economic growth poverty and house hold we lf are in vietnam

THE
WORLD
BANK
ISBN 0-8213-5543-0
Economic Growth, Poverty, and
Household Welfare in Vietnam
GLEWWE/AGRAWAL/DOLLAR
THE WORLD BANK
Vietnam is an economic success story. It transformed itself from a country in the 1980s
that was one of the world’s poorest to a country in the 1990s with one of the world’s
highest growth rates. With the adoption of new, market-oriented policies in the late
1980s, Vietnam averaged an economic growth rate of 8 percent per year from 1990 to
2000. This economic growth was accompanied by a large reduction in poverty (from 58
percent in 1993 to 37 percent in 1998), which included dramatic increases in school
enrollment and a rapid decrease in child malnutrition.
Economic Growth, Poverty, and Household Welfare in Vietnam uses an
unusually rich set of macroeconomic and household survey data to examine several
topics. These include the causes of the economic turnaround and prospects for
future growth; the impact of economic growth on household welfare, as measured by
consumption expenditures, health, education, and other socioeconomic outcomes;
and the nature of poverty in Vietnam and the effectiveness of government policies
intended to reduce it.
Although Vietnam’s past achievements are quite impressive, future progress is by
no means ensured. This book draws lessons for Vietnam and for other low-income
developing countries. It is a valuable resource for anyone—including those in the devel-
opment community, academia, and the media—who is interested in economic policy,
poverty reduction strategies, health care, education, and social safety nets.
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W ORLD BANK
REGIONAL AND SECT ORAL STUDIES
Economic Growth,

Poverty, and
Household Welfare
in Vietnam
EDITED BY
PAUL GLEWWE
NISHA AGRAWAL
DAVID DOLLAR

Economic Growth, Poverty
, and
Household Welfare in Vietnam
WORLD BANK
REGIONAL AND
SECTORAL STUDIES

Economic Growth, Poverty
, and
Household Welfare in Vietnam
Edited by
Paul Glewwe
Nisha Agrawal
David Dollar
THE WORLD BANK
Washington, D.C.
© 2004 The International Bank for Reconstr
uction
and Development/
THE WORLD BANK
1818 H Street, NW
Washington, DC 20433

Telephone: 202-473-1000
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ISBN 0-8213-5543-0
Cover credits: World Bank Photo Library

Library of Congress Cataloging-in-Publication Data
Economic growth, poverty, and household welfare in Vietnam / edited by Paul
Glewwe, Nisha Agrawal, David Dollar.
p. cm. – (World Bank regional and sectoral studies)
Includes bibliographical references and index.
ISBN 0-8213-5543-0
1. Vietnam—Economic policy. 2. Income distribution—Vietnam. 3. Poverty—
Vietnam. 4. Households—Economic aspects—Vietnam. 5. Vietnam—Economic
conditions—1975- I. Glewwe, Paul, 1958- II. Agrawal, Nisha. III. Dollar, David.
IV. Series.
HC444.E263 2004
330.9597—dc22 2003056887
Contents
Foreword vii
Acknowledgments ix
Contributors xi
Abbreviations and Acronyms xiii
Map of Vietnam xvi
1. An Overview of Economic Growth and Household Welfare
in Vietnam in the 1990s 1
Paul Glewwe
Part I. Vietnam’s Economic Performance in the 1990s 27
2. Reform, Growth, and Poverty 29
David Dollar
3. The Wage Labor Market and Inequality in Vietnam 53
John Luke Gallup
4. Household Enterprises in Vietnam: Survival, Growth,
and Living Standards 95
Wim P. M. Vijverberg and Jonathan Haughton
5. Agriculture and Income Distribution in Rural Vietnam

