| This research empirically assesses the impact of trade policies on households in a poor country with a large rural economy where labor markets are imperfect. The methodology proposed, which can be applied to various types of rural labor market conditions, relates variation in prices attributed to trade reforms to changes in household welfare, income distribution and poverty. This approach is used to investigate the distributional effects of trade reforms in Vietnam's rice sector and fertilizer market between 1993 and 1998, where domestic real rice prices rose over 30 percent and chemical fertilizer prices fell by 18 percent.; Underlying the empirical work is a non-separable farm-household model where joint decisions are made about consumption, production and labor allocation. Facing limited market employment opportunities, many household members work intensively on their own farm, driving down their marginal product of labor below the existing market wage rate. This raises the need to account for the implicit cost of family labor. Structural parameters of a multi-output production function are estimated with panel data, which is used to derive the internal wage of family members working on the farm. A profit function is then constructed to isolate the effect of higher producer rice prices and lower fertilizer prices attributed to trade reforms over the 5 year interval, on a farm household's profitability. Estimated price elasticities of wages and labor supply of adults are used to compute the change in the value of household labor in response to higher producer rice prices. This is combined with variations in a household's farm profitability and consumer welfare to arrive at their net welfare position.; I find that Vietnam's agricultural trade reforms in the rice and fertilizer sector contributed to nearly a third of the decline in headcount poverty over the period studied and can explain close to half of the reduction in poverty among farm households. Furthermore, southern households whose members hired out farm labor benefited from higher wages. The results also show that liberalization did not exacerbate income inequality, but did generate gains for rural households across the distribution, at the expense of urban households. |
