NATIONAL ECONOMIC UNIVERSITY HANOI

INSTITUTE OF SOCIAL STUDIES THE HAGUE

 

VIETNAM - NETHERLANDS PROJECT FOR MASTER DEGREE ON

ECONOMICS OF DEVELOPMENT

 

 

 

AN ANALYSIS OF THE RELATIONSHIP BETWEEN RURAL LIVING STANDARDS AND

RURAL TRANSPORTATION INFRASTRUCTURE IN VIETNAM

 

 

A THESIS PRESENTED BY CAO HONG VIET

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

OBTAINING THE DEGREE OF

 

MASTER OF ART IN ECONOMICS OF DEVELOPMENT

 

 

SUPERVISOR: Dr. Mai Ha

 

 

HANOI 2000

Table of Contents

Table of Contents..................................................................................................... i

Introduction..................................................................................................................................................... 1

Chapter One          literature review and theoretical framework.............................. 4

I.        TRANSPORT INFRASTRUCTURE AND ECONOMIC DEVELOPMENT: THEORIES................. 4

II.       TRANSPORT INFRASTRUCTRE AND RURAL LIVING STANDARDS........................................ 7

Chapter Two          vietnam rural transport infrastructure......................................... 9

I.        VIETNAM RURAL TRANSPORT INFRASTRUCTURE.................................................................... 9

II.       OTHER KINDS OF RURAL INFRASTRUCTURE IN VIETNAM................................................... 12

Chapter Three          vietnam rural transport infrastructure and rural living standards              17

I.        REGRESSION MODELS......................................................................................................................... 17

II.       INTERPRETATION AND EXPLANATION OF RESULTS.............................................................. 22

Chapter Four          conclusions and policy implications................................................. 23

 

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.

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

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

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.

4.       Vietnam Rural Road Network

Up until late 1970, rural transport had not recorded any significant achievements because of Vietnam’ slow development progress and prolonged period of fierce warfare.

In the late 1980s, the rural road network began to be developed, however, it is still very poor. There was no motorways in six districts and 825 villages. The quality of most of the roads was poor, and very difficult for traffic, especially in the wet season.

Since 1986, there has been a period of economic transfer from a centrally planned management mechanism to a market oriented one. Alongside the socio-economic development of the whole country, the transport sector in general and the rural transport in particular, has made significant development strides including goods transportation, integrating the rural market into the national market and creating a base for economic development towards industrialization and modernization.

During 1980-97, 37,782 km of new roads were constructed, widened and their surfaces upgraded; and 26,748 bridges were constructed, improved and upgraded – a total length of 278,168 m (UNDP, 1998).

However, by December 1998, about 606 communes in Vietnam did not have the roads to the commune center. Almost all communes without a motorway to the center are located in high, mountainous, risky or offshore regions. As almost all rural roads were built by the people’s funds, they are too small and do not meet the quality standards of the Ministry of Transportation.

Road network and rural poverty

Remoteness is undoubtedly one reason for poverty. Table 1 shows how poverty is related to the lack of motorway in communities. In Table 1, the rate of poor households located in communities that have motorways to their centers is always lower than the rate of poor households located in communities that do not have any motorway to their centers. This is regardless of the poor household classification method (by overall poverty line or by food poverty line).

5.       Investment in Transportation Infrastructure

Vietnam possesses an extensive national road network despite the fact that over half the roads are in poor condition. Due to budget shortages in recent years, investment in road has not been sufficient. Therefore, roads have seriously deteriorated.

Apart from the shortage of investment in the road network, especially in maintenance works, rural road investment strategies at local level seem to be biased.

II.          OTHER KINDS OF RURAL INFRASTRUCTURE IN VIETNAM

This section is devoted to other kinds of infrastructure in Vietnam’s rural areas. Access to electricity, daily markets, social services such as education and health care will be considered in turn. We will try to show the relationship between access to these and some indicators representing the living standards of rural inhabitants. For every kind of infrastructure, the link to rural road network will also be examined briefly. In short, the purpose of this section is to examine how rural road network might affect rural living standards.

1.       Electricity Infrastructure

Due to geographic distribution of resources and the country’s long narrow shape, Vietnam’s power sector has a regional character. The system is dominated by hydropower in the North. Although the South has hydro capacity, it has also had to rely on diesel-fired generation. Vietnam electricity usage patterns are skewed in favor to the North where the share of electrified households is twice as high as other regions.

Rural electricity system

The relationship between access to electricity infrastructure and rural poverty are reported in Table 2 in detail. Table 2 reveals that no matter how are the poor classified (by overall poverty line or food poverty line), in rural areas or in the whole country, the rate of poor households located in the communities that do not have electricity is much higher.

Electricity and road infrastructures

How electricity reaches a location depends on many factors, among which an adequate road system is essential. In Figure 4, a high positive correlation between the rates of communes having motorway and the rates of communes having electricity or electric transformation station is found. This reinforces the importance of the road system in the establishment of rural electricity infrastructure.

