Trinity International Development InitiativeAnnual Development Research Week

November 7th, 2011

The Micro-foundations of Development: an Exploration of Access to Resources and the

Livelihoods of the Rural Poor in Vietnam

Carol Newman

Micro-foundations of Development Understanding the development process requires that we

look at the behaviour of individuals, households and firms at a microeconomic level

What issues can be addressed at a micro-level?

Access to basic services – health and education

Financial markets – limited access to credit, lack of facilities to save

Ineffective institutions - poorly defined property rights

Exogenous conditions – weather, floods, drought

Intra-household distribution

Identifying the constraints and barriers to growth and development will help inform policy makers as to how to effectively alleviate poverty and inequality

An Exploration of Access to Resources and the Livelihoods of the Rural Poor in Vietnam

Policy relevant research with sound academic underpinnings

Project funded by Danida, Danish Ministry of Foreign Affairs Aid Programme and is led by Prof. Finn Tarp of Development Economics Research Group, Department of Economics, University of Copenhagen

Partners include the Central Institute for Economic Management, Institute for Labour Studies and Social Affairs and the Institute of Policy and Strategy for Agriculture and Rural Development all based in Hanoi, Vietnam

The overall purpose of the project is to deepen our understanding of the economic wellbeing of households in rural Vietnam, with a particular focus on access to, and use of, productive resources.

An Exploration of Access to Resources and the Livelihoods of the Rural Poor in Vietnam

Vietnamese Access to Resources Household Survey

Design of survey module

Implementation of the survey

Production of research on issues of importance to partners in Vietnam

Training and knowledge transfer to partners in Vietnam

Dissemination of research to wider Vietnamese and international audiences

An Exploration of Access to Resources and the Livelihoods of the Rural Poor in Vietnam

Three rounds of the survey 2006, 2008 and 2010

12 rural provinces in Vietnam

2,200 hhs, in 131 districts and 456 communes

Carried out between June and August

Outputs Characteristics of the Vietnamese Rural Economy:

Evidence from a 2010 Rural Household Survey in 12 Provinces of Vietnam Descriptive report provides an overview of key insights from the

VARHS 10 database, comparing as appropriate with VARHS 06 and 08

Topics covered: Agricultural production Distribution of land and property rights Household enterprises Rural financial markets Social capital

Outputs Characteristics of the Vietnamese Rural Economy:

Evidence from a 2010 Rural Household Survey in 12 Provinces of Vietnam Descriptive report provides an overview of key insights from the

VARHS 10 database, comparing as appropriate with VARHS 06 and 08

Topics covered: Agricultural production Distribution of land and property rights Household enterprises Rural financial markets Social capital

Outputs Training courses in the microeconometric analysis of

survey data to partners in Vietnam Household Survey Analysis, Hanoi, November 2006 How to Prepare a Descriptive Report, Hanoi, January 2009 Microeconometric Analysis of Survey Data, Hanoi, January 2011

Policy Briefs and Indepth Studies The Effectiveness of Credit in Poverty Elimination. Presented to

the Central Institute for Economics Management, Hanoi, Vietnam, March 2010

Households Savings in Vietnam. Presented to the Central Institute for Economics Management, Hanoi, Vietnam, November 2008

Land use rights and productivity. Presented to the Central Institute for Economics Management, Hanoi, Vietnam, November 2007

Income shocks and household risk coping mechanisms Motivation: Vulnerability to shocks is a dominant feature of household

livelihoods in developing economies Negative effect on welfare (income, wealth, health, etc.) Vulnerability to poverty Key challenge is maintaining satisfactory levels of

consumption

Research question:

What strategies do rural households in developing countries employ to avoid consumption shortfalls caused by adverse income shocks?

Income shocks and household risk coping mechanisms Important risk coping strategies: Precautionary savings (cash, livestock, grain stores) Credit Insurance Government social safety nets Insurance and government safety nets do not fully cover risks

Welfare implications: Savings for precautionary purposes will lead to lower welfare

outcomes in the long run given that it uses up resources that could be put to more productive uses

Rising levels of indebtedness for consumption purposes can also cause problems in the long run

Income shocks and household risk coping mechanisms Policy implications:

Mechanisms to reduce the uncertainty associated with income generating activities will have welfare enhancing effects

Could be achieved through extending existing formal insurance contracts to cover weather related events

Social Capital and Savings Behaviour Motivation: High levels of saving in Vietnam but most saving is held in the form

of cash held at home Formal financial institutions estimated to reach over 70% of

households but levels of formal saving as low as 7% in some communities

Extensive levels of local group membership in Vietnam compared with other countries

Important role of state in governance but decentralisation under hierarchy of Communist Party through local socio-political organisations, e.g. Women’s Unions

Research Question: What role can mass organisations play in helping households

access formal financial markets in rural communities

Social Capital and Savings Behaviour Key results Women’s Groups have a positive influence on the formal savings

behaviour of group members Information disseminated through networks can fill an information

gap reducing the uncertainty about the riskiness of returns to saving formally and reducing the costs associated with opening a savings account

Policy implications: Targeting information on the benefits of formal saving and the

financial services available to households through Women’s Unions could be effective in increasing the number of households that save for productive purposes

Trinity International Development InitiativeAnnual Development Research Week

November 7th, 2011

The Micro-foundations of Development: an Exploration of Access to Resources and the

Livelihoods of the Rural Poor in Vietnam

Carol Newman