Skip to main content

Advertisement

SpringerLink
Log in

Impact of Trade Liberalization on Household Welfare: An Analysis Using Household Exposure-to-Trade Indices

  • Original Research
  • Published:
Social Indicators Research Aims and scope Submit manuscript

Abstract

This paper quantifies the impact of trade liberalization at the household level using data from the Vietnam Household Living Standard Survey from 2002 to 2016. Household welfare is measured using income, expenditure, and vulnerability to poverty. Unlike previous studies, we address potential endogeneity at the household level by constructing household exposure-to-trade indices as a proxy for trade liberalization. These indices are advantageous as they capture the influence of trade liberalization at the national level and the households’ ability to respond to new opportunities. The results suggest that trade liberalization improves Vietnamese household income and expenditure via the export channel or the expansion of labor demand. Tariff reduction for exported goods is less favorable to household welfare. The impact of trade liberalization became smaller and less significant after the global downturn in 2008. Rural households suffered more vulnerability from trade, and the poor gained fewer benefits after the financial crisis in 2008.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Availability of data and material

The datasets used and analysed during the current study are available from the corresponding author on reasonable request.

References

  • Abbott, P., Bentzen, J., & Tarp, F. (2009). Trade and development: lessons from Vietnam’s past trade agreements. World Development, 37(2), 341–353.

    Google Scholar 

  • Aizenman, J., & Noy, I. (2009). Endogenous financial and trade openness. Review of Development Economics, 13(2), 175–189.

    Google Scholar 

  • Alcala, F., & Ciccone, A. (2004). Trade and productivity. The Quarterly Journal of Economics, 119(2), 613–646.

    Google Scholar 

  • Anderson, J. E., & Peter Neary, J. (1996). A new approach to evaluating trade policy. The Review of Economic Studies, 63(1), 107.

    Google Scholar 

  • Avelino, G., Brown, D. S., & Hunter, W. (2005). The effects of capital mobility, trade openness, and democracy on social spending in Latin America, 1980–1999. American Journal of Political Science, 49(3), 625–641.

    Google Scholar 

  • Bach, C. F., & Martin, W. (2001). Would the right tariff aggregator for policy analysis please stand up? Journal of Policy Modeling, 23(6), 621–635.

    Google Scholar 

  • Baye, T. G. (2017). Poverty, peasantry and agriculture in Ethiopia. Annals of Agrarian Science, 15(3), 420–430.

    Google Scholar 

  • Beyer, H., Rojas, P., & Vergara, R. (1999). Trade liberalization and wage inequality. Journal of Development Economics, 59(1), 103–123.

    Google Scholar 

  • Bussmann, M. (2009). The effect of trade openness on women’s welfare and work life. World Development, 37(6), 1027–1038.

    Google Scholar 

  • Castilho, M., Menendez, M., & Sztulman, A. (2012). trade liberalization, inequality, and poverty in Brazilian states. World Development, 40(4), 821–835.

    Google Scholar 

  • Cavallo, E. A., & Frankel, J. A. (2008). Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality. Journal of International Money and Finance, 27(8), 1430–1452.

    Google Scholar 

  • Chaudhuri, S. (2003). Assessing vulnerability to poverty: Concepts, empirical methods and illustrative examples. New York, NY: Department of Economics: Columbia University.

    Google Scholar 

  • Chaudhuri, S., Jalan, J., & Suryahadi, A. (2002). Assessing household vulnerability to poverty from cross-sectional data: A methodology and estimates from Indonesia. Columbia University Discussion Paper.

  • Cigno, A., Rosati, F. C., & Guarcello, L. (2002). Does globalization increase child labor? World Development, 30(9), 1579–1589.

    Google Scholar 

  • Cling, J.-P., Marouani, M. A., Razafindrakoto, M., Robilliard, A.-S., & Roubaud, F. (2009). The distributive impact of Vietnam’s accession to the WTO. Économie Internationale, 2, 43–71.

    Google Scholar 

  • Coello, B., Fall, M., & Suwa-Eisenmann, A. (2010). Trade liberalization and poverty dynamics in Vietnam 2002–2006. Paris School of Economics Working Paper (2010–2013): 48.

  • Falvey, R., Foster, N., & Greenaway, D. (2012). Trade liberalization, economic crises, and growth. World Development, 40(11), 2177–2193.

    Google Scholar 

  • Fukase, E. (2012). Export liberalization, job creation, and the skill premium: Evidence from the US–Vietnam Bilateral Trade Agreement (BTA). World Development, 41, 317–337.

