External Liberalization, Poverty, and Inequality in Vietnam: The - PowerPoint PPT Presentation

External Liberalization, Poverty, and Inequality in Vietnam: The Role of Price Dispersion David Roland-Holst UC Berkeley and Mills College World Bank Conference on Putting Development Back into the Doha Agenda The Hague 2 December 2004 December, 2004

Contents 1. Introduction 2. Overview of Data and Methodology 3. Price Dispersion and Development 4. Preliminary Results 5. Conclusions and Extensions Roland-Holst December, 2004 2

Per Capita Income in East Asia (quartiles) Roland-Holst December, 2004 3

Poverty Incidence by Province (percent of population, quartiles) National average 37%, NU average 59%. Roland-Holst December, 2004 4

Human Resources, Trade, and Income GDP Vietnam’s economic potential is far from being realized. Population Exports Indonesia Malaysia Philippines Singapore Thailand Vietnam Roland-Holst December, 2004 5

Data Overview Data are developed at three levels and integrated in the model to aggregate consistently. � National – a new SAM for Vietnam � Regional – a regional SAM for the Northern Uplands � Local - LSMS data Roland-Holst December, 2004 6

National Data: A New 2000 SAM for Vietnam � Incorporates the new 2000 GSO Input-Output Table � 112 domestic production activities � 114 commodities (includes trade and transport margins) � 14 factors of production � 12 labor categories � Capital � Land � 16 household types, sampled from the VLSS � (Farmer, SelfEmp, Worker, UnEmp)x(Rural, Urban)xGender � 3 enterprises (Private, Public, and Foreign) � State (detailed fiscal instruments) � Consolidated capital account � 194 international trading partners Roland-Holst December, 2004 7

Primary Vietnam Household Surveys Name Period of Sample Lowest level Types of income data collected data size of collection representation 1993 Vietnam 1992-1993 4800 Seven regions Crop area, production, and sales; Living crop by-products; livestock income, Standards fisheries income; livestock and Survey fisheries expenses; forestry income; non-farm enterprises revenue and costs; wage income most important current wage jobs and most important wage jobs over past 12 months; remittances; land rent; social security; other income 1998 Vietnam 1997-1998 6000 Ten strata (7 Almost identical content and structure Living regions and 3 as the 1993 VLSS. Standards types of urban Survey areas) 2001-02 2001-2002 75,000 61 provinces Similar to VLSS, but less detailed, Vietnam particularly the sections on wage Household income and enterprise income. Living Standards Survey Roland-Holst December, 2004 8

Notes on Methodology To better understand these linkages, we apply economic analysis at three levels National – An economywide forecasting model to 1. elucidate structural and price adjustments – this model generates national price, income, and sectoral adjustments Regional (Northern Mountain Region) – analogous 2. to the national level, but with more localized incidence – this model maps national results to provinces Local – econometric estimation and micro- 3. simulation or imputation of household responses/impacts Roland-Holst December, 2004 9

Overview of Methodology External liberalization will help the poor if its growth returns are transmitted to asset classes associated with them, mainly unskilled labor and land. National Micro CGE Model Simulation Econometric Poverty Analysis Analysis To capture linkages across the economy and from the top down, a four-fold analytical framework is used. Roland-Holst December, 2004 10

Detailed Methodology WTO Accession Regional and Local Doha, FTAs, Market Data External Shocks Prices Sectoral Adjustments Taxes/subsidies Ag. Services, Credit, Aggregate Incomes Investment Producer Support, National Micro Labor/land regulation CGE Model Simulation Occupational choice Household Incomes, Production technology Expenditure, Output Consumer behavior Factor use Econometric Poverty Analysis Analysis - Data Poverty Indices Mapping - Results - Policy Intervention Household Surveys Roland-Holst December, 2004 11

Price Dispersion: Motivation Geographic variation in prices is substantial in developing countries, and can play an essential role in inequality and poverty. A great deal of the development literature focuses on market failure. This is not synonymous with price failure. Prices embody information about economic structure and market functionality. The challenge is to extract this information and make use of it. Roland-Holst December, 2004 12

Price Dispersion: Causes The underlying causes of price dispersion are many, but generically they can be divided into three categories: � Geography – spatial and physical characteristics that affect distribution margins � Information – spatial asymmetries in market relevant information induce heterogeneity in production and consumption decisions � Institutions – price differences for both producers and consumers are likely to be affected by their abilities to participate in formal and informal, public and private institutions that represent economic interests Roland-Holst December, 2004 13

Price Dispersion: Four Perspectives 1. Absolute Prices – resource costs, comparative advantage, PPP 2. Relative Prices – production/consumption patterns, incentives (subsistence) 3. Price Transmission – market segmentation and margins, information content of prices 4. Price Volatility – risk and insurance (subsistence) Roland-Holst December, 2004 14

Absolute Prices: Rural Price Indices by Province Consumer Prices by Commodity Producer Prices by Commodity Other Coffee/ Sugar Other Rice Crops Pigs Cattle Poultry Rice Tea Cane Crops Pigs Cattle Poultry 1 HaGiang 1.09 1.24 .52 .75 .40 1.07 .53 1.77 .73 1.00 .81 1.02 2 CaoBang 1.02 1.12 .71 .35 .54 1.15 .51 1.46 .91 .94 .70 .97 3 LaoCai 1.02 .90 .75 .74 .61 1.04 .55 .95 .63 .96 .52 1.03 4 BacCan 1.05 1.13 .71 .73 .63 1.04 .51 1.88 .77 .90 .56 .91 5 LangSon 1.03 1.08 .74 .41 .71 .98 NA 1.21 .97 .96 .52 1.09 6 TuyenQuang 1.04 1.01 .77 .60 .65 1.03 .51 .81 .49 .91 .69 .95 7 YenBai 1.04 1.01 .76 .78 .78 1.02 .55 .56 .64 .93 .45 1.03 8 ThaiNguyen 1.03 1.08 .81 .73 .63 1.04 .51 .72 .76 .94 .80 1.00 9 PhuTho 1.08 .97 .80 .84 .77 1.01 .51 1.02 .69 .92 .65 .99 10 BacGiang 1.09 .80 .78 .96 .88 1.11 .51 1.99 .90 .95 .70 .98 11 QuangNinh 1.03 .99 .90 .94 1.09 1.06 NA 1.66 .75 .99 .54 1.25 12 LaiChau 1.08 .99 .72 .90 .36 1.04 1.23 1.32 .57 1.02 .43 1.07 13 SonLa 1.00 .81 .86 1.23 .52 1.21 .96 1.26 .41 1.00 .45 1.03 14 HoaBinh 1.00 1.11 .79 .63 .60 1.04 .51 1.11 .33 .95 .82 1.02 Producer prices below national average: 75% of cases. Consumer prices below national average: 82% of cases. Roland-Holst December, 2004 15

Absolute Prices: Spatial Price Correlation (1998) Price levels do not appear to be correlated nationally, i.e. local prices exhibit persistent and significant differences. Source: Ligon and Roland-Holst Roland-Holst December, 2004 16

Relative Prices: Agricultural Terms of Trade Margins affect relative prices for farmers in two ways: 1. Producer prices (numerator) decline with market distance 2. Prices of agricultural inputs (denominator) rise with distance In other words, rural balance sheets are leveraged from both directions. Roland-Holst December, 2004 17