Economic Growth and Poverty in Vietnam: Evidence from Elasticity Approach

Type Report
Title Economic Growth and Poverty in Vietnam: Evidence from Elasticity Approach
Publication (Day/Month/Year) 2014
Vietnam transitioned into a market economy in 1986 from a centrally planned
economy, and subsequently achieved remarkable outcomes in economic development
in the 1990s. Economic growth peaked at 9.5 per cent during the export boom of the
1990s, and poverty was reduced by nearly a half, from 58 per cent in 1993 to 37 per
cent in 1998. Therefore, economic growth has been the key to explaining remarkable
economic development and reduction in poverty in Vietnam during the 1990s. This
study analyses and evaluates the effect of growth on poverty in Vietnam by estimating
growth elasticity of poverty using various methods. The main findings are that the
growth elasticity of poverty based on the national accounts is estimated to be 0.95 for
the 1990s and 0.83 for the 2000s. These estimates coincide fairly well with recent
studies of the similar vein. However, the estimates based on the growth semielasticity
of poverty are 0.55 and 0.24, which are rather similar to those using survey
data, and much smaller than those using national accounts data. The decomposition of
growth elasticity of poverty reveals that income growth has been pro-poor during the
1990s and the 2000s. The extended analysis, based on provincial panel data, further
confirms the positive role of growth and trade in poverty reduction. Therefore,
income growth contributes to explaining poverty reduction in Vietnam. However,
growth and the effect of growth on poverty tended to decline in the last decade. The
main implication is that sustained growth is required to underpin the poverty
alleviation strategy.

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