CGE Methods for Poverty Incidence Analysis: An Application to Vietnam’s WTO Accession

Greater market access can be a potent catalyst for poverty alleviation in the rural communities of emerging economies. This is particularly true for more remote areas that lie outside the networks of transport and other infrastructure that link urban areas. These areas are also more isolated from administrative and informal linkages that could facilitate market access, extension service, and technology diffusion. Finally, lack of market participation compounds itself by limiting capital accumulation and the potential to invest for expanded production capacity. Likewise, external reform and greater outward orientation at the national level can be a catalyst for growth, leveraging external markets to expand productive capacity and resource use in the domestic economy. This paper examines the linkages between these two phenomena with a new approach to micro-macro CGE modelling. The micro-simulation approach developed here can significantly improve visibility for policy makers who seek to strengthen the linkage between national growth policies and local income potential among the poorest rural households. Isolated and subsistence oriented small holders, particularly in mountainous regions, face significant barriers to market access and highly distorted prices. In this research, we seek to elucidate the microeconomic channels by which externally driven price reform can promote market participation, agricultural diversification, and transition from poverty to higher and more sustainable levels of income and savings.