external liberalization, poverty, and inequality in...

December, 2004

External Liberalization, Poverty, and Inequality in Vietnam: The Role of Price Dispersion

David Roland-HolstUC Berkeley and Mills College

World Bank Conference onPutting Development Back into the Doha Agenda

The Hague2 December 2004

December, 2004 Roland-Holst2

Contents

1. Introduction2. Overview of Data and Methodology3. Price Dispersion and Development4. Preliminary Results5. Conclusions and Extensions


Per Capita Income in East Asia(quartiles)


Poverty Incidence by Province(percent of population, quartiles)

National average 37%, NU average 59%.


Human Resources, Trade, and Income

Vietnam’s economic potential is far from being realized.

GDP

ExportsPopulationIndonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam


Data Overview

Data are developed at three levels and integrated in the model to aggregate consistently.National – a new SAM for VietnamRegional – a regional SAM for the Northern UplandsLocal - LSMS data


National Data: A New 2000 SAM for Vietnam

Incorporates the new 2000 GSO Input-Output Table112 domestic production activities 114 commodities (includes trade and transport margins)14 factors of production

12 labor categoriesCapitalLand

16 household types, sampled from the VLSS(Farmer, SelfEmp, Worker, UnEmp)x(Rural, Urban)xGender

3 enterprises (Private, Public, and Foreign)State (detailed fiscal instruments)Consolidated capital account194 international trading partners


Primary Vietnam Household Surveys

Name Period of data collection

Sample size

Lowest level of representation

Types of income data collected

1993 Vietnam Living Standards Survey

1992-1993 4800 Seven regions Crop area, production, and sales; crop by-products; livestock income, fisheries income; livestock and fisheries expenses; forestry income; non-farm enterprises revenue and costs; wage income most important current wage jobs and most important wage jobs over past 12 months; remittances; land rent; social security; other income

1998 Vietnam Living Standards Survey

1997-1998 6000 Ten strata (7 regions and 3 types of urban areas)

Almost identical content and structure as the 1993 VLSS.

2001-02 Vietnam Household Living Standards Survey

2001-2002 75,000 61 provinces Similar to VLSS, but less detailed, particularly the sections on wage income and enterprise income.


Notes on Methodology

To better understand these linkages, we apply economic analysis at three levels

1. National – An economywide forecasting model to elucidate structural and price adjustments – this model generates national price, income, and sectoral adjustments

2. Regional (Northern Mountain Region) – analogous to the national level, but with more localized incidence – this model maps national results to provinces

3. Local – econometric estimation and micro-simulation or imputation of household responses/impacts


Overview of Methodology

NationalCGE Model

EconometricAnalysis

PovertyAnalysis

MicroSimulation

External liberalization will help the poor if its growth returns are transmitted to asset classes associated with them, mainly unskilled labor and land.

To capture linkages across the economy and from the top down, a four-fold analytical framework is used.


Detailed MethodologyWTO AccessionDoha, FTAs,External Shocks

Regional and LocalMarket Data

Household Surveys

PricesSectoral AdjustmentsAggregate Incomes

Occupational choiceProduction technologyConsumer behavior

Household Incomes,Expenditure, OutputFactor use

Poverty IndicesMapping

Taxes/subsidiesInvestment

Ag. Services, Credit,Producer Support,Labor/land regulationNational

CGE Model

EconometricAnalysis Poverty

Analysis

MicroSimulation

- Data

- Results

- Policy Intervention


Price Dispersion: Motivation

Geographic variation in prices is substantial in developing countries, and can play an essential role in inequality and poverty.

A great deal of the development literature focuses on market failure. This is not synonymous with price failure.

Prices embody information about economic structure and market functionality. The challenge is to extract this information and make use of it.


Price Dispersion: Causes

The underlying causes of price dispersion are many, but generically they can be divided into three categories:Geography – spatial and physical characteristics that affect distribution marginsInformation – spatial asymmetries in market relevant information induce heterogeneity in production and consumption decisionsInstitutions – price differences for both producers and consumers are likely to be affected by their abilities to participate in formal and informal, public and private institutions that represent economic interests