under Economic Reforms: A Tale of Two Regions 133
Dwayne Benjamin and Loren Brandt
v
vi
Contents
Part II. Poverty Reduction in Vietnam in the 1990s 187
6. The Static and Dynamic Incidence of Vietnam’s Public
Safety Net 189
Dominique van de Walle
7. The Spatial Distribution of Poverty in Vietnam and the Potential
for Targeting 229
Nicholas Minot and Bob Baulch
8. Ethnic Minority Development in Vietnam: A Socioeconomic
Perspective 273
Bob Baulch, Truong Thi Kim Chuyen, Dominique Haughton,
and Jonathan Haughton
Part III. Progress in Health and Education in Vietnam
in the 1990s
311
9. Poverty and Survival Prospects of Vietnamese Children
under Doi Moi 313
Adam Wagstaff and Nga Nguyet Nguyen
10. Child Nutrition, Economic Growth, and the Provision
of Health Care Services in Vietnam 351
Paul Glewwe, Stefanie Koch, and Bui Linh Nguyen
11. Patterns of Health Care Use in Vietnam: Analysis of 1998 Vietnam
Living Standards Survey Data 391
Pravin K. Trivedi
12. Trends in the Education Sector 425
Nga Nguyet Nguyen

13. An Investigation of the Determinants of School Progress
and Academic Achievement in Vietnam 467
Paul Glewwe
Part IV. Other Topics 503
14. Child Labor in Transition in Vietnam 505
Eric Edmonds and Carrie Turk
15. Economic Mobility in Vietnam 551
Paul Glewwe and Phong Nguyen
16. Private Interhousehold Transfers in Vietnam 567
Donald Cox
List of Figures, Maps, and Tables 605
Index 615
Foreword
Vietnam’s economic and social achievements in the 1990s are nothing short
of amazing, arguably placing it among the top two or three performers
among all developing countries. This success demands serious study in
order to draw lessons for other developing countries. Fortunately, there are
high-quality data available to undertake such a study, and this book has
made full use of those data, especially the 1992–93 and 1997–98 Vietnam
Living Standards Surveys, to document and understand Vietnam’s experi-
ence and to provide policy recommendations for other low-income countries.
This volume offers a very broad array of studies of Vietnam’s economy
and society in the 1990s. It begins with four chapters on Vietnam’s eco-
nomic performance, each focusing on a different topic: macroeconomic
growth, wage labor markets, household enterprises, and agriculture. Of
course, economic growth can take many forms, with widely differing con-
sequences for poverty reduction. The next three chapters focus on poverty
reduction in the 1990s, examining the impact (or lack thereof) of various
poverty programs, the spatial distribution of poverty, and poverty among
ethnic minorities. The next five chapters examine health and education out-

comes. Three chapters on health consider child survival, child nutrition, and
use of health care services, and two chapters on education cover basic
trends in enrollment and financing and the factors that determine school
progress and academic achievement. The last three chapters examine topics
of particular interest in Vietnam: child labor, economic mobility, and inter-
household transfers. As a whole, this book constitutes a comprehensive
study of economic and social development in Vietnam in the 1990s.
The research presented in this book involves the collaboration of numer-
ous individuals and organizations. The two Vietnam Living Standards
Surveys used in the book were implemented by Vietnam’s General
Statistical Office, with financing from the United Nations Development
vii
viii
Foreword
Programme and the Swedish International Development Agency and tech-
nical support from the World Bank. Funding for the research was obtained
from the World Bank’s Research Committee. The results were first presented
at a workshop in Hanoi in May 2001 that was attended by a wide range
of government officials, international organizations, and individual
researchers.
The extensive use made of household survey data in this study raises the
question of what data will be collected in the future in Vietnam. Fortunately,
Vietnam’s General Statistical Office has developed, with assistance from the
United Nations Development Programme and the World Bank, a plan for
implementing similar household surveys every two years. The first survey,
known as the Vietnam Household Living Standards Survey, was imple-
mented in 2002 and preparations are now under way to implement another
survey in 2004. This continued data collection will provide a sound foun-
dation for study of Vietnam’s social and economic progress in the first
decade of the 21st century.

