NATIONAL ECONOMICS UNIVERSITY INSTITUTE OF SOCIAL STUDIES

HA NOI THE HAGUE

DETERMINANTS OF POVERTY REDUCTION POTENTIAL OF LAND IN RURAL VIETNAM

A THESIS PRESENTED BY

HA CHI HAI

In Partial Fulfillment of the Requirements for Obtaining the Degree of

MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT

SUPERVISOR

Assoc.Prof. Dr. NGUYEN QUANG DONG

HANOI - 2007

ACKNOWLEDGEMENT

In completing my thesis, I have been received considerable and kind support from many people, to whom I would like to give my special thanks.

First of all, I would like to express my special thanks to Assoc. Prof. Dr. Nguyen Quang Dong, for his valuable time reading my drafts and giving me helpful guidance, support and suggestions.

I am grateful to Prof. Dr. Sc. Vu Thieu for his lectures on research methodology and econometric. I also would like to thank all the teachers and the staff in the Vietnam – Netherlands Master Project who have given my classmates and me their enthusiasm, kindness and effective help during our course.

Finally, I am deeply indebted to my family, MDE classmates for their spiritual encouragement throughout the preparation and development of this thesis. Without their heartfelt love and support, the thesis would have been made impossible.

HA CHI HAI

November 2007

ABSTRACT

This thesis examines the role of land as an instrument of poverty reduction, combine with conditions under which access to land in Vietnam rural. The thesis employs parametric methods and data from Vietnam Living Standard Survey 2002. The results show that marginal welfare value of land is quite high. An increase of 1 hectare will increase annually income by 2,700,000 VND a year, but there is a wide range of difference in return to land among regions. Education is an important factor contributes to household welfare, a marginal increase in the household head’s education level raises welfare by 2,498 thousand VND/year if the head finished primary level and reach up to 14,929 thousands if the heads have education attainment from vocational program, colleague and university or higher.

In addition, the marginal welfare value of land depend importantly other conditions under which land is used by households such as household and local characteristics