Price Dispersion: Four Perspectives

1. Absolute Prices – resource costs, comparative advantage, PPP

2. Relative Prices – production/consumption patterns, incentives (subsistence)

3. Price Transmission – market segmentation and margins, information content of prices

4. Price Volatility – risk and insurance (subsistence)


Absolute Prices:Rural Price Indices by Province

RiceOther Crops Pigs Cattle Poultry Rice

Coffee/Tea

Sugar Cane

Other Crops Pigs Cattle Poultry

1 HaGiang 1.09 1.24 .52 .75 .40 1.07 .53 1.77 .73 1.00 .81 1.022 CaoBang 1.02 1.12 .71 .35 .54 1.15 .51 1.46 .91 .94 .70 .973 LaoCai 1.02 .90 .75 .74 .61 1.04 .55 .95 .63 .96 .52 1.034 BacCan 1.05 1.13 .71 .73 .63 1.04 .51 1.88 .77 .90 .56 .915 LangSon 1.03 1.08 .74 .41 .71 .98 NA 1.21 .97 .96 .52 1.096 TuyenQuang 1.04 1.01 .77 .60 .65 1.03 .51 .81 .49 .91 .69 .957 YenBai 1.04 1.01 .76 .78 .78 1.02 .55 .56 .64 .93 .45 1.038 ThaiNguyen 1.03 1.08 .81 .73 .63 1.04 .51 .72 .76 .94 .80 1.009 PhuTho 1.08 .97 .80 .84 .77 1.01 .51 1.02 .69 .92 .65 .99

10 BacGiang 1.09 .80 .78 .96 .88 1.11 .51 1.99 .90 .95 .70 .9811 QuangNinh 1.03 .99 .90 .94 1.09 1.06 NA 1.66 .75 .99 .54 1.2512 LaiChau 1.08 .99 .72 .90 .36 1.04 1.23 1.32 .57 1.02 .43 1.0713 SonLa 1.00 .81 .86 1.23 .52 1.21 .96 1.26 .41 1.00 .45 1.0314 HoaBinh 1.00 1.11 .79 .63 .60 1.04 .51 1.11 .33 .95 .82 1.02

Producer Prices by CommodityConsumer Prices by Commodity

Producer prices below national average: 75% of cases.

Consumer prices below national average: 82% of cases.


Absolute Prices: Spatial Price Correlation (1998)

Source: Ligon and Roland-Holst

Price levels do not appear to be correlated nationally, i.e. local prices exhibit persistent and significant differences.


Relative Prices: Agricultural Terms of Trade

Margins affect relative prices for farmers in two ways:

1. Producer prices (numerator) decline with market distance

2. Prices of agricultural inputs (denominator) rise with distance

In other words, rural balance sheets are leveraged from both directions.


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh

Ba Ria - Vung TauKien Giang

Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Dac Lac

Gia Lai

Son La

Lai Chau

Nghe An

Lao Cai

Kon Tum

Song Be

Thanh Hoa

Lam Dong

Cao Bang

Lang Son

Ha Giang

Yen Bai

Minh Hai

Ha Tinh

Bac Thai

Binh Thuan

Ha Bac

Quang Binh

Dong Nai

Vinh Phu

Binh Dinh

Quang Nam-Da Nang

Long An

Hoa Binh

Kien Giang

Phu Yen

Quang Tri

Tuyen Quang

Quang Ninh

Quang Ngai

Can Tho

Khanh Hoa

An Giang

Ninh Thuan

Soc Trang

Nam Ha

Dong Thap

Ha Tay

Thua Thien-Hue

Hai Hung

Ben TreTra Vinh

Ninh Thuan

Tien Giang

Thai BinhNinh Binh


Poverty Specialization Mkt. Distance Ag TOT

Poverty and Its CorrelatesUnfavorable

Favorable

Source: Author’s estimates


Mapping: Poverty and Market Access

Source: Epprecht:2004


Price Transmission:Spatial Correlation of Price Changes: 1993-98


Price adjustment exhibits some statistically significant correlation, but at very low levels.


National Model Simulations

Scenarios:3. Trade Liberalization (UTL) from 2005,

Assuming China Implements its WTO Commitments

7. UTL with Respect to Doha 19. UTL with Respect to Doha 211. UTL with respect to GTAP


Export and Import Composition by Partner(2000 SAM Data)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

VietnamExports

ASEANExports

US Importsfrom ASEAN

EU Importsfrom ASEAN

JapaneseImports from

ASEAN

Agriculture

Energy

ProcFood

TextApprl

Manufact

Services


Results: Unilateral Liberalization is Beneficial, Global Effects Seem Negligible

Scenario 2005 2010 2015 20201 UTL 3.01% 8.85% 19.20% 36.88%2 UTL+Doha 1 3.01% 8.82% 19.16% 36.81%3 UTL+Doha 2 3.01% 8.82% 19.17% 36.82%4 UTL+GTL 3.01% 8.84% 19.22% 36.91%


