Vietnam's Economic Dev.


Results from a recent survey show that economic growth is benefiting all levels of society, not just an urban elite. Even more significant are the profound social changes accompanying the improved living standards.

Over the past decade, Vietnam’s GDP has doubled and per capita income has risen by 60%. The results of this growth are particularly visible in the cities - shiny hotels, office towers, water parks, thousands of new motorbikes.

Yet it is often believed that, the urban economy aside, little else has changed in Vietnam. It is as if a handful of fortunate in a traditional and conservative society had simply donned new, and better-tailored, suits of clothes, with the rest of society living as it did a generation ago.

This view is wrong on both counts. Very rapid social change is occurring, in parallel with the country’s economic development. And economic growth has changed the lives of people nationwide, not only in the cities, and not only for the rich.

Social change
At the forefront of social change is the stunning drop in fertility, which almost halved during the 1990s. According to the 1989 census the total fertility rate, which measures the number of children that a woman might be expected to have in her lifetime, stood at 4.4; the equivalent measure in 1999 was 2.3, which is very close to the replacement level of just over 2. In some parts of the country, most notably the Red River Delta, the fertility rate is now well below the replacement level.

Already each cohort of newborn children is smaller than the preceding one, and within a few years the number of elementary school pupils will begin to decline. Of course the population will continue to grow for many years, as the bulge in the number of young women keeps births up, even if each of them has just one or two children. But population growth will continue to fall from its current 1.6% per year, and will essentially stabilize within a generation.

Why has fertility fallen? The government may point with pride to its “one-or-two-child” family planning program, which emphasizes late marriage, wide birth spacing, fines for having too many children, and the use of IUDs. Social scientists might argue that fertility has fallen because of rising levels of parental education, and increasing urbanization (from 20% of the population in 1989 to 24% now). An even stronger effect may come from a change in attitudes. Where parents once wanted many children, now they want just one or two; where children were seen as economic assets, now they are viewed as liabilities, expensive to educate, feed and clothe. In economic parlance, parents in Vietnam now prefer child quality to child quantity.

The traditional preference for having a son has also weakened. Based on data from the Vietnam Living Standards Survey of 1993, there was clear evidence that families that did not yet have a son were more likely to try again, and soon. By 1998, when a similar survey was undertaken, this effect had virtually disappeared. The rhetoric of son preference is still heard, but the reality is otherwise. This may reflect an appreciation of the growing economic and social importance of women. Teenage girls are more likely than boys to be in the labor force, they work longer hours both inside and outside the home than boys, and they are almost as likely to attend school.

The spread of economic growth
That average incomes rose rapidly in the 1990s is undisputed. The interesting thing is that the gains were spread so widely, which helps explain why the accompanying social change has taken place throughout the country.

One may get a sense of how the gains from economic growth have touched large numbers of people by looking at the proportion of the population living in poverty. The choice of a poverty line is arbitrary. Some favor a food poverty line, which is the amount of money needed to purchase 2,100 Calories of food per person per day. Using this measure, 15% of the population was in poverty in 1998, down from 23% in 1993. A more generous poverty line, that allows households to buy 2,100 Calories and to cover other basic needs (housing, clothing, and the like) shows poverty falling from 55% in 1998 to 37% in 1993. By any standard this reflects a rapid improvement in the living standards of many.

The reduction in poverty between 1993 and 1998 occurred in all regions, in rural as well as urban areas, and even among ethnic minorities (although this group has been left behind, relatively, by the economic expansion). This reduction in poverty took place despite an increase in economic inequality; although poor households saw an improvement in their standards of living, rich (and especially urban) households experienced an even bigger increase.

Why the widespread growth in incomes?
First, labor markets are dynamic. An astonishing 86% of adults were in the labor force in 1998, with the participation rates being almost equal for men and for women. At that time just 1.6% of the labor force was unemployed, a figure that has not substantially changed since. Unemployment is running at less than 1% in rural areas, partly because the economy demands workers, but also because poor people cannot afford to remain idle, and so display energy and ingenuity in finding work to do.

The proportion of workers whose sole source of income is agriculture fell from 43% in 1993 to 41% by 1998. Very few people jumped straight from farming to wage employment. What happens instead is that farmers begin to dabble in other activities - work as a day laborer here, a sideline activity there - and only when these non-agricultural activities seem secure enough are they willing to leave agriculture behind. In 1998, 37% of all workers held more than one job, up from 35% in 1993.

Men are making this transition out of agriculture more quickly than women. A consequence is the increasing feminization of agriculture; women already account for as much as three fifths of agricultural employment. The flexibility of labor markets is also reflected in migration. When opportunities arise, people move. The region with the fastest-growing population is the Central Highlands, where the lure of profits from cultivating coffee has sucked in migrants. The cities have also attracted huge numbers of migrants, certainly more than were documented in the census numbers.

Second, capital markets are dynamic. Half of all households borrow money, with particularly high borrowing rates among farmers. Roughly half of the loans come from “formal” institutions, such as the Vietnam Bank for Agriculture, the Bank for the Poor, and NGO-sponsored schemes. The informal banking system provides the rest, as households borrow from relatives, friends, and shopkeepers.

Indeed 14% of all households lend money. The interesting feature here is that 46% of these households simultaneously borrow and lend. They thus serve as financial intermediaries, mini-banks in the making.

Third, agricultural prices rose. During the 1990s the barriers to trading and exporting rice gradually fell, largely eliminating the gap between the world price and the domestic price. The price of other grains rose in parallel. This proved to be a boon to most farming families, who are generally among the poorest members of society. This change, the fruit of market liberalization, will not be repeated in the future.
What does this add up to? Fertility rates are low and falling, contraceptive use is high, son preference is weakening, poverty has fallen dramatically, open unemployment is low and labor force participation high. These are also characteristics of China and, to a greater or lesser degree, of Thailand, Indonesia and Malaysia. Vietnam, albeit with a lag, is following the same path, and just as quickly.

By Jonathan Haughton

Bibliographic Note - A good source of information on the spread of the benefits of economic growth is the World Bank report Assessing Poverty. It draws heavily on the results of the living standards surveys undertaken in 1993 and 1998. Detailed, and fascinating, tables based on these surveys are to be found in Viet Nam Living Standards Survey 1998-1998, issued recently by the Statistical Publishing House. The actual data are available from the General Statistical Office.

Jonathan Haughton is a Faculty Associate at the Harvard Institute for International Development and an Assistant Professor of Economics at Suffolk University in Boston.

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