    Google Scholar 

  • Fukuda, K. (2018). Effects of trade liberalization on growth and welfare through basic and applied researches. Journal of Macroeconomics.

  • George, C. (2010). The truth about trade. Zed Books.

  • Goldberg, P. K., & Pavcnik, N. (2007). The effects of the Colombian trade liberalization on urban poverty, 1st ed., Chap. 6, pp. 291–355. University of Chicago.

  • Hanson, G. H., & Harrison, A. (1999). Trade liberalization and wage inequality in Mexico. ILR Review, 52(2), 271–288.

    Google Scholar 

  • Heo, Y., & Doanh, N. K. (2009). Trade liberalisation and poverty reduction in Vietnam. World Economy, 32(6), 934–964.

    Google Scholar 

  • Huong, L. T., & Winters, P. (2001). Aid policies and poverty alleviation: The case of Vietnam. Asia-Pacific Development Journal, 8(2), 27–44.

    Google Scholar 

  • Justino, P., Litchfield, J., & Pham, H. T. (2008). Poverty dynamics during trade reform: Evidence from rural Vietnam. Review of Income and Wealth, 54(2), 166–192.

    Google Scholar 

  • Kis-Katos, K., & Sparrow, R. (2015). Poverty, labor markets and trade liberalization in Indonesia. Journal of Development Economics, 117, 94–106.

    Google Scholar 

  • Law, C. (2019). Unintended consequence of trade on regional dietary patterns in rural India. World Development, 113, 277–293.

    Google Scholar 

  • Le, M. S. (2014). Trade openness and household welfare within a country: A microeconomic analysis of Vietnamese households. Journal of Asian Economics, 33, 56–70.

    Google Scholar 

  • Li, K., Morck, R., Yang, F., & Yeung, B. (2004). Firm-specific variation and openness in emerging markets. Review of Economics and Statistics, 86(3), 658–669.

    Google Scholar 

  • Magrini, E., Montalbano, P., & Alan Winters, L. (2018). Households’ vulnerability from trade in Vietnam. World Development, 112, 46–58.

    Google Scholar 

  • Manole, V., & Spatareanu, M. (2010). Trade openness and income—a re-examination. Economics Letters, 106(1), 1–3.

    Google Scholar 

  • Marchand, B. U. (2012). Tariff pass-through and the distributional effects of trade liberalization. Journal of Development Economics, 99(2), 265–281.

    Google Scholar 

  • McCaig, B. (2009). Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access. Australian National University Working papers in economics & econometrics (502).

  • McCaig, B. (2011). Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access. Journal of International Economics, 85(1), 102–113.

    Google Scholar 

  • McCulloch, N., Winters, L. A., & Cirera, X. (2002). Trade liberalization and poverty: A handbook. Center for Economic and Policy Research.

  • Naito, T. (2017). Growth and welfare effects of unilateral trade liberalization with heterogeneous firms and asymmetric countries. Journal of International Economics, 109, 167–173.

    Google Scholar 

  • Naude, W., & Coetzee, R. (2004). Globalisation and inequality in South Africa: Modelling the labour market transmission. Journal of Policy Modeling, 26(8–9), 911–925.

    Google Scholar 

  • Neumayer, E., & de Soysa, I. (2005). Trade openness, foreign direct investment and child labor. World Development, 33(1), 43–63.

    Google Scholar 

  • Newbery, D. M. G., & Stiglitz, J. E. (1984). Pareto inferior trade. The Review of Economic Studies, 51(1), 1.

    Google Scholar 

  • Nicita, A. (2009). The price effect of tariff liberalization: Measuring the impact on household welfare. Journal of Development Economics, 89(1), 19–27.

    Google Scholar 

  • Niimi, Y., Dutta, P. V., & Alan Winters, L. (2007). Trade liberalisation and poverty dynamics in Vietnam. Journal of Economic Integration, 22(4), 819–851.

    Google Scholar 

  • Onafowora, O. A., & Owoye, O. (1998). Can trade liberalization stimulate economic growth in Africa? World Development, 26(3), 497–506.

    Google Scholar 

  • Popli, G. K. (2010). Trade liberalization and the self-employed in Mexico. World Development, 38(6), 803–813.

    Google Scholar 

  • Porto, G. G. (2006). Using survey data to assess the distributional effects of trade policy. Journal of International Economics, 70(1), 140–160.

    Google Scholar 

  • Seshan, G. K. (2013). The impact of trade liberalisation on household welfare in a developing country with imperfect labour markets. The Journal of Development Studies, 50(2), 226–243.

    Google Scholar 

  • SME. (2015). The Vietnam small and medium enterprises data. https://www.wider.unu.edu/database/viet-nam-sme-database.