François J. Bourguignon
Chief Economist and Senior Vice President
The World Bank
Acknowledgments
Many people in addition to the authors contributed to this book, and we
appreciate their assistance. Funding for the two Vietnam Living Standards
Surveys was provided by the United Nations Development Programme and
the Swedish International Development Agency. The Social and
Environmental Statistics Department of Vietnam’s General Statistical Office
implemented both surveys with a very high degree of enthusiasm and pro-
fessionalism. Indeed, several of the authors of these chapters are from that
department. Sarah Bales served as an outstanding consultant in the imple-
mentation of the second survey. Financial support to undertake much of the
research was obtained from the World Bank’s Research Committee. The
British Department for International Development funded a workshop to
disseminate first drafts of the papers, which was held in Hanoi in May 2001,
and also funded several of the papers. Very able editing and manuscript
processing were provided by Alison Peña, Emily Khine, and Lucie Albert-
Drucker. The World Bank’s Office of the Publisher managed editorial and
print production, including book design. Numerous other people con-
tributed in many ways, but if we attempt to name them all, we are likely to
omit several of them.
Finally, we would like to thank all the households that participated in
both surveys; by providing a large amount of information, they have helped
us understand what has occurred in Vietnam in the 1990s. Hopefully, our
research will lead to better policies that will improve their lives in the years
to come.
ix

Bob Baulch

Dwayne Benjamin
Loren Brandt
Truong Thi Kim Chuyen
Donald Cox
David Dollar
Eric Edmonds
John Luke Gallup
Paul Glewwe
Contributors
Fellow, Institute of Development Studies,
University of Sussex, Brighton, United Kingdom
Department of Economics, University of Toronto,
Ontario, Canada
Department of Economics, University of Toronto,
Ontario, Canada
Department of Geography, National University
of Ho Chi Minh City, Vietnam
Department of Economics, Boston College,
Chestnut Hill, Mass.
Development Research Group, World Bank,
Washington, D.C.
Department of Economics, Dartmouth College,
Hanover, N.H.
Consultant to the World Bank
Department of Applied Economics, University
of Minnesota, St. Paul; and senior economist for
the World Bank
xi
xii
Dominique Haughton

Jonathan Haughton
Stefanie Koch
Nicholas Minot
Bui Linh Nguyen
Nga Nguyet Nguyen
Phong Nguyen
Pravin K. Trivedi
Carrie Turk
Dominique van de Walle
Wim P. M. Vijverberg
Adam Wagstaff
Contributors
Department of Mathematical Sciences, Bentley
College, Waltham, Mass.
Department of Economics, Suffolk University,
Boston, Mass.
Consultant to the World Bank
Research Fellow, International Food Policy
Research Institute, Washington, D.C.
General Statistical Office, Hanoi, Vietnam
Poverty Reduction and Economic Management,
World Bank, Vietnam Country Office, Hanoi
General Statistical Office, Hanoi, Vietnam
Department of Economics, Indiana University,
Bloomington
Poverty Reduction and Economic Management,
World Bank, Vietnam Country Office, Hanoi
Development Research Group, World Bank,
Washington, D.C.
School of Social Sciences, University of Texas at

Dallas
Health, Nutrition, and Population Team, World
Bank, Washington, D.C.
Abbreviations and Acronyms
2SLS Two-stage least squares
2SLSFE Two-stage least squares with fixed effects
ANOVA Analysis of variance
ASEAN Association of Southeast Asian Nations
BMI Body mass index
CEMMA Committee for Ethnic Minorities in Mountainous Areas
CHC Commune health center
CPI Consumer price index
CPRGS Comprehensive Poverty Reduction and Growth Strategy
CSI Comprehensive Student Insurance
D Vietnamese dong (currency)
DHS Demographic and Health Survey
FDI Foreign direct investment
FEs Fixed effects
GDP Gross domestic product
GER Gross enrollment rate
GNI Gross national income
GNP Gross national product
GSO General Statistical Office
HEPR Hunger Eradication and Poverty Reduction
ICDS Inter-Censual Demographic Survey
ICRG International Country Risk Guide
ILO International Labour Organisation
IMR Infant mortality rate
IUD Intrauterine device
Instrumental variable