TABLE OF CONTENTS

ACKNOWLEDGEMENT I

ABSTACT Ii

LIST OF TABLES Iii

LIST OF ABBRIVIATIONS V

CHAPTER I 1

INTRODUCTION 1

1.1 Research topic 1

1.2 Research objectives, scope and focus of the study 2

1.3 Research questions 2

1.4 Methodology 2

1.5 Data 3

1.6 Structure of the thesis 3

CHAPTER II

METHODOLOGICAL FRAMEWORK 4

I. Theoretical framework 4

II. Econometric specification of the welfare equation 6

III. Literature review 7

CHAPTER III

OVERVIEW OF LAND ALLOCATION IN VIETNAM’ AGRARIAN TRANSITION AND POVERTY 10

I. OVERVIEW OF LAND ALLOCATION IN VIETNAM’ AGRARIAN TRANSITION 10

1.1 Land reform in Vietnam 10

1.2 The process of land allocation 14

1.3 Land use in Vietnam 15

II. POVERTY IN VIETNAM 17

2.1. Overall Poverty in Vietnam 17

2.2 Dimensions of poverty in Vietnam 17

2.3 Summary of characteristics of poverty in Vietnam 20

CHAPTER IV

ESTIMATION RESULTS OF HOUSEHOLD WELFARE 22

I. DATA 22

II. DESCRIPTION OF VARIABLES 23

1. Dependent variable 23

2. Explanatory variables 23

III.ESTIMATION RESULTS: The household welfare generating potential of land 25

SUMMARY OF FINDINGS 29

CHAPTER V

CONCLUSION AND POLICY IMPLICATIONS 30

I. CONCLUSION 30

II. POLICY IMPLICATIONS 30

III. SUGGESTION FOR FURTHER STUDY 31

REFERENCES 32

APPENDICES 35

LIST OF TABLES

Table 1 - Major annual crops grown in Vietnam, 1995-2000 16

Table 2: Indicators of poverty in Vietnam 1990-2002 17

Table 3: Spatial dimensions of poverty and inequality in Vietnam 18

Table 4: Ethnic and gender dimensions of poverty in Vietnam 19

Table 5: Socio-characteristics of Vietnam’s poverty profile 20

Table 6: Number of household by region 22

Table 7 - Estimation of the welfare household index 27

LIST OF ABBREVIATIONS

CH Central Highland

CPI Consumers’ Price Index

GSO General Statistics Office of Vietnam

MKD Mekong Delta

NCC North Central Coast

NE North East

NW North West

OLS Ordinary Least Square

RRD Red River Delta

SCC South Central Coast

SE State-Owned Enterprises

VLSS 2002 Vietnam Living Standards Survey in 2002

VND Vietnamese Dong

WB World Bank

CHAPTER I

INTRODUCTION

1.1 Research topic

The role of land in economic theory is extensively documented. Originally, land used by agriculture was the main motivation for an economic treatment of land. Prominent effort of classical economist was to established relation between land, labor and capital and its contribution to economic growth. Later, land use did not occupy an important position in neoclassical core economic theory, they considered it as a production factor of relatively little importance. Land as the principal source of wealth in classical economics lost its central role in neoclassical economics (Klaus; Jeroen, 2002).

In reality, land in agricultural production still plays a key role both in term of household wealth and mean of poverty reduction. Access to land has for many years advocated as one of the potentially most effective approaches to rural poverty alleviation (Warriner, 1969; Thiesenheusen, 1989; Bingswanger et al., 1995). Therefore land reforms in developing countries aimed to give the poor opportunity to help them go out of poverty status. It was not far away from favoring low income people, pro-poor policy in Vietnam has extensively and dramatically performed land reform over renovation process (Doi Moi) since 1986. Vietnam started to transform its rural sector from collectivized agricultural production to a system based on households’ initiative, a move that culminated in the passage of the 1988 Land Law. A new law was enacted in July 1993 to deal with factors such as threats of administrative reallocation, short duration of use rights, lack of transferability and the inability to use land as collateral. Studies have shown that this led to significant increases in overall rural productivity, although pre-existing differences between North and South were not eliminated (Pingali and Xuan 1992, Tran 1998), other study suggest that land allocation responded positively but slowly to the inefficiencies of the administrative allocation (Ravallion, M; Walle, D.V.D). We see that there is, however, a remarkable absence of solid empirical evidence measuring the potential of land in reducing poverty in Vietnam, particularly carefully taking into account the specific conditions under which land is used by beneficiaries, when we well know that these conditions are key determinants of success or failure. Aim to analyze further these effective factors basically and systemically, the topic “Determinants of poverty reduction potential of land in Vietnam rural” will be employed for my thesis.

1.2 Research objectives, scope and focus of the study

This thesis will examine determinants of poverty reduction potential of land in Vietnam rural from Vietnam Living Standards Survey in 2002 (VLSS 2002). In the thesis, I will focus on exploring the relationship between income and agricultural land endowment of household where household mainly generate income from agricultural land and taking into account the specific conditions under which land is used by beneficiaries.

The study focuses on four main works. Firstly, it is to introduce a general framework. Secondly, it is to provide a overview of agricultural land and poverty in Vietnam. Thirdly, it is to estimate household welfare equation, which include without and with correcting selectivity bias,. Finally, the study provides policy implications to agricultural land.

1.3 Research questions

The thesis is to address main question:

Which determinants cause heterogeneity in marginal returns to land for households endowed with agricultural land in Vietnam?

Sub-questions include:

Does marginal return to land endowed by household increase by area of agricututal land?

Are there any differences in welfare of household by regions?

Are there any differences in welfare of household by household characteristics, by which ways?

Are there any differences in welfare of household by education?

1.4 Methodology

The study reviews theoretical frameworks and relevant researches of the research topic. The research questions will be addressed by the quantitative method. Based on theoretical framework, household welfare equation is estimated, including selectivity correction. In addition, statistical and descriptive analyses are used as well.

1.5 Data

This study is based on the data from the Vietnam Living Standards Survey 2002 (VLSS 2002) which conducted by World Bank (WB) and the General Statistic Office (GSO) of Vietnam. The survey provides detailed information about employment, income, education, and demographic characteristics of household members.

1.6 Structure of the thesis

The thesis is divided into five chapters:

Chapter 1: Introduction

Chapter 2: Introduces theoretical considerations, methodological framework, and a brief of relevant literatures on returns to agricultural land.

Chapter 3: Provides an overview agricultural land and poverty in Vietnam

Chapter 4: Presents estimation results of household welfare equations.

Chapter 5: Summarizes main findings and provides policy implications based on the result