Skip to main content

Credit and Ethnic Consumption Inequality in the Central Highlands of Vietnam

Abstract

Credit is commonly considered an important instrument to relieve financial capital constraints of poor households and subsequently to improve their welfare. However, the empirical impact of credit on consumption inequality remains ambiguous. We use a 2-year panel dataset collected in Daklak, a province in the Central Highlands of Vietnam, to investigate the differences in access to credit and its impact on household consumption and consumption inequality between ethnic groups. Our results show that the differences in access to credit and in its impacts on household consumption between the ethnic majority and the migrant ethnic minority groups are insignificant. However, households from the indigenous ethnic minority group face more disadvantages in accessing formal credit and rely more on informal credit than those from the ethnic majority. They also face a higher collateral ratio and the amount of formal loans they could access is lower. The impact of formal credit on consumption of the majority is also higher than that of the indigenous minority, consequently causing a significant increase in consumption inequality between the ethnic groups. Our findings call for assistance programs to support indigenous households to improve their access to formal credit as well as to enhance the effectiveness of these loans.

This is a preview of subscription content, access via your institution.

Notes

  1. 1.

    Vietnam has 54 ethnic groups with high differences in culture, language, socioeconomic conditions and living areas. A number of studies has been conducted in the northern Mountains, another main living area of the ethnic minority groups (see Nguyen et al. 2017; Tran et al. 2015; Tran 2016).

References

  1. Abosedra, S., Shahbaz, M., & Nawaz, K. (2016). Modelling causality between financial deepening and poverty reduction in Egypt. Social Indicators Research,126(3), 955–969.

    Google Scholar 

  2. ADB. (2002). Indigenous people/minorities and poverty reduction in Vietnam. Manila: Asian Development Bank.

    Google Scholar 

  3. Amare, M., & Hohfeld, L. (2016). Poverty transition in rural Vietnam: The role of migration and remittances. The Journal of Development Studies,52(10), 1463–1478.

    Google Scholar 

  4. Ambrosius, C., & Cuecuecha, A. (2016). Remittances and the use of formal and informal financial services. World Development,77, 80–98.

    Google Scholar 

  5. Barslund, M., & Tarp, F. (2008). Formal and informal rural credit in four provinces of Vietnam. The Journal of Development Studies,44(4), 485–503.

    Google Scholar 

  6. Baulch, B., Chuyen, T. T. K., Haughton, D., & Haughton, J. (2007). Ethnic minority development in Vietnam. The Journal of Development Studies,43(7), 1151–1176.

    Google Scholar 

  7. Baulch, B., Pham, H. T., & Reilly, B. (2012). Decomposing the ethnic gap in rural Vietnam, 1993–2004. Oxford Development Studies,40(1), 87–117.

    Google Scholar 

  8. Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth,12(1), 27–49.

    Google Scholar 

  9. Bhuiya, M. M. M., Khanam, R., Rahman, M. M., & Nghiem, H. S. (2016). Impact of microfinance on household income and consumption in Bangladesh: Empirical evidence from a quasi-experimental survey. The Journal of Developing Areas,50(3), 305–318.

    Google Scholar 

  10. Birthal, P. S., Chand, R., Joshi, P. K., Saxena, R., Rajkhowa, P., Khan, M. T., et al. (2017). Formal versus informal: Efficiency, inclusiveness and financing of dairy value chains in Indian Punjab. Journal of Rural Studies,54, 288–303.

    Google Scholar 

  11. Boucher, S., & Guirkinger, C. (2007). Risk, wealth, and sectoral choice in rural credit markets. American Journal of Agricultural Economics,89(4), 991–1004.

    Google Scholar 

  12. Bui, A. T., Nguyen, C. V., & Pham, T. P. (2017). Poverty among ethnic minorities: The transition process, inequality and economic growth. Applied Economics,49(31), 3114–3128.

    Google Scholar 

  13. Cerulli, G. (2015). Advanced studies in theoretical and applied econometrics. Heidelberg: Springer.

    Google Scholar 

  14. Chai, S., Chen, Y., Huang, B., & Ye, D. (2019). Social networks and informal financial inclusion in China. Asia Pacific Journal of Management,36(2), 529–563.

    Google Scholar 

  15. Claessens, S., & Perotti, E. (2007). Finance and inequality: Channels and evidence. Journal of Comparative Economics,35(4), 748–773.

    Google Scholar 

  16. Clarke, G. R., Xu, L. C., & Zou, H. F. (2006). Finance and income inequality: What do the data tell us? Southern Economic Journal,72(3), 578–596.

    Google Scholar 

  17. Copestake, J. (2002). Inequality and the polarising impact of microcredit: Evidence from Zambia’s copperbelt. Journal of International Development,14(6), 743–755.

