ProblemStatement
Incomediversificationamongruralhouseholdindevelopingcountrieshasc a l l e d f o r s u b s t a n t i a l a t t e n t i o n o f scholarsindevelopmenteconomics.I t i s r e f e r r e d totheallocationofresourcesamongdifferentincomegeneratingactivities, bothon-farmandoff- farm,accordingtoAbdulaiandCrolerees( 2 0 0 1 ) T h e r e a r e s e v e r a l moti vesf o r h o u s e h o l d s t o d i v e r s i f y t h e i r incomesources.Householdstend tocarry outtheincomediversificationbecauseofthen e e d tomanagerisks,tosecureasmooth flowofincome,toallocatethesurplusl a b o r ortorespondtodifferentkindsofmark etfailuressuchasinsuranceandc r e d i t marketimperfection(Ellis,1998).
Recognizing the crucial role of income diversification in stabilizing income and alleviating rural poverty, governments in several developing countries, including Vietnam, are increasingly promoting diversification With over 70% of its population residing in rural areas, Vietnam has implemented various policies since 1986 aimed at developing a multi-sector economy, restructuring the economy, and improving living standards while integrating with the global economy Specific objectives for rural development include creating more jobs, increasing agricultural and rural industry-related income, and enhancing services and off-farm activities These policies are designed to stimulate income diversification processes in Vietnam, particularly in rural regions, leading to significant economic achievements nationwide.
8percentsincetheearly1 9 9 0andthe poverty ratefalling from58%in1993,29%in 2002,1 5 5 % in
2006to14.5%in2008and14.23%in2010(GSO).Partofincomegrowthandpover tyreductionisundoubtedlyduetodiversificationamonghouseholdsbothi n t o hig herva lu ecr op s andi nt o non- cropactivities suc has livestockraising, a n d non-farmactivities.
Thoughincomediversificationplayssuchanimportantroleintheearlystageofr u r a l t r a n s f o r m a t i o n , t h e p a t t e r n s o f r u r a l incomed i v e r s i f i c a t i o n mayvaryacro ss countriesandregions(El lis,1998).Hence,itisnecessarytoidentifythed e t e r m i n a n t s o f i n c o m e d i v e r s i f i c a t i o n o f s p e c i f i c c o u n t r i e s a n d r e g i o n s asi t h el p s governmentha veappropriatepolicyresponsetosupporttheruralareas.Whilet h e r e a r e v eryf e w empiricals t u d i e s a b o u t t h e i n c o m e d i v e r s i f i c a t i o n i s s u e i n
V i e t n a m , t h e r e s e a r c h o n t h e i m p a c t o f d i v e r s i f i c a t i o n o n h o u s e h o l d incomei s e v e n r a r e r B a s e d o n t h e e m p i r i c a l s t u d i e s a n d d a t a fromV i e t n a m H o u s e h o l d LivingStandardsSurvey2008(VHLSS2008),thispaperisaimedat d e t e r m i n i n g thefactors thataffecttheabilitytocarryoutincomediversificationa m o n g householdsinruralV ietnamandtomeasuretheimpactsofdiversification onhouseholdincomes.
Researchobjectives
Thepaperistoinvestigatedeterminantsofincomediversificationamongh o u se h o ld s i n ruralareasofVietnam,andmeasurethedifferenceinthe levelofi m p a c t ofthesefactorsamongeconomicandgeographicalregions.Th ispapera l s o a i m s a t e x a m i n i n g t h e r e v e r s e e f f e c t s o f incomed i v e r s i f i c a t i o n o n t h e h o u s e h o l d income.
Researchquestions
Thethesisisorganizedinto5chapters AftertheintroductoryChapter,Chapter2i s l i t e r a t u r e r e v i e w , i n c l u d i n g t h e r e v i e w o f t h e o r e t i c a l f r a m e w o r k a n d t h e previous s t u d i es o f incomed i v e rs i f i c a t i o n ind e v e l o p i n gc o u n t r i e s C h a p t e r 3 describest h e d a t a s o u r c e a n d m e t h o d o l o g i e s u s e d t o ana lyzet h e d a t a D et e r m in an t s andimpactsofincomediversificationareanalyze deconomicallyi n Chapter4.Chapter5summarizestheresultsfound,drawsso meconclusionr e l a t e d anddiscussessomepolicyrecommendations.
Conceptsandmeasuresofincomediversification
Incomediversification ha s beenem pl oye d byh ous eh ol dsas one of t h e st rategiestominimizetheincomev a r i a b i l i t y and e n s u r e a m i n i m u m l eve l o f in come.Empiricalstudiescommonlyb a s e d onfivedifferentindicatorsofincomed iversificationfortheiranalysis,eachofwhichisdiscussedindetailsasb el lo w s :
Thefirstdefinitionispossiblythesimplestonethatdiversificationis referredtot h e increaseinthenumberofincomesourcesofhouseholds(Minotetal.2006 ).Accordingly,householdswithmoreincomesourcesareconsideredtobemored i v e r s i f i e d a n d t h e m o r e numbero f s o u r c e s a h o u s e h o l d h a s o v e r ti me,theg r e a t e r t h e i n c r e a s e i n d i v e r s i f i c a t i o n t h a t h o u s e h o l d p u r s u e o v e r thattimeperiod.This i nd ica to ri s simpletomeasureandund erstand H o we v e r , itonlyf o c u s e s o n t h e n u m b e r o f s o u r c e s w i t h e q u a l t r e a t m e n t a m o n g everyi nc ome sourcebutnottakingintotheconsiderationitsimp ortancetothetotalincomeofh o u s e h o l d
Thesecondapproachisintroducedtoovercometheweaknessofthepreviou smeasure.T h i s i n d i c a t o r t a k e s intoa c c o u n t n o t onlyt h e numbero f i n c o m e sourcesb u t a l s o t h e c o n t r i b u t i o n o f e a c h s o u r c e t o t o t a l h o u s e h o l d i n c o m e Withthisconcept,income diversification is referre dtothep r o ce s s thatho useh olds trytoincreasethenumberofsourcesandalsogain agreaterbalancea mo n g t h e i n c o m e s o u r c e s i n t h e i r p o r t f o l i o ( E l l i s 2 0 0
0 , M i n o t e t a l 2 0 0 6 ) Followingthisconcept,SchawarzeandZeller(2005)usedt h e Shannone q u i t a b i l i t y index,whichincreaseswiththenumberofincomesources andtheire v en n e ss toanalyzetheincomediversificationamonghouseholdinIn donesia.
Thethirdmeasureisrelatedtononfarmemployment.Itisdefinedasaprocessi n w h i c h r u r a l h o u s e h o l d s i n c r e a s e t h e i r i n c o m e fromt h e n o n - f a r m s e c t o r ( B a r r e t t andReardon2001,Barrettetal.2001).Thisconceptismost commonlyusedintheformofthepercentageofincomefromnon- farmactivitiesintotalh o useholds’incomebyanumberofauthorsincludingEllis(2 000),AbdulaiandC r o l eR e e s (2001)andMinotetal.(2006).
