# **1. Introduction**

It has been claimed that environmental risks are a constraint to sustainable economic growth and lasting poverty reduction, especially in dynamically growing countries. Vietnam has experienced an average annual GDP growth of about 5.5 percent since 1990 and reduced extreme poverty from around 60 percent in 1990 to 13.5 percent as of 2014 (World Bank Group, 2016).<sup>1</sup> Nevertheless, pockets of poverty still exist today: 91 percent of people in extreme poverty live in rural areas and belong to marginal groups, such as ethnic minorities, who have a poverty rate of about 58 percent (Kozel, 2014).

At the same time Vietnam is facing various environmental challenges. Land is increasingly degraded by human‐ induced factors (Vu et al., 2014a, Vu et al., 2014b). Although total tree cover has increased, certain areas suffer from high rates of natural forest loss and forest degradation (Pham et al., 2012). Satellite data suggest that air pollution is increasing to high levels (World Bank Group, 2016). At the same time weather variability and extreme events, such as floods and droughts, severely affect livelihoods (Arouri et al., 2015; Bui et al., 2014; Narloch, 2016; Thomas et al., 2010). All of these risks could be exacerbated by population growth, unmanaged development and climate change.

These interlinkages between poverty and environmental risks could be mutually‐reinforcing ‐ often referred to as the environment‐poverty nexus (Reardon and Vosti, 1995). Due to the lack of other opportunities, many of the poor live in high risk areas where they are more exposed to hazards and are more vulnerable to any negative impacts (Hallegatte et al., 2016). Many of them also overly depend on ecosystems and natural resources for income generation (as shown for Vietnam in Narloch, 2016) and to cope with shocks (Angelsen et al., 2014; Barbier, 2010; Wunder et al., 2014). On the one hand, being exposed to environmental risks forces poor people to opt for lower‐risk, but lower‐return strategies, which can make it harder to escape poverty. On the other hand, the dependence on natural resources can increase ecosystem fragility and environmental risks. This downward spiral could result in poverty traps (Barbier, 2010; Barrett et al., 2011; Carter et al., 2007).

Environmental risks are unevenly distributed across space – depending on geographic and climate conditions, as well as socioeconomic factors that condition them. Moreover, poor people are often concentrated in remote and disadvantaged areas, as for example the mountain areas in Vietnam. Such conditions could result in spatial poverty traps through geographic pockets of fragility, risks, marginalization and poverty (Barbier, 2012). An earlier spatial analysis at the provincial level, however, finds that the relationship between poverty and environmental risks is hard to generalize in Vietnam (Dasgupta et al., 2005).

This paper revisits this relationship, taking advantage of recent data, which allow the analyses of spatial relationships between environmental risks and poverty and consumption changes over time. First, the paper uses high‐resolution data representing environmental risks across space. These data are combined with national maps showing the incidence of poverty at the district level (Lanjouw et al., 2013). In addition, this study computes environmental risks at the commune level<sup>2</sup> to relate it to household information based on the Vietnam Household Living Standard Surveys (VHLSS) for 2010, 2012, and 2014. Benefiting from the panel

> 1 This number is based on the national poverty line, which is at is $3.49‐a‐day in 2011 PPP terms. By the $1.90‐a‐day poverty line, the extreme poverty rate was 3% in 2014.

> 2 These are third‐level administrative subdivisions, equivalent to a sub‐district.