MARS Multiple adaptive regression spline
MCI Multiple cropping index
xiii
IV
xiv Abbreviations and Acronyms
MDGs
Millennium Development Goals
MICS Multiple Indicator Cluster Survey
MOLISA Ministry of Labor, Invalids and Social Affairs
NERs Net enrollment rates
NFHEs Nonfarm household enterprises
NGO Nongovernmental organization
NPK Nitrogen-potassium-phosphate compound fertilizer
OECD Organisation for Economic Co-operation and
Development
OLS Ordinary least squares
PCSI Propensity to consume out of social income
PHF Private health facility
plim Probability limit
PROM Test of policy’s Promotion of the poor
PROT Test of policy’s Protection of the poor
PRSP Poverty Reduction Strategy Paper
PTA Parent-teacher association
ROC Receiver operating characteristics
SCF U.K. Save the Children Fund, United Kingdom
SIDA Swedish International Development Authority
SMEs Small and medium enterprises
SOEs State-owned enterprises
TDY Thousands of dong per year
U5MR Under-five mortality rate

UNDP United Nations Development Programme
UNESCO United Nations Educational, Scientific, and Cultural
Organization
VHI Vietnam Health Insurance
VHSR Vietnam Health Sector Review
VLSSs Vietnam Living Standards Surveys
WHO World Health Organization
WTO World Trade Organization

Map of Vietnam
1
An Overview of Economic Growth
and Household Welfare in Vietnam
in the 1990s
Paul Glewwe
In the 1980s, Vietnam was one of the poorest countries in the world, and
throughout most of that decade there was little indication that Vietnamese
households had any hope of raising their level of welfare. Its gross domes-
tic product (GDP) per capita in 1985 is estimated to have been US$130 per
year, making it one of the world’s five poorest countries. Although school
enrollment rates were relatively high for such a poor country, they
remained stagnant while school enrollment rates were increasing dramati-
cally in nearby East Asian “miracle” countries. At the same time, while life
expectancy was unusually high for such a poor country, exceptionally low
incomes meant that the majority of Vietnamese children were malnour-
ished. As a very poor country with scant prospects for a better future,
Vietnam was in the same category as many of the poorest countries in
Africa, Asia, and Latin America.
Starting in the late 1980s and continuing through the 1990s, Vietnam
transformed itself from an economic “basket case” into one of the most suc-

cessful countries in the world in terms of economic growth, poverty reduc-
tion, and increased household welfare. This transformation raises significant
questions for anyone concerned with poverty in the poorest developing
countries: What accounts for Vietnam’s astonishing success? What can
Vietnam do to ensure continued success? Finally, can other very poor coun-
tries achieve this same success by following Vietnam’s policies?
This book seeks to answer these questions. It will do so by analyzing
Vietnam’s success in detail, using a variety of data from Vietnam and else-
where. Vietnam is fortunate, not only because of its economic and social
success but also because of the existence of an unusually large amount of
high-quality data. The analyses in the chapters that follow make full use of
1
2 Economic Growth, Poverty, and Household Welfare in Vietnam
these data and thus pr
ovide a wealth of information that can be used by
researchers and policymakers in Vietnam and in other developing countries.
This chapter sets the stage for the book. The first section describes the
new economic policies that Vietnam has adopted since the late 1980s. The
next section provides an overview of Vietnam’s achievements in the 1990s.
The following section summarizes the results from the various chapters, and
a final section summarizes the conclusions and raises issues for future
research. An appendix at the end of the chapter provides information on the
1992–93 and 1997–98 Vietnam Living Standards Surveys (VLSSs), the data
that are used most frequently in the book.
1
Doi Moi Policy Reforms
In the 1980s, Vietnam was an extremely poor country, with a low rate of eco-
nomic growth. Inflation rose dramatically as government deficits were fi-
nanced by printing money; by 1986, the annual inflation rate had risen to
487 percent. Vietnam’s response to this poor economic performance was the