Thef o u r t h d e f i n i t i o n i s r e f e r r e d t o thes w i t c h o f subsistenceproduct iontoco mmer cial izatio n p r o d u c t i o n T h e t h r e e ba s i c measuresof te nuse dt o d e f i n e t h i s typeo f d i v e r s i f i c a t i o n a r e c r o p d i v e r s i f i c a t i o n , a g r i c u l t u r a l co m m er ci al i z at i o n andincomecommercialization.Cropdiver sificationreferstot h e p r o p o r t i o n o f c r o p p r o d u c t i o n t h a t i s s o l d o r b a r t e r e d T h e a g r i c u l t u r a l co m m e r ci a l i z at i o n isdefinedasthesh areofagriculturaloutputthatissoldorbartered
Finally,incomediversificationis definedbyMinot etal (2006)as“the processo f switchingfromlow-valuecropproductiontohigh- valuecrops,livestock,andn on- farma c t i v i t i e s ” Somemeasureso f t h i s typeo f d i v e r s i f i c a t i o n a r e : t h e s h a r e o f h i g h v a l u e c r o p s , t h e p r o p o r t i o n o f incomef r o m non- cropa c t i v i t i e s an d theshareofincomefromnon-farmactivities.
Withinthescopeofthisstudy,we employthefirst fourconceptsintheanalysiso f incomed i v e r s i f i c a t i o n , w h i c h a r e d i s c u s s e d i n d e t a i l s i n t h e d e s c r i p t i v e analysis.In theeconometric analysispart,weonlytakeinto consideration threeindicatorsofdiversification:numberofincomesources,S i m p s o n indexofdi versity,andtheshareofnon-farmincomeintotalhousehold’sincome.
Theoreticalframework
Thiss t u d y b a s e s o n t h e c o n c e p t o f S u s t a i n a b l e L i v e l i h o o d F r a m e w o r k Ac co rd i n g toIanScoones(1998),theconcept‘SustainableRuralLiv elihood’h a sbecomeincreasinglyimportantinthedebatesaboutruraldevelopm entandp o v e r t y reduction.Thistermrelatestoawiderangeofissuesanditsdefi nitionh asb e e n p r o p o s e d andmodifieds e v e r a l t i m e s s i n c e 1 9 9 2 w h e n i t w a s f i r s t introducedbyBrundtlandCommissiononEnvironmentandDevelop ment.Amongt h e s e d e f i n i t i o n s , I D S ’ s definitionis somewhata modifiedo n e o f SustainableLivelihoodasfollows:
“Alivelihoodcomprisesthecapabilities,assets(includingbothmateriala ndsocialr esources)andactivitiesrequiredforameansofliving.Alivelihoodissustainablewh enitcancopewithandrecoverfromstressesa n d shocks,maintainorenhanceitsc apabilitiesandassets,whilenotunderminingthenaturalresourcebase.”
UndertheSustainableLivelihoodFramework,peopleareputatthecentreofav a r iet y o f f a c t o r s w i t h i n t e r - r e l a t i o n s h i p t h a t i n f l u e n c e t h e m t o c r e a t e livelihoods.Amongth esefactors,thelivelihoodassetsthattheycanaccesstoa n d useplayaveryimpor tantrole.Theseassetsincludenaturalcapital,physicalcapital,humancapital,socialc apitalandfinancialcapital.However,theextenttowhichtheycanaccessthesea ssetsisstronglyimpactedbytheircontextsinthe formoftr en ds (forinstanc e,economic, p o l i t i c a l ) or sho cks (f or example, naturald i s a s t e r s )
M o r e o v e r , o t h e r s o c i a l , i n s t i t u t i o n a l a n d p o l i t i c a l en v i ro n men t sa l l h a v e c e r t a i n e f f e c t s o n t h e waysp e o p l e u s e t h e i r a s s e t s t o a ch i ev e theirgoals,whichareknownaslivelihoodstrategies.Livelihoodd i v e r s i f i c a t i o n isoneofthestrategiesthatenablehouseholdstoincreasetheiri ncome,minimizetheincomefluctuations,henceimprovetheirlivelihood.
Natural capital Human capital Physical capital Financial capital Social capital Agricultural intensifications- extensifications
Context Livelihood Institutional Livelihood Sustainable
HistoryP ol it i c s Ma cro-
Contextualanalysisof conditionsandtrends,a nd assessmentofpolicys etting
Analysisof livelihood resources:trade- offs,combinations,seq uences, trends
Analysisof institutional/ organizationalinfluences onaccesstolivelihoodresourcesand compositionoflivelihoods t r a t e g y portfolio
Determinantsofincomediversification
Researchers have identified various reasons households seek to diversify their income sources, categorizing them as "demand-pull" and "push-distress" factors "Pull" factors enhance wealth accumulation through competitive advantages like superior technologies and skills, while "push" factors arise from challenging circumstances such as adverse weather, policy changes, or failures in credit markets These factors drive households to engage in non-farm activities for income smoothing through "risk management" or "risk coping strategies." Reardon et al (2007) highlight that existing literature on income diversification often overlooks the incentives for diversification and the importance of household capacity variables They propose a focus on capital assets as a key determinant, suggesting that the degree of participation in diversification strategies is influenced by various household capacity and incentive variables.
According to sustainable livelihoods literature, a household's ability to diversify income is significantly influenced by their access to various types of capital This disparity in access explains why some households have fewer opportunities to engage in non-farm activities, resulting in less diversified income (Abdulai et al., 2001) The capitals referred to include a range of assets that enable households to participate in both farm and non-farm activities, typically classified into human, physical, financial, and social capital.
The framework proposed by CapitalwithinReardon et al (2007) emphasizes the importance of both private and public assets in the context of sustainable livelihoods It suggests that capacity variables influencing income diversification can be assessed at the household, individual, or regional level At the household level, demographic characteristics significantly impact decisions and capabilities related to income diversification Meanwhile, at the regional or village level, physical and institutional infrastructure plays a crucial role in facilitating this diversification Improved access to infrastructure, such as communication and transportation, can lower information acquisition costs and enhance participation in non-farm activities, ultimately supporting households in their income diversification efforts (Barrett and Reardon, 2001; Davis, 2003; Ellis, 2000; Reardon et al., 2007).
Theimpactsoftheabovetypesofassetsonhouseholdincomediversificati onhavebeenreflectedinempiricalstudiesindifferentcountries.Barrett,Reardon a n d Webb( 2 0 0 1 ) p o i n t o u t inmosto f t h e r es e a r c h pa p e r s onincomedi versi ficat io n thatbettereducationhasimportanteffectsonnon- farmearnings.I n studiesofTanzania,Lanjouwetal.
Research indicates that improved physical access to markets significantly boosts non-farm earnings A study by Abdulai and Crolee (2001) highlights that poorer households in Southern Mali face limited opportunities in cash crop production and non-crop activities, resulting in less diversified incomes, primarily due to a lack of capital Similar findings in other developing economies emphasize the importance of access to public assets such as roads, electricity, and water, as well as private assets like education and credit, which are crucial for enhancing households' ability to diversify their income sources (Escobal 2001; Babatunde and Qaim 2009).
Numerous studies have established a positive relationship between income diversification and household welfare For instance, Babatunde and Qaim (2009) found that in Nigeria, income diversification significantly impacts total household income, irrespective of the measures used Similarly, Ersado (2003) examined the link between diversification and household welfare in Zimbabwe, utilizing various indicators such as the number of income sources and the share of non-farm income The findings revealed that richer households in rural areas tend to have more diversified income sources, while the opposite is true for urban households Additionally, in rural regions with high rainfall variability, households are more likely to adopt multiple income strategies, aligning with the literature that views income diversification as an effective risk management approach.
