can vietnam achieve the millennium development goal on poverty reduction in high inflation and...

CAN VIETNAM ACHIEVE THE MILLENNIUMDEVELOPMENT GOAL ON POVERTY REDUCTION IN HIGH

INFLATION AND ECONOMIC STAGNATION?

Nguyen Viet CUONGIndochina Research and Consulting, Hanoi, Vietnam

First version received September 2009; final version accepted December 2010

An important aspect of the Millennium Development Goals (MDGs) to which Vietnamis committed is to reduce overall and food poverty. Although Vietnam has achievedremarkable reductions in poverty during recent years, Vietnam may not achieve itsMDGs on poverty reduction because of high inflation and economic stagnation. Thispaper uses three recent Vietnam Household Living Standard Surveys (VHLSSs), in2002, 2004, and 2006, to forecast poverty in 2008 and 2010 to examine whetherVietnam can achieve its MDGs on poverty reduction. The forecast takes into accounthigh inflation in 2008 and economic stagnation during 2008–09. It is found thatVietnam may be able to achieve its MDGs on reduction of overall poverty; however, theMDGs on food poverty reduction may not be achieved.

Keywords: Millennium Development Goals; Poverty; Food poverty; Householdsurvey; VietnamJEL classification: I31, I32, O12

I. INTRODUCTION

V ietnam committed itself to the implementation of the Millennium Devel-opment Goals (MDGs) in 2000. The first MDG is to reduce the overall aswell as food poverty. More specifically, the country aims to: (i) reduce by

50% the fraction of the population living below an internationally accepted povertyline between 2001 and 2010, i.e., from 32% in 2000 to around 16% in 2010; (ii)reduce by 75% the number of people living under an internationally accepted foodpoverty line by 2010, i.e., from 12% in 2000 to around 3% in 2010; and (iii) reduce

I would like to thank anonymous reviewers for their very helpful comments and suggestions on thispaper.

The Developing Economies 49, no. 3 (September 2011): 297–320

© 2011 The AuthorThe Developing Economies © 2011 Institute of Developing Economies

doi: 10.1111/j.1746-1049.2011.00136.x

by 60% the number of households living below the poverty line provided in theNational Targeted Programs on Poverty Reduction and Job Creation.1

Vietnam has committed itself to a “growth with equity” strategy of development.The country has achieved high economic growth, with annual GDP growth rates ofaround 7.5% over the past ten years. Poverty rates declined remarkably from 58%to 16% between 1993 and 2006. The number of people below the food poverty linealso declined from 25% to 7% during the same period.

In spite of remarkable achievements in poverty reduction in recent years,Vietnam might not achieve its MDGs on poverty reduction because of high infla-tion and economic stagnation. There was very high inflation during 2008. Theoverall CPI increased around 23% during the first nine months of 2008. Duringthese months, the food and nonfood CPIs increased by 36% and 13%, respec-tively. High inflation can have ambiguous impacts on the poor. The realconsumption of the poor can be reduced by inflation. On the other hand, the poorare also producers, who can experience increases in income due to inflation.Depending on the reasons for inflation and the structure of the economy,the effect of price increases on poverty can be both negative and positive (Raval-lion and Lokshin 2004; Hertel and Winters 2006; Ivanic and Martin 2008).The effect of high inflation on poverty cannot be signed a priori. Empiricalfindings on the impact of inflation on poverty are also not consistent. Forexample, Ivanic and Martin (2008) show that increases in food prices lead toincreases in poverty in some countries and decreases in poverty in others. For thecase of Vietnam, Minot and Goletti (2000) find that an increased price of ricecan increase poverty, while Ivanic and Martin (2008), Vu and Glewwe (2009)find evidence that an increased price of rice and food might decrease povertyslightly.

The second challenge to the MDGs on poverty reduction is the recent crisis ofthe global and Vietnamese economies. The global financial crisis and economicstagnation in Vietnam lowered the average economic growth rate during the period2008–10. As a result, the poor may be harmed and poverty will not decline asexpected.

This paper has two main objectives. The first objective is to propose a simplemethod to forecast poverty using panel data from household surveys. Projection ofpoverty trends can provide information useful for poverty monitoring and evalu-ation. The second objective is to examine whether Vietnam can achieve its MDGson poverty reduction by forecasting poverty in 2008 and 2010 using three recent

1 This program is implemented by the Ministry of Labor, Invalid, and Social Affairs. This programprovides the poor with support and assistance in education, healthcare, production, etc. For theperiod 2006–10, this program is structured as and renamed the “National Targeted Programs onPoverty Reduction.”

298 the developing economies


VHLSSs in 2002, 2004, and 2006. The forecasts take into account high inflation in2008 and economic stagnation during 2008–09. Since the poverty line provided inthe National Targeted Programs on Poverty Reduction and Job Creation is notconsistent over time, the paper will rely on the overall and food poverty lines thatare constructed by the General Statistical Office of Vietnam (GSO) and the WorldBank in the analysis. These poverty lines are often regarded as internationallyaccepted poverty lines.

Compared to previous studies in Vietnam and other countries, this paper hasseveral special features. First, the paper examines the poverty trend when there isrelatively high inflation and economic stagnation in Vietnam. At the moment, massmedia in Vietnam claims that the poor are harmed by high inflation and the MDGson poverty reduction might not be achieved by 2010. However, there has not beena quantitative study on this issue so far. Second, unlike other studies on therelationship between inflation and poverty, the paper not only estimates the effectof inflation on poverty but also forecasts poverty levels in the future period. Third,the paper investigates the effects of inflation on both overall and food povertymeasured by the three popular Foster–Greer–Thorbecke poverty indexes. All theprevious studies in Vietnam focus only on the impacts of increases in rice and foodprices on the overall poverty incidence.

The paper is structured in five sections. The second section introduces the dataset. The third section briefly describes the poverty trend in Vietnam. The fourthsection presents estimation method and empirical findings. Finally, the fifth sectionconcludes.

II. DATA SETS

The paper relies on available data from the VHLSSs in the years 2002, 2004, and2006. The surveys were conducted by the GSO with technical support of the WorldBank. The numbers of sampled households in VHLSSs 2002, 2004, and 2006 are29,533, 9,188, and 9,189, respectively. The surveys are representative for thenational, rural and urban, and regional levels. It is interesting that VHLSSs 2002and 2004 set up panel data of 4,008 households, and VHLSSs 2004 and 2006 setup panel data of 4,126 households. These panel data are representative for urbanand rural Vietnam. However, there are only 1,872 households covered by all threeVHLSSs. It means that the panel data sample from VHLSSs 2002 and 2006 hasonly 1,872 households.

The surveys collect information through household- and community-level ques-tionnaires. Information on households includes basic demography, employment,education, health, income, expenditure, housing, assets, and especially informationon healthcare utilization, out-of-pocket healthcare spending, and health insurance.Information on commune characteristics consists of demography and general

vietnam’s mdg on poverty reduction 299


situation of communes, economic conditions, nonfarm employment, agricultureproduction, local infrastructure and transportation, education, health, and socialaffairs.

Expenditure and income per capita are collected by using very detailed ques-tionnaires in VHLSSs. Expenditure includes food and nonfood expenditure. Foodexpenditure includes purchased food and foodstuff and self-produced products ofhouseholds. Nonfood expenditure comprises expenditure on education, healthcareexpenditure, expenditure on houses and commodities, and expenditure on power,water supply, and garbage. Regarding income, household income can come fromany source. Income includes income from agricultural and nonagricultural produc-tion, salary, wage, pensions, scholarship, income from loan interest and houserental, remittances, and social transfers. Income from agricultural production com-prises crop income, livestock income, aquaculture income, and income from otheragriculture-related activities.

III. POVERTY IN VIETNAM

In this paper, a household is classified as poor if their per capita expenditure isbelow the overall poverty line set up by the GSO and the World Bank. Similarly,a household is defined as food poor if their per capita expenditure is below the foodpoverty line of the GSO and the World Bank. The food poverty line is equivalentto the expenditure level that allows for nutritional needs equivalent to 2,100calories per day. The overall poverty line is the consumption expenditure which isequal to the food poverty line plus expenditure on some essential nonfood con-sumption such as clothing and housing. The overall and food poverty lines duringthe period 2002–06 are presented in Table 1.

