(Luận văn) determinants of income diversification and its effects on household income in rural vietnam

t to ng hi UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS ep w n lo VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ad ju y th yi pl ua al n DETERMINANTS OF INCOME DIVERSIFICATION n va ll fu AND ITS EFFECTS ON HOUSEHOLD INCOME IN m oi RURAL VIETNAM at nh z z k jm ht vb BY om l.c gm HO THI NGOC DIEP an Lu n va MASTER OF ARTS IN DEVELOPMENT ECONOMICS ey t re th HO CHI MINH CITY, JANUARY 2013 t to ng hi INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS ep UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM w n lo ad VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ju y th yi pl n ua al va n DETERMINANTS OF INCOME DIVERSIFICATION AND ITS EFFECTS ON HOUSEHOLD INCOME IN RURAL VIETNAM ll fu oi m at nh z z A thesis submitted in partial fulfilment of the requirements for the degree of k jm ht vb MASTER OF ARTS IN DEVELOPMENT ECONOMICS om an Lu HO THI NGOC DIEP l.c gm By ey t re Dr HA THUC VIEN n va Academic Supervisor: th HO CHI MINH CITY, JANUARY 2013 ACKNOWLEDGEMENTS t to With these words, I would like to express my sincere thank to all who have ng hi supported me during my journey to complete the Master program in general and ep this thesis in particular First of all, I would like to thank the Board of Faculties of the University of w n Economics of Ho Chi Minh City and International Institute of Social Studies lo ad (ISS) for providing me with all fruitful and precious academic knowledge ju y th during the master program The Thesis could not have been designed and completed without the support yi pl from my Professors in the University of Economics and ISS I would like to al ua show my deepest gratitude to Dr Ha Thuc Vien and Dr Tran Tien Khai for all n their invaluable comments and fruitful guidance from the very beginning of the va n formatting of the topic My special thanks go to Dr Ha Thuc Vien for his fu ll academic supervision, inspiration through the progress of my thesis writing In m oi addition, I would like to express my sincere thank to Dr Pham Khanh Nam, nh Mr Nguyen Van Dung for their guidance on technical issues used for the at z analysis of the thesis z vb Last but not least, I am deeply indebted to my family members: my parents, my jm ht parents – in law, my sisters for all their understanding and supports during my k study I would like to express my special thanks to my mother and my mother- gm in-law, who have helped me to take care of my little baby so that I can l.c concentrate on my thesis Finally, I would like to thank my husband who is om always besides me, encouraging and helping me with daily life, so that I can an Lu spend most of my time on completing the thesis n va ey t re TABLES OF CONTENTS t to Acknowledgements ng hi List of tables, figures ep Abstracts w n CHAPTER INTRODUCTION lo ad 1.1 Problem Statement ju y th 1.2 Research objectives 1.3 Research questions yi pl CHAPTER LITERATURE 2.1 Concepts and measures of income diversification ua al n 2.2 Theoretical framework va 2.3 Determinants of income diversification n ll fu 2.4 Previous studies on income diversification in Vietnam 10 oi m CHAPTER DATA AND RESEARCH METHODOLOGY 12 3.1 Data 12 3.2 Research methodology 12 at nh z 3.2.1 Classification and calculation of income sources 12 z vb 3.2.2 Indicators of income diversity 13 jm ht 3.2.3 The method of analysis 15 k 3.3 Chapter remarks 16 gm l.c CHAPTER FINDINGS AND DISCUSSION 17 4.1 Patterns and trends in income diversification 17 om 4.1.1 Diversity of income sources 17 an Lu 4.1.2 Diversification as a shift to non-farm activities 21 4.1.3 Diversification as commercialization production 24 va 4.2 Econometric results and discussion 29 n 4.2.3 Determinants of income diversification (Simpson index of diversity) 35 ey 4.2.2 Determinants of income diversification (number of income sources) 33 t re 4.2.1 Expected sign of determinants of income diversification 31 4.2.4 Determinants of income diversification (share of non-farm income in total t to income) 38 ng 4.2.5 Impact of income diversification on total income of household 42 hi ep 4.3 Chapter remarks 45 CHAPTER CONCLUSIONS AND RECOMMENDATIONS 46 w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re LISTS OF TABLES AND FIGURES t to TABLES ng Table Measures of diversity in income sources and Simpson index of hi ep diversity in rural areas by regions across years 18 Table Measures of diversity in number of income sources and Simpson w n index of diversity in rural areas by income quintile across years .20 lo ad Table Share of non-farm income in total income by income quintile across y th years 23 ju Table 4 Measure of commercialization by regions and year 26 yi pl Table Measure of commercialization by income quintile and year 28 ua al Table Descriptive statistics for the dependent and independent variables 29 n Table 4.7 Hypotheses regarding impact of independent variables on measures va n of income diversification 31 fu ll Table Determinants of income diversification (NIS) 36 m oi Table Determinants of income diversification (SID) and (NFS) 37 at nh Table 10 Summary of results on determinants of income diversification .41 Table 11 Impacts of income diversification on total income of household 44 z z vb jm ht FIGURES The Sustainable Livelihood Framework……………………………… Trends in income composition of rural households……………………22 Share of nonfarm income in total income of rural households……… 23 Share of output sold or bartered by region and year………………… 25 k 2.2 om l.c gm an Lu n va ey t re ABSTRACT t to Income diversification has been a special attention of researchers, especially in ng hi developing countries It is a means to increase household’s income and reduce ep risks of income volatility of each income source However, the patterns and trends of income diversification vary from country to country and from region w n to region This research aims at examining the determinants