Essays on vulnerability, finance and livelihoods of rural households in Southeast Asia

Abstract

Located in Southeast Asia, one of the world’s most dynamic economic regions in recent decades, Cambodia, Laos, Thailand, and Vietnam are experiencing significant economic growth and remarkable achievements in poverty reduction. However, these countries are still suffering from several challenges such as growing inequality, decreasing growth in agricultural productivity, and natural resource degradation. Besides, rural households in these countries, whose income largely depends on agricultural production and natural resource extraction, are highly exposed to different types of shocks such as weather shocks, market instability, or illnesses. As social insurance mechanisms in these countries are still underdeveloped, the occurrence of shocks might cause severe impacts on households’ welfare and livelihoods, potentially trapping them in the vicious cycles of poverty and food insecurity. Therefore, improved insights into household vulnerability and resilience to shocks is essential to provide useful information for policymakers and practitioners to design effective programs for protecting the vulnerable population. Credit is an important source of finance for households as it relieves financial constraints, which prevent them from accessing markets, technologies or fulfilling their urgent needs for production and consumption during the time of hardships. However, empirical evidence on the impact of credit on household welfare, on inequality, and their role in mitigating the impact of shocks remains ambiguous. On the one hand, some studies show that access to credit could significantly boost labor productivity, enhance household welfare and reduce poverty. It also encourages risk-averse farmers to expand their production activities and to pursue productive livelihood strategies. On the other hand, credit may cause households to fall into over-indebtedness or default, consequently undermining their well-being. Furthermore, growing inequality and social instability are possible unintended consequences if benefits from the credit market are not proportionately distributed. Based on household-level datasets, this thesis is composed of four research papers, aiming to (i) assess household vulnerability and resilience to shocks by examining the impact of shocks on different household well-being indicators and shock-coping strategies, (ii) investigate the role of credit in mitigating negative impacts of shocks, and its effects on household well-being and inequality, and to (iii) analyze the interrelationship between vulnerability context, livelihood assets, and outcomes of agricultural production and natural resource extraction. The first paper on “Multiple shocks and household coping strategies in rural Cambodia” aims to analyze the impact of shocks on household consumption and education expenditure and to examine how households respond to shocks. The results show that households are less protected against covariate shocks, particularly floods, droughts, and livestock diseases. Floods negatively affect total household consumption and food consumption. Similarly, livestock diseases cause a decline in household education expenditure. They force households to cope by selling durable assets and extracting natural resources. Although droughts do not significantly affect household consumption, these shocks push households into sending their children to work, selling durable assets or extracting natural resources. In contrast, health shocks do not appear to have significant and negative effects on household consumption. In response to this type of shock, households tend to use risk-sharing strategies such as borrowing and receiving assistance from friends and relatives. In addition to shocks, some household and village characteristics also have significant effects on household shock-coping strategies. The likelihood of using child labor is positively associated with household size and age of household head. Households with larger household sizes and living far from markets are more likely to sell durable assets to cope with shocks. Households are less likely to extract natural resources if they have a lower share of male adults and a higher share of old members and non-farm occupations. Living in a village with better socioeconomic conditions also discourages households to participate in natural resource extraction. Ethnic minority households with older household heads and higher shares of old members are less likely to have access to credit. Meanwhile, households with a larger share of old members tend to receive more assistance from friends and relatives in response to shocks. The second paper on “Credit and Ethnic Consumption Inequality in the Central Highland of Vietnam” aims to investigate the differences in access to credit and its impact on household consumption and consumption inequality between ethnic groups. Results show that households from the indigenous ethnic minority group face more disadvantages in accessing formal credit and rely more on informal credit than those from the ethnic majority. They also face a higher collateral ratio and the amount of formal loans they could access is lower. The impact of formal credit on the consumption of the majority is also higher than that of the indigenous minority, consequently causing a significant increase in consumption inequality between the ethnic groups. Our findings call for assistance programs to support indigenous households to improve their access to formal credit as well as to enhance the effectiveness of these loans. The third paper on “Shocks, Credit and Production Efficiency of Rice Farmers in Vietnam” aims to (i) investigate the impact of credit and shocks on rice production efficiency, and to (ii) examine the role of credit in mitigating the impact of shocks. Results show that weather shocks, land fragmentation, and the migration of household members are the major sources of inefficiency. Meanwhile, livestock, farm mechanization, and education are positively affecting rice production efficiency. The findings also indicate that access to credit plays a significant role in mitigating the negative impact of weather shocks. More assistance and support to farmers in mitigating the severe effect of weather shocks, in particular, via the promotion of rural credit markets is suggested. In addition, encouraging farm mechanization, land defragmentation, livestock farming, and the improvement of rural education should be given a high priority to improve rice production efficiency. The fourth paper is on “Shocks, Agricultural Productivity and Natural Resource Extraction in Southeast Asia”. It is conducted in four Southeast Asian countries, including Cambodia, Laos, Thailand and Vietnam. The objective of this paper is to investigate the impact of agricultural productivity and shocks on natural resource extraction by rural households. Findings show that weather shocks and market shocks are among the factors that significantly push households to extract more natural resources and enhancing agricultural productivity could discourage natural resource extraction. In addition, it shows that household education, the availability of enterprises, and access to electricity in the village are negatively associated with natural resource extraction. It is recommended that measures for enhancing agricultural productivity be prioritized and more assistance and support to farmers for mitigating the severe effect of weather shocks and market shocks be provided. Furthermore, promoting rural education, accelerating rural electrification, and supporting the development of local enterprises should also be implemented.