnus debts held by the household. 37 Rce productvty s defned by klos of rce harvested per square metre of land. In order to avod measurement errors, ths varable has been nteracted wth a varable ndcatng whether each household produces rce or not. The rce productvty results refer solely to those households that produce rce. Land rrgaton per capta s gven by the number of square metres of land rrgaton per person n the household. Use of fertlsers was constructed by addng up the amount (klos) of dfferent fertlsers (urea-ntrogen, phosphate, potassum, NPK and other fertlsers) used by the household n the 12 months pror to the ntervew. 38 Land was owned solely by the state pror to the Do Mo and land transactons were not permtted. After 1993, land tenure was extended to 20 years for annual crop land and 50 years for perennals. Households were also gven extended rghts to exchange, transfer, lease, nhert and mortgage land (Benjamn and Brandt, 2002). 16
Models 1 and 2 nclude only the ntal 1992-93 values for the explanatory varables. However, t may be approprate to look at changes n explanatory varables as well as the ntal characterstcs (see Glewwe and Hall, 1998 and Dercon, 2000). Model 3 thus analyses the relatonshp between poverty dynamcs and changes n household characterstcs, as well as ntal condtons as follows: ln C [ P( Y 2) P( Y = 0) ] k = = φ ( F, D, D, L, L, I, R, R, W ), I, E, E, A, A, S, (6) where D, E, I and A represent changes n the ntal demographc, educaton, llness and wealth characterstcs of each household. Also ncluded are changes n the reform varables, R,, namely: changes n the number of members of the household employed n the four man export ndustres, 39 dummy varables for changes n occupaton of the head of the household between the agrcultural sector and other sectors, changes n land rrgated per capta, changes n rce productvty, changes n land ownershp, changes n the quantty of fertlsers used, change n the output of rce and coffee, changes n the area cultvated wth non-rce crops and change n the unt values of rce and coffee. In addton, an external commune-level shock varable s ncluded to ndcate adverse envronmental condtons (floods, droughts, typhoons and other weather-related dsasters, or pest damage) between 1993 and 1998 (W ). The ncluson of change varables does rase questons of endogenety, partcularly the ncluson of changes n the varables thought to be affected drectly by the economc reforms. Ths s because these varables may be smultaneously a cause and a consequence of changes n poverty status. Causalty s therefore less easy to establsh but, by ncludng the change varables, we obtan some nterestng nsghts for vald short-run polcy and targetng varables. Endogenety s partally controlled for by the smultaneous ncluson of ntal values. 40 39 Footwear gets dropped from models 2 and 3 because there are not any rural households from the panel workng n the footwear ndustry that are poor. 40 We have n addton analysed how endogenety may affect the employment varables, as these are the varables most lkely to have smultaneously affected and been affected by poverty. We found that 20.91% of all households for whch data s avalable had been n ther job n 1997-98 for less than one year, 51.44% between 1-3 years and 27.52% between 3-5 years. Ths ndcates 17
The results for models 1, 2 and 3 are shown n table 9 and are very consstent across the three models, 41 wth very few statstcally sgnfcant changes n the relatve rsk ratos. 42 The explanatory power of the multnomal logt model, measured usng a pseudo R 2, ncreases as further varables are added to the base model. The ncluson of trade varables nto the base model explan an extra 20.7% of changes n poverty status of Vetnamese households between 1992-93 and 1997-8, whereas addng change varables mprove the explanatory power of model 2 by 27.9%. The regonal economc performance n Vetnam durng the 1990s suggests the presence of strong regonal effects. Although aggregate growth has been very strong, much of the ncrease n Vetnam s economc performance has taken place n the growth poles of Ho Ch Mnh Cty n the Mekong, Hano n the Red Rver Delta, along the central coast and n the South East, where a large fracton of the Vetnamese export sector s concentrated. The Mekong Rver Delta prmarly, and Red Rver Delta to a lesser extent, are also largely responsble for most of the export qualty rce, whle coffee producton s concentrated n the Central Hghlands. Ths s reflected n our regresson results, whch show that households n southern regons (South East and to a lesser extent households n the Mekong Rver Delta and Central Hghlands) have ncreased probabltes of escapng poverty relatve to remanng poor n both years. In addton to strong regonal effects, table 9 shows also sgnfcant demographc effects. The results suggest that the probablty of escapng poverty relatve to remanng poor s hgher than average for those ndvduals belongng to households wth better educated heads and spouses and older heads. 43 Households wth heads employed n a whte-collar job and households lvng n communes wth better that the employment varables are unlkely to have been affected by poverty dynamcs as almost all households questoned n 1997-98 had been n ther jobs for less than 5 years (.e. snce before 1992-93). 41 The standard errors of the estmates for models 1, 2 and 3 are corrected for heteroscedastcty usng Whte s adjusted heteroscedastcty-consstent varances. 42 The dscusson n ths secton focuses on the relatve rsk ratos that are statstcally sgnfcantly dfferent from unty. 43 We beleve that ths result s assocated wth the fact that households wth young heads are lkely to have young chldren, whch poses a fnancal burden on the household (Ltchfeld and Justno, 2003). One mportant cause of hgher poverty for households wth larger numbers of chldren s the hgh costs of educaton whch have soared n Vetnam after the mplementaton of the new economc reforms (World Bank, 1999). 18
