What is the effect of trade liberalization on households in developing countries? To what extent do the poor benefit when local markets are made more accommodative to international trade? The author empirically analyzes the distributional impact of trade policies on households in a low-income country with a large rural economy where labor markets are imperfect. The methodology in this paper, which can be applied to various types of labor market conditions, relates changes in prices attributed to trade reforms to changes in household welfare, income distribution, and poverty using theoretically consistent measures of producer and consumer welfare. The author investigates the effects on poverty and income distribution of national and international market integration in Vietnam's rice sector and fertilizer market between 1993 and 1998, a period of ongoing market reforms when the national poverty rate fell sharply from 59 percent to 37 percent. He finds that when the effects of opening the rice and fertilizer market are isolated, Vietnam's agricultural trade reforms did not contribute to a significant improvement in overall household welfare or decline in poverty over this period. Nonetheless, the liberalization exercise can explain about half of the reduction in poverty incidence among farm households. The results also show that liberalization did not exacerbate income inequality, but did generate gains for rural households across the distribution, particularly the poor, at the expense of urban households.
Details
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Author
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Document Date
2005/03/01
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Document Type
Policy Research Working Paper
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Report Number
WPS3541
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/07/01
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Doc Name
The impact of trade liberalization on household welfare in vietnam
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Keywords
shadow wage;family labor;rice price;chemical fertilizer;impact of trade liberalization;price change;farmer;market wage;farm household;production function;marginal product of labor;net welfare gain;shadow wage rate;Labor Market;constant elasticity of transformation;change in income inequality;marginal rate of substitution;impact of trade reforms;constant elasticity of substitution;choice of poverty line;decline in poverty level;presence of measurement error;impact of trade policies;marginal revenue product;effect of trade;fixed effect;fertilizer price;per capita expenditure;adult equivalent;fixed input;crop loss;compensating variation;agricultural household model;rural labor market;urban household;variable input;household welfare;
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Citation
Seshan,Ganesh Kumar
The impact of trade liberalization on household welfare in vietnam (English). Policy, Research working paper ; no. WPS 3541 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/801601468761997831/The-impact-of-trade-liberalization-on-household-welfare-in-vietnam