Trade Liberalization and Income Distribution in Vietnam: Dynamic CGE Approach*

Abstract

This study examines the influence of trade liberalization on income distribution among different household groups in Vietnam using the dynamic computable general equilibrium (CGE) framework. To accomplish this objective, we developed a multi-sector, multi-household dynamic CGE model and the corresponding social accounting matrix for Vietnam. Our simulation results show that in the long run, all household groups can enjoy an improvement in their welfare because the increase in the budget for consumption of all groups is large enough to outweigh the negative effect of changes in consumption prices. We also find that while trade liberalization is positively associated with economic growth and national welfare, it also increases the income disparities between rich and poor households, between rural and urban areas, and among rural people as well as among urban people.