PreviousstudiesonincomediversificationinVietnam
Since1 9 8 6 , t h e V i e t n a m G o v e r n m e n t l a u n c h e d a p o l i c y c a l l e d “ D o i M o i ” ( r e n o v a t i o n ) andhasgainedsomeremarkableachieve mentsineconomicdevelopmentandpovertyreduction.Whiletherehave beenseveralresearchesan d empiricalstudiesconductedonthepovertyissu esinVietnam(Glewweeta l 2004,Minotetal.2003,UNDP2004),onlyaveryf ewstudiesfocusontheincomediversificationissues.Theavailablestudiesonlyconcen trateonspecificr e g i o n s ofVietnam.Forinstance,Minotetal.2006placesmostoft heirresearchc o n t e n t o n t h e N o r t h e r n U p l a n d s ofV i e t n a m w h i l e N g h i e m ( 2 0 1 0 ) focu ses ontheMekongDeltaRiver.
(2006)toidentifyt h e factorsthataffecttheparticipationinincomediversificati onofhouseholdsi nruralVietnam.Thisstudyisdifferentfrompreviousstudiesin threeaspects.F i r s t , thescopeofstudycovershouseholdsinruralareasofthe wholecountryt ak en fromthenationalVietnamHouseholdLivingStandardSu rveys.Second,thesurveyyearsusedinthisstudyare2002;2004;2006;2008and2010. Third,t h i s studyaddressesn o t onlydeterminants ofincomed i v e r s i f i c a t i o n b u t a l s o identifythe r e v e r s e e f f e c t ofincomed i v e r s i f i c a t i o n o n t o t a l incomeo f h o u s e h o l d s
Data
This paper utilizes data from national household surveys, specifically five Vietnam Household Living Standards Surveys (VHLSS) conducted in 2002, 2004, 2006, 2008, and 2010, to analyze changes in income sources and their contributions to total household income The study employs a sample size of 22,621, 6,938, 6,882, and 6,753 rural households from the VHLSS datasets of 2002, 2004, 2006, and 2010, respectively To identify factors influencing household income diversification and its relationship with total income, the research focuses on the cross-sectional data from the 2008 VHLSS, which includes a nationwide sample of 45,945 households, comprising 36,756 households surveyed for income and 9,189 households surveyed for both income and expenditure.
( G S O , VSLSS) Asth epa per i s to ex a m i n e th ei nco me d i v e rs i f i c a t i o n i nr u r a l Vie tn am, onlyhouseholds inruralareasareincludedintheresear chcomprising6, 837households.
Research methodology
Classificationandcalculationofincomesources
According to the Vietnam Household Living Standards Survey (VHLSS), household income is derived from two main employment types: wage employment and self-employment Wage employment is further categorized into farm wage employment and non-farm wage employment Self-employment encompasses activities such as crop production, livestock raising, fisheries, and forestry, classified as farm self-employment, along with two types of private businesses: agricultural and non-farm This study classifies household income into eight sources: wage income (both farm and non-farm), crop income, livestock income, fishery income, forestry income, enterprise income (from both forms of private business), transfer income, and other income.
Itisrelativelyeasyandcleartocomputetheincomefromwageemployment,w h i c h isthesumofannualearningsofhouseholdmembersinwageaswellasb o n u se sfromallthejobsthesememberstake.Theincomefromactivitiessucha s c r o p , l i v e s t o c k , f i s h e r y , f o r e s t r y , e n t e r p r i s e i s t h e n e t r e v e n u e f r o m e a c h activity,w h i c h i s b a l a n c e o f t h e t o t a l v a l u e o f p r o d u c t i o n a n d t h e c o s t s o f p r o d u c t i o n
Transferincludesnotonlyprivatetransferssuchasgiftsandremittancesr e cei v e d byhouseholdmembersduringthepasttwelvemonthsbutalsopublictransfers, wh ich a re t h e pay me nts f r o m d i f f e r e n t k i n d s o f g o v e r n m e n t a l program slikesocialsubsidy,povertyreduction…
Otherincomeincludesp e n s i o n s , lotterywinnings,interestofsavingsandloans, rentalincome.One- offa m o u n t ofmoneysuchassaleofbuildings,vehicles,gold,etc… isnotconsideredashouseholdincomeaccordingtoVHLSS.
Indicatorsofincomediversity
Asdiscussedabove,there aredifferentwaystomeasureincomediversification.I n thisstudy,the income- basedapproachisdeployed,focusing onthreeaspectso f incomediversification: diversificationas multipleincom esources,d i v e r s i f i c a t i o n a s t h e i n c r e a s e d i m p o r t a n c e ofnon- farmin co me t o h o u s e h o l d totalincomeanddiversificationastheproductioncom mercialization.
Regardingtothediversificationasmultiplesourcesofincome,twoindicator sa r e employedfortheanalysis,includingthenumberofincomesources(NIS) a n d theSimpsonindexofdiversity.NIS,whichhasbeenusedbyMinotetal.
( 2 0 0 6 ) andIbrahimet al.(2009)iseasytomeasure.However,itiscriticizedfor
2 itsarbitrarinesswiththeargumentthatifotherthingsbeingequal,household sw it h moreactiveadultsarelikelytohavemoreincomesources(BabatundeandQaim ,2 0 0 9 ) F o r t h i s r e a s o n , i n d i c a t o r i s n o t u s e d s e p a r a t e l y b u t i n c o m b i n a t i o n withtheo th er measure,which is theSimpson indexofdi versity(SID).Bytakingintoaccountnotonlythenumberofincomesourcesbu talsotheproportionofeachsourcetothetotalincome,theSIDallowsto measuretheo v e r a l l diversificationofhouseholdincome.TheSIDisemployed byMinotetal.(2006)andJoshietal.
(P i i ) wherePireferstotheincomeshareoftheincome generatingfromactivityiintotalincomeofhousehold.Ifhouseholdhasonlyo nesourceofincome,SIDisequaltozero,indicatingtheperfectspecialization.If t h e inc omeo f h o u s e h o l d i s c o m i n g f r o m m a n y s o u r c e s , t h e s h a r e o f e a c h sou rceintotalincomedecreasesandsodoesthesumsquaredshares,henceSIDwi l lapproa chthevalueof1,indicatingthatthehouseholdishighlydiversifiedi n income. Toi d e n t i f y t h e c o n t r i b u t i o n o f i n c o m e g e n e r a t i n g fromnon- farma c t i v i t i e s ( i n c l u d i n g t h e n o n - f a r m w a g e incomeandt h e n o n - f a r m e n t e r p r i s e ), theindicatorofnon- farmincomeshare(NFS)isemployed.ThelargertheNFS,themorediversifiedthehous eholdis.Thisindicatorreflectsthedegreehouseholdsswitchfromfarmtonon- farmactivities.
This paper explores income diversification among households, defined as the transition from subsistence to commercial production It will examine two key measures of diversification: crop commercialization, which refers to the share of crop production value that is sold or bartered, and agricultural commercialization, which encompasses the proportion of value from all agricultural products—including crops, livestock, fishery, and forestry—that are sold or bartered.