  • Squalli, J., & Wilson, K. (2011). A new measure of trade openness. The World Economy, 34(10), 1745–1770.

    Google Scholar 

  • Marjit, S., Kar, S., & Maiti, D. S. (2007). Regional trade openness index and income disparity: A new methodology and the Indian experiment. Economic and Political Weekly, 42(9), 757–769.

    Google Scholar 

  • Tanaka, T., & Hosoe, N. (2011). Does agricultural trade liberalization increase risks of supply-side uncertainty? Effects of productivity shocks and export restrictions on welfare and food supply in Japan. Food Policy, 36(3), 368–377.

    Google Scholar 

  • Topalova, P. (2007). Trade liberalization, poverty and inequality: Evidence from Indian districts, 1st ed., Chap. 7, pp. 241–290. University of Chicago.

  • UNCTAD & WB. (2019). Trade analysis and information system.

  • United Nation. (2019). United Nations International Trade Statistics Database (UN COMTRADE).

  • Vo, T. T. (2018). Household vulnerability as expected poverty in Vietnam. World Development Perspectives, 10–12, 1–14.

    Google Scholar 

  • Vo, T. T., & Van, P. H. (2019). Can health insurance reduce household vulnerability? Evidence from Vietnam. World Development, 124, 104645.

    Google Scholar 

  • Wacziarg, R., & Welch, K. H. (2007). Trade liberalization and growth: New evidence. The World Bank Economic Review, 22(2), 187–231.

    Google Scholar 

  • Ward, P. S. (2016). Transient poverty, poverty dynamics, and vulnerability to poverty: An empirical analysis using a balanced panel from rural China. World Development, 78, 541–553.

    Google Scholar 

  • Winters, L. A. (1999). Trade and poverty: Is there a connection?, Chap. 1, 25. World Trade Organisation.

  • Winters, L. A. (2002). Trade liberalisation and poverty: What are the links? The World Economy, 25(9), 1339–1367.

    Google Scholar 

  • Winters, L. A., McCulloch, N., & McKay, A. (2004). Trade liberalization and poverty: The evidence so far. Journal of Economic Literature, 42(1), 72–115.

    Google Scholar 

  • World Bank. (2013). 2012 Vietnam poverty assessment: Well begun, not yet done—Vietnam’s remarkable progress on poverty reduction and the emerging challenges. Technical Report. Washington DC: World Bank.

  • World Bank. (2018). Climbing the ladder: Poverty reduction and shared prosperity in Vietnam. Resreport. World Bank. https://openknowledge.worldbank.org/handle/10986/29684.

  • World Bank. (2019). World Bank economic indicators database. https://data.worldbank.org/indicator.

  • WTO. (2001). Ministerial declaration. Technical Report. WTO. https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.pdf.

Download references

Acknowledgements

We would like to thank the editor and two anonymous reviewers for their constructive comments and suggestions, which helped us to improve the manuscript. Additionally, we thank the University of Economics Ho Chi Minh City for its generosity in financing this paper’s submission.

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Author information

Authors and Affiliations

  1. Health and Agricultural Policy Research Institute, University of Economics Ho Chi Minh City, 279 Nguyen Tri Phuong, District 10, Ho Chi Minh City, Vietnam

    Thang T. Vo & Dinh X. Nguyen

Authors
  1. Thang T. Vo
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Dinh X. Nguyen
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

TV contributed to the study conception, methodology, formal analysis, and writing. DN collected data and processed the data. TV prepared the draft manuscript and approved the final manuscript.

Corresponding author

Correspondence to Thang T. Vo.

Ethics declarations

Conflict of interest

The authors declare that they have no conflict of interest.

Additional information

Publisher's Note

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

Appendix: Additional Statistics and Results

Appendix: Additional Statistics and Results

See Tables 8, 9, 10, 11, 12, 13 and 14.

Table 8 Poverty line in Vietnam by measurement
Full size table
Table 9 Descriptive statistics of basic variables.
Full size table
Table 10 Distributions of categorical variables.
Full size table
Table 11 Numbers of observation by panels.
Full size table
Table 12 VEP and household welfare
Full size table
Table 13 Employment by industry.
Full size table
Table 14 Percentage of employment in selected industries by poverty status.
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Vo, T.T., Nguyen, D.X. Impact of Trade Liberalization on Household Welfare: An Analysis Using Household Exposure-to-Trade Indices. Soc Indic Res 153, 503–531 (2021). https://doi.org/10.1007/s11205-020-02499-1

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11205-020-02499-1

Keywords

Search

Navigation