Global Trade and Poor Nations: The Poverty Impacts and Policy Implications of Liberalization

Chapter 7: Vietnam

145 Vietnam took big unilateral steps in trade liberalization during the last decade and is now one of the most open economies in Southeast Asia. It continues to emphasize trade reforms, as evidenced by the negotiations for its accession to the World Trade Organization, the ratification of the Bilateral Trade Agreement with the United States, and the new round of talks under the Doha Development Agenda (DDA). The debate surrounding the Doha talks is that trade reforms will not be effective in reducing poverty in developing countries. It is clear that multilateral trade reforms will have differing effects on individual countries depending on a number of factors (notably the commodities produced, how protected the commodities are, and how well the markets are integrated, to name a few). In chapter 2 above, Kee, Nicita, and Olarreaga showed that the DDA is expected to have a substantial impact on Vietnam. This chapter will shed light on the distribution of this impact among Vietnamese households, estimating the impact on household welfare under a limited trade liberalization scenario and a more ambitious scenario for both the short and long run. To investigate the short-run effects, the analysis uses the methodology outlined in Nicita, Olarreaga, and Soloaga (2001), where the impact of trade policy aylin işık-dikmelik 7 The author would like to thank Ataman Aksoy, Alessandro Nicita, and Marcelo Olarreaga for valuable discussions and comments. Vietnam changes on welfare makes itself felt through changes in prices of commodities (quantities are assumed to be fixed in the short term). To calculate the longterm impact, a model of the farm household (Singh, Squire, and Strauss 1986) is used, following Winters (2002) in tracking changes in prices and production and the effect on households through changes in employment. The analysis does not take account of the productivity changes that might take place in response to higher prices in some commodities,1 and thus the results from the simulations are conservative estimates of potential gains and overestimates of potential losses. The changes in prices and production are obtained from chapter 2, in which Kee, Nicita, and Olarreaga use a partial equilibrium model to estimate the changes that would result from implementing the Doha Development Agenda. As detailed in their chapter, these changes are estimated for two scenarios: limited multilateral trade liberalization, termed business as usual, and deeper trade liberalization, termed the ambitious scenario. By coupling the changes in exports from Kee, Nicita, and Olarreaga with input-output tables and employment statistics from the Global Trade Analysis Project database, we also obtain an estimate of the effect on employment in Vietnam under both scenarios. The chapter is organized as follows. The first section provides an overview of the poverty profile in Vietnam, presenting income and spending patterns across deciles of households, ranked by consumption per capita. The second section explains the methodology used for calculating the impact of policy changes on household welfare. The third section provides the price and production changes for Vietnam that would be associated with the implementation of the Doha Development Agenda. The fourth section discusses the results for the scenarios considered, and a final section concludes. The results suggest that implementation of the Doha Development Agenda will likely have only a minor impact on the overall poverty rate in Vietnam. However, an important redistribution of purchasing power takes place, from urban to rural households and from net rice buyer households to net rice seller households.2 In Vietnam 90 percent of the poor are rural, and rural households gain under both the Doha scenarios considered. If expected gains in productivity are also taken into account, the gains to net seller households (and to rural households) are likely to be larger, creating a more positive effect on poverty. Poverty Profile of Vietnam The poverty rate in Vietnam has declined dramatically in the last decade with rapid economic growth (table 7-1). However, poverty is still prominent, 146 aylin işık-dikmelik 1. It is very hard to quantify the potential productivity changes. 2. This is consistent with the theoretical literature (for example, see Deaton 1997), which predicts that net sellers will benefit while net buyers will suffer. especially in rural areas. According to the $1 a day benchmark, only 2 percent of the population is poor, but the rate jumps to 33 percent when the $2 a day benchmark is used (World Bank 2004). Some 45 percent of the rural population...