adoption of the Doi Moi (“renovation”) policy reforms in the late 1980s.
2
This
process began with the Sixth Congress of the Communist Party, held in
December 1986. At this meeting, the government explicitly adopted the goal
of replacing central planning with a regulated market economy. A series of
fundamental policy changes was quickly implemented in the following
years, so that by 1989 most forms of private economic activity were legal and
price controls had been removed for almost all goods and services. This
section describes these policy changes, as well as several that were imple-
mented in the 1990s, in more detail.
The first important policy changes were implemented in the agricultural
sector. In 1987 and 1988, price controls were gradually removed for agricul-
tural goods, and farm households were allowed to sell any surplus products
at whatever price the private market would bear. Another decisive change
occurred when Decree Number 10 was issued in April 1988. That decree dis-
mantled agricultural cooperatives and divided up almost all agricultural
land among the rural households that had worked for those cooperatives.
Those households were provided with leases that lasted for 15 or more years
for the plots of land they received. Households were required to pay taxes
for the right to use the land, but after taxes all output was the property of the
households.
These changes in agricultural policy, along with the lifting of many re-
strictions on overseas exports in the late 1980s, helped Vietnam to become
the world’s third largest rice exporter by 1992, a dramatic change from its
status as a rice importer in the mid-1980s. Yet land rights were still limited at
the beginning of the 1990s; agricultural land could not be transferred to an-
other household, nor could it be transferred in the form of an inheritance. In
the 1990s, the government increased property rights for farming households
and, more generally, reduced restrictions on agricultural markets. Decree

Number 5 of 1993 (often referred to as the 1993 Land Law) granted more
3 An Overview of Economic Growth and Household Welfare in Vietnam in the 1990s
land rights and security
. Tenure lengths were extended to 20 years for an-
nual cropland and 50 years for perennial cropland. Households were al-
lowed to rent out and mortgage their land and to transfer land use rights,
including transfer by inheritance. Another important policy change was
Decree Number 140 of 1997, which relaxed restrictions on the internal trade
of agricultural commodities. Most of the remaining export restrictions were
removed in the 1990s.
Sweeping policy changes were also made in other sectors of Vietnam’s
economy. To ensure macroeconomic stability, and in particular to reduce the
rate of inflation, the central government reduced spending and modified the
tax system to raise more revenue. This reduced the central government budget
deficit from 8.4 percent of GDP in 1989 to 1.7 percent in 1992, one consequence
of which was that the rate of inflation plummeted, as will be seen in the next
section. Much of this spending reduction took the form of closing or selling un-
profitable state-owned enterprises (SOEs), and reducing the number of em-
ployees at many of those that remained. Between 1989 and 1992, the number
of SOEs was cut in half, from 12,000 to 6,000, and about 800,000 employees of
SOEs (about one-third of the initial number) were laid off. The rapid growth of
private sector employment opportunities, and the small share of SOE em-
ployees in the total work force, helped Vietnam avoid a sizable increase in
unemployment from this sharp reduction in public sector jobs.
A third area of major policy changes was in foreign trade and invest-
ment, although these changes were more gradual. One of the first steps took
place in 1989, when the exchange rate was unified and then devalued. Bar-
riers to exports and imports were gradually dismantled in the late 1980s and
early 1990s, and the monopoly on foreign trade granted to a small number
of state trading companies was ended. A law encouraging private investment