2.       Market Infrastructure

The poor quality and quantity of rural market infrastructure have negatively affected production and circulation of goods and services. The chain of market mechanisms has lost a link where rural poor could gain much from making part in it. Information in Table 3 supports the notion that market infrastructure in Vietnam’s rural areas is highly important. Everywhere, especially in rural areas, rural poor have to travel much longer (6 km or 10 km poverty line classification) than rural non-poor (2 km or 3 km).

Daily market and road network

In Figure 5, again, the relationship between the rural road network and rural market infrastructure is found to be very close. Across regions, the rate of communes having motorway varies in close parallel with the rate of communes having daily market. And thus, no mater which (motorway or daily market) appears first, the presence of either motorway or daily market is a sign of higher living standards in Vietnam’s rural areas.

3.       Access to Social Service: Education

The lack of schools in rural areas suggests that rural children have to travel long distances to school. This in part causes an increase in the rate of school age children not going to school in Vietnam. In the survey (VLSS98) on 389 schools in which there are schools aged children who do not go to school, 27% of the schools said that the main reason for the situation was that: school was too far (see Table 4). And here is the importance of transport infrastructure with respect to levels of living, specifically to education indicator.

Rural school constructions and road network

Is there any relationship between rural education constructions and rural road network? Figure 6 suggest the answer. For secondary schools which generally need huge initial investment to build, the average number of schools per commune seem to vary in parallel with the rate of communes having motorway across regions except for Mekong River Delta where rural inhabitants mainly use waterway for travel and transport. This suggests that the presence of motorway in commune could play a major role in diffusing and enhancing knowledge among rural inhabitants through education constructions.

4.       Access to Social Service: Health Service

Rural health care establishments and road network

A way to improve the above situation is suggested in Figure 7. It is found that, across regions, the rate of communes having motorways is strongly and positively correlated with the rate of communes having clinic, and the average number of health care service units per commune. In other words, the higher the rate of communes having motorway, the higher the rate the rural inhabitants able to access social health care service.

Chapter Three 

Vietnam Rural Transport Infrastructure

and Rural Living Standards

This section attempts a detailed assessment of impact of the transport system on the income of households in Vietnam’s rural areas. The data set contains detailed information on rural household incomes and rural household abilities to access the transport system as well as other kinds of infrastructure. Besides household level, access to motorway, to market, to electricity and to agricultural extension center are considered as factors having effects on household income.

Although the information on access to all kinds of infrastructure does not vary amongst households in the same community or village, it does vary across communities and regions. For these reasons, it is possible to examine the impacts of access to such infrastructure on the livelihood in rural Vietnam.

I.             REGRESSION MODELS

1.       Determinants of Rural Household Incomes, Models

In attempting to answer the question raised above, this paper looks at the determinants of rural household income and the role played by access to infrastructure, especially transportation infrastructure. The presence of roads, which we will consider those that a car can travel on, or distance to roads, is among various factors which determine household incomes. To qualify the gains from investment in transport infrastructure this paper posits the logarithmic function giving the logarithm of rural-household income (lgin) conditional on a vector of prevailing output and input prices (p), logarithm of distance to road (lgditoro), or dummy for road (road) that exists in village where household is located, and a vector of other fixed factors capturing all the characteristics of household (z). Some other variables (h) representing the access to other kinds of infrastructure are also included as far as they are under control.

Output and variable input prices are assumed not to vary between regions, except for the North-West South which has many of the biggest commercial centers in Vietnam. Thus, this can be presented by a dummy variable (region7) in our log-linear model.

where d is a dummy variable for the North-West South region. The inclusion of this dummy variable is also intended to capture any spatial variations in other omitted or fixed factors. The error term in the models above is assumed to be independently and identically normally distributed. Table 5 lists the right hand-side variables and provides their description.

2.       Defining Variables

Explanatory variables aiming to capture the influence of household characteristics include household ownership over cultivated land area; domination of household’s productive activity (in farming or not); household size; gender of household head; age of household head; and schooling years of household head.

3.       Data Manipulation and Explanation of Their Appropriateness

As kinds of inputs such as capital and labor, household’s land and size play an important role in determining the household income. Their influence is expected to be positive.

The majority of Vietnam’s population earns their living through farming. Their incomes, therefore, heavily depend on weather conditions and land fertility. Some others take part in non-farm activities in the growing market where much higher incomes could be gained. Thus, the inclusion of this farm variable is aiming to isolate impacts of the field in which household’s main economic activities are taken on household incomes.

In Vietnam, especially in rural areas, many economic decisions at the household level are normally made by one person. Therefore, his or her age, sex and length of schooling which represent his or her experience, ability and knowledge, partly influence the family income indirectly through his or her decisions. Apart from sex, age and length of schooling of the household head tend to positively impact the household income.

Ele and agexce represent access of rural households to electricity and agricultural extension center. Such kinds of infrastructure will have major effects on household incomes in ‘marginal’ regions such as Vietnam’s poor rural areas. Their impact is normally expected positive.

Of course, the presence of ‘roads’ in communities, distance to ‘roads’ and to markets reflect the ability of households to access services provided by transport infrastructure. Although transport is not the aim of people, it provides a means to raise rural household incomes through economic activities of rural inhabitants. The easier the access to infrastructure, the more time rural inhabitants can save and devote to other profitable activities, and the greater the chance they have to diversify their production activities.

