Paper proposal

Private sector development to reduce monetary poverty, multidimensional

poverty and inequality: Evidence in Vietnam
1. Introduction/Motivation
Vietnam is considered as one of the countries with initial success in overcoming poverty,
whereby the monetary poverty rate decreased from 15.5% (2005) to 5.8% (2016).
Multidimensional poverty, calculated since 2016 under Decision 59/2015/QD-TTG including
income criteria couple with dimensions related to access to social services/basic needs, also
decreased from 9.2% (2016) to 5.7% (2019), especially in urban areas (only 1.2% in 2019)
(GSO, 2020). The six human-basic needs including health, education, housing, clean water and
sanitation, and information have also been continuously improved. In 2019, the rate of accessing
hygienic water sources, using electricity and literacy was 96.3%, 99%, over 98%, relatively.
Almost seven-tenths of the population uses internet services, life expectancy on average was
75.4 and Vietnams' average number of schooling years also has increased from 7.45 (2012) to
9.0 (2019) (World Bank, 2020). Economic growth besides contributes to the welfare of the poor
through improving the quantity and quality of goods and services (especially public goods)
(Deaton, 2013). Likewise, in Vietnam, the decline in poverty has been more rapid than in low-
GRDP1 provinces.
Combating poverty (especially relative poverty) in Vietnam is nevertheless in its early
stages. Accordingly, the gap in poverty alleviation in rural areas (compared to urban), ethnic
minorities (compared to the Kinh) and vulnerable groups (the disadvantaged, the elderly, living
in places damaged extremely by climate change, affected by the Covid-19 epidemic, etc.) are
continuously serious (Tran et al., 2020; World Bank, 2014). Besides, the poor ethnic in rural
areas also has to face the loss of agri-forestry land due to urbanization and encroachment of the
Kinh (especially in the Northern Mountains and Highlands). The rasing in cost living standards
of provinces/cities (spatial price index), inequality and the re-poor/near-poor problem also
exacerbate difficulties in sustainable poverty reduction.
In addition to poverty reduction programs/policies of government such as human capital
enhancement, work skills training, micro-financial support, community health improvement, it is
more essential to reveal, embedded and perform economic mechanisms that contribute to poverty
alleviation. This mechanism, accordingly, both strengthens the economy and contributes to
distribution to the poor (the "economic pie" is bigger and more equally distributed). Private
sector development (PSD) in transition countries could be one of these mechanisms. Based on
the previous arguments of many scholars, PSD not only creates more occupation opportunities
and improves the living standards of the population, but also enhancing the poor welfare in
various other channels such as diversifying goods and services at a cheaper cost, improving the

1
Gross regional domestic product
quality of public goods/services (due to increasing tax revenue) and benefits from firms'
Corporate Social Respond activities… (Deaton, 2013; Jenkins, 2005; OECD, 2007).
The nexus among Vietnam's PSD, the transformation of the agricultural sector (which
accounts for the majority of the poor) and poverty alleviation is shown by McCaig (2011) and
McCaig & Pavcnik (2013). Baccini, Impullitti, & Malesky (2019) argues that state-owned
enterprises (SOEs) waste opportunities for productivity growth by about 40% (profits after
joining WTO) due to passive adaptation in the global context. Phan & Coxhead (2013), in
addition, asserts that the presence of SOEs diminishes allocation efficiency in the economy
through mechanism paying unequal (higher) wages compared to the private sector. This
mechanism leads to “reverse” incentives favouring the “ask-give” 2 channel instead of talent
selection. Becheikh, Landry, & Amara (2006) also shows the relationship between ownership
structure (domestic private and multinational enterprises) and innovation, which enhances further
socio-economic opportunities.
On other hand, PSD may not be of practical advantage to poverty mitigation in Vietnam,
and if so, what conditions are required for PSD to achieve the dual goals? (poverty reduction and
economic growth). Furthermore, how does PSD affect Vietnams' inequality is also one of the
interesting questions. Therefore, it is essential to have more detailed research exploring the
causal path between PSD and poverty alleviation as well as inequality. This paper proposal,
accordingly, investigates this relationship in Vietnam at the sub-nation level. Thereby delivering
policy implications is expected to strengthen the sustainable poverty reduction program/strategy
in Vietnam in the following period.
2. Literature Review
2.1. Vietnams’ context
Monetary poverty and multidimensional poverty
In Vietnam, monetary poverty is defined according to Decision No. 09/2011/QD-TTG
with the poverty lines for rural and urban areas at 400,000 and 500,000 VND/person/month. By
2016, the multidimensional poverty line was determined according to Decision No. 59/2015/QD-
TTG based on two main criteria: (i) personal income and (ii) accessibility to basic human need
in society (including 10 indicators) such as health, education, housing, water, sanitation and
information.
The poverty rate in Vietnam has been recorded to lower in both absolute and relative
term, as World Bank (2014) informs the depth and severity of poverty have decreased by 10.6%
and 3.5% in the 1993-2010 period, respectively. The multidimensional poverty rate also has
declined by 3.5%, 2.3%, 3.8% in 2016-2019, corresponding to the national, urban and rural
areas. Moreover, low-GRDP provinces are faster at reducing poverty rates, which demonstrates
Vietnam's tendency to steadily raise the living standards of poor households.

