Determinants of Income Diversification among Rural Households in the Mekong River Delta: The Economic Transition Period

This paper examines the factors that drive temporal income diversification in rural areas of the Mekong River Delta in Vietnam, based on a framework that conceptualized diversification as a function of a household's capacity to diversify and incentives (both push and pull factors) to diversify. Drawing from five rounds of the Vietnam Living Standard Measurement Surveys covering a 13-year span (1993-2006), two panel datasets made from five cross-sectional samples are used for the analyses. The data are drawn from the Vietnam General Statistics Office. Both tobit model and Ordinary Least Squares model with random and fixed effects are applied. The main points emerging from the analysis is that income diversification is strongly influenced by household labor capacity. The relationship between household labor capacity and increasing insertion in non-farming wage activities is not driven by unobserved time-invariant factors such as household ability and motivation, but is instead driven by the higher labor capacity of households. In terms of the other household capacity variables, the effect of farm size is much larger in terms of retaining households in traditional occupations as compared to pushing them towards non-farm wage employment. Other variables such as household access to financial capital do not play an important role.