An investigation of the measurement of inequality and the causal effects of the pro-poor national targeted programs on inequality in Vietnam

This thesis analyses multidimensional inequality in Vietnam in the period 1993– 2008. The theoretical framework of this work is Sen’s (1985a) capability approach. The capability theory argues that wellbeing, the result of personal capabilities, must be situated as the central focus of analyses of inequality. Inequalities in different dimensions of wellbeing should be incorporated into a single index, rather than in separate indices, to paint a clear picture of inequality. However, there are significant deficiencies in the literature on multidimensional inequality based on conventional measurements (i.e. Maasoumi’s two-stage and the Atkinson–Kolm–Sen approaches). As a result, existing studies on inequality cannot provide unique outcomes but give ambiguous (or even conflicting) conclusions of inequality. The research in this thesis proposes an alternative measurement of inequality based on polychoric principal component analysis to avoid the confusions that have arisen from conventional measurements. The chosen methodology is then applied to Vietnamese household wellbeing data. The Vietnamese data showed that overall inequality increased significantly in the examined period (1993–2008). Inequality rose more rapidly in the 1990s than in the later phase. Urban areas experienced wellbeing divergence at a greater degree and faster pace than rural areas in the nineties. The magnitude of the increase in the within-rural inequality exceeded the decrease in the within-urban inequality which resulted in a marginal rise in overall inequality in the following decade. At the regional level, the northern mountainous areas showed a sharp rise in inequality making it the most unequal region by the ending point of the examined period, followed by the Southeast and Central Highlands, and the Red River. The Mekong River and the Central Coast were the least unequal regions. These results can explain the apparent contradiction that Vietnamese people are increasingly worried about a more unequal society while the income data showed a fair and stable level of inequality. Although income inequality was moderate and had levelled off, inequalities in non-income dimensions of wellbeing were on the rise, and thus wellbeing inequality levels went upward. Further, the thesis examines the extent to which the Vietnamese pro-poor National Targeted Programs (NTPs) impacted on inequality, poverty and wellbeing in the 2000s. Using a Generalised Method of Moments (GMM), the thesis finds a positive causal effect of NTPs on inequality but no statistically significant NTP–poverty and NTP–wellbeing relationships. These results can be explained by two issues. First, NTPs may influence poverty through another channel, that being economic growth. Different NTPs were also proposed to boost economic growth in the least developed communities; this growth in turn might lift the poor out of poverty circle. The second issue, however, is that misallocation of NTPs meant some benefits did not reach the poor but instead benefited ineligible, least in-need households which seriously distorted NTP implementation. The thesis provides several recommendations to improve NTP efficiency. First, the impacts of different NTPs need to be appraised as a whole rather than independently because effects of a specific NTP could be offset by others. There is still a dearth of assessments of public policies towards poverty, inequality and wellbeing not only in Vietnam but also beyond the country’s borders. Second, given the case of corrupt behaviours and a lack of transparency in the public arena in Vietnam, asking local people to participate in various public–private cooperative projects could minimise losses of NTPs at the district and lower levels. Third, increased investments in education (making universal educational services available for poor children at shorter geographical distances, subsiding poor children’s schooling and upgrading the quality of the services) and health care (medical services, health insurance) in the least well-off areas are of vital importance to raise educational levels and health status of the poor, to reduce the gap to the rich