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

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.