Chapter 6
Micro-determinants of Household Welfare,Social Welfare, and Inequality in Vietnam

Tran Duy Dong

Abstract
This paper adopts the methodology of Wodon (1999) and applies it to the data from theVietnam (Household) Living Standard Surveys in order to identify the micro-determinantsof household welfare, social welfare, and inequality in Vietnam during the period
1993–2002. We find that, on average, Vietnamese people enjoyed an absolutely improved
standard of living during the study period. At the same time, social welfare was also
improved remarkably from 1993 to 2002 in absolute terms. However, the increase inincome was accompanied by a rapid rise of inequality during 1993–1998, and a slightdecrease in inequality during 1998–2002. The study reconfirms the determinants of theVietnamese household welfare that were found in previous studies, in which occupation,
educational level of the household head, and the geographical location where the households reside are still important factors.

1. Introduction
The Vietnamese government has notched up substantial achievementsin economic growth as well as in the reduction of poverty. Those results havebeen achieved by the reform of a number of policies since the early of 1990s.
Booming trade was marked by the deregulation in the trade regime in the early
1990s. The country actively joined free trade area and economic cooperation
organizations such as the ASEAN Free Trade Area (AFTA) in 1995 and theAsia-Pacific Economic Cooperation (APEC) in 1998; Vietnam signed bilateral
trade agreements with important partners like the European Union in 1992 andthe United States in 2000. In addition, foreign direct investment also was legalized in 1987. The private sector was recognized as an important sector by the151

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enactment of the Law on Enterprise in 2000. The privatization process of stateowned enterprises, though it has not proceeded as expected, has still contributed
positively to the corporate sector. In the agricultural sector, land rights weregranted to individuals and farmers were allowed to trade their products in themarket without any restriction. In addition, the government adopted policies forbudgetary reform and financial sector reform in an attempt to produce macroeconomic stability, which facilitates economic growth. With such reforms,Vietnam has achieved a remarkable average economic growth rate of 7.5 percent since 1990 (General Statistics Office [GSO], 2004). This growth has
absolutely increased household welfare and reduced the poverty rate (Glewweet al., 2000).
The impact of economic growth and trade liberalization on poverty
and inequality as well as household welfare in Vietnam has been a topic ofinterest for many researchers. Notable studies include Glewwe et al. (2000),
Justino and Julie (2003), Niimi et al. (2003), and Seshan (2005). A common
point in the studies that have been completed is that they only cover the period
1993–1998 because they are based on two Vietnam Living Standard Surveys(VLSS): VLSS9293 and VLSS9798. In these surveys the evidence of the positive impact of economic growth on household welfare and equality was relatively clear to observe because in the early 1990s the country had just started its
transition from a highly centrally planned economy, in which most Vietnamese
people were living in poverty, to a socialist-oriented market economy. Startingin 1998, however, the impact of economic growth on household welfare andequality appears to be mixed and is more difficult to identify because from thistime the government strongly deregulated a number of restrictive trade policies
to implement its commitments for entry to the AFTA and to prepare to enter theWorld Trade Organization (WTO). Since 1998, in parallel with a more open
trade regime, Vietnam has also had to deal with a number of trade claims fromother countries, such as for an anti-dumping price of fish by the United Statesand for shrimp by the European Union. These claims are likely to have negative
impacts on households.
No comprehensive academic analysis of this period is yet available.
Furthermore, no study has yet been attempted to investigate the changes insocial welfare induced by economic growth during the period 1993–2002. This152

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is an important area for policy makers; analysis of the impact of economic policies at different points in time on households would provide a basis for policy
adjustment.
Such an analysis is conducted in this paper using the most up-to-datehousehold data from VLSS9293, VLSS9798, and the Vietnam Household Living Standard Survey 2002 (VHLSS2002). The next section of this paper
describes these surveys in detail. The third section of the paper investigates themicro-determinants of Vietnamese household welfare in 1993–2002 and highlights the differences in welfare received among different households and socioeconomic groups. The fourth section uses the dominance theories of Lorenz andGeneralized Lorenz, as well as the social evaluation functions to examine thedynamics of social welfare and trace out the sources of changes in equality.
Some concluding remarks are provided in the last section.

2. The Vietnam (Household) Living Standard Surveys(VLSS and VHLSS)
Three surveys were carried out by the General Statistics Office (GSO)
of Vietnam in the past fifteen years. The first survey was carried out in 1992–93(namely, VLSS9293) by the cooperation of the State Planning Committee andthe GSO, with financial contributions from the United Nations Development
Program (UNDP) and the Swedish International Development Agency (SIDA)
and technical assistance from the World Bank. This survey covered 4,800
households nationwide and included a household survey, a community survey,
and a market price survey. In the household survey, topics covered included
household size and composition, health, anthropometric measures of nutrition,
education, housing characteristics, migration, employment, non-farm enterprises, agriculture, other income, expenditure and food consumption, ownership ofconsumer durables, and savings and credit.
The second survey was conducted between December 1997 andDecember 1998 (namely, VLSS9798) by the GSO, with financial support
from the UNDP and SIDA and technical assistance from the World Bank.
Like VLSS9293, this survey included a household survey, a community survey, and a market price survey. Different from VLSS9293, in VLSS9798 a153

