NONFARM ACTIVITY AND POVERTY REDUCTION IN RURAL VIETNAM: 2002-2008

This paper uses the Vietnamese Households Living Standards Surveys of 2002, 2004, 2006and 2008 to examine the effects of nonfarm activity on poverty in rural Vietnam. We show that nonfarm activity helps the poor, but not the poorest, given that households need to own a minimum level of endowment to partake in nonfarm activity. We find an inverted-U shaped relationship between households’ endowment levels and the probability of participating in nonfarm activity. Also, in contrast to previous studies which largely by-passed the endogeneity of nonfarm activity, we instrument it with nonfarm networks, and find that nonfarm activity plays an important role in poverty reduction, however, this impact decreases over time.