Themethodofanalysis
Inthisresearchavarietyofmethodsusedtoanalyzethedata,includingthe d e s c r i p t i v e statisticsandtheeconometric method,whicharediscussedindetailsi n Chapter4.Thedescriptivepartisusedtopor traittheincomediversificationpatternsovertime as wel l asits patternsacr ossdifferent typesofh ous eh ol ds and geographicalregionsbycomparingthemea suresofdiversificationfromthesurveysofdifferentyears.
Theeconometricpartwillfollowtoidentifythedeterminantsofincomedivers ificationamonghouseholdsandexamineitseffectsonhousehold’stotalinc omebasedonthedataofthe2008VHLSS.Fortheanalysisofdeterminants,w e a p p l y t h e r e g r e s s i o n o f t h r e e measureso f d i v e r s i f i c a t i o n , i n c l u d i n g N I S ,
S I D , NFSonasetof independentvariablesrepresentingforhousehold’scapitala s s et Asthedependentv ariableisinformofcountdataintheNISmodel,thePoissonregressioni s u s e d F o r
S I D a n d N F S measures,t h e d a t a isc e n s o r e d b e t w e e n zeroandone,hencewe employtheTobitregression,whicharesimilarly employedbyEscobal(2001)t oexaminethedeterminantsofincomed i v e r s i f i c a t i o n inruralPeru.Schwarz eandZeller(2005)isanotherexampletouset h e Tobit model insimilarsettings.
Inordertoanalyzetheimpactsofincomediversificationonhousehold’stot alincome,thethreemodelsareused, inwhichthehousehold’stotalincomeisthed e p e n d e n t v a r i a b l e , andt h e d i v e r s i f i c a t i o n measuresa r e a d d e d t o t h e s e t o f exp lan at ory variables.Inor derto avoid theproblemofendogeneity,weuse theI nstru men tal V a r i a b l e s ( I V ) m e t h o d - t w o s t a g e l e a s t s q u a r e s ( 2 S L S ) i n t h e analysisofthe impacto f incomedi versificationon h o u s e h o l d ’s total income.B a b a t u n d e a n d Q a i m ( 2 0
Chapterremarks
Inshort,thisstudyemploysthedescriptiveandeconometricmethodstoportraitth e tend encyofdiversificationandidentifyfactorsthatinfluenceincomed i v e r s i f i c a t i o n amonghouseholdsinruralVietnambasedondatafromVHLSSo f 2 0 0 2 , 2 0 0 4 , 2 0 0 6 , 2 0 0 8 a n d 2 0 1 0 T h e analysisi s c a r r i e d o u t o n t h r e e indicatorsofdiversification:numberofincomesources,S i m p s o n indexo f d i v e r s i t y andshareofincomefromnon- farmactivitieswithPoissonregressionf o r N I S modela n d T o b i t modelf o r S I
D a n d N F S models.I n e x a m i n i n g t h e impactsofdiversificationonhouseholdinc ome,theinstrumentvariable(IV)– t w o s t a g e L e a s t s q u a r e r e g r e s s i o n i s u s e d ino r d e r t o a v o i d t h e e n d o g e n e i t y problem.
Patternsandtrends inincomediversification
Diversityofincomesources
Inincomesourcediversityanalysis, followingthedivisionofincomesourcesinV H L S S , householdincomeisdividedin 8groups:wage,crop,livestock,fishery,f o r e s t r y , e n t e r p r i s e , t r a n s f e r a n d o t h e r i n c o m e T h eT a b l e 4 1 b e l o ws h o w s t h e t r e n d s i n i n c o m e d i v e r s i t y a m o n g r u r a l h o u s e h o l d o f t h e w h o l e cou nt ry asw e l l a s t h o s e o f t h e sp e c i f i c r e g i o ns bytwom e a s u r e s : numbero f incomesources andtheSimpsonindexofdiversity.Householdsin ru ra l areat e n d toobtaint heirincomefromavarietyofsources.Onaverage,eachhouseholdhas4.08;4.35; 4.12;3.50;4.28incomesourcesaccordingtoVHLSS
2002,2004,2006,2008and2010respectively.Thesefiguresreflectamodestin creaseinthenumberofincomesourcesin2004comparedto2002beforeag r a d u a l d eclineinthenexttwoperiodsin2006and2008.
Thelevelofdiversityincreasesagain,withtheaveragenumberofincomesourcesgoes upfrom3.50i n 2008to4.28in2010.Thistrendhappenstoallgeographicalan deconomicregions.
Consideringn o t onlyt h e n u m b e r o f incomesources,b u t a l s o t h e b a l a n c e amongthem,theSimpsonindexofdiversityshowsthesimilar resultinportrayingt h e t e n d e n c y o f incomed i v e r s i f i c a t i o n a m o n g r u r a l h o u s e h o l d s i n V i e t n a m aswellas mos t ofi ts differentregions.Accordin gtoVHLSS2002,2004,2 0 0 6 , 2 0 0 8 a n d 2 0 1 0 , t h e v a l u e o f t h i s i n d e x i s 0 4 8 8 ; 0 5 0 1 ; 0 4 8 4 ;
Region Numberofincome sources(NIS) Simpsonindex ofdiversity(SID)
The Northeast and Northwest regions of Vietnam exhibit the highest income diversity, while the Southeast region shows the least This trend persists across various survey indicators over the years Notably, the Northeast and Northwest are the poorest regions, whereas the Southeast is more urbanized and less impoverished The phenomenon can be attributed to poorer households often having a greater diversity in income sources Data indicates that as household poverty levels rise, the diversity of income sources also increases, contradicting findings from Abdoulaye and Croleres (2001) in Mali but aligning with research by Schwarze and Zeller (2005) in rural Indonesia.
Thef a c t t h a t t h e incomed i v e r s i f i c a t i o n i s h i g h e r a m o n g p o o r e r t h a n r i c h e r h o u seh o l d s s u p p o r t s t h e i d e a t h a t d i v e r s i f i c a t i o n i s a meant o r e d u c e r i s k s relatedtothevariationinincomefromeachsource.
Incomequintile Numberofincomesources(NIS) Simpsonindex ofdiversity(SID)
Diversificationasashifttonon-farmactivities
Despitethedominantimportanceofagriculture(includingcrop,livestock,fishery,f orestry)asshowninFigure4.1below,thereisamarkedincreaseintheshareof incomederivingfromnon- farmactivitiesintotalhouseholdincomeo v e r time,from27.4%in2002t o 30 9%,
3 3 0 % , 35 6%and3 7 1 % in2004,2 0 0 6 , 2 0 0 8 a n d 2 0 1 0 respectively.T h i s i n d i c a t e s t h e g r o w i n g i m p o r t a n c e o f n o n - a g r i c u l t u r a l s e c t o r , i n l i n e w i t h t h e g r a d u a l s t r u c t u r a l t r a n s i t i o n o f t h e economy.Contributingtotheriseintheshareofnon- farmincome,whiletherei s aslightdecreaseintheshareofnon- farmenterprise,theproportionofnon- farmwageincreasescontinuallyandremarkablyfrom13.3%in2002toreach
2 4 7 % in2010.Thegrowingimportanceofincomegeneratingfromnon- agriculturalornon-farm activitiestototalhouseholdincomeoccurstoallg r o u p s ofhouseholdsfromdiff erentincomequintile,thoughitvariesinlevela n d speed.Asshownintable s h a re in to ta li n c o m e wage crop livestock fishery forestry enterprise transfer other
The share of non-farm income in total income is significantly lower for poorer households compared to wealthier ones According to the VHLS 2002 data, the richest quintile has a non-farm income share of 40.8%, while the poorest quintile only has 15.4% From 2002 to 2008, all income groups saw an increase in non-farm income, with shares rising to 23.1% for the poorest and 44.8% for the richest However, in 2010, the poorest group experienced a 5.7% decline in non-farm income share, bringing it down to 17.4%, while the second quintile also saw a slight decrease of 1.9% In contrast, the non-farm income shares for the other three income groups increased significantly by 4.8%, 8.7%, and 10.1%.
