Seminar Series: Abstract

2.00
October 27 2009
Seminar Room B (Arndt Room)

The evolution of income inequality in Vietnam, 1993 to 2006
Brian McCaig, ANU College of Business & Economics

In this paper we provide a detailed set of facts ocumenting the evolution of income inequality in Vietnam during its transition to a market oriented economy. We use five nationally representative household surveys, between 1993 and 2006, to construct comparable estimates of annual household income. This is less straightforward than it might appear given changes in the surveys and sampling framework, as well as issues related to spatial price differences. Our estimates suggest that per capita income inequality fell over the period of 1993 to 2006, with most of the decrease occurring between 1993 and 2002. Our estimated Gini coefficient fell from 0.450 in 1993 to 0.378 in 2002 and remained stable at 0.379 in 2006. The fall in inequality was most pronounced in urban Vietnam where the estimated Gini coefficient decreased from 0.471 in 1993 to 0.360 in 2006. Given the historical differences between North and South Vietnam it is not surprising that levels of inequality were initially higher in the South. However, by 2006 the differences in inequality between the North and the South were very modest. We do not attempt to explain what caused these documented changes in inequality, but we do point to a few important contributing factors. First, the distribution of educational attainment has become much more evenly distributed across the workforce. Second, we conduct Shorrock’s decompositions to understand which sources of household income most heavily influence per capita income inequality. We find that income from non-farm household businesses was very unequally distributed in 1993. The slower than average growth of this income source may be one reason why income inequality fell. By comparison, the fast growth of wage income, which contributes relatively less to inequality, may also help explain why inequality fell.