The linkages between growth, poverty and inequality in Vietnam: An empirical analysis

Hoai Nam Nguyen,Quoc Hoi Le,Thi Thu Cuc Nguyen

doi:10.5267/j.ac.2019.10.005

Abstract

This paper examines how initial inequality and poverty rate are related to subsequent economic growth in the provincial level of Vietnam. The results show a robust negative relationship between initial poverty rate and subsequent economic growth. However, there is no link between initial inequality and subsequent economic growth. The results also show that lower inequality leads to lower poverty rate and poverty reduction could help to reduce inequality. Other determinants of inequality and poverty reduction include human capital, investment, GDP growth rate and trade openness. The main policy implication that emerges from this paper is that concentrating on poverty elimination will help us to build a more equitable society without sacrificing economic growth.

Highlights

The links between growth, poverty and inequality have long been investigated
This paper aims to explore how initial inequality and poverty rate are related to subsequent economic growth in provinces of Vietnam
The regressions 1, 2 and 3 in Table 1 are based on equation 1, but they test the relationship between growth rate of GDP and each of the two provincial characteristics under consideration – initial poverty rate and initial inequality – one at a time

Summary

Introduction

The links between growth, poverty and inequality have long been investigated. Earlier researchers like Lewis (1954) and Kuznets (1955) were primarily interested in the distributional consequences of economic development. Growth is only enhanced by investment in human capital, ceteris paribus, a society in which there is high inequality presents a relatively large number of poor households which invest in quantity rather than education. Poor households are tempted to conform to the norms and to fulfil social needs and expectations by involving in higher consumption activities and by lowering investment in human capital in order to reduce the gap with rich households. These activities maximise present welfare but go to the detriment of future welfare and growth. Empirical investigation is the key to understanding the relationship between inequality, poverty and growth

Empirical framework

Determinants of poverty and inequality

Findings

Concluding remarks