2
The recruitment mechanism creates favourable conditions for employers' relatives
 Figure 1. Correlation between poverty reduction rate and GDP scale at Vietnams'
provinces/cities in 2010-2019.

Source: Author
Vietnam's poverty reduction strategies are transparent and consistent, of which the five-
year Socio-Economic Development Plan (SEDP) by the Ministry of Invalids, Labor and Social
Affairs (MOLISA) is a critical one (e.g. Decree 07/2021/ND-CP). Besides government
programs/policies directly support the poor such as aiding local household to combat climate
change in rural mountains/coastal seas, providing educational/vocational training programs,
micro-financial assistance, agricultural support (e.g. connecting four key actors: Farmers - State -
Scientists – Entrepreneurs),3 social insurance policies, raising the participation of the poor in the
political system, macroeconomic policies furthermore play a particularly significant role.
Accordingly, Vietnam aims to complete the transformation process, including restructuring
SOEs, improving public investment, developing and perfecting the financial system, and towards
transparency in social development.
However, this process remains numerous obstacles. Vietnam has relatively high rates of
near-poor, extreme poverty, and re-poor households. According to calculations of World Bank
(2014), the near-poor rate is 1.7 times higher than the poor, and more than half of the persistent
poverty (more than 3 years) is located in the northern mountainous (with the highest
multidimensional poverty rate). Vietnamese ethnic (excluded Kinh people) although less than
15% of the population, account for about 29% of the total poor (1998) and have increased to
47% (2010). During the 2002-2019 period, Vietnam GINI index also did not record an increase
(about 0.42 points). The cost living standards are continuously expensive, according to GSO
(2020), the spatial price indexes of provinces/cities are close to big cities such as Hanoi and
HCMC. Furthermore, essential consumer goods (food, durable goods account for about 50% of
3
Strategy “4 nhà” in Vietnam
total household expenditure) of the Northern Midlands and Mountains are more costly than the
Red River Delta including Hanoi.
Private Sector Development
The private sector in this paper proposal is defined according to Jaxx (2020), represented
by the index π , which is the ratio of the total number of domestic private (DPE)
and Multinational enterprises (MNE) enterprises over the total number of enterprises.
number of DPE +number of MNE
π=
number of enterprises
The change of π in the 2010-2019 period is shown in the figure below.
Figure 2. Vietnam’s private sector in the 2010-2019 period

Source: Author’ calculation

Return on Assets (ROA) and firms' velocity are considered as two important indicators to
evaluate the efficiency of enterprise resources use. Accordingly, although DPEs' return on assets
is low, their velocity is high (0.7-1) compared to the state sector (0.3-0.4) in the 2010- 2018
period (MPI, 2020). The multinational enterprises/foreign sector surpasses in both profitability
and velocity per dollar, which proves the competitiveness and efficient management of resources
of Vietnam's private sector compared to the state one.
 Table 1. Return on Assets (ROA) and velocity of Vietnam’s enterprises