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survey of health centers was added. The household questionnaire covered thesame topics as the VLSS9293 and was administrated to 6,000 households.
Interestingly, about 4,302 households which were interviewed in VLSS9293
again participated in VLSS9798, creating a panel data which is a good source
for analysis.
The Vietnam Household Living Standards Survey was carried out in2002 (VHLSS2002) by the GSO with financial support from the JapaneseBank for International Cooperation (JBIC) and technical assistance from theWorld Bank. The VHLSS2002 was divided into two parts. In the first part, asmall questionnaire (36 pages) was administered to about 60,000 households
and a large questionnaire (43 pages) was administered to a smaller sample ofabout 15,000 households. The large questionnaire has an expenditure module,
allowing calculation of more reliable expenditure-based estimates of living
standards. The large VHLSS2002 questionnaire is similar to the VLSS questionnaire except that some modules are not included (anthropometrics, migration, and savings and credit) and most of the other modules are simplified.
Moreover, the household questionnaire in VHLSS2002 is also simplified compared with the previous ones. However, the household questionnaire inVHLSS2002 has a significant advantage in that it combines the main sectionsof two surveys: the household economic survey and the household living standards survey. Thus, indicators in VHLSS2002 are still compatible with previous surveys.

3. Micro-determinants of Household Welfare and Welfare
Growth3.1. Expenditure data
The following paragraphs explain briefly how total household expenditure is computed, based on data collected from the surveys.
Total annual expenditure consists of five components:• Consumption expenditure on food and nonfood (nondurable goods)• Value of home-product food consumed• Value of goods in-kind received (such as food and housing) beside wages• Estimated used value of durable goods owned by the household

154Micro-determinants of Household Welfare, Social Welfare, and Inequality in Vietnam• Rental value of the dwelling occupied by the household.
To collect information, the interviewer asks household representatives
for their household expenditure on 45 food items and the value of foodstuffs
produced and consumed by the household. It is noted that the Tet holidays, theVietnamese New Year, are a special event for every household, and people
therefore tend to spend more on these days (approximately 2 weeks). Sincesome goods consumed on these days are different from usual days, additionalquestionnaires are given to obtain information of expenditure on Tet holidays
and other holidays (mostly weekend days). Expenditure on 68 nonfood items aswell as expenditure on health, education and utility expenditure are also collected. In some cases, employees may also receive goods and services from theiremployer in addition to their wages. Such payments were also considered as
expenditure and are added to consumption expenditure.
Durable goods, once purchased, will certainly increase the wellbeing of a household for a certain period of time. Of course, the well-being
cannot be completely utilized in the year of purchase. This purchase value ofthe well-being (consumption) therefore should be divided for the years following the year of purchase, using depreciation rates. The depreciation rates
are computed based on current value and purchased value. These rates areused to calculate the value of 13 different kinds of durable goods. Finally, theannual rental value of housing also makes up a large portion of expenditureand is added to the expenditure of households. Since the number of households which rent dwellings at a market rate is relatively small, for the sake ofsimplicity the annual rental value is assumed to be 3 percent of the current
estimated value of the dwelling. Summing up the above consumption expenditures yields a good measure of household welfare. Because the price of agood differs across the regions within the country, total consumption expenditure is adjusted using a regional prices table. Finally, the real total expenditure is then divided by household size to obtain real per capita householdexpenditure.

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3.2. Methodology
The model used is adapted from Wodon (1999). The determinants ofhousehold welfare1 can be established by a multiple regression as follows.
log (yi)] = ßi Xi +ui ,(1)

where log (yi) is log of real expenditure per capita; and X i are categorical variables presenting characteristics of households which likely affect the expenditure per capita2.
According to Wodon (1999), due to the properties of the linear
regressions, the expected consumption levels of households obtained by conditioning on the household’s sample mean must equal the actual mean values
observed in the sample. This then provides a good way to examine the impactof household characteristics and the return to these characteristics on growth. If
X M is denoted as the mean characteristics of all households, the growth inhousehold per capita expenditure from time t to time t+1 can be decomposed asfollows:
Growth≈E t+1[log(YM)]-E t[log(YM)]=(ßMt+1-ßMt)X tM+ßMt(XMt+1-X tM)+U.

(2)

In equation (2), (ßM -ßM )X M represents the impact of changes oft+1tt

returns to those characteristics; ßMt(XMt+1-X tM) represents the impact of changing
characteristics of the household.

