THE WILLIAM DAVIDSON INSTITUTE AT THE UNIVERSITY OF MICHIGAN BUSINESS SCHOOL Agriculture and Income Distribution in Rural Vietnam under Economic Reforms: A Tale of Two Regions

This paper exploits the panel dimension of the Vietnam Living Standards Survey (VLSS) in order to analyze the main changes occurring in agriculture in Vietnam over the period 19931998. This period was marked by a continuation of the reforms that began in 1988 with the implementation of Resolution 10, Vietnam’s own version of the Chinese Household Responsibility System. We focus on the impact of two main policy changes: first, the increase in the rice export quota and the significant increase in the price of rice, especially in the south; second, liberalization of the fertilizer market and the sharp drop in the price of fertilizer. To this end, we document changes in the empirically observable “institutional environment,” exploring changes in rice and other crop prices as well as fertilizer prices. With this as background, we explore changes in rice production, consumption and marketing, and their links to changes in prices and incomes. We also estimate the degree to which these increases can be “explained” by increased use of inputs like fertilizer, cropping intensity, and increased yields. Finally, we investigate the distributional impacts of these changes, including a detailed examination of the linkages between rice marketing and income distribution using nonparametric econometric techniques. We find that the agricultural reforms had a largely beneficial impact on the well being of rural households throughout Vietnam, but that farmers in the south gained most, consistent with expectations given the policy changes. More generally, our conclusions suggest that market reforms can have a significant impact on incentives, without adverse consequences for income distribution. JEL Classification: P3, Q12, Q17, Q18