nfrastructure have also ncreased probabltes of havng escaped poverty n 1997-98. 44 On the other hand, (non-chnese) ethnc mnortes, as well as households wth younger or relatvely poorly educated household heads, not recevng remttances or whose head of household had been absent from work through llness, were more lkely to havng fallen nto poverty n Vetnam between 1992-93 and 1997-98. 45 Models 2 and 3 show further that household poverty dynamcs n Vetnam between 1992-93 and 1997-98 were also sgnfcantly affected by varables assocated wth the reforms that took place n the country durng the 1990s. The models show that ndvduals belongng to households wth members employed n the seafood ndustry had ncreased probabltes of escapng poverty. Furthermore, not only dd those households that n 1992-93 were already nvolved n the export ndustres experence hgher probabltes of escapng poverty, but those households whch experenced an ncrease n the number of members employed n any of the man export ndustres had ncreased probabltes of havng escaped poverty n relaton to remanng poor n both years. Ths result suggests that the trade reforms have had mportant employment effects for Vetnamese households. The effects of the trade reforms were also felt strongly n the agrculture sector. The results n table 9 show that ndvduals belongng to households whose head shfted out of agrculture (as ts man occupaton) to any other sector ncreased the probablty of the household escapng poverty by almost 72%. 46 Furthermore, although the level of rce output dd not seem to affect the probablty of households escapng poverty, larger output levels decreased sgnfcantly the probablty of households fallng nto 44 Most nsttuton and nfrastructure varables seem to have welfare-enhancng effects. The only excepton s access to a post offce, whch seems to decrease the probablty of households escapng poverty and ncrease the probablty of households fallng nto poverty. Ths apparently perverse effect may be related to partcular characterstcs of communes that have post offces: most of these are n the Mekong Rver Delta, where a relatvely large percentage of households fell nto poverty. 45 These results are not corrected for household sze or economes of scale. Although the conventonal wsdom that larger households experence hgher probabltes of beng poor has been challenged by Lanjouw and Lanjouw (2001) due to fndngs that the relatonshp between poverty and household sze s not robust to the use of equvalence scales, there s some evdence that n Vetnam the relatonshp s relatvely robust. Ths may be because economes of scale n rce consumpton are small gven ts staple nature and/or to the relatvely small varaton n household sze among the majorty Knh populaton. Ltchfeld and Justno (2003) analyse the results of the multnomal logt models usng a poverty lne based on per capta consumpton wth the use of per adult equvalent consumpton and fnd the rrr to be almost dentcal to the results reported n ths paper. 46 Ths assumes the causalty has run from employment to poverty,.e. that the occupaton swtch resulted n an mprovement n lvng standards. The alternatve s that the household experenced an mprovement n lvng standards for some other reason and subsequently changed occupaton. Ths s an unlkely scenaro gven the results reported n footnote 40. 19
poverty n 1997-98. At the same tme, ncreases n the retal prce of rce ncreased the probablty households escapng poverty. Coffee producton, ncreases n coffee producton and ncreases n the retal prce of coffee, as well as the cultvaton of non-rce crops and ncreases n the area dedcated to the cultvaton of non-rce crops, have ncreased and qute large effects on the probablty of households escapng poverty. Ths result shows that, although mprovements n rce productvty and rce prces and the fall n the cost of fertlsers enabled many rce producers to escape poverty, farmers who were able to dversfy nto more proftable crops, such as coffee, experenced greater probabltes of escapng poverty. The models analysed n ths secton allow us thus not only to dentfy the wnners and losers from the economc reforms but also, based on the examnaton of the characterstcs of each household, to understand why and how some ndvduals have benefted more than others from the new economc polces, at the same tme that possble demographc and human captal effects are controlled for. Welfare-ganng households were, n general, those where a sgnfcant number of members found a job n one of the export sectors and agrcultural households more open to dversfcaton of crops and actvtes. 6. DECOMPOSING POVERTY DYNAMICS The regresson results obtaned above can be used to provde a decomposton of the overall probablty of escapng or enterng poverty by each of the explanatory varables, as follows: 47 S Y β. n j= 1 = k n = 1 j= 1 X j β X j (6) 47 See Dercon (2000) for smlar analyss. 20
where S s the share of the overall probablty of outcome Y, n s the total number of observatons n the panel, k s the total number of coeffcents, Xj are the values of the explanatory varables for household n perod j and β are the regresson coeffcents (not the rrr). Table 10 presents the decomposton of the probablty of a household escapng poverty usng the regresson coeffcents for model 3. 48 The table shows that the largest effects on poverty dynamcs n Vetnam between the two survey years were those of ntal level n educaton of the head of the household and hs or her spouse and geographc locaton. Ths latter effect s lkely to reflect the mpact of economc changes n specfc regons, e.g. the ncreases n rce productvty n the Mekong Rver Delta and the establshment of export ndustres n the South East, whch n turn llustrates the mportance of trade reforms for household poverty dynamcs. Intal condtons and reform-nduced economc changes contrbute also drectly (and sgnfcantly) towards changes n household poverty status n Vetnam between 1992-93 and 1997-98. Intal values and changes n reform-affected agrculture varables account for, respectvely 8% and 17.7% of the probablty of escapng from poverty. Employment n the man export ndustres, and ncreases n the number of members employed n those ndustres, account for further 0.79% and 0.09% of the total probablty of escapng poverty. The largest contrbutons to the probablty of escapng poverty, among the trade-affected explanatory factors, are from ncreases n coffee producton and cultvaton of non-rce crops. These results confrm that movements out of poverty n Vetnam between 1992-93 and 1997-98 were, to a relatvely large extent, determned by the trade and trade-related reforms that took place n the country durng the 1990s. 7. SENSITIVITY ANALYSIS: POVERTY FUNCTIONS OR CONSUMPTION REGRESSIONS? Although the multnomal logt models analysed above show consstent and effcent results across three dfferent model specfcatons, the choce of regresson technque may be subject to crtcsms. The 48 The analyss focuses on the probablty of escapng poverty as relatvely few households became poor durng the perod. 21