In some regions in Vietnam, people travel and transport goods mainly by road, and in some other regions, they use waterways. This depends on the geographical distribution characteristics of each region. Therefore waterways are considered a complementary transport infrastructure and represented by one variable in our regression model.

Because the North-West South region of Vietnam has many large economic and commercial centers, the dummy variable for household being located in this region should be involved to isolate the impacts of the difference in prices between regions and also capture other fixed factors differentiated by economic characteristics of this region.

A number of functional form specifications were tested including linear, semi-log, with and without quadratics in some variables. OLS is used on a regression sample consisting of all rural households (including farm and non-farm) for which the data are complete. Results are reported in Table 6.

 

4.       Running Regression

II.          INTERPRETATION AND EXPLANATION OF RESULTS

1.       Impacts of Transportation on Rural Household Incomes

Both regressions reveal that all the variables related to transport infrastructure are found to have significant impacts on household incomes, showing the importance of transportation in rural areas.

In the first regression with the main regressor lgditoro, the interpretation of the coefficient of this variable is applicable and has explanatory power in the case when the village where the household is located does not have road that a car can travel on. Then, 1-% increase in the distance to the nearest road will lead to 1.5-% decrease in the mean incomes of the households at the significance level of 2.7%. At the same time, if households in the village can access to waterway, their mean incomes will be increased by 44%. This implies that when villages do not have ‘road’, the presence of waterway convincingly explains the importance of transportation in rural areas.

The second regression will give a more clear and comprehensive analysis of the impacts of household’s access to the network of ‘road’ and waterway on rural household’s incomes, although it has less quantitative sense than the first one. The results are reported in Table 7.

It is should be noted that in Table 7 the comparison made is based on the benchmark case in which the village where households are located has neither ‘road’ nor waterway. In particular, households located in villages that have ‘road’ or waterway alone will have mean incomes (15.3% or 45.6% respectively) higher than those located in villages that have neither ‘road’ nor waterway.

2.       Other Findings

Despite the importance of roads, it would appear that having access to waterways, electricity, agricultural extension centers, and diversifying into non-farm activities are much more important for improving rural standards of living.

Chapter Four 

Conclusions and Policy Implications

I.             GENERAL CONCLUSIONS

Although local roads in rural areas 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. Therefore, improvements of rural transport infrastructure lead to income redistribution through providing basic education, nutrition, health, and access to employment and product markets for rural inhabitants. For farmers in general, improved rural transport can reduce production costs by lowering the delivered price of inputs, including capital and information by facilitating increased speed of know-how and technological diffusion. Reliable access to input and output markets can stimulate higher cash-crop farming production and more stable incomes, and enable the farmers to improve their management of risks.

II.          CONCLUSIONS FOR VIETNAM

Rural poverty is found to be negatively correlated to access to transport infrastructure. The rates of poor households in communes that have motorways to their centers are found lower than the rates of poor households in communes that have no motorways to their centers. Furthermore, on average, the poor have to travel more than the non-poor to the nearest motorway.

A high positive correlation is found between the rates of communes having motorway and the rates of communes having electricity or electric transformation station.

In Vietnam, the rate of school age children not going to school is increasing because they have to travel long distances to schools owing to the fact that there are very few schools in rural areas.

The higher the rate of communes having motorway, the higher the rate the rural inhabitants of these communes can access social health care service.

III.      POLICY IMPLICATIONS

In relation to poverty elimination program of the country in the coming years, transport development is an extremely important requirement that can not be overlooked. To raise living standards, especially in rural areas, it is necessary to build infrastructure in which the transport sector, together with the power, water supply, education sector, etc. must outstrip to create an early premise for the rural development. We should consider the followings:

§         Consolidation, upgrading and new construction of a number of national and provincial roads, the construction of new roads leading to important economic areas. Focusing on reconstruction, rehabilitation and the upgrading of some roads or some main sections which serve internal and external transportation. The remaining national roads, should receive repairs of some weak bridges and roads.

§         Paying attention to the construction and upgrading of roads linking communes and villages. A target should be set for the near future. That is 4-wheel vehicles can reach commune capitals or centers. This will be the foothold for urbanization of the country and the increase of goods production.

§         As for rural roads, special attention is to be paid to mountainous roads in the North, in Tay Nguyen Region and roads in the Mekong Delta where there are many canals: abolishment of mono-rod bridges; developing additional provincial road system especially the rural and mountainous ones, where traffic is not good, in order to serve the local development of economics, culture and defense security; trying to build roads to districts and villages where there are no motorways yet, increasing the rate of bitumen paved provincial roads in the near future.

§         Along with the development and strength of the road system, focus on appropriate investment for road management and maintenance. Project selection should have adequate consideration with regard to the poor. Mobilize more capital from the private sector and let the inhabitants participate in the decision making process on investment in transport infrastructure.

§         The labor-based methods, which save the cost of road works and create jobs in rural areas, should be used in construction or rehabilitation of rural transport infrastructure. There will be other benefits including savings on foreign exchange, injection of cash into the local economy, and transfer of knowledge.