Introduction

I. THE BACKGROUND FOR THE STUDY

Poverty in Vietnam is largely a rural phenomenon as about 90 percent of the poor live in rural areas. The incidence of poverty is higher in rural areas (45 percent of the rural population is living below the poverty line) than in urban areas (10-15 percent) and so is the depth of poverty. Clearly, what happens to rural areas still dominates the effect on the lives of the poor.

Therefore, the development strategy should be focused on rural development and greater reliance needs to be placed on the development of the non-farm sector particularly in rural areas in order to create more employment opportunities, narrow down rural - urban income gap and reduce rural poverty.

Inadequate economic infrastructure has been identified as one of the main elements in the persistence of rural poverty because it hinders opportunities to seek additional off-farm income and greater participation in the market economy. According to the World Bank, rural Vietnamese have less access to infrastructure, and less than one-third of Vietnam’s population has access to all three key types of facilities: passable roads, public transport, and permanent markets.

So, stimulating rural growth remains a major challenge for Vietnam. It will require a host of reforms, including establishing a level playing field with the state sector, removing constraints to accessing capital, establishing a reliable legal framework, and provision of supporting infrastructure.

II. THE RELEVANCE AND PURPOSES OF THE THESIS

Vietnam is poor both in terms of household living standards and physical infrastructure, specifically transportation. Therefore, the importance of infrastructural investment in promoting pro-poor economic growth will draw much attention from government and donors.

In the thesis I hope to test the hypothesis: there is a strong relationship between living standards of rural people and services provided by rural transport infrastructure.

The results of this thesis are quite significant within a policy framework. If the test shows a strong relationship, the study will be a useful reminder for policy-makers in their economic decision-making with regards to rural infrastructural investments, in process of assailing rural development in Vietnam.

The thesis aims:

1. To identify and understand the role of transport infrastructure in rural development.

2. To assess the state of Vietnam’s rural infrastructure, especially the road system, and its impacts on living standards in rural areas.

3. To provide policy makers with suggestions about how to improve quality and quantity of road system in order to support rural development as well as the economic growth of the country.

III. THE RESEARCH QUESTIONS

The thesis focuses on the following central research question:

“What role could improved infrastructure, specifically a better road system, play in reducing rural poverty in Vietnam?”

The answer to the question raised above will be based on the following sub-questions:

1. What is the role of infrastructure, specifically transportation infrastructure, in economic development?

2. What is the state of Vietnam’s rural infrastructure, specifically Vietnam’s rural road system?

3. How and to what extent do a road system and other infrastructure affect rural living standards?

IV. THE DATA SOURCES

The thesis studies the link between rural living standards and rural transport infrastructure. Data is largely extracted from the Vietnam Living Standards Survey in 1997-1998 (VLSS98), which was conducted nationwide by the General Statistical Office (GSO).

Besides original or primary data from VLSS98, secondary and tertiary data from a variety of sources is also used in the thesis.

V. THE RESEARCH METHODS

In the thesis, a variety of methods are used to analyze and assess Vietnam’s rural infrastructure and its impact on rural living standards. These methods include literature reviews, descriptive analysis, cross-section data analysis, statistical analysis, and regression analysis.

VI. THE THESIS SCOPE

In Vietnam, rural development is much debated issue to all policy makers since it is vital to determine the success of economic development of the whole country. This thesis limits itself to a study of only rural areas. The fact that the rural population is a more homogeneous group is also a reason to make the thesis to concentrate on rural areas for greater convenience in analysis.

Because of lack of information, the thesis can not cover all kinds of transport infrastructure such as roads, railways, and waterways, etc. in detail. Instead, it focuses on the road system, which is extensively used by the rural inhabitants in Vietnam. Where relevant and possible, other kinds of rural infrastructure are considered in an attempt to give a general picture of Vietnam’s overall rural infrastructure.

In general, this thesis takes income as a proxy for living standard. However, where possible, other components of living standards (i.e. health and education), will be examined in detail.

VII. THE STRUCTURE OF THE THESIS

This thesis is organised into four chapters:

§ Chapter One will review the literatures on fundamental concepts and definitions relating to transport infrastructure and analyse its role and economic effects in rural areas.

§ Chapter Two will describe Vietnam’s rural infrastructure and explain how rural living standards relate to rural infrastructure, specifically the road network.

§ Chapter Three will quantitatively analyse the relationship between rural road infrastructure and rural living standards, which are represented by household incomes. This chapter will use the consistent data from VLSS98.

§ Chapter Four summaries the main findings of previous chapters which leads to the thesis’s conclusions and provides some suggestive policy implications for rural development and poverty elimination strategies in Vietnam.

