This paper aims at exploring the effects of labour movement into nonfarm activities on
household production choices in the context of rural Vietnam. Using panel data for Vietnam
from 2004 to 2006, the analysis finds evidence that labour movement to nonfarm sectors reduces
rice production. Moreover, aggregate agricultural production declines significantly and there are
negative effects on farm revenue of labour movement into nonfarm activities. These findings suggest
that regardless of the level of agricultural market integration of farm households, nonfarm
employment is more a substitute than a complement to rice production. However, these conclusions
are limited in the north of Vietnam, and not to the south. The paper finds no evidence of the effects
of nonfarm participation on non-rice agricultural revenue and livestock expenditure. As a result,
households that participate in nonfarm sectors in the north have readjusted their production
structure by investing in livestock sectors and other crops that require less labour. Rice farmers are
struggling to survive in rice production. Similarly, in the face of increasing nonfarm participation,
rice farmers in the south have managed to keep their rice production unaffected by hiring more
labour to substitute for family labour, and investing more capital to switch to less labour-intensive
farming. This paper finds that nonfarm incomes partially compensate for the labour reallocation
effect by enabling more labour spending on hired labour and capital. This finding provides
evidence that nonfarm incomes relax liquidity constraints on expanding crop production through
purchased inputs, at least in the short run. While the decline in agricultural revenue in the north
suggests some level of substitution between farming and nonfarm income generation strategies, the
stability in rice production at the national level brings good news to policy makers and food
security in Vietnam, despite rapid structural change over the past decades. However, agriculture in
the north is losing its comparative advantage as farm households reduce their investment in
agriculture.