Micro-simulation

Two primary channels for rural participation in urban growth:

1. Labor/Migration2. Diversification to higher income elasticity

agricultural productsThe micro-simulation model extends current

approaches by including multi-input, multi-output CES/CET household production


The Role of Labor Income

The second primary source of rural HH income, labor earnings, has important direct and indirect linkages to the household enterprise:

1. Cash constraint – migrants are the most important source of this

2. Migrant remittances are strongly correlated with emergence from subsistence


Micro-simulation Results

All Households Urban RuralBefore After % Change Before After % Change Before After % Change

GE0 52.0 53.4 1.4 69.7 76.0 6.3 40.2 38.4 -1.8 GE1 65.3 65.1 -0.3 85.8 89.8 4.0 56.1 53.7 -2.4Gini 52.5 53.4 0.9 61.4 69.0 7.6 48.8 46.4 -2.4 p0 62.8 53.4 -9.4 53.5 40.0 -13.5 68.4 60.9 -7.5 p1 27.6 21.2 -6.3 22.7 16.5 -6.2 30.4 23.9 -6.5 p2 15.3 11.7 -3.6 13.4 9.4 -4.0 16.5 13.0 -3.5

Crossing the Poverty LineFreq. Percent Cumulative

np/np 4,727,075 31.18 31.18 p/p 8,840,273 58.31 89.49np/p 154,928 1.02 90.51 p/np 1,438,684 9.49 100.00

15,160,960 100.00

Poverty is reduced in both Urban and Rural areas.Inequality increases in Urban areas, but falls in Rural areas.


Calibrated Distribution Margins

Endogenous specification of margins is still in progress. For illustration, we calibrated a simple margin w.r.t. market distance (d)

)()( deddmdm βα +−+

=


R a d iu s A l l H o u s e h o ld s U r b a n R u r a l

1 0 0 0 k m B e f o r e A f t e r % C h a n g e B e f o r e A f t e r % C h a n g e B e f o r e A f t e r % C h a n g e G E 0 5 2 . 0 0 5 3 . 4 3 1 . 4 3 6 9 . 7 0 7 6 . 0 2 6 . 3 1 4 0 . 2 0 3 8 . 3 8 - 1 . 8 2 G E 1 6 5 . 3 4 6 5 . 0 6 - 0 . 2 8 8 5 . 8 0 8 9 . 8 2 4 . 0 1 5 6 . 1 0 5 3 . 6 8 - 2 . 4 3G in i 5 2 . 4 7 5 3 . 3 7 0 . 9 0 6 1 . 4 0 6 9 . 0 0 7 . 6 0 4 8 . 8 0 4 6 . 3 6 - 2 . 4 4 p 0 6 2 . 8 0 5 3 . 4 1 - 9 . 3 9 5 3 . 5 0 4 0 . 0 0 - 1 3 . 5 1 6 8 . 4 0 6 0 . 9 3 - 7 . 4 7 p 1 2 7 . 5 6 2 1 . 2 4 - 6 . 3 1 2 2 . 7 0 1 6 . 5 3 - 6 . 1 7 3 0 . 4 0 2 3 . 9 2 - 6 . 4 8 p 2 1 5 . 3 1 1 1 . 7 1 - 3 . 6 0 1 3 . 4 0 9 . 4 1 - 4 . 0 0 1 6 . 5 0 1 3 . 0 4 - 3 . 4 6

3 0 0 k m G E 0 4 7 . 1 0 4 8 . 3 1 1 . 2 1 6 9 . 7 0 7 5 . 8 8 6 . 1 8 4 0 . 2 0 3 8 . 8 5 - 1 . 3 5 G E 1 6 5 . 9 0 6 5 . 6 5 - 0 . 2 5 8 5 . 8 0 8 9 . 7 9 3 . 9 9 5 6 . 1 0 5 4 . 4 3 - 1 . 6 7G in i 5 2 . 4 0 5 3 . 1 4 0 . 7 4 6 1 . 4 0 6 8 . 6 5 7 . 2 5 4 8 . 8 0 4 7 . 1 3 - 1 . 6 7 p 0 6 6 . 1 0 5 8 . 4 7 - 7 . 6 3 5 3 . 5 0 4 0 . 0 7 - 1 3 . 4 3 6 8 . 4 0 6 3 . 3 6 - 5 . 0 4 p 1 2 9 . 3 0 2 3 . 7 2 - 5 . 5 8 2 2 . 7 0 1 6 . 6 5 - 6 . 0 5 3 0 . 4 0 2 6 . 1 7 - 4 . 2 3 p 2 1 6 . 0 0 1 2 . 8 0 - 3 . 2 0 1 3 . 4 0 9 . 6 2 - 3 . 7 8 1 6 . 5 0 1 3 . 9 1 - 2 . 5 9