14.0% 13.0% 13.1% 13.5% 12.4% nonfarm income non-farm wage non-farm enterprise reach43.7%,51.3%,54.9%forthethird,thefourthandthefifthgrouprespectivel y.
Overall,ruralhouseholdstendtobemorediversifiedinincomeintermsofnon- f a r m incomeshareinhouseholdtotalincomeovertime.Thelevelofdiversityisv a r i e d amongdifferentgroupsofincomequintile,whichismuchlowerforthep o o r com paredtotherich.Thismay beexplainedbythefactthatthepoorfacemoreconstraintsinparticipatinginnon- farmactivitiesthantherich.
Diversificationascommercialization production
Asdiscussedabove,diversificationisalsoreferredtothetransitionfromproduct ionforhousehold’sownconsumptiontoproductiontosaleorbartered.Withinth isanalysis,weusetwoindicators:cropcommercializationandagricultura lc o m m e r c i a l i z a t i o n C r o p c o m m e r c i a l i z a t i o n i s r e p r e s e n t e d bythes h a r e o f c r o p o u t p u t t h a t i s s o l d o r b a r t e r e d A g r i c u l t u r a l c o m m e r c i a l i z a t i o n r ef er stotheincreaseintheproportionofagriculturalproducts(includi ngcrops,livestockproducts,fishandforestproducts)thatissoldorbartered.Thesetw omeasuresindicatetheproportionofcashincomeintotalgrossincomederivingf r o m producingcropandagriculturalproducts.
Table4.4showsthetwomeasuresofcommercializationofdifferentg e o g r a p h i c a l regionsacrossyearsofsurvey.Amongtheseregions,NorthEasth a s av e r y sm allsh a r e o f c r o p o u t p u t t h a t is s o l d o r b a r t e r e d , a c c o u n t i n g f o r only30.6
%in2002and24.9%in2010.Theotherareashavingrelativelylowcommercials hareofcropproductionincludeNorthCentralCoast,NorthWestand Re d R i v e r De l t a , w i t h j u s t 3 8 7 % , 4 0 2 % an d 4 1 4 % , r es p e c t i ve l y , a cco rd i n g toVHLSS2 01 0 Ont he contrary, the marketedproportion ofcr op pr od uct io nismorethan80%forCentralHighlands,MekongRiverDeltaandSouth east.
Similartothecommercializationincropproduction,thereisevidentdifferencei n t hedegreeofcommercialization intermsofagriculturaloutput.NorthEasta n d NorthWesthavenearly50%oftheagriculturalproductssoldorbartered,d e s p i t e alittlefluctuationinthisshareacrossyears.
Thesouthernregionsareevenmuchmoremarket- oriented,with81.1%,73.4%a n d 8 9 8 % o f t h e a g r i c u l t u r a l o u t p u t b e i n g marketedf o r C e n t r a l H i g h l a n d s , SouthEastandMekongRiverDelta,respec tively,accordingtoVHLSS2010.
Region Shareofcropoutputthatis sold (%) Shareofagriculturaloutputthatis sold(%)
Generally,thedegreeofcommercializationamongruralhouseholds incr easesg r ad ua l l y overtime.Theshareofcropoutputthatismarketedofrural householdsi n t h e c o u n t r y as a w h o l e r i s e s f r o m 6 1 7 % i n 2 0 0 2 to6 7 6
% in2 0 1 0 whiletheproportionofagriculturaloutputsoldgoesupto74.1%in2008 from 71.9%in2002.
Consideringt h e c o m m e r c i a l i z a t i o n a c r o s s d i f f e r e n t incomec a t e g o r i e s , i t i s c l e a r t h a t t h e r i c h e r a r e m o r e c o m m e r c i a l i z e d t h a n t h e p o o r e r A c c o r d i n g t o VHLSS2010,theshareofcropoutputandagric ulturaloutputthatismarketedo f thehighestincomelevelis87.8%and80.5%whilet hisfigureforthelowestincomelevelisjust41.7%and47.9%asshowninTable4.5.
Incomequintile Shareofcropoutputthatis sold (%) Shareofagriculturaloutputthatis sold(%)
2010period,thecommercializationincropoutputincreasesforallincomelevels, exceptforthelowestincomegroupwithaslightdeclineo f 1 3 % T h e f i f t h q u i n t i l e - h o u s e h o l d h a s t h e g r e a t e s t i n c r e a s e o f 7 6 % , fo l l o wed byt h e secondquintilewitharise of5.1%.
However,thecommercialization i n t e r m s o f a g r i c u l t u r a l o u t p u t de c r e a se s a l i t t l e b i t f o r a l l incomelevelsin2010comparedto2002.Thismaybeduetothed ecreaseinthep r i c e ofanimalorfishingproducts.
Econometricresultsanddiscussion
Expectedsignof determinantsofincomediversification
Thissectiondescribestheexpectedinfluenceofeachhouseholdcharacteri stic( e x p la n a t o r y v a r i a b l e s ) o n t h e t h r e e m e a s u r e s o f incomed i v e r s i f i c a t i o n ( t h e d e p e n d en t variables).ThehypothesesaresummarizedinTable4.7
Comparedt o e t h n i c m i n o r i t y h o u s e h o l d s , K i n h h o u s e h o l d s h a v e m o r e c o n v e n i e n t conditionsinjoiningtheeconomybecausethefactthatthe yarelessl i k e l y t o encounterbarriersoflinguisticsandculturesastheotherethnicminoritiesd o T h e n , theya r e e x p e c t e d t o t a k e morei n c o m e - g e n e r a t i n g activitiesaswellasactivitiesoutsidetheagriculturalsector.
The age of a household head significantly influences diversification indicators Older heads, with their accumulated experience, often encourage their households to engage in various income-generating activities However, in some cases, expertise in a specific area may lead households to concentrate their efforts on that activity, limiting diversification and resulting in fewer income sources Conversely, a higher accumulation of assets over time allows these households to participate in more profitable non-farm activities, ultimately increasing the share of non-farm income.
Morek n o w l e d g e a n d s k i l l s g a i n e d f r o m moreyearso f e d u c a t i o n f a c i l i t a t e householdstotakepartintomoredifferentincomeearningactiv itiesaswellasprofessional wagejobs.Hence,itisexpectedthathighereducation isrelatedtomorediversificationinnumberofincomesourcesandlargershare ofincome fromnon- farmactivities.However,itisratherambiguouswhetherhighereducationwouldl eadtomorebalanceamongdifferentsourcesofincome.
