Understanding Household Income Inequality in Rural Vietnam: A Regression-Based Decomposition Study

Along with the rapid economic development that rural Vietnam has experienced since the implementation of the Doi Moi policy, increasing attention is being paid to the widening income inequality among rural households. Although several studies have been conducted to understand the drivers of rural inequality, there is a lack of analysis that considers different household characteristics simultaneously and quantifies their contributions to inequality. Our study aims to fill this gap by applying the Fields’ regression-based decomposition method to household data collected from VARHS 2012 and VARHS 2016. The analysis results show that human capital, indicated by the quantity and quality of working members, and physical capital, indicated by household mobility and access to information, are the main contributors that explain this inequality. Additionally, the decreasing variation in specific characteristics, such as education level, is found to reduce their contribution to inequality over time, consequently preventing these factors from exacerbating overall inequality.