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Microeconomic Impacts of Institutional Change in Vietnam’s Northern Uplands

Empirical Studies on Social Capital, Land and Credit Institutions

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Camille Saint-Macary

The Doi Moi reforms initiated in Vietnam in 1986 to lead the transition from a centrally-planned to a market-oriented economy have entailed deep institutional transformations. At the national level, achievements have been impressive, the high economic growth in all sectors of the economy have permitted to divide poverty incidence by three in the country since 1993. Mountainous regions and its inhabitants, however, have lagged behind in the process. There, the combination of poverty and the degradation of natural resources remains a pressing issue. Drawing on a conceptual framework that highlights the determinant role of institutions in the poverty-environment nexus, this book investigates the sources of success and failure in the current institutional framework to address objectives of equity, economic growth and environmental sustainability in Vietnam’s mountains. The empirical investigation uses an original dataset collected in a rural district and examines three critical dimensions: the definition of land rights, the functioning of credit markets, and the formation of social capital.
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5 Rural Credit Policy in the Mountains of Northern Vietnam: Sustainability, Outreach and Impact

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5. Rural Credit Policy in the Mountains of Northern Vietnam: Sustainability, Outreach and Impact

Abstract

This paper examines the efficiency and equity outcome of Vietnam’s rural credit policy in a mountainous district. Using a rich dataset on credit transactions and access from farmers in northern Vietnam, we analyze the credit market, the role played by the two state-owned lenders, and the interaction between the formal and informal sectors. We then assess the impact of the subsidized microcredit program on the welfare of its participants using a propensity score matching approach. Our results reveal a number of inefficiencies that need to be addressed in order to further reduce poverty and support agricultural growth.

5.1 Introduction

Since the decollectivization and the vote of Doi Moi program in 1986 leading the transition of the economy from a centrally-planned to a market-oriented system, Vietnam has undertaken a series of reforms aimed at transforming the incentive structure in the rural economy and return farmers to the center of decision making. To this aim, agricultural markets were gradually liberalized, user rights were transferred to smallholder farmers for most of the agricultural land and some of the forest land. As a result, agricultural production and rural economic growth led to a large reduction in poverty throughout the country. These improvements have not been evenly dispersed throughout the country, and mountainous regions, specifically the Central Highland and the Northern Uplands, have lagged behind and experienced lower economic...

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