Al a r g e h o u s e h o l d withl o w d e p e n d e n c y r a t i o i s likelyt o a c q u i r e a h u g e r v a r i e t y ofskills,whichenablethemtopursuemoreeconomica ctivities.Moreover,withmorekills,householdhavemoreopportunitiestotakeupp r o f e s s i o n a l non- farmwagejobs Forthese r easo ns, weexpectthattheh o u s eh o l d sizeisp ositivelycorrelatedwiththenumberofincomesourcesandt h e s h a r e o f n o n - f a r m income,w h i l e t h e n e g a t i v e r e l a t i o n s h i p i s e x p e c t e d toexistbetwe enthedependencyratioandthesetwodiversificationindicators.
Accessibilitytoe l e c t r i c i t y a n d t a p w a t e r a l l o w s h o u s e h o l d s t o e s t a b l i s h s e l f - e m p l o y m e n t non- farmenterprises.Therefore,thetwovariablesareexpectedtobepositivelyassoci atedwiththenon- farmincomeshareaswellasthenumbero f incomesources.However,itisunclearab outtheimpactofthesevariablesont h e Simpsonindexofdiversity.
Marketaccessvariablesindicatethetransactionandtransportationcost,oneoft h e i mportantcomponentsofoperatingcostsofenterprises,bothinagriculturese ctor andoutside.Thissuggeststhenegativeimpactofthehousehold’sdi stan c etoadailymarketanddistancetoaroadonboththenumberofincomesourcesandthes hareofincomefromnon- farmactivities.Forthesameargument,t h e v a r i a b l e p e r i o d t h a t a r o a d i s p a s s a b l e i s p o s i t i v e l y c o r r e l a t e d w i t h thetwoindicatorsofdiversification. Capitalw h i c h isp a r t l y f i n a n c e d byt h e formalc r e d i t i s veryv i t a l f o r t h e e s t a b l i s h m e n t a n d e x p a n s i o n o f e n t e r p r i s e s , e s p e c i a l l y t h e o n e s i n non-agriculturesectors.
Determinantsofincomediversification(numberofincomesources)
On average, households headed by K have approximately 0.5 fewer sources of income compared to those led by other minority ethnicities, indicating that ethnicity does not significantly influence household income diversification As demonstrated in Table 4.8, male-headed households exhibit greater income source diversification than female-headed ones, even after controlling for other variables Additionally, the age of the household head and the average education level of household members show a significant positive correlation with the Net Income Sources (NIS), supporting the expectation that education and experience enhance opportunities for wage-earning jobs and the ability to manage household businesses While household size is positively related to NIS, no significant relationship is found between the dependency ratio and NIS, confirming that larger households are better positioned to engage in more income-generating activities than smaller ones.
WhilethedistancetomainroadsissignificantlynegativelyrelatedtotheNISa s p e r o u r e x p e c t a t i o n , i t i s o n t h e o p p o s i t e s i d e f o r t h e d i s t a n c e t o a d a i l y market.I t meanst h a t t h e f u r t h e r f r o m ad a i l y market t h e h o u se h o l d l i v e, t h e moreincome sourcestheypursue, holding othervariables constant.As amattero f fact,householdlivingfarawayfromdailymarketstendtotakepartinmo reincomegeneratingactivities,especiallythefarmingactivitiessuchaslivestock r a i s i n g , cropgrowing,fishing,ectwithapurposetomeetingtheirdailyco n su mp t io n needs.
Itisalsoshownthattheaccesstoformalcreditissignificantlyandpositively a s s o c i a t e d w i t h t h e N I S , w h i c h m e a n s t h a t t h e a c c e s s i b i l i t y t o fo rmalc r e d i t marketa l l o w s h o u s e h o l d t o t a k e p a r t i n m o r e d i f f e r e n t incomegeneratingactivities.
Comparingtothereferenceregion(theRedRiverDelta),theNorthWestandt h e S o u t h e a s t a r e s i g n i f i c a n t l y d i f f e r e n t i n t h e l e v e l o f incomes o u r c e d i v e r s i f i c a t i o n Specifically,thenumberofincomesourcestakenbyho useholdi n NorthWestis0.36higherthanthatoftheRedRiverDeltaonaveragewh enho l d in g othervariablesconstant.Ontheoppositeside,householdinthe
Determinantsofincomediversification(Simpsonindexofdiversity)
henumberofincomesources(NIS),Kinhpeopleislessdiversifiedt h a n t h e minoritypeople intermsofthebalanceamongincomesources.This is consistenti n t h e 2 m o d e l s , i n d i c a t i n g t h a t K i n h p e o p l e t e n d toh a v e f e w e r numberofincomesourcesandmoreimbalanceamongdifferentincomesour ces,duetotheirspecializinginnon-farmw a g e jobs ornon- farms e l f employment.
Ageof h o u s e h o l d is p o s i t i v e l y andsig ni fi ca nt correlated w it h t h e SID ,indicatingthattheexperienceandskillsaccumulatedovertimenotonlyallowh o u s e h o l d s t o p u r s u e multiplei n c o m e s o u r c e s strategya s s h o w n int h e N I S model,butalsotogainthebalanceamongthesesourcesofincome.
Neitherhouseholdsize n o r the de pe nde ncy ratiohas s i g n i f i c a n t re lat io nwitht h e S I D Itmeansthatt h e r e isnodifferencea m o n g l a r g e a n d sma llsizeh o u s e h o l d s intermsofmaintainingtheincomebalanceamongvarioussour ces,aftercontrollingothervariables.
Thesignificantandnegative associationbetweentheavailability oftap watera n d t h e S I D i n d i c a t e s t h a t h o u s e h o l d w i t h t a p w a t e r i s morec o n c e n t r a t e d i n non-farmactivitiesthanthatwithoutit.
Periodthat aroadis passible(road_pass) 0.0071 0.0074
I D A l o n g w i t h t h e r e s u l t s producedbytheothertwomodels:NISandNFS, thismodelreconfirmst h a t householdsinruralVietnamusethecredittoinvestinfar mactivitiessucha s raisinglivestock,fishingorgrowingratherthaninnon-farmones.
Table4.9Determinantsofincomediversification(SID)and(NFS)
Marginal effect Std.Err Marginal effect Std.
Kinh Ethnicityof householdhead(ethnicity) -0.0520*** 0.009 0.1578*** 0.0214 Ageofhouseholdhead(Age) 0.0017*** 0.0002 -0.0044*** 0.0005 Malehouseholdhead(gender) 0.0256*** 0.007 -0.0519*** 0.0159
0.0021* 0.0013 0.0210*** 0.0029 Householdsize(hhsize) 0.0027 0.0018 0.0521*** 0.0042 Dependencyratio(dep_ratio) -0.0013 0.0042 -0.0017 0.0099
Accessto tap water(tapwater) -0.0279*** 0.0092 0.1010*** 0.0192 Distanceto a dailymarket(market_dis)
Periodthat aroadis passible(road_pass) 0.0014 0.0012 0.0065** 0.0031
Note: (*)91 left-censoredobservationsatSID=1
(**) 1826left- censoredobservationsatNFS=1
This model examines the factors influencing income generation from non-farm activities, including non-farm wage labor and self-employment in non-farm enterprises Data indicates that ethnic minority household heads earn 15.78 percentage points less from non-farm activities compared to Kinh household heads, suggesting limited access to non-farm wage jobs for minorities This disparity may be attributed to many minority groups residing in remote or mountainous areas, where conditions favor agricultural activities over non-farm options Additionally, the age of the household head is significantly and negatively correlated with the share of non-farm income, and male household heads earn more from non-farm activities than their female counterparts.