It should be noted that the definition of the food poverty line does not mean thata household whose consumption expenditure is above the food poverty line willnecessarily achieve 2,100 calories per day per person, due to consumption of somenecessary nonfood items. Thus, households below the food poverty line can beregarded as the extremely poor households. However, in the current paper, we use

TABLE 1

Overall and Food Poverty Lines in Vietnam (1,000 VND)

2002 2004 2006

Overall poverty line 1,917 2,077 2,560Food poverty line 1,382 1,500 1,915

Source: World Bank (2003, 2007).



the terminology “food poverty” instead of “extreme poverty” since “food poverty”is widely used in the MDG documents and other poverty assessment report (e.g.,World Bank 2003).

To examine poverty, the paper uses the three popular Foster–Greer–Thorbeckepoverty indexes (Foster, Greer, and Thorbecke 1984). The poverty indexes includethe poverty incidence (P0), poverty gap index (P1), and poverty severity index (P2).Tables 2 and 3 present the estimates of the poverty indexes using the overall andfood poverty lines for the period 2002–06. It is shown that the overall and foodpoverty was reduced for both rural and urban areas during the period 2002–06. In2006, the overall poverty incidences were 20.4% and 3.9% in the rural and urbanareas, respectively. The food poverty incidences were 8.7% and 1.2% in the ruraland urban areas, respectively.

Poverty differs substantially across regions in Vietnam. Except for the SouthEast region, all regions experienced reduction in both overall and food poverty overthe period 2002–06. However, poverty remains very high in some regions such asthe North West, the North East, the North Central Coast, and the Central Highland.

It should be noted that the incidence of overall poverty was 16% in 2006. Itmeans that the first objective of the MDGs on poverty reduction (“reduce by 50%the ratio of people living below an internationally accepted poverty”) was alreadyachieved in 2006. However, because of high inflation in 2008 and economicstagnation, it is not clear whether Vietnam can achieve the MDGs on povertyreduction in 2010. This issue will be addressed in the next section.

IV. ESTIMATION OF POVERTY IN 2008 AND 2010

A. Poverty Estimation under Assumption of No Inflation and EconomicStagnation

1. MethodologyTo predict poverty in 2008 and 2010, we need to predict the per capita expen-

diture of households in 2008 and 2010. To do so, we assume the following relationsbetween assets, income, and consumption of households:

C Y Sit it it= − , (1)

Y F X Yit i t i t it= ( ) +− −( ) ( ), ,1 1 ε (2)

where Cit, Yit, and Sit are the consumption expenditure, income, and saving,respectively, of household i in period t; Xi(t-1) and Yi(t-1) are the assets and income ofthe household in the previous period (t - 1); eit denotes stochastic income shocksto the household in period t. Equation (2) means that the expected income in afuture period depends on the assets and income of the current period. However, therealized income in a future period can be different from the expected income



TAB

LE

2

Ove

rall

Pove

rty

duri

ngth

ePe

riod

2002

–06

Are

as20

0220

0420

06

P0

(%)

P1

P2

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

:R

ural

35.6

0.08

650.

0304

25.0

0.06

120.

0221

20.4

0.04

950.

0179

Urb

an6.

60.

0130

0.00

413.

60.

0070

0.00

213.

90.

0077

0.00

21R

egio

n:R

edR

iver

Del

ta22

.40.

0426

0.01

2012

.10.

0212

0.00

568.

80.

0154

0.00

42N

orth

Eas

t38

.40.

0965

0.03

2929

.40.

0701

0.02

3725

.00.

0563

0.01

86N

orth

Wes

t68

.00.

2410

0.10

4858

.60.

1911

0.08

0349

.00.

1565

0.06

48N

orth

Cen

tral

Coa

st43

.90.

1063

0.03

6131

.90.

0809

0.02

9229

.10.

0766

0.02

90So

uth

Cen

tral

Coa

st25

.20.

0596

0.02

1419

.00.

0510

0.02

1112

.60.

0264

0.00

86C

entr

alH

ighl

ands

51.8

0.16

660.

0705

33.1

0.10

650.

0451

28.6

0.08

820.

0366

Sout

hE

ast

10.5

0.02

240.

0078

5.4

0.01

200.

0044

5.8

0.01

410.

0055

Mek

ong

Riv

erD

elta

23.4

0.04

660.

0142

15.9

0.02

990.

0090

10.3

0.01

820.

0048

All

Vie

tnam

28.8

0.06

940.

0243

19.5

0.04

720.

0170

16.0

0.03

830.

0137

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02,2

004,

and

2006

.N

ote:

P0:

pove

rty

inci

denc

e;P

1:po

vert

yga

pin

dex;

P2:

pove

rty

seve

rity

inde

x.



TAB

LE

3

Food

Pove

rty

duri

ngth

ePe

riod

2002

–06

Are

as20

0220

0420

06

P0

(%)

P1

P2

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

:R

ural

13.6

0.02

570.

0076

9.7

0.01

950.

0062

8.7

0.01

810.

0059

Urb

an1.

90.

0031

0.00

080.

80.

0015

0.00

041.

20.

0015

0.00

03R

egio

n:R

edR

iver

Del

ta5.

30.

0074

0.00

172.

30.

0034

0.00

082.

10.

0034

0.00

07N

orth

Eas

t15

.40.

0265

0.00

7111

.40.

0189

0.00

519.

50.

0172

0.00

51N

orth

Wes

t46

.10.

1080

0.03

5834

.80.

0822

0.02

6829

.90.

0710

0.02

49N

orth

Cen

tral

Coa

st17

.50.

0293

0.00

7713

.60.

0254

0.00

7714

.30.

0304

0.00

99So

uth

Cen

tral

Coa

st9.

00.

0183

0.00

638.

10.

0201

0.00

824.

80.

0085

0.00

21C

entr

alH

ighl

ands

29.5

0.07

180.

0241

18.8

0.04

620.

0156

16.4

0.03

950.

0146

Sout

hE

ast

3.0

0.00

670.

0025

1.5

0.00

400.

0015

2.3

0.00

610.

0022

Mek

ong

Riv

erD

elta

6.5

0.01

010.

0026

4.0

0.00

640.

0017

2.7

0.00

330.

0007

All

Vie

tnam

10.9

0.02

040.

0061

7.4

0.01

490.

0047

6.7

0.01

370.

0044

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02,2

004,

and

2006

.



because of income shocks eit. A lucky season can lead to higher income thanexpected, while adverse shocks can reduce the realized income of the households.

Now suppose that we have panel data on income, consumption expenditure, andassets for the periods (t - 1) and t and want to forecast consumption expenditure inthe period (t + 1). Based on the model specified in equations (1) and (2) andfeatures of the panel data, we can estimate expenditure and poverty in the period(t + 1) by the following steps:

(i) Estimate the relation between per capita income in the period t and assetsin the period (t - 1) using the panel data from surveys in the periods t and(t - 1):

ln ln ,( ) ( )Y Y Xit i t i t it( ) = + ( ) + +− −β β β ε0 1 1 1 2 (3)

where Xi(t-1) denotes the asset variables and eit denotes stochastic income shocks. eit

is distributed as N (0, s 2).(ii) Apply the estimated relationship from equation (3) to the survey at time t to

predict households’ per capita income at the time (t + 1):

ln ln .1 0 1 2 1ˆ ˆ ˆ ˆ ˆ( ) ( )Y Y Xi t it it i t+ +( ) = + ( ) + +β β β ε (4)

