In this paper, we examine the linkage between the firm agglomeration and welfare of local
households in Vietnam. We measured the firm agglomeration by per capita firm outputs at
the district level, and household welfare by per capita income, expenditure and poverty. We
find that the firm agglomeration helps households move from the informal sector to the
formal sector. As a result, there is a positive effect of the firm agglomeration on per capita
income, per capita expenditure, and poverty reduction, albeit at a small and time-decreasing
magnitude. The effect of the firm agglomeration on per capita expenditure tends to be
higher for households with male, younger and more educated heads than households with
female, older and less educated heads. Households who live in rural areas and do not have
crop land are more likely to benefit from the firm agglomeration than those living in urban
areas and having cropland.