Expenditure is chosen as proxy for household welfare because expenditure is a good proxy for permanent income and thus also for long-term average well-being (Balisacan et al., 2003). For example, a low-income household can withdraw its savings or borrow money to consume and maintainits relative living standard. In contrast, a high-income but highly indebted household has to cut
down on part of its income to pay off the debt. Moreover, data on expenditure are less difficult togather than those on income, especially for developing countries where self-employed individuals
are reluctant to provide their earnings precisely. Thus, in this study, as notably used before, household expenditure per capita also is employed as an approximation for household welfare.
2In this paper, independent variables used include: (1) Sex of the household head (Male or Female);(2) Area in which household resides (Urban or Rural); (3) Regions (divided into 8 regions: Red
River Delta, North East, North West, North Central Coast, South Central Coast, Central Highlands,
South East, and Mekong River Delta); (4) Education level of household head (categorized in sevenlevels: Never, Primary School, Junior High School, High School, Technical Training, VocationalTraining, and College or Higher); (5) Occupation of household head (categorized in seven kinds ofjobs, including White Collar, Sales/Service, Agriculture, Skilled Worker, Unskilled Worker, andOther Not Working); (6) Ethnicity of household head (actually, there are 54 ethnic majorities in thecountry, but for the sake of simplicity, ethnicity is divided in three groups: Vietnamese, Chinese,and Others); (7) Religion of household head (like ethnicity, religion is classified into 3 main religious affiliations: Buddhist, None, and Others); and (8) Other variables such as age and age-squareof household head as well as log of household size are also added.
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3.3. Utilizing cross-sectional data for analysis
The cross-sectional estimates using data from VLSS9293,VLSS9798, and VLHSS2002 are shown in Table 1. There were no difference in
expenditure between the households with male heads and the ones with female
heads; the fact that the coefficients of household heads are male in all three
years shows no statistical significance. Yet, the ethnicity of household heads
appears to be an important factor.
The Chinese account for only a small portion of the population (1.85
percent in VLSS9293) but had higher living standards than did the Vietnamese.
Specifically, households with heads who are Chinese spent 24 percent3 more in
1993 and about 19.5 percent more in 1998 than households headed by Vietnamese. Households headed by minorities other than the Chinese had lower
standards of living when compared to Vietnamese households.
It is unsurprising that we found higher spending in households locatedin the urban areas than those of the rural areas. Table 1 also highlights that people living in regions other than the North Central Coast, with the exception of
the North West region and the Central Highlands region in 2002, enjoyed ahigher well-being than those of the North Central Coast region; however, thedegree of benefit diminished during the period 1993–1998 except for in theSouth East region. In detail, in 1993, expenditure per capita of households in
the South East was 57 percent higher than those of the base region—the North
Central Coast; in 1998, the difference was up to around 66 percent and about 50
percent in 2002. For the Mekong River Delta region, the expenditure of households in 1998 was still higher than that of the North Central Coast region but it
decreased at its sharpest rate from 53 percent in 1993 to 25 percent in 1998.
This decrease was probably due to the severe typhoon in late 1997, although thedifference had recovered only slightly to 28 percent by 2002.
The results show the returns of education in a trend as expected: higher education levels correlate with higher standards of living. For example, inSince the dependent variable is in the form of a logarithm, the difference is exp(coefficient). Here,exp(0.2145) =1.239, so that the difference is nearly 24 percent. Other comparisons are made in thesame way

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1993, households with the heads completing a university or higher degree spent
51 percent more than those in which the heads only finished primary school.
The same difference also was found in 1998. Less improvement was seen inhouseholds with the heads having a high school degree. They only spent 21 and158

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19 percent in 1993 and 1998, respectively—spending which was higher thanthose households with heads who only finished primary school. In 2002, thesedifferences were still evident but the magnitudes were much smaller.
Usually, it is expected that people involved in white collar jobs orbusiness work as well as skilled laborers have a higher standard of living compared with those engaged in agricultural and blue collar jobs. The findings ofVietnamese households during this period, without exception, support thisexpectation. As shown in Table 1, individuals living in households with a head
who had a white collar job or a job related to sales/services had a higher expenditure per capita compared to those of the reference occupation—agriculture—
and also benefited more than those living in households with a head working inother job categories. However, in 2002 the differences in spending between
households with the head being farmers or working in the agricultural sector
and other jobs were not evident. It is possibly the case that in 2002, households
headed by farmers and other agricultural employees were gradually catching up
with the expenditure levels of households of other occupational categories.
However, in order to come to a precise conclusion, this finding should be further investigated by using panel data as well as incorporating data of the threesurveys, which are estimated in the following sections.
It is worth noting that the “other not working” category in the regression includes not only the unemployed but also those who were retired and notworking for any reason (e.g., illness, leave) at the time of interviewing. Hence,
one may find that the households headed by individuals adhering to this group
had higher living standards than those of the base category.
The age of the household head also affected the expenditure of thathousehold, with higher spending for older household heads, but negative coefficients of age_square of the household head in the regressions imply that thisdisparity will actually decrease at a certain age, which is what we expected.
Importantly, one should be careful when interpreting negative coefficients of the variable LogHHsize without taking account of the estimate ofequivalence scales as suggested by Deaton (1997). This does not mean thathouseholds with more members tend to have lower expenditure per capita than
do those with fewer members: if we substitute total expenditure per capita withanother welfare indicator and divide total household expenditure by “adult-159

Tran Duy Dongscale equivalents,” the result is likely to change (Wodon, 1999; Glewwe et al.,2000).
3.4. Micro-determinants of expenditure growth
Table 2 presents micro-determinants of expenditure growth of the twoperiods 1993–1998 and 1998–2002 using (2) in the methodology based on theresults of Table 1.

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