To attribute the predicted income to the time (t + 1), we need an assumption thatthe marginal return of assets, i.e., the coefficients b1 and b2, are unchanged duringthe period between (t - 1) and (t + 1). Since we do not observe ˆ ( )εi t+1 , we predictit by drawing a number randomly from the distribution of ε̂it in equation (3),i.e., N 0, 2σ̂( ) . This implies that we need an assumption that Var (eit) is equal toVar (ei(t+1)). The simulation of errors to estimate per capita expenditure is alsoused in several studies such as Elbers, Lanjouw, and Lanjouw (2003), andBarham and Boucher (1998). We cannot use the predicted income without thepredicted error to compute income and expenditure since this way leads tobiased estimates of poverty indexes (Hentschel et al. 2000).(iii) Predict per capita consumption expenditure:

ˆ ,( )ˆ ln ˆ ˆ ˆ ( )C

C

Yei t

it

it

Y Xit it i t+

+ ( ) + += +1

0 1 2 1β β β ε(5)

with an assumption thatC

Y

C

Yi t

i t

it

it

( )

( )

+

+=1

1

. This implies that the ratio of consumption

expenditure to income of households at the time (t + 1) is equal to that at the timet. We examine this assumption by calculating the ratio of consumption expenditureto income and the average change in this ratio during the period 2002–06 using thepanel data from VHLSSs 2002, 2004, and 2006 (Appendix Table 3). If thisassumption holds, the means and the standard deviations of household-level



differences in the ratio of consumption expenditure to income between yearsshould be close to zero. Appendix Table 3 shows that the means are rather close tozero, but the standard deviations are approximately equal to 0.2. For a number ofhouseholds, the assumption is not valid. Thus it is a strong assumption. Allowingfor a more flexible and realistic assumption on consumption behaviors ofhouseholds is beyond the scope of the paper, but certainly important for futureresearch.(iv) Estimate the overall and food poverty indexes using the predicted per capita

expenditure, ˆ( )Ci t+1 . The standard errors of the estimates will be calculated by

using bootstrap techniques.

2. Estimation resultsWe use panel data from VHLSSs 2004 and 2006 to predict the relation betweenincome in 2006 and assets and income in 2004. Then we apply this estimatedrelation to the assets and income in 2006 (from the VHLSS 2006) to predictincome in 2008. Expenditure in 2008 is computed from the predicted income in2008 and ratio of expenditure to income in 2006. Similarly, we use panel data fromVHLSSs 2002 and 2006 (lag of four years) to predict income and expenditure in2010. However, the estimates for 2010 should be interpreted with caution since thepanel data sample of VHLSSs 2002 and 2006 has only 1,872 households, whichmay not be nationally representative. As mentioned above, the projection ofincome and expenditure in 2008 is based on the assumption that macroeconomicchanges from 2006 to 2008 are the same as macroeconomic changes from 2004 to2006. Similarly, the projections of income and expenditure in 2010 are based onthe assumption that macroeconomic changes from 2002 to 2006 are the same asmacroeconomic changes from 2006 to 2010.

It should be noted that we have deflated all variables in VHLSSs 2002 and 2004in terms of 2006 prices. As a result, predicted income and expenditure for 2008 and2010 are in real terms of the 2006 prices. The poverty lines used for 2008 and 2010are the 2006 poverty lines.

The dependent and independent variables are described in Appendix Table 1.Independent variables include household composition, education of householdmembers, education of household head, lands and housing characteristics, villagevariables, urbanity, and dummy regional variables. All the independent variablesare used in the regressions of logarithm of per capita income. The regression resultsare presented in Appendix Table 2.

Table 4 presents the prediction of poverty indexes for 2008 under the assump-tion that there was no high inflation in 2008. The incidence of overall poverty isreduced from 16% in 2006 to 13.6% in 2008. The food poverty incidence is alsoreduced slightly from 6.7% to 6.3%. The rural areas have higher rates of povertyreduction than the urban areas.



TAB

LE

4

Pred

icte

dPo

vert

yin

2008

Bas

edon

Pane

lD

ata

VH

LSS

s20

04an

d20

06:W

ithou

tH

igh

Infla

tion

in20

08

Are

asO

vera

llPo

vert

yFo

odPo

vert

y

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

:R

ural

17.3

[0.6

]0.

0457

[0.0

022]

0.01

79[0

.001

1]8.

1[0

.5]

0.01

90[0

.001

3]0.

0068

[0.0

006]

Urb

an3.

5[0

.5]

0.00

75[0

.001

2]0.

0025

[0.0

005]

1.3

[0.3

]0.

0024

[0.0

007]

0.00

07[0

.000

3]R

egio

n:R

edR

iver

Del

ta10

.2[0

.9]

0.02

29[0

.002

5]0.

0079

[0.0

011]

3.9

[0.5

]0.

0076

[0.0

013]

0.00

23[0

.000

5]N

orth

Eas

t18

.5[1

.4]

0.04

87[0

.004

6]0.

0190

[0.0

023]

8.7

[1.0

]0.

0201

[0.0

028]

0.00

72[0

.001

3]N

orth

Wes

t35

.5[3

.3]

0.10

91[0

.013

1]0.

0467

[0.0

070]

20.1

[2.7

]0.

0521

[0.0

087]

0.01

97[0

.004

1]N

orth

Cen

tral

Coa

st22

.3[1

.6]

0.06

26[0

.006

0]0.

0254

[0.0

032]

11.3

[1.3

]0.

0276

[0.0

039]

0.01

01[0

.001

9]So

uth

Cen

tral

Coa

st12

.3[1

.3]

0.03

04[0

.003

8]0.

0114

[0.0

018]

5.3

[0.8

]0.

0118

[0.0

022]

0.00

41[0

.001

0]C

entr

alH

ighl

ands

20.3

[2.1

]0.

0618

[0.0

076]

0.02

69[0

.004

1]11

.1[1

.6]

0.02

98[0

.005

0]0.

0119

[0.0

026]

Sout

hE

ast

6.2

[0.8

]0.

0157

[0.0

022]

0.00

61[0

.001

2]2.

7[0

.5]

0.00

63[0

.001

5]0.

0023

[0.0

007]

Mek

ong

Riv

erD

elta

9.8

[0.8

]0.

0221

[0.0

024]

0.00

76[0

.001

1]3.

8[0

.5]

0.00

74[0

.001

3]0.

0023

[0.0

005]

All

Vie

tnam

13.6

[0.5

]0.

0355

[0.0

016]

0.01

38[0

.000

8]6.

3[0

.3]

0.01

45[0

.001

0]0.

0052

[0.0

005]

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

04an

d20

06.

Not

e:St

anda

rder

rors

inbr

acke

ts(S

tand

ard

erro

rsar

eca

lcul

ated

byus

ing

boot

stra

pw

ith50

0re

plic

atio

ns.S

tand

ard

erro

rsar

eco

rrec

ted

for

sam

plin

gw

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uste

rco

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Table 5 presents the prediction of poverty indexes for 2010 under an assumptionthat the economic growth of the period 2006–10 is similar to that of the period2002–06. The overall poverty incidence is estimated at 10.6%. The poverty rates are13.7% and 2.3% in rural and urban areas, respectively. The food poverty incidenceof the country is reduced to 5%. This is higher than 3%, as stated in the MDGs.

To assess the accuracy of the poverty forecast method, we use panel data fromVHLSSs 2002 and 2004 to predict the poverty indexes in 2006. Then, we comparethese estimates with those based on the 2006 VHLSS. Table 6 presents the povertyestimates based on panel data of VHLSSs 2002 and 2004. It can be seen that thesepoverty estimates are very close to those estimated directly from the 2006 VHLSS(in Tables 2 and 3).

The findings mean that Vietnam can achieve the first objective of the MDGson reduction of overall poverty by 2008 if high inflation and economic stag-nation do not occur. However, it seems that Vietnam will find it difficult toachieve the second MDG objective on reduction of food poverty incidence to3% by 2010. This suggests that reduction of extreme poverty is more difficult thanthat of overall poverty. Households who have very low income can be chronicallypoor.