2011-2015 2017 2018

Velocity
On average 0.7 0.7 0.6
SOEs 0.5 0.3 0.4
DPEs 0.7 0.7 0.7
MNEs 1.1 1.0 1.0
ROA
On average 2.6 2.9 2.4
SOEs 3.0 2.2 2.0
DPEs 1.2 1.8 1.6
MNEs 5.8 7.0 5.8
Source: MPI (2020)
2.2. The nexus between PSD and poverty alleviation
In Vietnam, the relationship between PSD and poverty reduction is recently discussed by
Jaax (2020), according to three mechanisms: (i) decline in SOE but no private enterprise backup
will not contribute to poverty mitigation; (ii) and (iii) the expansion of the domestic private
and Multinational enterprises contribute to enhance the well-being of the poor (Jenkins, 2005;
OECD, 2007; McCaig, 2011; McCaig & Pavcnik, 2013; Baccini et al., 2019; Becheikh et al.,
2006; Phan & Coxhead, 2013; Deaton, 2013).
Figures 3 and Figures 4 simply illustrate this correlation. Accordingly, Figure 3 shows
the multidimensional poverty change of Vietnam in 2010-2019 while Figure 4 shows its trend
after removing the effect of the PSD. Figure 4 is generated by overlapping between Figure 2 and
figure 3 through the formula:
µ1−min1 µ 2−min2
σ= −
max1−min 1 max 2−min2

Where, µ1 and µ2 is multidimensional poverty rate4 and private enterprises rate ( π ).

Figure 3. Vietnam’s multi-poverty rate in the 2010-2019 period

4
The 2010 data is calculated based on the rate of monetary poverty reduction
 Figure 4. The overlap between Figure 2 and Figure 3.

Source: Author’s calculation

The slower colour shift in Figure 4 (compared to Figure 3) intuitively demonstrates the
correlation between PSD and multidimensional poverty reduction in Vietnam at the sub-nation
level.
3. Methodology and data required
3.1. Model
 The research of Schmitz, Tuan, Hang, & McCulloch (2015) cited by Jaax (2020) asserts
that Vietnam's provinces have a noticeably independent policy and alike "laboratory"/"local
citadel". By this argument, the private sector development and poverty reduction of the provinces
are also relatively independent. Therefore, our paper proposal approaches research data from
Vietnam's sub-nation level. The research model follows that:
K
Y ¿ = β 0 + β 1 . π ¿ + ∑ β k Z ikt + δ i+ λt + u¿ (1)
k =1