was passed in 1987 and implemented in early 1988. It loosened regulations
on joint ventures and allowed for 100 percent foreign-owned enterprises.
Policy changes in the 1990s continued to remove trade and investment bar-
riers. By 2003, import quotas existed for only two items, sugar and petro-
leum products, and quantitative restrictions on exports applied to only a
few items. Import tariffs gradually decreased, with the average tariff falling
from 12.7 percent in 1996 to 9.3 percent in 2003.
Social sector policies also experienced major changes under Doi Moi,es-
pecially in the areas of health and education. A fundamental deregulation of
the health care system was implemented in 1991. Doctors, nurses, and other
health care personnel were allowed to establish private clinics, and private
shops and individuals were permitted to sell a wide range of drugs. Both
public and private health facilities were able to charge fees for medicines
and health services. In 1994, the central government assumed the responsi-
bility of paying employees in commune health centers, which previously
had been the responsibility of the communes. In 1993, a health insurance
program was started, which by 2001 covered 12 percent of the population.
In education, changes were less radical, but they were still substantial.
Private schools were legalized in 1989. Spending per pupil has increased
4 Economic Growth, Poverty, and Household Welfare in Vietnam
dramatically in r
eal terms, increasing from 1.8 percent of GDP in 1992 to 3.5
percent in 1998. At the same time, tuition fees were introduced at the sec-
ondary and postsecondary levels. Government jobs were no longer guaran-
teed for graduates of upper secondary and postsecondary schools. A more
recent change is that entrance examinations are no longer used to limit stu-
dent enrollment into lower secondary and upper secondary schools. Finally,
several programs have recently been introduced to increase school enroll-
ment among ethnic minorities.
A final aspect of Vietnam’s Doi Moi reforms has been integration into the

international economy. In 1992, the country signed a preferential trade
agreement with the European Economic Community. Diplomatic relations
were reestablished with the United States in 1994, and in 2001, Vietnam and
the United States signed a wide-ranging bilateral trade agreement. Vietnam
joined the Association of Southeast Asian Nations (ASEAN) in 1995, which
included membership in the ASEAN Free Trade Area. In 1995, it also sub-
mitted an application to join the World Trade Organization, and negotia-
tions started in earnest in 2002.
Economic and Social Performance
Vietnam’s Doi Moi policy changes were followed by more than a decade of
rapid economic growth. The average annual rate of real economic growth
from 1988 to 2000 was 7.1 percent. In the early 1990s, Vietnam became the
world’s third largest exporter of rice, and in the late 1990s, it became the sec-
ond largest exporter of coffee. This performance is all the more extraordinary
given that Vietnam’s main economic benefactor in the 1980s, the former
Soviet Union, dissolved in 1991, ending a variety of subsidies that it had been
providing to the Vietnamese economy. While the East Asian financial crisis in
1997 and 1998 slowed economic growth somewhat, the slowdown was minor
and short-lived. Although GDP growth dropped to 5.8 percent in 1998 and
4.8 percent in 1999, it increased to 6.8 percent in 2000 (World Bank, Asian
Development Bank, and United Nations Development Programme 2000).
Economic and Social Trends from 1984 to 2000
Table 1.1 provides economic and social data for Vietnam for four years: 1985,
1988, 1994, and 2000 (1985 is the earliest year for which comparable economic
data are available). The period from 1985 to 1988 reflects conditions before
the Doi Moi policies were in place; although some policies were adopted in
1987 and 1988, a year or two is usually needed before they have major ef-
fects. During this period, Vietnam’s real GDP grew at a respectable rate of
4.2 percent, but its population growth of 2.1 percent resulted in a per capita
annual increase of only 2.0 percent. This rate of growth was far behind the

growth rates of higher-performing East Asian economies such as China,
Hong Kong, Malaysia, the Republic of Korea, Singapore, Taiwan (China),
and Thailand. Disaggregation of total GDP into agriculture, industry, and
5
T
able 1.1. Vietnam’s Economic and Social Performance
Annual growth rates (percent)
Economic and social indicators 1985 1988 1994 2000 1985–88 1988–94 1994–2000
GDP (trillion dong, 1994 prices)
Agriculture
Industry
Services
Population (million)
GDP/capita (thousand dong,
1994 prices)
Budget deficit (% of GDP)
Inflation rate (percent)
Exports (US$ billion)
Imports (US$ billion)
Trade balance (US$ billion)
Poverty rate
School enrollment ratios (gross)
Primary
Secondary
Life expectancy
Child malnutrition
(stunting)
106.18
36.83
26.40

