Working Paper: CEPR ID: DP7918
Authors: Huong Thu Le; Alison L. Booth
Abstract: Using data from five waves of the Vietnam Household Living Standard Survey, we find evidence of significant urban-rural expenditure inequality. Urban-rural inequality increased dramatically from 1993 to 1998, and peaked in 2002 before reducing slightly in 2004, and significantly in 2006. The urban-rural gap also monotonically increases across the expenditure distribution. We use a variant of the Oaxaca-Blinder decomposition method, applied to the unconditional quantile regression method of Firpo, Fortin and Lemieux (2009), to explain the components of the per capita expenditure differentials between urban and rural households at selected quantiles of the distribution. We also compare these estimates with those at mean obtained by OLS. Our results show a number of factors contributing significantly to the high urban-rural gap. These include inter-group differences in education, household demographic structure, industrial structure and their related returns. Adjusting the average characteristics of rural households to those of urban households will reduce about a half of the overall urban-rural expenditure gap. A significant part of the remaining unexplained component lies in the intercept differences; that is, the inter-group differences in other factors not captured in the model that favor urban households.
Keywords: Oaxaca decomposition; unconditional quantile regression; urban-rural inequality; Vietnam
JEL Codes: C13; O18; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| urban-rural expenditure inequality (R12) | increased dramatically from 1993 to 1998 (N12) |
| urban-rural expenditure inequality (R12) | peaked in 2002 (L97) |
| urban-rural expenditure inequality (R12) | reduced slightly in 2004 (F69) |
| urban-rural expenditure inequality (R12) | significantly reduced in 2006 (C42) |
| average characteristics of rural households adjusted to urban households (R29) | reduce about half of the overall urban-rural expenditure gap (R29) |
| intergroup differences in education (I24) | significantly contribute to the high urban-rural gap (R11) |
| urban-rural difference in education (I24) | increasingly important in explaining the urban-rural expenditure gap (R11) |
| average increase of schooling for urban heads (I24) | contributes significantly to the increase in urban expenditure (H76) |