Micro Entrepreneurship in Rural Vietnam. A Multilevel Analysis of Business Start-Up and Closure

Abstract

Since the beginning of the economic renewal process (Doi Moi) in 1986, Vietnam has undergone a process of economic growth, which has led to a significant reduction in poverty. This positive development process, however, focuses mainly on the urban centers with Hanoi in the north and Ho Chi Minh City in the south of the country. In contrast to the urban centers, rural areas have developed less dynamically. As a result, regional disparities within the country, particularly between rural and urban regions, have increased over time. In order to reduce the growing disparities, the Vietnamese government is trying to initiate potential for regional development in rural areas. In this context, micro entrepreneurship is considered to play a significant role in the economic development of rural areas as well as in the reduction of the vulnerability to poverty of rural households. The aim of this dissertation is to empirically analyze the regional economic conditions under which participation in micro entrepreneurship reduces the vulnerability to poverty of rural households. In addition, this dissertation aims to determine the impact of spatial factors on the start-up and closure of micro enterprises. For the empirical analyses a panel data set is used, which was collected in three provinces in rural Vietnam (Dak Lak, Thua Thien-Hue, Ha Tinh) in the course of the DFG Research Unit FOR 756 from 2007 to 2013. The empirical findings show that micro entrepreneurship contributes significantly to reducing the vulnerability to poverty of rural households, but only if they are located in a regional economic environment characterized by proximity to markets, good infrastructural conditions and an advanced stage of structural change. In economically less well developed regions, micro entrepreneurship is not sufficient to reduce the vulnerability to poverty of rural households. In such regions, what matters more is that micro entrepreneurship is driven by opportunity and not by necessity. In highly agricultural and peripheral regions, micro entrepreneurship does not reduce the vulnerability to poverty of rural households, irrespective of the motivation. In addition, the empirical results show that both the start-up and the closure of micro enterprises are influenced by spatial factors to a significant degree. In this respect, local market potentials, the presence of state-owned enterprises, access to regional markets and credit institutions, as well as a prospering regional economy are important factors