Chapter One

Literature Review and Theoretical Framework

I. TRANSPORT INFRASTRUCTURE AND ECONOMIC DEVELOPMENT: THEORIES

This section aims to form a research framework by reviewing literature focusing on the various impacts of improvement of transport infrastructure, specifically road network, on economic development.

1. The Freedman’s Model

This is a four-stage model in which a single urban core expanded across the rural periphery, progressively reducing urban-rural disparities and producing a homogeneous development space. The role of infrastructure and efficient transport in insuring the movement of people and goods is central, and is indicated in the model by the arrows showing the direction as well as the nature of movement. In this model, economic development is not only the result of a proper combination of private production factors such as labor and capital, but also of infrastructure in general and transport systems in particular.

The Von Thunen model and a model for interregional trade will illustrate the differential effects of improvements of transport infrastructure as follows:

2. The Von Thunen Model

In the Von Thunen model, which describes the trade relationship between an agricultural region and urban region (trading center), improvement of transport infrastructure leads to a decrease in transportation costs of agricultural products. According to Von Thunen, the economic benefits in the form of a rent increase will accrue to landowners. Therefore, there will be a tendency to extend the agriculture area. This leads to an increase in the supply of agricultural products. Only when this increase of supply leads to a decrease of prices of agricultural products will urban consumers benefit from the improved transport infrastructure. Thus, in the Von Thunen model, the landowners are the main beneficiary of improved transport infrastructure.

3. The Model of Interregional Trade

Figure 1 illustrates the standard model of interregional trade. In the model, when transportation cost is less than the difference in equilibrium price for a certain good in two regions, export takes place from region 1 to region 2. In comparison, in a situation without trade, there is an additional surplus consisting of area A (accruing to producers in region 1) and B (accruing to consumers in region 2). Thus, both regions benefit from trade according to the model.

Source: Rietveld, P. (1989), Infrastructure and regional development, A survey of multiregional economic models, Springer-Verlag, Holland, p. 257.

Improvement of transport infrastructure leads to a decrease in transportation costs and hence to an increase in transportation volumes. The equilibrium price in region 1 will increase, and the price in region 2 will decrease. As a result, in region 1, producers benefit from the improvement of transport infrastructure, whereas consumers are negatively affected. In region 2 it is the other way around. With respect to employment, region 1 benefits, but region 2 is hurt by the improvement in transport infrastructure.

4. A General Equilibrium Model

Figure 2 shows the main effects when many sectors are considered simultaneously. In this case the net effects are difficult to predict. Also, it is even more difficult to predict processes (reallocation of capital and persons) caused by changes in transport infrastructure in the long term.

5. Difficulties in Studying

Figure 2: Effects of Improvement of Transport Infrastructure

Source: Rietveld, P. (1989), Infrastructure and regional development, A survey of multiregional economic models, Springer-Verlag, Holland, p. 258.

The difficulties in predicting the processes can be seen clearly from the points of view of the two following approaches. One is the production function approach and the other is the interregional approach.

In the production function approach, the higher productivity of private production factors owing to the improvement of transport infrastructure implies that less inputs are needed for the same level of output (assuming that other inputs are substitutes of transport infrastructure). However, the decrease in production costs will lead to a decrease in prices and hence an increase in output. This would in turn lead to a higher demand for the inputs. The net balance of the two effects is, therefore, uncertain.

A similar result is found for the interregional trade approach in terms of employment.

Apart from reasons mentioned in the two approaches above, further difficulties are also identified.

Time frame

Transport infrastructure improvements have a wide variety of effects on firms and consumers. However, these effects are also often difficult to trace because of the lengthy time it may take before an economy adjusts to the new situation.

Directionality

In studying the relationship between transport infrastructure and economic development, the problem of directionality is usually involved.

Section remarks:

§ Improvement of transport systems leads to a higher productivity of private production factors. It affects trade relationships and hence the location of production factors. Transport investment contributes to economic diversification enabling exploitation of economies of scope and increases the economy’s ability to handle risks.

§ Improvement of transport infrastructure also influences household consumption, giving rise to substantial redistribution effects among economic groups and also among regions.

§ Due to the problems of time frame and directionality, the impacts of improvement of transport infrastructure are very difficult to predict.

§ The existence or construction of a new transport infrastructure does not mean that development will automatically or necessarily follow. It depends on the particular features of the existing network and of the regions concerned.

II. TRANSPORT INFRASTRUCTRE AND RURAL LIVING STANDARDS

1. Rural Transport Infrastructure in Developing Countries

Rural transport encompasses all the transport activities which take place at local government, community and household levels. It is composed of two elements, the rural transport services for passengers and freight by non-motorized and motorized means of transport, and rural transport infrastructure, mainly rural roads, paths and footbridges, and in some cases rural waterways.

