World Food Policy Volume/Issue 2-2/3-1 Fall 2015/Spring 2016 | Page 105

World Food Policy

of higher returns and consequently
making them better off. Studies by De
Janvry, Fafchamps, and Sadoulet (1991)
and Kinsey, Burger, and Gunning (1998)
indicate that income diversification
is not only positively correlated with
wealth but also with an increased ability
to cope with shocks. Diversification is
a way through which rural households
insure themselves against the occurrence
of such shocks, or, in other words,
diversification
reduces
livelihood
vulnerability. This self-insurance can
also be seen as a negative function of the
availability of social insurance, provided,
for example, by the community or family.
The better access to social networks and
institutions, the less likely a household
needs to apply self-insurance systems as
the diversification of income portfolios.
In contrast, social capital can also foster
the ability to participate in many different
income activities.

This study aims to contribute to
the literature of vulnerability to poverty
by examining the relationship between a
household’s diversity of income sources
to nonagricultural activities and its
transitions into and out of poverty. The
main goal is to identify which households
are more able to diversify income sources
and if such income diversity makes the
household better off or prevents it from
falling into poverty.

This study examines these research
questions in the context of Vietnam,
although the approach can be applied
to other developing countries. Vietnam
has been one of the most successful
countries in the developing world in
terms of economic growth and poverty
reduction. The rapid economic growth,
together with market liberalization and

trade openness that took place during
the last two decades, has lifted a large
share of the population out of poverty
(see Tran, Alkire, and Klasen 2015).
Nonetheless, poverty is still a central
issue in the country as nearly 43 percent
of the population still lives on less than
$2 a day (World Bank 2013), and many
people earn their living by engaging in
agricultural activities. Various population
subgroups have benefited less from such
development; households in rural areas
have made slower progress than those in
urban areas (see GSO 2011).

This study uses three waves of
a panel surveys from 2007, 2008, and
2010 of more than 2000 rural and periurban households from three provinces
in Vietnam. The drivers of poverty
transitions are investigated via descriptive
statistics and empirical results from
multinomial logit (MNL) models. The
analyses are based on the hypothesis that
a household that diversifies its income
sources to nonagricultural activities
finds it easier to escape poverty than a
household that relies its income only
on agricultural activities. The findings
confirm that an increase in the share
of nonagricultural income to total
household income is correlated with the
advancement of a household’s well being.
This study is organized as follows.
Section 2 describes the household
panel data used in the analysis and
presents the estimation strategy. Section
3 discusses the results of the MNL
models that highlight the relationship
between income diversification and
household well-being. It also discusses
the robustness of the estimation results.
Finally, Section 4 concludes with the key
messages of this paper.

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