42.95
59.87
1,774
—
91.6
0.50
0.90
–0.41
~75.0%
(1984)
103
43
65
—
119.96
38.87
33.35
47.74
63.73
1,882
7.1
374.4
0.73
1.41
−0.68
—
104
40
66
—

178.53
48.97
51.54
78.03
70.82
2,521
3.0
9.5
4.05
5.25
−1.20
58.1%
(1993)
113
41
68
51%
(1993)
273.58
63.35
96.92
113.31
77.64
3,524
2.8
–1.6
14.45
14.07
+0.38
37.4%

(1998)
106
67
69
34%
(1998)
4.2 6.9 7.4
1.8 3.9 4.4
8.1 7.5 11.1
3.6 8.5 6.4
2.1 1.8 1.5
2.0 5.0 5.7
n.a. n.a. n.a.
n.a. n.a. n.a.
13.4 33.1 23.6
16.1 24.5 17.9
— Not available.
n.a. Not applicable; original number is already a rate or percent.
Sources: GDP: General Statistical Office ([GSO] 2000, 2002); population: GSO (2002) and World Bank (2002a); budget deficit and trade: World Bank (1993,
1996a, 2002a); inflation: International Monetary Fund (2003); poverty rate: Dollar and Litvack (1998) and World Bank (1999); school enrollment: United
Nations Educational, Scientific, and Cultural Organization (various years); life expectancy: World Bank (1987, 1990, 1996b, 2002b).
6 Economic Growth, Poverty, and Household Welfare in Vietnam
services r
eveals very slow growth in agriculture (1.8 percent, which is less
than the population growth rate), modest growth in services (3.6 percent),
and high growth in the industrial sector (8.1 percent).
The high growth in Vietnam’s industrial sector could give a false im-
pression of success in this sector during the 1980s. Yet much of this “success”
reflects large government subsidies to this sector, which had negative con-
sequences for the economy as a whole. The 1980s were characterized by

high and growing government budget deficits and consequent high and
growing rates of inflation. By 1988, the budget deficit was 7.1 percent of
GDP and the annual inflation rate was 374 percent. Another characteristic
of Vietnam in the 1980s was low levels of exports and a large trade deficit;
in 1988, the value of imports was almost double the value of exports
(US$1,410 million and US$730 million, respectively).
This mediocre economic performance was accompanied by high rates of
poverty and little improvement in social indicators. A rough estimate is that
75 percent of Vietnamese were poor in 1984 (Dollar and Litvack 1998), in the
sense that their consumption expenditures were insufficient to purchase a
basket of food items that meet minimal caloric requirements (after allowing
for purchase of essential nonfood items). The primary school enrollment
rate was high, but the (gross) secondary school enrollment rate dropped
slightly, from 43 percent in 1985 to 40 percent in 1988. Life expectancy was
also high, but it was almost certainly accompanied by very high rates of
child malnutrition. (Data for the 1980s are scarce, but the high rates in the
early 1990s suggest even higher rates in the previous decade.)
Vietnam’s prospects dramatically improved in the late 1980s. The GDP
growth rate increased rapidly, from 4.2 percent in the mid-1980s to 6.9 per-
cent from 1988 to 1994 and 7.4 percent from 1994 to 2000. It is particularly
remarkable that the East Asian financial crisis in the late 1990s had almost no
effect on Vietnam’s economic growth. Increases in per capita GDP growth
are even more dramatic as a result of declining population growth; that
growth rate nearly tripled, from 2.0 percent in the mid-1980s to 5.0 percent
from 1988 to 1994 and 5.7 percent from 1994 to 2000. Dividing overall GDP
into agriculture, industry, and services, the agricultural growth rate more
than doubled, from 1.8 percent in the mid-1980s to 3.9 percent from 1988 to
1994 and 4.4 percent from 1994 to 2000. In contrast, industrial growth
dropped slightly, from 8.1 percent in the mid-1980s to 7.5 percent from 1988
to 1994, but then it jumped to 11.1 percent from 1994 to 2000. Finally, changes