B. Poverty Estimation under Assumption of High Inflation in 2008 andEconomic Stagnation

1. MethodologyTo estimate the effect of high inflation on poverty in 2008, we take the following

steps:(i) Estimate the nominal income of households by:

ˆ ˆ( ) ( )

( )_ ( )Y YP Y P Y Y

iN

iR F i A NF i NA i

2008 20082006 2006=

( ) + ( ) +π π π_ (( )

( )

,2006

2006

_W

iY(6)

where ˆ( )YiN2008 and ˆ

( )YiR2008 are the nominal and real per capita incomes of household

i, respectively. ˆ( )YiR2008 is estimated in Section IV. A.2. The subscripts “2006” and

“2008” refer to the years 2006 and 2008, respectively. PF and PNF are the ratios ofthe actual inflation to the expected inflation of food and nonfood commoditiesduring the period 2006–08, respectively. The expected inflation rate of food andnonfood commodities of the period 2006–08 is assumed to be the same as theactual inflation rate of the period 2004–06. These ratios for food and nonfood itemsare 1.25 and 1.06, respectively (see Appendix Table 4 for CPI during the period2002–09). p is the expected CPI of the whole economy during the period 2006–08with 2006 as the base year (CPI = 100). p is assumed to be equal to the actualinflation rate of the whole economy during the period 2004–06 (estimated ataround 116.6, see Appendix Table 4). Yi(2006)_A and Yi(2006)_NA are income from



TAB

LE

5

Pred

icte

dPo

vert

yin

2010

Bas

edon

Pane

lD

ata

VH

LSS

s20

02an

d20

06:W

ithou

tE

cono

mic

Stag

natio

n

Are

asO

vera

llPo

vert

yFo

odPo

vert

y

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

:R

ural

13.7

[0.8

]0.

0368

[0.0

028]

0.01

47[0

.001

4]6.

5[0

.5]

0.01

57[0

.001

7]0.

0058

[0.0

008]

Urb

an2.

3[0

.6]

0.00

49[0

.001

5]0.

0017

[0.0

006]

0.8

[0.3

]0.

0016

[0.0

007]

0.00

05[0

.000

3]R

egio

n:R

edR

iver

Del

ta6.

7[0

.9]

0.01

51[0

.002

6]0.

0053

[0.0

011]

2.6

[0.5

]0.

0051

[0.0

013]

0.00

16[0

.000

5]N

orth

Eas

t16

.6[1

.6]

0.04

63[0

.005

5]0.

0191

[0.0

029]

8.2

[1.1

]0.

0206

[0.0

035]

0.00

79[0

.001

8]N

orth

Wes

t30

.9[3

.9]

0.09

68[0

.015

8]0.

0425

[0.0

084]

17.7

[3.1

]0.

0477

[0.0

102]

0.01

88[0

.004

9]N

orth

Cen

tral

Coa

st16

.2[1

.8]

0.04

49[0

.006

2]0.

0182

[0.0

032]

8.1

[1.2

]0.

0197

[0.0

039]

0.00

73[0

.001

9]So

uth

Cen

tral

Coa

st9.

3[1

.4]

0.02

44[0

.004

2]0.

0097

[0.0

021]

4.2

[0.8

]0.

0102

[0.0

025]

0.00

39[0

.001

3]C

entr

alH

ighl

ands

15.7

[2.2

]0.

0467

[0.0

076]

0.02

02[0

.004

0]8.

3[1

.5]

0.02

23[0

.004

9]0.

0090

[0.0

025]

Sout

hE

ast

4.3

[0.8

]0.

0105

[0.0

024]

0.00

39[0

.001

1]1.

8[0

.5]

0.00

41[0

.001

3]0.

0014

[0.0

006]

Mek

ong

Riv

erD

elta

8.7

[1.1

]0.

0205

[0.0

030]

0.00

74[0

.001

3]3.

5[0

.6]

0.00

74[0

.001

5]0.

0024

[0.0

006]

All

Vie

tnam

10.6

[0.6

]0.

0283

[0.0

021]

0.01

12[0

.001

1]5.

0[0

.4]

0.01

19[0

.001

3]0.

0044

[0.0

006]

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02an

d20

06.

Not

e:St

anda

rder

rors

inbr

acke

ts(S

tand

ard

erro

rsar

eca

lcul

ated

byus

ing

boot

stra

pw

ith50

0re

plic

atio

ns.S

tand

ard

erro

rsar

eco

rrec

ted

for

sam

plin

gw

eigh

tsan

dcl

uste

rco

rrel

atio

n).



TAB

LE

6

Pred

icte

dPo

vert

yin

2006

Bas

edon

Pane

lD

ata

VH

LSS

s20

02an

d20

04

Are

asO

vera

llPo

vert

yFo

odPo

vert

y

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

:R

ural

21.5

[0.8

]0.

0620

[0.0

031]

0.02

60[0

.001

6]11

.1[0

.6]

0.02

85[0

.002

0]0.

0109

[0.0

010]

Urb

an3.

5[0

.5]

0.00

78[0

.001

5]0.

0027

[0.0

007]

1.3

[0.3

]0.

0027

[0.0

008]

0.00

09[0

.000

3]R

egio

n:R

edR

iver

Del

ta8.

8[0

.9]

0.02

00[0

.002

5]0.

0069

[0.0

011]

3.4

[0.5

]0.

0067

[0.0

013]

0.00

21[0

.000

5]N

orth

Eas

t26

.4[1

.5]

0.07

82[0

.005

9]0.

0330

[0.0

032]

14.2

[1.2

]0.

0364

[0.0

040]

0.01

39[0

.002

0]N

orth

Wes

t42

.3[3

.0]

0.14

37[0

.014

4]0.

0659

[0.0

084]

26.5

[2.9

]0.

0755

[0.0

105]

0.03

07[0

.005

4]N

orth

Cen

tral

Coa

st28

.7[2

.0]

0.08

86[0

.007

8]0.

0387

[0.0

043]

16.0

[1.6

]0.

0433

[0.0

053]

0.01

72[0

.002

7]So

uth

Cen

tral

Coa

st14

.6[1

.5]

0.03

80[0

.004

5]0.

0147

[0.0

022]

6.8

[0.9

]0.

0155

[0.0

027]

0.00

55[0

.001

3]C

entr

alH

ighl

ands

27.0

[2.1

]0.

0907

[0.0

092]

0.04

24[0

.005

5]16

.3[1

.8]

0.04

83[0

.006

8]0.

0207

[0.0

037]

Sout

hE

ast

5.9

[0.7

]0.

0155

[0.0

023]

0.00

62[0

.001

2]2.

7[0

.5]

0.00

66[0

.001

5]0.

0025

[0.0

008]

Mek

ong

Riv

erD

elta

13.8

[1.1

]0.

0340

[0.0

034]

0.01

25[0

.001

6]6.

0[0

.7]

0.01

28[0

.001

9]0.

0042

[0.0

008]

All

Vie

tnam

16.7

[0.6

]0.

0476

[0.0

023]

0.01

98[0

.001

2]8.

5[0

.5]

0.02

16[0

.001

5]0.

0083

[0.0

007]

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02an

d20

04.

Not

e:St

anda

rder

rors

inbr

acke

ts(S

tand

ard

erro

rsar

eca

lcul

ated

byus

ing

boot

stra

pw

ith50

0re

plic

atio

ns.S

tand

ard

erro

rsar

eco

rrec

ted

for

sam

plin

gw

eigh

tsan

dcl

uste

rco

rrel

atio

n).



agricultural and nonagricultural productive activities of the household i. Yi(2006)_W

are wages/salaries, subsidy, remittances, and other income sources.Equation (6) makes several assumptions. First, it assumes that if there is no

inflation shock, the actual inflation rate is equal to the expected inflation rate. Then,the nominal income is equal to the real income multiplied by the overall inflationrate. However, when there are price shocks (which can be a sudden increase ordecrease in prices), the ratios PF and PNF will be different from one. Householdswho produce agricultural and nonagricultural products can increase their nominalincome if the actual prices of commodities increase more than the expected prices.The change in the consumer’s price is associated with a change in the producer’sprice (Deaton 1989). Second, wages, subsidies, remittances, and other incomesources are assumed to increase by the expected inflation rate of the economy.Wages cannot be adjusted for price shocks that take place during a short period. Inmost studies, people who receive a wage or salary are assumed to be most affectedby inflation. Third, equation (6) assumes that the structure of income sources ofhouseholds in 2008 is the same as that in 2006.(ii) Estimate the nominal per capita expenditure as follows:

