EQUITABLE GROWTH IN VIETNAM
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
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.
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
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
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
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
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
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.