in the growth in services are similar to those in agriculture; they more than
doubled, from 3.6 percent in the mid-1980s to 8.5 percent from 1988 to 1994,
after which growth was somewhat lower at 6.4 percent from 1994 to 2000.
Thus, in the initial years after the Doi Moi policies were introduced, most of
the increase in economic growth occurred in agriculture and services, and
only in the latter half of the 1990s did economic growth in industry surpass
the levels seen in the mid-1980s.
While industrial growth in Vietnam after the Doi Moi policies were
adopted may seem less impressive given the high growth rates in this sector
7 An Overview of Economic Growth and Household Welfare in Vietnam in the 1990s
in the mid-1980s, it is important to r
ecall that nearly 1 million employees of
SOEs lost their jobs in the late 1980s and early 1990s, and more generally that
the high growth in the late 1980s and early 1990s was maintained while
government budget deficits (and thus government subsidies to industry)
were shrinking. As seen in table 1.1, Vietnam’s government budget deficits
shrank from 7.1 percent of GDP in 1988 to about 3 percent in the 1990s, and
inflation virtually disappeared (9.5 percent in 1994 and –1.6 percent in 2000).
Another sign of economic health is exports, which include both agricultural
and industrial products. Vietnam’s exports grew dramatically, at an annual
rate of 33 percent from 1988 to 1994 and a slightly lower annual rate of
24 percent from 1994 to 2000. By 2000, Vietnam was running a trade surplus,
with a 20-fold increase in exports over a 12-year period.
This rapid economic growth was accompanied by a sharp decrease in
poverty and dramatic improvements in social indicators. Specifically, the
poverty rate declined from about 75 percent of the population in 1984 to
58 percent in 1993 and 37 percent in 1998. The sharp drop in only five years
from 1993 to 1998 is an achievement that is rarely seen in any developing
country, and the economic growth since 1998 suggests that the poverty rate
has continued to decline into the 21st century. Turning to social indicators,

the (gross) primary school enrollment rate increased somewhat from its al-
ready high rates in the 1980s, and (gross) secondary school enrollment rates
rose from 40 percent in the mid-1980s to 67 percent by 2000. The incidence
of child malnutrition, as measured by stunting (low height for age) among
children younger than five years of age, also declined dramatically, from
50 percent in 1993 to 35 percent in 1998. Finally, life expectancy continued
its steady rise to rates usually seen only in high-income countries.
In summary, Vietnam’s economic and social performance in the 1990s
was arguably better than that of any other developing country during the
same period, with the possible exception of China. Yet despite these impres-
sive gains, Vietnam remains a very poor country, and future success is far
from assured. One issue that commands particular attention is trends in
inequality. This is discussed further in the next subsection.
Economic Growth and Inequality
Ever since Simon Kuznets (1955) examined the relationship between eco-
nomic growth and inequality in developed countries, many economists and
other social scientists have investigated whether economic growth in-
evitably leads to increased inequality. For Vietnam, the question is whether
the rapid economic expansion that followed the adoption of the Doi Moi
policies led to an increase in inequality and, if so, whether future economic
growth will be accompanied by even greater inequality. Vietnamese policy-
makers are genuinely concerned about inequality, because reductions in
poverty brought about by economic growth are diminished by increases in
inequality. There are no reliable data on inequality in Vietnam in the 1980s,
but the 1993 and 1998 VLSSs show what happened in the 1990s. Table 1.2