Where, Y can be the inequality, the monetary poverty and multidimensional poverty rate,
in province i at the period t. Z are control variables (GDP, literacy, FDI flow, etc) built based on
previous studies, δ are invariant-unobservable variables and u is the error term.
Table 2. Describe variables, expectations, and its sources
Variables Describe Expected Source
Dependent variables
Monteary poverty Decision 59/2015/QD-TTg General Statistics
rate Office
Multidimensional Decision 09/2011/QĐ-TTg General Statistics
poverty rate Office
GINI index estimated from the
VHLSS data
Independent variables
π, private Estimation according to Jaax's (2020) - General Statistics
enterpries rate Office
The growth in GRDP/GRDP per capita, in - General Statistics
GDP/GDP per general, improve monetary/multidimensional Office
capita poverty mitigation.
Literacy rate (Jaax, 2020) - General Statistics
Literacy Office
Control variable
FDI inflows can affect the wealth of workers -/+ General Statistics
and can be seen as an anti-poverty strategy in Office
FDI flow Vietnam (McLaren & Yoo, 2017)
Measured by the total land area for the agro- - General Statistics
forestry area. An increase in agroforestry Office
Agricultural and land will contribute to mitigating poverty
forestry land (Nguyen & Tran, 2018)
Controlling the difference between rural and -/+ General Statistics
Urbanization rate urban area (Jaax, 2020) Office
Measuring the quality of state governance - Papi Vietnam
PAPI index from the perspective of the citizen
Unobserved factors that change over time - Dummy variable
Time-trend (t) controlling poverty alleviation
δi Controlling for invariant-unobservable -/+
factors, e.g. distance to major centres (Hanoi,
HCM), seaport location, distance to latitude
 17 and some variables suggested by Jaax
(2020) such as the province's bombing rate,
the migration rate before the study period,
etc.
Source: Author
3.2. Endogeneity
The endogenous issue comes from two sources: (i) confounder, whereby PSD and
poverty reduction can contemporaneously come from several other factors such as economic
growth; (ii) Simultaneous causality, accordingly, provinces with high poverty rates attract less
private enterprises lead to sluggish economic growth and exacerbate poverty.
To solve the endogeneity, several instrumental variables can be applied: (i) following the
approach of Fisman & Svensson (2007) and Jaax (2020), which uses mean/speed average growth
of the previous period's private rate; (ii) Using Provincial Competitive Index (PCI).
Relevant conditions (cor(PCI, π ) ≠ 0): Malesky & Taussig (2009) states that the PCI
affects the capacity/motivation of enterprises to transform the informal to the private formal
sector. Viet, [Link], & Herwartz (2020) shows evidence that PCI facilitates the efficiency of
the business environment (financial markets). Gueorguiev & Malesky (2012) assets a nexus
between PCI and FDI flows, which raises the number of MNEs in Vietnam.
Exclusion conditions (cor(u, PCI| conditons = 0)): To lighten this problem, the model
controlled for the PAPI index, which was measured by citizen perception about public
governance quality so that we assume cor(u, PCI|Papi, X, Z) = 0.
In addition, to overcome the inaccuracy of the estimate, we use the two-system GMM
proposed by Blundell & Bond (1998) for panel data combined with the traditional method IV.
4. Expected outcomes and policy implications
We believe that detecting, promoting and enforcing socio-economic mechanisms, which
achieves both target growth and poverty reduction, is particularly significant for Vietnam's
sustainable development. In addition to the programs of the government, finding the precise and
accurate direction/strategies facilitate and accelerate greatly sustainably the process of poverty
mitigation. This paper proposal directs seeking and verifying the before-mentioned mechanisms.
Specifically, we ascertain the causal path between PSD and monetary/multidimensional poverty
reduction as well as inequity in Vietnam. Accordingly, if PSD does indeed contribute to poverty
alleviation and inequality reduction, the poverty mitigation strategies design must consider PSD
as components.
Furthermore, it also implies that continuing to search for available economic mechanisms
to reduce poverty and inequality is seen as a wise strategy in the context of limited resources in
Vietnam and other transition countries. “As the water shapes itself to the vessel that contains it,
so a wise man adapts himself to circumstances” – Confucius said.
 5. Feasibility
I believe that this reasearch is feasible due to: (i) Availability of data; (ii) Clarity of
research methods; (iii) The researcher's passion and the mentor's experience in the research issue
(Mr. Tran Quang Tuyen, Mr. Huong Vu Van).
Expected product: scientific paper
6. Project milestones and budget plan

Table 3. Total cost of the project

Expenses Cost
First round Second round Third round
Outlines and document
1
overviews
Professional operating expenses 22.5 mill dong (
9.00 mill dong ( 13.5 mill dong (
2 (details according to labor
≈ 375 USD) ≈ 940 USD) ≈ 563 USD)
allocation)
1.0 mill dong (
3 Scientific conference (if any)
≈ 42 USD)
4 Others
200 [Link] ( 200 [Link] 200 [Link] (
4.1 Printing, photocopying
≈ 8.3 USD) (≈ 8.3 USD) ≈ 8.3 USD)
Total 46.6 [Link] (≈ 1944.9 USD)

Table 4. Professional operating expenses in detail

Content milestones Expected outcome Executor Expected
(number of funding
working days) ([Link])

1 Activity 1.1: Consider measuring Poverty reduction 4.50

monetary/multidimensional context, government
Le Van Dao
poverty and inequality in Vietnam poverty reduction
(10)
strategies and its
constraints
Activity 1.2: Reviewing the The context of PSD and Le Van Dao 4.50
development of private enterprises its impact on socio- (10)
in Vietnam economic performance
 2 Activity 2.1: Identify the Constructing the possible Le Van Dao et 6.75
nexus/mechanism between PSD hypothesis related to al.5 (15)
and poverty/inequity reduction poverty reduction through
PSD
Activity 2.2: Determining the Identify suitable 15.75
Le Van Dao et
suitable method in order to test the econometric models and
al. (35)
hypothesis collect data
3 Activity 3.1: Quantitative analysis Interpret research results Le Van Dao 6.75
of PSD's impact on poverty and and verify hypotheses (15)
inequality reduction

Activity 3.2: Drawing policy Based on the research Le Van Dao et 6.75
implications results, propose policy al. (15)

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