of income lo ad diversification among rural households in Vietnam and the impact of ju y th diversification on household’s total income in order to decide appropriate policy responses Based on Vietnam Household Living standard surveys in yi pl 2002, 2004, 2006, 2008 and 2010, the descriptive analysis on a variety of al ua concepts of diversification shows that the diversification in rural areas is very n common and tends to increase over time For instance, a number of income va n sources among rural households goes up to from 4.08 in 2002 to 4.28 in 2010 fu ll The analysis also indicates the growing importance of non-farm activities m oi Nevertheless, the extent of diversification is not the same between the rich and nh the poor The poorer tend to have more income sources than the richer while the at z richer is much more diversified in terms of share of income from non-farm z vb activities than the poorer The econometric analysis uses methods of Poisson jm ht regression in the model of number of income sources and Tobit regression in k the model of SID and NFS The regression results show that socio-economic gm status and access to formal financial market both have positive impact on the l.c number of income sources pursued by households and the Simpson index of om diversification Interestingly, it is found that the access to financial markets has an Lu negative effect on the share of non-farm income The accessibility of positive impact on household’s total income It implies that households try to ey income source, share of non-farm income and Simpson index of diversity have t re confirms that all of the three indicators of income diversification: a number of n evaluation of reverse impact of diversification on household’s total income va infrastructure is also an important determinant of income diversification The increase their income by pursuing multiple income strategy, expanding their t to income generating out of agricultural activities and maintaining the balance ng among different income activities hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re CHAPTER t to INTRODUCTION ng hi ep 1.1 Problem Statement Income diversification among rural household in developing countries has w n called for substantial attention of scholars in development economics It is lo ad referred to the allocation of resources among different income generating ju y th activities, both on-farm and off-farm, according to Abdulai and Crolerees (2001) There are several motives for households to diversify their income yi pl sources Households tend to carry out the income diversification because of the al ua need to manage risks, to secure a smooth flow of income, to allocate the surplus n labor or to respond to different kinds of market failures such as insurance and va n credit market imperfection (Ellis, 1998) fu ll Given the potential role of income diversification in stabilizing income and m oi alleviating rural poverty, governments in several developing countries are at nh increasingly interested in promoting diversification And Vietnam with more z than 70% of the population lives in rural areas is not an exception Since 1986, z vb the Government has implemented various policies with an aim to developing jm ht multi-sector economy, renovating the economic structure and stabilizing the k social economic environment including improving people’s living standards l.c gm and opening the country’s economy to the rest of the world For rural development, some specific objectives raised are to create more jobs, to raise om agricultural and rural industry-related income, and to develop services and off- an Lu farm activities In other words, these policies are designed to directly or indirectly stimulate the process of income diversification in Vietnam in general ey 1990 and the poverty rate falling from 58% in 1993, 29% in 2002, 15.5% in t re reduction, with the annual economic growth rate of 6-8 percent since the early n gained some remarkable achievements in economic development and poverty va and in rural areas in particular With the nation-wide renovation, Vietnam has 2006 to 14.5% in 2008 and 14.23% in 2010 (GSO) Part of income growth and t to poverty reduction is undoubtedly due to diversification among households both ng into higher value crops and into non-crop activities such as livestock raising, hi ep and non-farm activities Though income diversification plays such an important role in the early stage of w n rural transformation, the patterns of rural income diversification may vary lo ad across countries and regions (Ellis, 1998) Hence, it is necessary to identify the y th determinants of income diversification of specific countries and regions as it ju helps government have appropriate policy response to support the rural areas yi pl While there are very few empirical studies about the income diversification ua al issue in Vietnam, the research on the impact of diversification on household n income is even rarer Based on the empirical studies and data from Vietnam va n Household Living Standards Survey 2008 (VHLSS 2008), this paper is aimed at fu ll determining the factors that affect the ability to carry out income diversification m oi among households in rural Vietnam and to measure the impacts of at nh diversification on household incomes z z 1.2 Research objectives vb jm ht The paper is to investigate determinants of income diversification among households in rural areas of Vietnam, and measure the difference in the level of k gm impact of these factors among economic and geographical regions This paper l.c also aims at examining the reverse effects of income diversification on the om household income an Lu 1.3 Research questions ey t re household level? - n - What are the determinants of income diversification in rural Vietnam at va Specifically, the paper tries to address the following questions: How does the level of income diversification differ among rural regions within Vietnam?