    Google Scholar 

  18. Cui, Y., Sun, G., Siddik, M. N. A., & Liu, X. (2017). Analysis on determinants of rural household credit in China. Journal of Interdisciplinary Mathematics,20(5), 1179–1201.

    Google Scholar 

  19. De Haan, J., & Sturm, J. E. (2017). Finance and income inequality: A review and new evidence. European Journal of Political Economy,50, 171–195.

    Google Scholar 

  20. Diagne, A., Zeller, M., & Sharma, M. (2000). Empirical measurements of households’ access to credit and credit constraints in developing countries: Methodological issues and evidence. Washington, DC: International Food Policy Research Institute.

    Google Scholar 

  21. Do, T. L., Nguyen, T. T., & Grote, U. (2019). Livestock production, rural poverty, and perceived shocks: Evidence from panel data for Vietnam. The Journal of Development Studies, 55(1) , 99–119.

    Google Scholar 

  22. Doutriaux, S., Geisler, C., & Shively, G. (2008). Competing for coffee space: Development-induced displacement in the Central Highlands of Vietnam. Rural Sociology,73(4), 528–554.

    Google Scholar 

  23. Duong, P. B., & Izumida, Y. (2002). Rural development finance in Vietnam: A microeconometric analysis of household surveys. World Development,30(2), 319–335.

    Google Scholar 

  24. Fosu, A. K. (2017). Growth, inequality, and poverty reduction in developing countries: Recent global evidence. Research in Economics,71(2), 306–336.

    Google Scholar 

  25. Fujii, T. (2018). Has the development gap between the ethnic minority and majority groups narrowed in Vietnam? Evidence from household surveys. The World Economy,41(8), 2067–2101.

    Google Scholar 

  26. GSO. (2016). Major findings of the 1/4/2015 time-point population change and family planning survey. Hanoi: Statistic Publisher.

    Google Scholar 

  27. Guirkinger, C. (2008). Understanding the coexistence of formal and informal credit markets in Piura, Peru. World Development,36(8), 1436–1452.

    Google Scholar 

  28. Guirkinger, C., & Boucher, S. R. (2008). Credit constraints and productivity in Peruvian agriculture. Agricultural Economics,39(3), 295–308.

    Google Scholar 

  29. Hardeweg, B., Klasen, S., & Waibel, H. (2012). Establishing a database for vulnerability assessment. In S. Klasen & H. Waibel (Eds.), Vulnerability to poverty: Theory, measurement and determinants, with case studies from Thailand and Vietnam (pp. 50–79). Hampshire: Palgrave Macmillan.

    Google Scholar 

  30. Haughton, J., & Khandker, S. R. (2009). Handbook on poverty and inequality. Washington, DC: The World Bank.

    Google Scholar 

  31. Heltberg, R., & Lund, N. (2009). Shocks, coping, and outcomes for Pakistan’s poor: Health risks predominate. The Journal of Development Studies,45(6), 889–910.

    Google Scholar 

  32. Hermes, N. (2014). Does microfinance affect income inequality? Applied Economics,46(9), 1021–1034.

    Google Scholar 

  33. Hermes, N., & Lensink, R. (2011). Microfinance: Its impact, outreach, and sustainability. World Development,39(6), 875–881.

    Google Scholar 

  34. Ho, T. Q., Hoang, V. N., Wilson, C., & Nguyen, T. T. (2017). Which farming systems are efficient for Vietnamese coffee farmers? Economic Analysis & Policy,56, 114–125.

    Google Scholar 

  35. Howell, A. (2017). Impacts of migration and remittances on ethnic income inequality in rural China. World Development,94, 200–211.

    Google Scholar 

  36. Imai, K. S., Arun, T., & Annim, S. K. (2010). Microfinance and household poverty reduction: New evidence from India. World Development,38(12), 1760–1774.

    Google Scholar 

  37. Imai, K. S., & Azam, M. S. (2012). Does microfinance reduce poverty in Bangladesh? New evidence from household panel data. The Journal of Development Studies,48(5), 633–653.

    Google Scholar 

  38. Islam, A. (2015). Heterogeneous effects of microcredit: Evidence from large-scale programs in Bangladesh. Journal of Asian Economics,37, 48–58.

    Google Scholar 

  39. Islam, A., & Maitra, P. (2012). Health shocks and consumption smoothing in rural households: Does microcredit have a role to play? Journal of Development Economics,97(2), 232–243.

    Google Scholar 

  40. Jauch, S., & Watzka, S. (2016). Financial development and income inequality: A panel data approach. Empirical Economics,51(1), 291–314.

    Google Scholar 

  41. Kanie, N., Abe, N., Iguchi, M., Yang, J., Kabiri, N., Kitamura, Y., et al. (2014). Integration and diffusion in sustainable development goals: Learning from the past, looking into the future. Sustainability,6(4), 1761–1775.