ˆ ˆ ,( ) ( )( )

( )

C YC

YiN

iN i

i2008 2008

2006

2006

=(7)

where ˆ( )CiN

2008 and Ci(2006) are the nominal per capita expenditure in 2008 and percapita expenditure in 2006 of household i, respectively.(iii) Estimate the real per capita expenditure:

ˆ ˆ( ) ( )

( ) ( )

(

C CC P C P

CiR

iN i F F i NF NF

i2008 2008

2006 2006

2

=( ) + ( )_ _π π

0006)

, (8)

where Ci(2006)_F and Ci(2006)_NF are per capita expenditure on food and nonfoodconsumption of household i in 2006, respectively. Equation (8) indicates that thereal expenditure will decrease if the actual increase in prices is higher than theexpected increase in prices.(iv) Poverty indexes are estimated by using the predicted per capita expenditure

from step (iii).If we combine equations (6), (7), and (8), we get:

ˆ ˆ( ) ( )

( )

( )( )C Y

C

YP S Pi

RiR i

iF i A

Y2008 2008

2006

20062006=

⎡

⎣⎢

⎤

⎦⎥ +_ NNF i NA

Yi WY

i FC

F

i NFC

NF

S S

S

P

S

P

( ) ( )

( ) ( )

2006 2006

2006 2006

_ _

_ _

+( )

+⎛⎛⎝⎜

⎞⎠⎟

.(9)



This equation shows that the effect of price shocks on the real consumption ofa household depends on the structures of household income and consumption.Intuitively, if the price of a commodity increases suddenly, households whoproduce a large amount of this commodity and consume a small amount of it willbenefit from the price increase. In a short period, an increase in the price of acommodity can increase or decrease the real consumption of a household, depend-ing on whether the household produces or consumes the commodity.

It should be noted that equations (7) and (8) assume that the ratio of expenditureto income and the ratio of food expenditure to total expenditure are unchangedduring 2006–08. Because of high inflation, households can increase the ratio ofexpenditure to income and the ratio of food items to total consumption. If so, therealized poverty will be lower than the estimated poverty based on the aboveprocedure.

In addition, the paper assumes that inflation does not have macroeconomicimpacts such as unemployment or decreases in demand and supply. This is areasonable assumption since high inflation has happened in the first six months of2008, and there is low inflation during the last months of 2008. In addition, moststudies mention that the main reason for high inflation is an excess of money supply.2

As mentioned, the poverty prediction method assumes that macroeconomicchanges during 2002–06 and macroeconomic changes during 2006–10 are thesame. The GDP per capita increased by 29.6% from 2002 to 2006 (GSO 2010). Ifthere had been no economic slowdown, Vietnam would also have the growth rateof GDP per capita of 29.6% during the period 2006–10. To project poverty in 2010in the case of economic stagnation in 2009, the paper assumes that the growth rateof GDP per capita during 2006–10 is equal to the growth rate from 2002 to 2006if its third year (the year 2005) would have experienced a similar growth slowdownas 2009. In 2009, the growth rate of GDP per capita was 4.2% (GSO 2010). Thus,the growth rate of GDP per capita in the period 2006–10 is 26.1%. Per capitaincome in 2010 in the presence of economic stagnation is approximately per capitaincome in the absence of economic stagnation for 2010 multiplied by (129.6/126.1). Per capita income in the absence of economic stagnation is projected inSection IV. A.2. Then, per capita expenditure and poverty indexes are predictedbased on this projected per capita income.

This estimation approach relies on an assumption that the effect of economicstagnation on per capita income is the same as that for households. This is arather strong assumption. However, the poor as well as low-income people are a

2 For example, the money supply (M1) of Vietnam increased by 46% in 2007 (http://www.bbc.co.uk/vietnamese/vietnam/story/2008/03/080303_ftinterviewnguyentandung.shtml).



homogenous group, who are mainly rural and agricultural households. It isexpected that the effect of economic slowdown on income and consumption issimilar to that for different poor households.

2. Estimation resultsTable 7 presents the structure of income and consumption expenditure for the

poor and nonpoor in 2006. The poor have a larger proportion of agriculturalincome than that of the nonpoor. Income from agricultural production and businessaccounted for 30.8% and 53.4% of the total income for the nonpoor and the poor,respectively. By contrast, the ratio of nonagricultural income to total income of thepoor was smaller than that of the nonpoor. This implies that inflation can increasethe nominal income by a larger rate for the poor than that for the nonpoor.However, the poor tended to have larger expenditure on food consumption. Theshare of food consumption in total consumption was 46.4% and 65% for thenonpoor and poor, respectively.

Table 8 presents the estimates of poverty indexes in 2008 in the presence ofhigh inflation. It shows that high inflation increases the poverty indexes (see alsoTable 4). High inflation increases the overall poverty incidence by 1.5 percentagepoints from 13.6% to 15.1%. The overall poverty incidences for the rural andurban areas are also increased to 18.9% and 4.5%, respectively. Due to inflation,the food poverty incidence increases slightly from 6.5% to 7.1%. Povertyindexes in the case of high inflation are rather similar to poverty indexes in 2006.In other words, high inflation in 2008 almost negates the effect of income growth

TABLE 7

Structure of Income and Consumption by the Poor and Nonpoorin 2006 (%)

Nonpoor Poor Total

Structure in income:Wage 31.9 29.5 31.5Agricultural activities 30.8 53.4 34.4Nonagricultural activities 37.3 17.1 34.1Sub-total 100 100 100

Structure in consumption:Food 46.4 65.0 49.3Nonfood 53.6 35.0 50.7Sub-total 100 100 100

Ratio of consumption:expenditure to income

78.5 72.1 77.5

Source: Estimation from VHLSS 2006.



TAB

LE

8

Pred

icte

dPo

vert

yin

2008

Bas

edon

Pane

lD

ata

VH

LSS

s20

04–0

6:W

ithH

igh

Infla

tion

in20

08

Are

asO

vera

llPo

vert

yFo

odPo

vert

y

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

Rur

al18

.9[0

.6]

0.05

11[0

.002

3]0.

0203

[0.0

012]

9.1

[0.5

]0.

0217

[0.0

014]

0.00

79[0

.000

7]U

rban

4.5

[0.5

]0.

0099

[0.0

014]

0.00

34[0

.000

6]1.

7[0

.3]

0.00

33[0

.000

8]0.

0010

[0.0

003]

Reg

ion

Red

Riv

erD

elta

11.9

[0.9

]0.

0278

[0.0

027]

0.00

98[0

.001

2]4.

8[0

.6]

0.00

97[0

.001

5]0.

0031

[0.0

006]

Nor

thE

ast

19.4

[1.4

]0.

0516

[0.0

048]

0.02

03[0

.002

4]9.

2[1

.0]

0.02

16[0

.002

9]0.

0078

[0.0

014]

Nor

thW

est

35.4

[3.3

]0.

1096

[0.0

131]

0.04

73[0

.007

0]20

.2[2

.7]

0.05

28[0

.008

7]0.

0202

[0.0

041]

Nor

thC

entr

alC

oast

23.7

[1.6

]0.

0679

[0.0

062]

0.02

80[0

.003

3]12

.3[1

.3]

0.03

06[0

.004

2]0.

0114

[0.0

020]

Sout

hC

entr

alC

oast

14.1

[1.4

]0.

0358

[0.0

042]

0.01

36[0

.002

0]6.

3[0

.9]

0.01

42[0

.002

5]0.

0050

[0.0

011]

Cen

tral

Hig

hlan

ds20

.9[2

.1]

0.06

47[0

.007

7]0.

0285

[0.0

042]

11.7

[1.6

]0.

0318

[0.0

051]

0.01

28[0

.002

7]So

uth

Eas

t7.

5[0

.8]

0.01

96[0

.002

5]0.

0078

[0.0

013]

3.4

[0.5

]0.

