Trade openness and household welfare within a country: A microeconomic analysis of Vietnamese households

The positive effects of trade liberalisation on several dimensions of poverty have initiated studies of the trade–poverty relationship. Trade liberalisation accompanies institutional reforms that help to reduce institutional barriers against the poor. This study examines the impacts of trade openness and institutional reforms on rural household welfare at the provincial level through the analysis of the determinants of welfare of rural households in Vietnam. The study employs a model of micro-determinants of growth and tests it on the data from the Vietnam Household Living Standards Surveys (VHLSSs) of 2006 and 2010. What makes the study different from some other studies of the same vein is that it attempts to directly capture the institutional effect on welfare. The study finds that, in the provinces with high institutional reforms and trade openness, the welfare of rural households improved. Institutional reforms in Vietnam appeared to be sluggish in the late 2000s. In particular, both access to land and lower informal charges were the important determinants of welfare improvement over time. These findings suggest that Vietnam should maintain its development by accelerating the process of institutional reforms, thereby helping poor households to improve standards of living.