    Google Scholar 

  42. Karaivanov, A., & Kessler, A. (2018). (Dis) advantages of informal loans—Theory and evidence. European Economic Review,102, 100–128.

    Google Scholar 

  43. Khandker, S. R. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review,19(2), 263–286.

    Google Scholar 

  44. Khandker, S. R., Koolwal, G. B., & Samad, H. A. (2009). Handbook on impact evaluation: Quantitative methods and practices. Washington, DC: The World Bank.

    Google Scholar 

  45. Kislat, C. (2015). Why are informal loans still a big deal? Evidence from North-East Thailand. The Journal of Development Studies,51(5), 569–585.

    Google Scholar 

  46. Kislat, C., Menkhoff, L., & Neuberger, D. (2017). Credit market structure and collateral in rural Thailand. Economic Notes: Review of Banking, Finance and Monetary Economics,46(3), 587–632.

    Google Scholar 

  47. Lacalle-Calderon, M., Larrú, J. M., Garrido, S. R., & Perez-Trujillo, M. (2019). Microfinance and income inequality: New macro level evidence. Review of Development Economics,23(2), 860–876.

    Google Scholar 

  48. Lainez, N. (2014). Informal credit in Vietnam: A necessity rather than an evil. Journal of Southeast Asian Economies,31(1), 147–154.

    Google Scholar 

  49. Li, C., Lin, L., & Gan, C. E. (2016). China credit constraints and rural households’ consumption expenditure. Finance Research Letters,19, 158–164.

    Google Scholar 

  50. Linh, T. N., Long, H. T., Chi, L. V., Tam, L. T., & Lebailly, P. (2019). Access to rural credit markets in developing countries, the case of Vietnam: A literature review. Sustainability,11(5), 1468.

    Google Scholar 

  51. Liverpool, L. S. O., & Winter-Nelson, A. (2010). Poverty status and the impact of formal credit on technology use and wellbeing among Ethiopian smallholders. World Development,38(4), 541–554.

    Google Scholar 

  52. Luan, D. X., & Bauer, S. (2016). Does credit access affect household income homogeneously across different groups of credit recipients? Evidence from rural Vietnam. Journal of Rural Studies,47, 186–203.

    Google Scholar 

  53. Luan, D. X., Bauer, S., & Kuhl, R. (2016). Income Impacts of credit on accessed households in rural Vietnam: Do various credit sources perform differently? AGRIS on-line Papers in Economics and Informatics,8(1), 57–67.

    Google Scholar 

  54. Madestam, A. (2014). Informal finance: A theory of moneylenders. Journal of Development Economics,107, 157–174.

    Google Scholar 

  55. Nguyen, C. V., Tran, Q. T., & Vu, H. V. (2017). Ethnic minorities in Northern Mountains of Vietnam: Employment, poverty and income. Social Indicators Research,134(1), 93–115.

    Google Scholar 

  56. Nguyen, C. V., & van den Berg, M. (2011). The impact of informal credit on poverty and inequality: The case of Vietnam. MPRA Paper 54758. Germany: University Library of Munich.

    Google Scholar 

  57. Nguyen, C. V., & van den Berg, M. (2014). Informal Credit, Usury, or Support? A Case Study for Vietnam. The Developing Economies,52(2), 154–178.

    Google Scholar 

  58. Nguyen, T. T., Nguyen, T. T., Hoang, V. N., Wilson, C., & Managi, S. (2019). Energy transition, poverty and inequality in Vietnam. Energy Policy,132, 536–548.

    Google Scholar 

  59. Nguyen, T. T., Nguyen, T. T., & Grote, U. (2020). Multiple shocks and households' choice of coping strategies in rural Cambodia. Ecological Economics, 167, 106442. https://doi.org/10.1016/j.ecolecon.2019.106442

    Article  Google Scholar 

  60. Phan, C. T., Sun, S., Zhou, Z. Y., & Beg, R. (2019). Does microcredit increase household food consumption? A study of rural Vietnam. Journal of Asian Economics,62, 39–51.

    Google Scholar 

  61. Roodman, D. (2011). Estimating fully observed recursive mixed-process models with CMP. Stata Journal,11, 159–206.

    Google Scholar 

  62. Sayvaya, I., & Kyophilavong, P. (2015). Does microfinance reduce poverty in Lao PDR? International Journal of Development Issues,14(3), 215–230.

    Google Scholar 

  63. Sekyi, S., Abu, B. M., & Nkegbe, P. K. (2017). Farm credit access, credit constraint and productivity in Ghana: Empirical evidence from Northern Savannah ecological zone. Agricultural Finance Review,77(4), 446–462.