0083

[0.0

016]

0.00

31[0

.000

9]M

ekon

gR

iver

Del

ta11

.9[0

.9]

0.02

83[0

.002

7]0.

0101

[0.0

013]

4.9

[0.6

]0.

0102

[0.0

015]

0.00

33[0

.000

6]A

llV

ietn

am15

.1[0

.5]

0.04

01[0

.001

7]0.

0158

[0.0

009]

7.1

[0.4

]0.

0168

[0.0

011]

0.00

61[0

.000

5]

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02,2

004,

and

2006

.N

otes

:1.

Stan

dard

erro

rsin

brac

kets

(Sta

ndar

der

rors

are

calc

ulat

edby

usin

gbo

otst

rap

with

500

repl

icat

ions

.Sta

ndar

der

rors

are

corr

ecte

dfo

rsa

mpl

ing

wei

ghts

and

clus

ter

corr

elat

ion)

.2.

P0:

pove

rty

inci

denc

e;P

1:po

vert

yga

pin

dex;

P2:

pove

rty

seve

rity

inde

x.



on poverty reduction during 2006–08. However, Vietnam might still achievethe first objective of the MDGs to reduce the poverty incidence to 16%by 2008.

At the regional level, all regions have increased poverty due to inflation. Theincrease in the overall and food poverty incidences is very similar across theregions.

Table 9 presents the estimation of poverty indexes when there is economicstagnation but no high inflation during 2008–09. The paper assumes that in thelong run, people can adjust real income to ensure real consumption, and the effectof inflation will be mitigated. The incidence of overall poverty may be 11.4% in2010. This means that economic stagnation can increase the poverty incidence byaround 0.8 percentage points (see Table 5). If there is high inflation, the povertyincidence can be nearly 13%. This estimate is still statistically smaller than theMDGs’ target of 16%.

Economic stagnation may also increase the food poverty incidence in 2010from 5.0% to 5.4%. The estimate of the food poverty incidence is statisticallysignificantly higher than the MDGs’ target of 3%. Thus it is possible thatVietnam cannot achieve the MDGs of food poverty reduction by 2010.Again, these results should be used with great caution since the panel dataVHLSSs 2002 and 2006 which are used for the regression analysis contain fewobservations.

V. CONCLUSION

This paper uses the three recent VHLSSs in 2002, 2004, and 2006 to forecastpoverty in 2008 and 2010 to examine whether Vietnam can achieve its MDGs onpoverty reduction. The forecasts take into account high inflation in 2008 andeconomic stagnation during 2008–09. It is found that high inflation can increasethe overall poverty rate in 2008 by around 1.5 percentage points. However,Vietnam is able to achieve its MDGs on reduction of overall poverty by 2008since the projected poverty incidence in 2008 is 15.1% in the presence of highinflation. Because of low economic growth in 2009, the overall poverty incidenceis projected at around 11.4% in 2010. This means that Vietnam can successfullyachieve the MDGs on reduction of overall poverty. However, the MDGs on foodpoverty reduction might not be achieved since the estimate of the food povertyincidence is statistically higher than the target rate of 3%.

Of course, if high inflation and economic crisis had happened during the period2008–10, Vietnam might not have achieved the MDGs on both overall and foodpoverty reduction. In this case, income redistribution might be important measureto maintain poverty reduction.



TAB

LE

9

Pred

icte

dPo

vert

yin

2010

Bas

edon

Pane

lD

ata

VH

LSS

s20

02–0

6:W

ithE

cono

mic

Cri

sis

Are

asO

vera

llPo

vert

yFo

odPo

vert

y

P0

(%)

P1

P2

P0

(%)

P1

P2

Rur

al/U

rban

Rur

al14

.7[0

.8]

0.03

99[0

.003

0]0.

0161

[0.0

015]

7.1

[0.6

]0.

0173

[0.0

018]

0.00

65[0

.000

9]U

rban

2.5

[0.6

]0.

0055

[0.0

016]

0.00

19[0

.000

7]0.

9[0

.3]

0.00

18[0

.000

7]0.

0006

[0.0

003]

Reg

ion

Red

Riv

erD

elta

7.3

[1.0

]0.

0168

[0.0

028]

0.00

59[0

.001

2]2.

9[0

.6]

0.00

58[0

.001

4]0.

0019

[0.0

005]

Nor

thE

ast

17.7

[1.6

]0.

0500

[0.0

057]

0.02

08[0

.003

0]8.

9[1

.1]

0.02

26[0

.003

7]0.

0087

[0.0

019]

Nor

thW

est

32.5

[4.0

]0.

1034

[0.0

164]

0.04

59[0

.008

9]18

.9[3

.2]

0.05

17[0

.010

8]0.

0206

[0.0

052]

Nor

thC

entr

alC

oast

17.3

[1.8

]0.

0485

[0.0

065]

0.01

99[0

.003

4]8.

7[1

.3]

0.02

16[0

.004

1]0.

0081

[0.0

020]

Sout

hC

entr

alC

oast

10.1

[1.4

]0.

0265

[0.0

044]

0.01

06[0

.002

2]4.

6[0

.9]

0.01

12[0

.002

7]0.

0043

[0.0

014]

Cen

tral

Hig

hlan

ds16

.7[2

.3]

0.05

01[0

.007

9]0.

0219

[0.0

042]

8.9

[1.5

]0.

0242

[0.0

051]

0.00

98[0

.002

6]So

uth

Eas

t4.

7[0

.9]

0.01

15[0

.002

5]0.

0043

[0.0

012]

2.0

[0.5

]0.

0045

[0.0

014]

0.00

16[0

.000

6]M

ekon

gR

iver

Del

ta9.

5[1

.1]

0.02

26[0

.003

2]0.

0082

[0.0

014]

3.9

[0.6

]0.

0083

[0.0

017]

0.00

28[0

.000

7]A

llV

ietn

am11

.4[0

.6]

0.03

07[0

.002

2]0.

0123

[0.0

011]

5.4

[0.4

]0.

0131

[0.0

013]

0.00

49[0

.000

6]

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02,2

004,

and

2006

.N

otes

:1.

Stan

dard

erro

rsin

brac

kets

(Sta

ndar

der

rors

are

calc

ulat

edby

usin

gbo

otst

rap

with

500

repl

icat

ions

.Sta

ndar

der

rors

are

corr

ecte

dfo

rsa

mpl

ing

wei

ghts

and

clus

ter

corr

elat

ion)

.2.

P0:

pove

rty

inci

denc

e;P

1:po

vert

yga

pin

dex;

P2:

pove

rty

seve

rity

inde

x.



REFERENCES

Barham, Bradford, and Stephen Boucher. 1998. “Migration, Remittances and Inequality:Estimating the Net Effects of Migration on Income Distribution.” Journal of Develop-ment Economics 55, no. 2: 307–31.

Deaton, Angus. 1989. “Rice Prices and Income Distribution in Thailand: A Non-ParametricAnalysis.” Economic Journal 99, 1–37.

Elbers, Chris; Jean O. Lanjouw; and Peter Lanjouw. 2003. “Micro-Level Estimation ofPoverty and Inequality.” Econometrica 71, no. 1: 355–64.

Foster, James; Joel Greer; and Erik Thorbecke. 1984. “A Class of Decomposable PovertyMeasures.” Econometrica 52, no. 3: 761–66.

General Statistics Office of Vietnam (GSO). 2010. Statistical Yearbook of Vietnam in 2009.Hanoi: Statistical Publishing House.

Hentschel, Jesko; Jean Olson Lanjouw; Peter Lanjouw; and Javier Poggi. 2000. “Combin-ing Census and Survey Data to Trace the Spatial Dimensions of Poverty: A Case Studyof Ecuador.” World Bank Economic Review 14, no. 1: 147–65.

Hertel, Thomas W., and L. Alan Winters, eds. 2006. Poverty and the WTO: Impacts of theDoha Development Agenda. Basingstoke: Palgrave-Macmillan; Washington, D.C.:World Bank.

