Trade openness and vulnerability to poverty in Vietnam under Doi Moi

The contribution of this paper is twofold: using six Living Standards Measurement Surveys in Viet Nam (covering the period 1992-2008), we first assess the level and changes over time in the shares of vulnerable people across economic sectors, organized according to their relative degree of trade exposure; second, we measure how much of households’ consumption variation (which is at the core of vulnerability analysis) can be explained by its stochastic ex-ante component, namely the variance of income within trade-exposed groups, as well as by actual income shocks, de?ned as the component of income variation unexplained by observables. Our main results are the following. Vulnerability to poverty fell in Viet Nam during the Doi Moi period, together with an increased share of its stochastic (risk) determinant. The share of the vulnerable population in the relatively more trade-exposed sectors fell more slowly than in non-traded sectors. Even after Doi Moi, farming households engaged in the production of export crops and import-competing crops faced higher levels of vulnerability than those engaged in the production of non-traded crops or in non-farm activities. Moreover, the risk of future poverty for households engaged in activities directly affected by trade liberalization was driven by high volatility, not from expected mean consumption below the poverty line. The above results are key for policymaking. They highlight a link between trade openness and risk-induced vulnerability, underlining the need to address vulnerability to poverty, even in the context of trade liberalization policies that result in a net reduction in poverty.