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# **4 Toward an Empirical Application**

The socio‐economic data to estimate equation (4) were obtained from the Vietnam Household Living Standard Surveys (VHLSS) of 2002, 2004, and 2006. In each round, households were selected using a 3‐stage sampling process.<sup>30</sup> These three survey waves provide high quality and nationally representative household information on household consumption and income, their demographic characteristics, health status, educational achievements, asset holdings and the availability of public services in the community. The latter is obtained from the community survey which was fielded in parallel to the household surveys. The questions in the VHLSS were similar throughout the different surveys rendering them highly comparable. The surveys were conducted each year between May and November of the survey year, with expenditures referring to the past 12 months.

Real total per capita expenditure less per capita expenses on health care is taken as the dependent variable. Health expenditures are subtracted as the study also controls for the effect of idiosyncratic health shocks, proxied by the number of days spent ill in bed over the past year by senior adults, adults and children respectively. Inclusion of health expenditures in the overall expenditure measure, which are highly correlated with illness and not routine or maintenance health outlays, might perversely suggest an increase in welfare following sickness. The expenditure data are expressed in January 2002 prices using the CPI provided by the Government Statistical Office. They are also corrected each year for regional and rural/urban differences across the 8 regions.

A series of standard household demographics (household size, the dependency ratio, the age, gender, educational status of the household head<sup>31</sup> ) are included to control for household characteristics in determining a household’s consumption level. In this context, controlling for ethnicity is especially important as poverty is increasingly concentrated among ethnic minorities, often located in Vietnam’s mountainous areas. While productive assets affect the capacity of a household to generate income and thus its consumption level, current asset levels may be simultaneously determined with consumption, as the disposal of assets (e.g. livestock) may be relied upon to cope with disasters, or they may reflect destruction by the disasters, leading to an underestimate of the welfare effects of the latter. In the absence of information of asset ownership prior to the survey, only those assets that display limited variation over time were included such as the amount of land owned and an indicator variable indicating whether the household owns a house or not.

30 Communes (the primary sampling units) were selected in the first stage with a probability proportionate to population size based on the 1999 Population census. On average, a commune contains 1,600 households. Subsequently, three enumeration areas (EAs), containing about 100 households each, were randomly selected within each commune. One of these EAs would be used to draw a sample of households in each VHLSS during the final (third) stage. In, 2002, this resulted in a sample of 29,530 households across 2,910 communes (EAs) (25 households per EA in 75% of the EAs and 5 in the remaining 25%). In 2004 and 2006, three households were selected per EA, resulting in 9,189 households each year in 3,061 communes. Phung and Nguyen (2008) provide a detailed description of the questionnaire and survey design.

31 0 refers to no degree, 1 to primary school, 2 to lower secondary school, 3 to higher secondary school, 4 to short‐term technical worker, 5 to long‐term technical worker, 6 to professional secondary school, and 7 to college diploma and above.