Ivanic, Maros, and Will Martin. 2008. “Implications of Higher Global Food Prices forPoverty in Low-Income Countries.” Policy Research Working Paper no. 4594. Wash-ington, D.C.: World Bank.

Minot, Nicholas, and Francesco Goletti. 2000. “Rice Market Liberalization and Poverty inViet Nam.” IFPRI Research Report no. 114. Washington, D.C.: International FoodPolicy Research Institute.

Ravallion, Martin, and Michael Lokshin. 2004. “Gainers and Losers from Trade Reform inMorocco.” Policy Research Working Paper no. 3368. Washington, D.C.: World Bank.

Vu, Linh H., and Paul Glewwe. 2009. “Impacts of Rising Food Prices on Poverty andWelfare in Vietnam.” DEPOCEN Working Paper no. 13. Hanoi: Development andPolicies Research Center.

World Bank. 2003. Vietnam Development Report 2004: Poverty. Hanoi: Vietnam Devel-opment Information Center, World Bank.

———. 2007. Vietnam Development Report 2008: Social Protection. Hanoi: VietnamDevelopment Information Center, World Bank.



APPENDIX TABLE 1

Variable Description

Variables TypeMean and Standard Error

2002 2004 2006

Logarithm of per capita income (in price of 2006) Continuous 8.347 [0.007] 8.560 [0.013] 8.738 [0.010]Per capita income (thousand VND) (in price of 2006) Continuous 5571.3 [70.3] 6843.6 [120.9] 7992.1 [100.7]Per capita income (thousand VND) (in price of 2006) Continuous 4315.5 [43.3] 5170.4 [82.9] 5846.9 [79.2]Ratio of members working in agriculture to the total

number of members between 14 and 61Continuous 0.552 [0.005] 0.504 [0.007] 0.479 [0.007]

Ethnic minorities (not Kinh/Chinese) (Yes = 1) Binary 0.126 [0.004] 0.126 [0.005] 0.135 [0.006]Household size Discrete 5.124 [0.020] 5.014 [0.025] 4.868 [0.027]Ratio of children under 15 years old in household Continuous 0.291 [0.002] 0.266 [0.003] 0.241 [0.003]Ratio of people over 60 years old in household Continuous 0.087 [0.001] 0.093 [0.002] 0.097 [0.002]Ratio of female members in household Continuous 0.505 [0.001] 0.505 [0.002] 0.510 [0.002]Head without education degree Binary 0.316 [0.005] 0.289 [0.006] 0.263 [0.006]Head with primary school degree Binary 0.244 [0.004] 0.245 [0.005] 0.253 [0.005]Head with lower-secondary school Binary 0.265 [0.004] 0.248 [0.005] 0.265 [0.006]Head with upper secondary school Binary 0.084 [0.003] 0.075 [0.003] 0.078 [0.003]Head with technical degree Binary 0.055 [0.002] 0.100 [0.004] 0.098 [0.004]Head with post-secondary school Binary 0.036 [0.002] 0.043 [0.003] 0.044 [0.003]Ratio of members with lower secondary school Continuous 0.201 [0.002] 0.205 [0.003] 0.216 [0.003]Ratio of members with upper secondary school Continuous 0.079 [0.001] 0.086 [0.002] 0.094 [0.002]Ratio of members with technical degree Continuous 0.031 [0.001] 0.058 [0.002] 0.067 [0.002]Ratio of members with post secondary school Continuous 0.024 [0.001] 0.032 [0.002] 0.034 [0.002]Area of house (m2) Discrete 58.8 [0.5] 63.0 [0.6] 66.1 [0.6]Permanent house Binary 0.168 [0.004] 0.208 [0.006] 0.234 [0.006]Semi-permanent house Binary 0.598 [0.005] 0.596 [0.007] 0.611 [0.007]Temporary house Binary 0.234 [0.005] 0.196 [0.006] 0.156 [0.005]Tap water Binary 0.168 [0.005] 0.189 [0.007] 0.223 [0.008]Clean water Binary 0.593 [0.007] 0.643 [0.008] 0.642 [0.009]Other water Binary 0.239 [0.005] 0.168 [0.006] 0.135 [0.005]Area of annual crop land (m2) Continuous 0.664 [0.014] 0.669 [0.018] 0.696 [0.020]Area of perennial crop land (m2) Continuous 0.229 [0.009] 0.202 [0.015] 0.238 [0.014]Area of forestry land (m2) Continuous 0.220 [0.021] 0.195 [0.022] 0.214 [0.026]Distance from village to the nearest market (km) Continuous 2.183 [0.096] 2.198 [0.095] 2.345 [0.101]Village with road (Yes = 1) Binary 0.667 [0.006] 0.912 [0.005] 0.907 [0.005]Household in urban areas Binary 0.232 [0.002] 0.258 [0.010] 0.267 [0.010]Red River Delta Binary 0.219 [0.002] 0.218 [0.007] 0.216 [0.007]North East Binary 0.119 [0.001] 0.114 [0.004] 0.115 [0.004]North West Binary 0.027 [0.001] 0.030 [0.002] 0.032 [0.002]North Central Coast Binary 0.134 [0.002] 0.129 [0.006] 0.132 [0.006]South Central Coast Binary 0.085 [0.001] 0.086 [0.005] 0.085 [0.005]Central Highlands Binary 0.058 [0.001] 0.056 [0.004] 0.060 [0.005]South East Binary 0.146 [0.002] 0.159 [0.009] 0.159 [0.008]Mekong River Delta Binary 0.212 [0.002] 0.208 [0.007] 0.201 [0.007]Number of observations 29,533 9,188 9,189

Source: Estimations from VHLSSs 2002, 2004, and 2006.Note: Standard errors in brackets (Standard errors are corrected for sampling weights and cluster correlation).



APP

EN

DIX

TAB

LE

2

Reg

ress

ions

ofL

ogof

Per

Cap

itaIn

com

e

Inde

pend

ent

Var

iabl

esD

epen

dent

Var

iabl

eof

2004

and

Inde

pend

ent

Var

iabl

esof

2002

:Pa

nel

Dat

a20

02–0

4

Dep

ende

ntV

aria

ble

of20

06an

dIn

depe

nden

tV

aria

bles

of20

04:

Pane

lD

ata

2004

–06

Dep

ende

ntV

aria

ble

of20

06an

dIn

depe

nden

tV

aria

bles

of20

02:

Pane

lD

ata

2002

–06

Log

arith

mof

per

capi

tain

com

e0.

463*

**[0

.020

]0.

529*

**[0

.019

]0.

404*

**[0

.030

]E

thni

cm

inor

ities

(not

Kin

h/C

hine

se)

(Yes

=1)

-0.1

59**

*[0

.028

]-0

.159

***

[0.0

28]

-0.1

45**

*[0

.043

]H

ouse

hold

size

-0.0

13**

[0.0

06]

0.00

4[0

.005

]0.

003

[0.0

08]

Rat

ioof

child

ren

unde

r15

year

sol

din

hous

ehol

d-0

.147

***

[0.0

55]

-0.1

70**

*[0

.051

]-0

.165

*[0

.089

]R

atio

ofpe

ople

over

60ye

ars

old

inho

useh

old

-0.1

00*

[0.0

52]

-0.0

23[0

.047

]-0

.067

[0.0

88]

Rat

ioof

fem

ale

mem

bers

inho

useh

old

-0.0

73*

[0.0

40]

0.01

8[0

.037

]0.

075

[0.0

64]

Age

ofhe

ad-0

.001

[0.0

01]

-0.0

02**

*[0

.001

]-0

.001

[0.0

01]

Hea

dw

ithou

ted

ucat

ion

degr

eeO

mitt

edH

ead

with

prim

ary

scho

olde

gree

0.02

3[0

.023

]-0

.007

[0.0

21]

0.06

3*[0

.037

]H

ead

with

low

er-s

econ

dary

scho

ol0.

087*

**[0

.033

]0.

02[0

.030

]0.

062

[0.0

51]

Hea

dw

ithup

per

seco

ndar

ysc

hool

0.02

2[0

.042

]-0

.049

[0.0

41]

0.02

7[0

.066

]H

ead

with

tech

nica

lde

gree

0.06

6[0

.053

]0.