Ase x p e c t e d , a v e r a g e e d u c a t i o n o f h o u s e h o l d membersi s s i g n i f i c a n t l y a n d p o s i t i v e l y r e l a t e d t o t h e s h a r e o f n o n - f a r m income,i n d i c a t i n g t h a t e d u c a t i o n p r o v i d e s householdswithkn owledgeandskillsrequiredforskilledwage-jobsi n non- farmfield, as w e l l as fo res ta bl ish in ga nd managingho use ho ld ’so wn n o n - f a r m enterprises.
Largesizehouseholdswith fewerolder and fewerchildrenmembershavemorelikelihoodtodiversifytheirincomeoutofagricultur alactivities.Inotherwords,t h e moreworking- ageadultsthehouseholdhas,thelargerproportionof incomeearningfromnon- farmactivities.Thiscouldbeexplainedthatwithmorew o r k i n g - a g e p e o p l e , a h o u s e h o l d c a n h a v e morel a b o r i n v o l v e i n non- farmactivitiesduetothedecreaseinthemarginalreturnoffarmoutputtothelabori nput.
Theavailabilityofelectricityandtapwaterisstronglyandpositivelyrelatedtot h e s hareofincomefromnon- farmactivities.Controllingothervariables,householdwithelectricityhashig hershareof8.02percentpointsofnon- farmincomecomparedtohouseholdwithoutelectricity.Similarly,thisfigurefortap w a t e r is10.10percentpoints.
Thevariablesofmarketaccesssuchasdistancetoadailymarketandaccesstomainroa dsarenegativelyandsignificantlyassociatedwiththeshareofincomef r o m non- farm ac ti vi ti es T h i s i s d ue t o h i g h e r t r a n s a c t i o n a n d transportationc o s t s bornbyself-employmententerprisesofhouseholdslivingfarfromroads andmarketcenters.S i m i l a r l y , t h e l o n g e r p e r i o d t h a t a r o a d i s p a s s a b l e , t h e h ig her sh are ofnon-farmincome the householdin that areahas. Thishighlightst h e importanceofmarketaccessintheshareofincomefromno n-farmactivities.
Thismaybebecausethefactthathouseholdslivinginruralareasusemostofthe ircreditfromformalfinancialorgani zation s toinvestinagriculturalactivitiesrat herthaninnon-farmones.
Itisalsoshownthatcomparingtothereferenceregion(theRedRiverDelta), aftercontrollingothervariables,allotherregionshavelowershareofinc omefromnon-farmactivities,especiallythe
NorthCentralCoast,CentralHighlandsw i t h 20 62p e r c e n t pointsand32 67 p e r c e n t p o i n t s l owe r respectively T h e s e twor e g i o n s w i t h t h e i r o w n c h a r a c t e r i s t i c s f a c i l i t a t i n g moref o r f a r m r e l a t e d activitiesthannon- farmones.
Onemorei m p o r t a n t n o t e i s t h a t t h e r i c h h a v e h i g h e r s h a r e o f t h e i r i ncomeg e n e r a t i n g fromn o n - f a r m a c t i v i t i e s t h a n t h e p o o r w h i c h i s s u p p o r t e d byt h e econometricr e s u l t s r e l a t e d t o t h e i n c o m e q u i n t i l e s i n T a b l e 4 9 T h e r i c h e s t g r o u p ofhouseholdsearns21.60percentpointsmorefromnon- farmactivitiesthant h e p o o r e s t g r o u p , h o l d i n g o t h e r v a r i a b l e s c o n s t a n t T h i s meanst h a t h o u s e h o l d economictransformationiscl oselylinkedwithincomegrowthandeconomicdevelopment.
Table 4.11 highlights the determinants of income diversification, revealing that education, household size, farm size, and access to electricity positively influence all three measures of diversification Education enhances human capital, enabling individuals to pursue complex wage-earning jobs and self-managed businesses, while also expanding opportunities for households to engage in various income-generating activities Household size indicates the available labor for production and participation in non-farm activities, with Kinh-led households focusing more on non-farm work compared to minority-led households, which tend to diversify income sources The age of the household head, reflecting experience and management skills, correlates positively with the number of income sources and the Simpson Index of Diversity (SID), indicating less focus on non-farm activities Infrastructure factors, such as distance to a car road and road passability, significantly impact non-farm activity diversity, as greater distance increases transaction and transportation costs, thereby reducing income sources and diversity Access to formal credit facilitates income diversification and balance among sources; however, it negatively relates to the share of non-farm income, suggesting that rural households often invest credit into agricultural production rather than non-farm ventures.
Non- farms ha r e i ncome(NFS)
NW+,SCC+, MRD+,CH-, SE-
NE-,NW-, NCC-,CH-, SE-,MRD-
NW-,SCC-, CH-,SE-,MR D-,NCC+
This section explores the influence of diversification on household total income by analyzing three models where total income is treated as the dependent variable and diversification indicators as explanatory variables To address endogeneity concerns, we employ the Instrumental Variables (IV) method, specifically two-stage least squares (2SLS) In this framework, income diversification indicators serve as endogenous variables, while education, access to formal credit, and household size are utilized as instruments These variables significantly affect household total income by impacting income diversification.
Y1=f ( N I S , e t h n i c i t y , a g e, g e n d e r , d e p _ r a t i o , e l ec t r i c , t a p w a t e r , mark et_dis,r o a d _ d i s , road_pass)
Y2=f(NFS, ethnicity,age,gender,dep_ratio, electric, tapwater, market _dis,r o a d _ d i s , road_pass)
Y3=f ( S I D , e t h n i c i t y , a g e, g e n d e r , d e p _ r a t i o , e l ec t r i c , t a p w a t e r , mark et_dis,r o a d _ d i s , road_pass)
Y1,Y2,Y3i shousehold’s totalincomeinmodel1,model2,model3r e sp e ct i v e l y
The regression results in Table 4.1 indicate that all three diversification measures significantly and positively influence household total income Specifically, each additional source of income increases household total income by an average of 47,877,000 VND, while a 10 percent increase in non-farm income share leads to an average rise of 17,630,000 VND in total income Additionally, a similar increase in the Simpson index of diversity contributes to an increase of 14,127,900 VND in household total income, after controlling for other variables.
Inshort,regardlessof indicators, income diversification has asignific ant andp osit iv e i n f l u e n c e o n h o u s e h o ld’st o t a l income,w h i c h i s i n l i n e w i t h SustainableLivelihoodtheory andconsistentwithfindingsb yBabatundea n d Q a i m (2009),orbyMinotetal(2006)inthecontextofVietnam.T hissupportstheideathatdiversificationisastrategychosenbyhouseholdtoinc reasetheirincome.
Periodthat aroadis passible(road_pass)
Households in rural Vietnam derive their income from a diverse array of sources, with non-farm activities becoming increasingly significant over time However, income diversification varies notably across different income quintiles While poorer households tend to have a greater number of income sources, they rely less on non-farm income compared to wealthier households Econometric analysis reveals that several socio-economic factors, including education, farm size, market access, and credit availability, significantly influence the income diversification of these households.
