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Whether or not the informal economy as an engine for poverty alleviation in Vietnam

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  • Nguyen, Thi Minh Hieu
  • Nguyen, Thi Huong Giang
  • Vu, Thi Minh Ngoc
  • Nguyen, Viet Duc
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    Abstract

    This paper examines impacts of income from informal employment and informal sector employment on poverty in Vietnam to define whether the informal economy is an accelerator or a decelerator of poverty. Using data from Vietnam Household Living Standard Surveys, we find that although income from informal sources does not account for a large proportion to total income of the poor households in comparison with the non-poorhouseholds, it significantly contributes to poverty reduction. Without earnings from informal sources, 33.4 per cent of the surveyed households in 2010 live under the poverty line and this rate is only 10.34 per cent if informal income is added up. Both probit and quantile analysis affirms that informal earnings significantly mitigate poverty. Interesting findings from quantile regression are that informal earnings have divergent effects across distribution of household income. Particularly, it is a factor reducing poverty in poor households but it negatively affects the economic capacity of the rich households. The policy implication derived from empirical results is that poverty program should be associated with supporting policy for informal employees with low income so that they can improve their living standards.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48378.

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    Date of creation: 17 Jul 2013
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    Handle: RePEc:pra:mprapa:48378

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    Keywords: informal economy; poverty;

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    1. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731.
    2. Jean-Marc Fournier & Isabell Koske, 2012. "The determinants of earnings inequality: evidence from quantile regressions," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 7-36.
    3. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    4. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World," IMF Working Papers 00/26, International Monetary Fund.
    5. Swaminathan, M., 1991. "Understanding the "Informal Sector": A Survey," Research Paper 95, World Institute for Development Economics Research.
    6. Kompal Sinha, 2005. "Household Characteristics and Calorie Intake in Rural India: A Quantile Regression Approach," ASARC Working Papers 2005-02, The Australian National University, Australia South Asia Research Centre.
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