The length of the classified rural road network is usually two to three times the length of the main and provincial network. However, on average they carry only about 10 percent of the total traffic in vehicle-kilometers. Often, these roads are in bad condition, only seasonally passable and poorly maintained. Many communities are still without motorable access at all. Sometimes, rural roads are often over-designed, resulting in waste of scarce resources. Over-design can be a result of political pressure attempting to apply standard designs by road type instead of actual traffic.

A typical phenomenon in developing countries is that rural dwellers mostly use non-motorized transport such as bicycles and animal carts. Most of them make trips on foot and suffer from inadequate access to markets and to basic social services.

2. Transport Infrastructure and Rural Development

Access to infrastructure services is one of the essential components of personal welfare. It implies that transport has a direct impact on personal welfare. Improvements in transport not only provide people with more convenient access to a wide range of socio-economic opportunities, but also have strong income effects by lowering transport cost and hence the prices of consumer goods and services. In these ways, transport contributes to the improvement of personal welfare in rural areas.

For people living in rural areas, the lack of affordability of their transportation costs prevents them to take advantage of job opportunities and even very basic social services. Reliable access to schools and health services for them contributes directly to their accumulation of human capital, which is a key factor in economic growth of rural areas.

3. Transport Infrastructure and Rural Poverty

Although local roads in rural areas where most of the poor live make only a modest contribution to national income growth they are likely to have a direct and significant impact on the daily life of the poor.

4. The Negative Effects

Despite some benefits rural transport infrastructure brings to the rural dwellers, there are several shortcomings inherently related to the provision of rural transport infrastructure in the effort to reduce poverty. These problems are inherent in the transport sector and may lead to adverse distributive impacts.

1. First, emphasis of the efficiency criterion in transport project selection and design is likely to involve a “bias” against the poor.

2. Second, transport market and institutional failures tend to impose relatively greater harm on the poor.

3. Third, government regulations in the transport sector are often regressive, especially where they place limitations on the entry, provision, and use of transport services relevant to the poor.

Chapter Two

Vietnam Rural Transport Infrastructure

This chapter concentrates on describing Vietnam’s rural infrastructure, especially transportation infrastructure. Several kinds of rural infrastructure and their relationship with rural living standards will be examined.

I. VIETNAM RURAL TRANSPORT INFRASTRUCTURE

With a narrow and long shape, nearly 2,000 km from North to South, and with a littoral nearly 3,200 km in the East and South-West, Vietnam has a large transport system covering all modes, namely: road, waterway, railway, seaway and airway. However, in rural areas, inhabitants mainly travel and transport goods by roads or, in some regions, by waterways.

1. Vietnam Transportation Development Progress

Before 1954, when Vietnam was under the domination of French, the system of roads was developed in a rather short time. French colonists only concentrated on developing arteries connecting some area centers in order to support their resource exploitation and colony control policies. Little attention was paid to development of an adequate road system in favor of indigenous people.

During 1955-75 Vietnam was temporarily divided into two parts having different economic systems. The Saigon administration had the intention of modeling the economy towards a capitalist model. With regard to transportation, too few roads were built, and only main and strategic roads were improved and upgraded with the aim of serving army purposes.

During 1976-85, economic priority was redirected to overcoming the aftermath left by the war and reforming the South’s economy to harmonize with the North’s economic model.

From 1986 up to now was the period of economic transition from an old centrally planed management mechanism to a new market oriented one and the new economic mechanism was starting to show its effects. Upon integration into the new economic development, the communication and transportation sectors also recorded tremendous achievements.

2. Vietnam Existing Road Transportation

Figure 3: Vietnamese Roads: Quantity not Quality

Note: All other country figures are road lengths of standard regional quality.

Source: UNDP (1996), Catching up, Hanoi, p. 56.

In recent years, along with the transition of the whole economy, road transportation system has been enormously expanded. As far as the mere quantity of roads is concerned, Vietnam compares rather well with other countries in the region. The qualitative picture is much less bright. Figure 3 depicts comparative road networks in the region for road standard quality. The existing infrastructure of Vietnam’s roads and bridges is very old and low in standard. The road network is unevenly distributed among the different provinces of the country.

3. Vietnam Inland Waterway Network

Vietnam’s inland waterway network is one of the best in the world.

Waterways in the North of the country are formed by the system of the Red and Thai Binh rivers that are quite shallow in the dry season.

Waterways in the South are formed by the system of the Mekong and Dong Nai rivers. The two-river system is connected by a network of canals that create favorable conditions for waterway traffic. As a result, much of the transport in the southern part is done by waterway.

Rivers in the central region have specific characteristics: slope, narrow, and fast flowing in the raining season and shallow water in the dry season. In the Central region inland waterway routes are short, and mainly used for cargo transport within province, from mountainous areas to seashore ones.