Inthispaper,weexaminethepatternsofincomediversificationamongh o u s e ho l d s inruralVietnambytakingintoconsiderationvariousindicatorsof di ver sif i cat ion TheresultsshowthatthemajorityofhouseholdsinruralVie tnamhavefairlydiversifiedinincomesources.Onaverage,eachhouseholdh a s fro m3.5(VHLSS2008)to4.3(VHLSS2010)sourcesofincome.Besides,th e s h a r e o f incomeg e n e r a t i n g f r o m n o n - farma c t i v i t i e s i n h o u s e h o l d ’ s t o t a l incometendstogrowo v e r time,from2 7.4p e r c e n t inVHLSS2002toreach
Households exhibit varying levels of income diversification influenced by socio-economic characteristics and geographical location Key factors such as the age, gender, and ethnicity of the household head significantly affect income diversification, with education being a critical determinant that positively impacts all aspects of diversification Additionally, household and farm size correlate positively with the share of income derived from non-farm activities, which are essential for total household income Non-farm income is shaped by various factors, particularly infrastructure elements like access to electricity, tap water, and the quality of roads in the living area.
Thediversificationamong householdalsovaries acrossgeographical r egions.T h i s m a y b e e x p l a i n e d bythes p e c i f i c c h a r a c t e r i s t i c s o f e a c h r e g i o n T h e poorestr e g i o n s s u c h a s N o r t h E a s t a n d N o r t h Westt e n d t o e x t e n d t o m o r e activitiestoearntheirincomethanotherregionsas ameanstoincreaseincomea n d r e d u c e t h e i n c o m e v a r i a t i o n Ont h e o p p o s i t e way,r e g i o n s w h i c h h a v e advantageousc o n d i t i o n s f o r n o n - f a r m e c o n o m i c d e v e l o p m e n t such asR e d R i v e r D e l t a , S o u t h E a s t a r e t h e o n e s w h i c h h a v e t h e h i g h e s t p r o p o r t i o n o f incomegeneratingfromnon- farmactivitiesintotalincomecomparedtootherr e g i o n s
In conclusion, the strategy of pursuing multiple income sources is common across various geographical and economic regions, as well as among households of different income quintiles, with a tendency to increase diversity over time Descriptive statistics indicate that while poorer households tend to have a greater number of income sources, they are less diversified in non-farm income compared to wealthier households, primarily due to constraints faced by the poor Econometric analysis reveals that households possess unequal abilities to diversify their income, influenced by socio-economic factors such as education, household size, farm size, access to electricity, credit availability, and infrastructure conditions Interestingly, access to credit appears to negatively affect diversification into non-farm activities, suggesting that households primarily invest credit into agricultural pursuits, limiting opportunities in non-farm sectors Furthermore, regression analysis indicates that a higher level of diversification significantly enhances total household income, demonstrating that rural households can increase their income through diversification strategies.
Firstly,itisessentialforgovernmenttoimprovetheeducationsystem ing e n e r a l andpromotethedevelopmentofeducationinruralareasinspecificfor thefactthateducation i s asi g n i f i c a n t factort h a t canhelphousehold in r u r a l a r e a s t o g a i n k n o w l e d g e a n d s k i l l s r e q u i r e d f o r d i f f e r e n t i n c o m e - g e n e r a t i n g activities,e s p e c i a l l y inn o n - f a r m s e c t o r s Onlybyt h i s wayc a n h o u s e h o l d s increasetheiri n c o m e a ndminimizet h e incomeuncertainty.F r o m t h e g o v e r n m e n t ’ s perspective,itis ameanstoimprovelivelihoodofitscitizensandr e d u c e thepovertyrateinruralregionsa swellasinthewholecountry.
Secondly,i n o r d e r t o e n h a n c e t h e a b i l i t y o f h o u s e h o l d s ind i v e r s i f y i n g t h e i r income,thegovernmentshouldimprovetheinvestmentininfrastr ucture,includingroads,electricity,water,telecommunications,bothintermsofq u a n t i t y a n d q u a l i t y T h e i m p r o v e m e n t i n i n f r a s t r u c t u r e w i l l h e l p t o r e d u c e transportandtransactioncostsforhouseholdsinruralareas.Moreover,i talsomakesiteasierforhouseholdstoapproachmorejobopportunitiesinnon- farmsectorsinurbanareas.
Thirdly,thefinancialmarketinruralareasshouldbeimprovedtofinancethe p r o d u c t i o n ofhouseholdsinaneffectiveway.Itrequiresthestudyande x e c u t i o n ofthenewscheme,inordertomeettheloanneedsofhouseholdsandto maint ainthesustainabledevelopmentofthefinancialsystem.
Fourthly,alongwithimprovingtheformalfinancialmarket,itisvitaltotrain h o u s e h o l d s thewaytop ro pe rl y investintoagricultural productionlik ecrops,fisheries a n d l i v e s t o c k , a s w e l l a s p r o v i d i n g t h e t e c h n i c a l s u p p o r t f o r t h e s e activitiest h r o u g h a g r i c u l t u r a l e x t e n s i o n p r o g r a m s T h i s c a n b e d o n e byr e c r u i t i n g a n d t r a i n i n g t h e q u a l i f i e d s t a f f t o h a n d l e t h e e x t e n s i o n programs.Furthermore,i t i s n e c e s s a r y t o c r e a t e morec o n v e n i e n t c o n d i t i o n s f o r h o u s e h o l d s t o i n v e s t i n n o n - f a r m a c t i v i t i e s b a s e d o n t h e c o m p a r a t i v e a d v an t a g e s ofthere gions.Thisshouldbecarriedoutincloseaccompanywiththeexpansionofmarket foroutput.
Lastb u t n o t l e a s t , theg o v e r n m e n t p o l i c i e s o r p r o g r a m s t o f o s t e r t h e i n c o m e d i v er s i f i c a t i o n s h o u l d pays p e c i a l a t t e n t i o n t o t h e p o o r i n r e m o t e a n d mo un tain ou s areaswhoencountermuchmoreconstraintsthantherich. Fromthehouseholds’perspective, theeducation shouldbeconsidereda veryimportantfactorandpaidhighattention.Onlybyimprovingthelevelofe d u c a t i o n canhouseholdsandindividualshavegoodopportunitiestodiversifyth ei rincomeandbetterthetotalincomeinprofessionalnon- farmjobsandinsettingupandmanagingfamily’sownnon-farmbusinesses.
AlthoughtheincomediversificationintermsofNISisgoodinenablinghousehol dstoincreaseincomeandreducingtheriskofvariationinincome,itisn otalwayse n c o u r a g e d t o t a k e incomed i v e r s i f i c a t i o n U n d e r somec e r t a i n c i r c u m s t a n c e s , itisbettertospecializein specificactivities,whichhouse holdhas thecomparativeadvantages.
Atthetimethispaperis beingworked on,theVHLSS2010 resultshaveno tfullyofficiallyannounced,therefore,itbasesitseconometricanalysisonV
H L S S 2 0 0 8 r a t h e r t h a n t h e n e w d a t a fromV H L S S 2 0 1 0 M o r e o v e r , t h e r e s ear c h mustbe betterif itisanalyzedonthe paneldata tomaketheregressionresultsmoreconcreteandreliable.
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