2 0 0 k m G E 0 4 7 . 1 0 4 7 . 9 8 0 . 8 8 6 9 . 7 0 7 4 . 7 0 5 . 0 0 4 0 . 2 0 3 9 . 2 9 - 0 . 9 1 G E 1 6 5 . 9 0 6 5 . 7 0 - 0 . 2 0 8 5 . 8 0 8 9 . 2 9 3 . 4 9 5 6 . 1 0 5 4 . 9 9 - 1 . 1 1G in i 5 2 . 4 0 5 2 . 9 7 0 . 5 7 6 1 . 4 0 6 7 . 8 9 6 . 4 9 4 8 . 8 0 4 7 . 6 4 - 1 . 1 6 p 0 6 6 . 1 0 6 0 . 5 5 - 5 . 5 5 5 3 . 5 0 4 2 . 2 1 - 1 1 . 2 9 6 8 . 4 0 6 4 . 6 4 - 3 . 7 6 p 1 2 9 . 3 0 2 4 . 7 9 - 4 . 5 1 2 2 . 7 0 1 7 . 3 4 - 5 . 3 6 3 0 . 4 0 2 7 . 5 5 - 2 . 8 5 p 2 1 6 . 0 0 1 3 . 4 1 - 2 . 5 9 1 3 . 4 0 1 0 . 2 0 - 3 . 2 0 1 6 . 5 0 1 4 . 6 9 - 1 . 8 1

1 0 0 k m G E 0 4 7 . 1 0 4 7 . 6 1 0 . 5 1 6 9 . 7 0 7 3 . 6 4 3 . 9 4 4 0 . 2 0 3 9 . 8 8 - 0 . 3 2 G E 1 6 5 . 9 0 6 5 . 7 9 - 0 . 1 1 8 5 . 8 0 8 8 . 5 7 2 . 7 7 5 6 . 1 0 5 5 . 6 6 - 0 . 4 4G in i 5 2 . 4 0 5 2 . 6 9 0 . 2 9 6 1 . 4 0 6 6 . 5 1 5 . 1 1 4 8 . 8 0 4 8 . 3 7 - 0 . 4 3 p 0 6 6 . 1 0 6 3 . 2 9 - 2 . 8 1 5 3 . 5 0 4 5 . 1 5 - 8 . 3 5 6 8 . 4 0 6 6 . 9 0 - 1 . 5 0 p 1 2 9 . 3 0 2 6 . 8 9 - 2 . 4 1 2 2 . 7 0 1 8 . 9 5 - 3 . 7 5 3 0 . 4 0 2 9 . 3 4 - 1 . 0 6 p 2 1 6 . 0 0 1 4 . 5 0 - 1 . 5 0 1 3 . 4 0 1 1 . 0 5 - 2 . 3 5 1 6 . 5 0 1 5 . 7 4 - 0 . 7 6

Poverty Indices with Margins


Whose poverty was alleviated?


Extensions

1. National Level:1. Endogenous growth “X-factors”2. Financial flows3. Calibration and “envelope” problems

2. Micro-level:1. Better strategies for HH sampling2. Econometrics of HH production/consumption3. Endogenous price transmission4. Migration/remittances


Discussion


Preliminary Econometric Results

Because of its rich data resources, we want to use Vietnamese data to elucidate price dispersion as well as household consumption and production. Estimates thus far support two conclusions:

• Price levels do not appear to be correlated nationally, but price shocks exhibit correlation with distance. Thus national market forces may be at work, but local prices exhibit persistent and significant differences.

• Consumption growth has very low correlation across the country. In other words, there is no nationally representative household, i.e. local characteristics matter very much.


Where

Cit = consumption expenditure of household i in period t

CIit = crop income index

Hit = household size

αj = dummy for region j

Consumption Regression


Consumption Regression


external liberalization, poverty, and inequality in...

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