    Google Scholar 

  64. Seng, K. (2018). Rethinking the effects of microcredit on household welfare in Cambodia. The Journal of Development Studies,54(9), 1496–1512.

    Google Scholar 

  65. Shahbaz, M., Loganathan, N., Tiwari, A. K., & Sherafatian-Jahromi, R. (2015). Financial development and income inequality: Is there any financial Kuznets curve in Iran? Social Indicators Research,124(2), 357–382.

    Google Scholar 

  66. Swaminathan, H., Du Bois, R. S., & Findeis, J. L. (2010). Impact of access to credit on labour allocation patterns in Malawi. World Development,38(4), 555–566.

    Google Scholar 

  67. Tran, Q. T. (2016). Income sources and inequality among ethnic minorities in the Northwest Region. Vietnam. Environment, Development and Sustainability,18(4), 1239–1254.

    Google Scholar 

  68. Tran, Q. T., Nguyen, S. H., Vu, H. V., & Nguyen, V. Q. (2015). A note on poverty among ethnic minorities in the Northwest region of Vietnam. Post-communist economies,27(2), 268–281.

    Google Scholar 

  69. Tran, V. T., Nguyen, T. T., & Tran, N. T. (2019). Gender difference in access to local finance and firm performance: Evidence from a panel survey in Vietnam. Economic Analysis and Policy,63, 150–164.

    Google Scholar 

  70. Tsai, M. C., Dwyer, R. E., & Tsay, R. M. (2016). Does financial assistance really assist? The impact of debt on wellbeing, health behavior and self-concept in Taiwan. Social Indicators Research,125(1), 127–147.

    Google Scholar 

  71. Tu, T. T. T., Ha, N. P., & Yen, T. T. H. (2015). Socio-economic impact of rural credit in northern Vietnam: Does it differ between clients belonging to the ethnic majority and the minorities? Asian Social Science,11(10), 159–167.

    Google Scholar 

  72. United Nations. (2013). World economic and social survey 2013: Sustainable development challenges. New York: The United Nations.

    Google Scholar 

  73. USAID. (2008). Vietnam Central Highlands needs assessment. Vermont: The United States Agency for International Development.

    Google Scholar 

  74. van de Walle, D., & Gunewardena, D. (2001). Sources of ethnic inequality in Viet Nam. Journal of Development Economics,65(1), 177–207.

    Google Scholar 

  75. World Bank. (2009). Country social analysis: Ethnicity and development in Vietnam. Washington, DC: The World Bank.

    Google Scholar 

Download references

Acknowledgements

We thank the farmers of the surveyed provinces for their support and cooperation. The constructive comments from the editor and two anonymous referees are highly appreciated. We acknowledge the financial support of the German Research Foundation (DFG - FOR 756) and appreciate the efforts of our colleagues at the Leibniz University Hannover for data collection.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Thanh-Tung Nguyen.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (PDF 403 kb)

Supplementary material 2 (PDF 62 kb)

Appendices

Appendix 1

See Table 7.

Table 7 Name and definition of explanatory variables

Appendix 2

See Table 8.

Table 8 Collinearity test in CMP model

Appendix 3

See Table 9.

Table 9 Robustness check for DDD model: PSM-DID model

Appendix 4

See Table 10.

Table 10 Collinearity test in the DDD model (full sample)

Appendix 5

See Table 11.

Table 11 Collinearity test in the DDD model (sub sample)

Appendix 6

See Fig. 1.

Fig. 1
figure1

Propensity score distribution of access to formal credit. ‘Treated: on support’ represents households in the no-formal credit group that have a suitable match, while ‘Treated: off support’ represents households in the no-formal credit group that do not have a suitable match, and ‘Untreated’ represents households in the group of have access to formal credit

Appendix 7

See Fig. 2.

Fig. 2
figure2

Propensity score distribution of access to informal credit. ‘Treated: on support’ represents households in the no-informal credit group that have a suitable match, while ‘Treated: off support’ represents households in the no-informal credit group that do not have a suitable match, and ‘Untreated’ represents households in the group of have access to informal credit

Appendix 8

See Table 12.

Table 12 Qualifying test of PSM in the ethnic-based consumption inequality model

Appendix 9

See Table 13.

Table 13 Effect of ethnicity on collateral ratio

Appendix 10

See Table 14.

Table 14 Effect of Ethnicity on Interest Rate

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Nguyen, TT., Nguyen, T.T. & Grote, U. Credit and Ethnic Consumption Inequality in the Central Highlands of Vietnam. Soc Indic Res 148, 143–172 (2020). https://doi.org/10.1007/s11205-019-02202-z

Download citation

Keywords

  • Inequality
  • Ethnicity
  • Credit
  • Conditional-mixed process (CMP)
  • Triple difference with fixed effects (DDD)
  • Vietnam