Determinants of income diversification and its effects on household income in rural Vietnam

The results also confirm that income diversification is the dynamic of rural income improvement. Households can increase their income by diversifying their farm and non-farm activities. | 20 | Trần Tiến Khai & Nguyễn Ngọc Danh | 20 - 41 Determinants of Income Diversification and Its Effects on Household Income in Rural Vietnam TRẦN TIẾN KHAI University of Economics HCMC - trankhai565@ NGUYỄN NGỌC DANH University of Economics HCMC - ngocdanh2001@ ARTICLE INFO Article history: Received: Dec. 12 2013 Received in revised form Jan. 24 2014 Accepted: June 30 2014 Keywords: diversification index, Herfindahl-Hirschman index, generalized method of moments, household income ABSTRACT Exploiting data of Vietnam Household Living Standard Survey 2010, the study aims at finding determinants of income diversification at household level in rural Vietnam and evaluating effects of income diversification on household income. The data set covers 6,571 rural households of eight socio-economic regions. Herfindahl-Hirschman index (HHI) is applied to show income diversification at household level. Two-limit tobit model is applied to detect the effects of household features and community characteristics on HHI, and then generalized method of moments (GMM) is employed to test the effects of HHI on household income. The results show that human capital in both quantity and quality terms plays a substantial role in encouraging rural households to diversify their income-generating activities. Rural households with higher education level and higher diversification ability tend to have more diverse income sources. Owning larger sources of physical capital, or better credit accessibility, and social capital also helps rural households improve income diversity. The results also confirm that income diversification is the dynamic of rural income improvement. Households can increase their income by diversifying their farm and non-farm activities. JED July 2014| 21 1. INTRODUCTION Vietnam is on the process of industrialization. By increasing shares of manufacturing and service sectors in the GDP, labor surplus .

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