045

[0.0

41]

0.06

9[0

.081

]H

ead

with

post

-sec

onda

ryde

gree

0.17

1***

[0.0

60]

0.11

2**

[0.0

57]

0.29

5***

[0.1

09]

Rat

ioof

mem

bers

with

low

erse

cond

ary

scho

ol0.

217*

[0.1

17]

0.25

8***

[0.0

77]

0.27

3[0

.177

]R

atio

ofm

embe

rsw

ithup

per

seco

ndar

ysc

hool

0.37

6***

[0.1

13]

0.46

8***

[0.0

92]

0.34

1*[0

.192

]R

atio

ofm

embe

rsw

ithte

chni

cal

degr

ee0.

310*

**[0

.068

]0.

283*

**[0

.065

]0.

396*

**[0

.097

]R

atio

ofm

embe

rsw

ithpo

stse

cond

ary

scho

ol0.

07[0

.051

]0.

113*

*[0

.048

]0.

241*

**[0

.084

]A

rea

ofho

use

(m2 )

0.00

1***

[0.0

00]

0.00

1***

[0.0

00]

0[0

.000

]Pe

rman

ent

hous

e0.

085*

**[0

.032

]0.

090*

**[0

.028

]0.

136*

*[0

.053

]Se

mi-

perm

anen

tho

use

0.07

6***

[0.0

22]

0.04

0**

[0.0

19]

0.06

7**

[0.0

34]

Tem

pora

ryho

use

Om

itted

Tap

wat

er0.

119*

**[0

.033

]0.

054*

[0.0

30]

0.08

1[0

.050

]C

lean

wat

er0.

050*

*[0

.022

]0.

021

[0.0

22]

0.01

7[0

.034

]U

ncle

anw

ater

Om

itted

Are

aof

pere

nnia

lcr

opla

nd(m

2 )0.

013

[0.0

08]

0.01

8***

[0.0

06]

0.01

2[0

.010

]A

rea

ofan

nual

crop

land

(m2 )

0.03

5***

[0.0

07]

0.02

8***

[0.0

08]

0.02

7*[0

.015

]A

rea

offo

rest

ryla

nd(m

2 )0.

003

[0.0

05]

0.00

2[0

.003

]-0

.009

[0.0

09]

Rat

ioof

mem

bers

wor

king

inag

ricu

lture

toth

eto

tal

num

ber

ofm

embe

rsbe

twee

n14

and

61-0

.096

***

[0.0

25]

-0.0

43*

[0.0

22]

-0.1

17**

*[0

.040

]

Vill

age

with

road

(yes

=1)

0.03

4[0

.028

]0.

012

[0.0

28]

0.10

3**

[0.0

44]

Dis

tanc

efr

omvi

llage

toth

ene

ares

tm

arke

t(k

m)

-0.0

02[0

.002

]-0

.005

***

[0.0

01]

-0.0

06**

*[0

.002

]H

ouse

hold

inur

ban

area

s0.

115*

**[0

.037

]0.

032

[0.0

26]

0.06

1[0

.058

]R

edR

iver

Del

taO

mitt

edN

orth

Eas

t-0

.060

**[0

.028

]0.

143*

**[0

.027

]0.

101*

*[0

.045

]N

orth

Wes

t-0

.043

[0.0

45]

0.10

9**

[0.0

46]

0.06

8[0

.066

]N

orth

Cen

tral

Coa

st-0

.152

***

[0.0

29]

0.04

[0.0

28]

0.02

7[0

.043

]So

uth

Cen

tral

Coa

st-0

.064

**[0

.030

]0.

066*

*[0

.029

]0.

045

[0.0

49]

Cen

tral

Hig

hlan

d-0

.048

[0.0

43]

0.16

3***

[0.0

39]

0.17

4***

[0.0

66]

Sout

hE

ast

0.09

5***

[0.0

33]

0.10

8***

[0.0

30]

0.16

1***

[0.0

54]

Mek

ong

Riv

erD

elta

0.04

[0.0

31]

0.16

1***

[0.0

28]

0.18

6***

[0.0

52]

Con

stan

t4.

575*

**[0

.176

]4.

075*

**[0

.175

]5.

094*

**[0

.276

]O

bser

vatio

ns4,

003

4,20

81,

872

R-s

quar

ed0.

540.

570.

44

Sour

ce:

Est

imat

ions

from

VH

LSS

s20

02,2

004,

and

2006

.N

ote:

Rob

ust

stan

dard

erro

rsin

brac

kets

(Sta

ndar

der

rors

are

corr

ecte

dfo

rsa

mpl

ing

wei

ghts

and

clus

ter

corr

elat

ion)

.**

*,**

,and

*re

pres

ent

stat

istic

alsi

gnifi

canc

eat

the

1%,5

%,a

nd10

%le

vel,

resp

ectiv

ely.



APPENDIX TABLE 3

Ratio of Per Capita Expenditure to Per Capita Income during 2002–06

Areas 2002 2004 2006

Rural/UrbanRural 0.87 0.88 0.87Urban 0.94 0.96 0.93

RegionRed River Delta 0.92 0.88 0.86North East 0.86 0.86 0.85North West 0.89 0.89 0.88North Central Coast 0.96 0.98 0.97South Central Coast 0.94 0.95 0.93Central Highlands 0.78 0.82 0.81South East 0.89 0.94 0.87Mekong River Delta 0.82 0.87 0.82All Vietnam 0.89 0.90 0.88

Estimates based on the 2002–06VHLSSs Panel Data

Estimates based on the 2004–06VHLSSs Panel Data

Mean of(Ci/Yi)

C Y

C Y

i i

i i

( ) ( )

( ) ( )

2006 2006

2002 2002−⎛⎝⎜

⎞⎠⎟

Mean of(Ci/Yi)

C Y

C Y

i i

i i

( ) ( )

( ) ( )

2006 2006

2004 2004−⎛⎝⎜

⎞⎠⎟

2002 2006 Mean Std. Dev. 2004 2006 Mean Std. Dev.

Rural/UrbanRural 0.94 0.93 -0.018 0.191 0.96 0.93 -0.011 0.179Urban 0.87 0.87 -0.031 0.204 0.85 0.85 -0.027 0.193

RegionRed River Delta 0.92 0.86 -0.025 0.200 0.92 0.86 0.009 0.190North East 0.86 0.85 -0.051 0.190 0.81 0.83 -0.055 0.180North West 0.89 0.88 -0.015 0.176 0.85 0.85 -0.033 0.192North Central Coast 0.96 0.97 -0.067 0.199 0.84 0.92 -0.080 0.181South Central Coast 0.94 0.93 -0.030 0.160 0.93 0.91 -0.021 0.172Central Highlands 0.78 0.81 -0.018 0.213 0.86 0.84 -0.038 0.208South East 0.89 0.87 -0.007 0.204 0.90 0.88 0.000 0.183Mekong River Delta 0.82 0.82 -0.003 0.207 0.87 0.86 -0.014 0.199All Vietnam 0.89 0.88 -0.028 0.201 0.88 0.87 -0.023 0.190

Note: Columns under (Ci(2006)/Yi(2006) - Ci(2002)/Yi(2002)) and (Ci(2006)/Yi(2006) - Ci(2004)/Yi(2004))calculate the averages and standard deviations of the household-level differences in the ratioof expenditure to income over time (not the difference in the mean and standard deviations).



APPENDIX TABLE 4

Average Consumer Price Index and the Growth of GDP Per Capita during 2002–09(Previous Year = 100)

2002 2003 2004 2005 2006 2007 2008 2009

Overall CPI 104.0 103.2 107.7 108.3 107.5 108.3 123.0 106.9Food CPI 105.7 102.5 112.4 111.3 108.7 111.2 136.6 108.7Nonfood CPI 102.4 103.8 103.2 105.4 106.3 105.6 109.9 105.1GDP per capita 105.8 106.1 106.5 107.2 107.0 107.3 106.2 104.2

Source: GSO (2010).



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