Language, Mixed Communes, and Infrastructure: Sources of Inequality and Ethnic Minorities in Vietnam HOA-THI-MINH NGUYEN a , TOM KOMPAS b,c , TREVOR BREUSCH a and MICHAEL B. WARD d,* a Crawford School of Public Policy, Australian National University, Canberra, Australia b Australian Centre for Biosecurity and Environmental Economics, Crawford School of Public Policy, Australian National University, Canberra, Australia c Centre of Excellence in Biosecurity Risk Analysis, University of Melbourne, Melbourne, Australia d Department of Economics, Monash Business School, Monash University, Melbourne, Australia Summary. — This paper re-examines the sources of inequality in Vietnam, a transitional economy with large reductions in poverty from recent and dramatic economic growth, but vastly unequal gains across ethnic groups. Using a decomposition approach to disentangle factor endowments and returns by ethnic group, we draw four key conclusions. First, removing language barriers would significantly reduce inequality among ethnic groups, narrowing the ethnic gap, and especially so through enhancing the gains earned by minorities from education. Second, variations in returns to education exist in favor of the majority in mixed communes, suggesting that either the special needs of minority children have not been adequately addressed in the classroom, or unequal treatment in favor of the majority exists in the labor market. Third, in contrast to recent literature, there is no difference in the benefits drawn from enhanced infrastructure at the commune level across ethnic groups. Finally, we find little evidence to support the established views that the ethnic gap is attrib- uted largely to differences in the returns to endowments. Overall, our research highlights the importance of considering language barriers and the availability of infrastructure for ethnic inequality. Ó 2017 Elsevier Ltd. All rights reserved. Key words — ethnic inequality, language, infrastructure, education, rural development, Vietnam, Asia 1. INTRODUCTION Inequality in wealth and income is often the source of ten- sion between large disenfranchised groups of relatively poor minorities and the majority population. Failure to address this inequality may lead to ethnic conflict, resulting in poor eco- nomic performance and political instability (Easterly & Levine, 1997). Although ethnic inequality is not a characteris- tic of transitional economies alone, such concerns tend to pre- dominate in these countries due to high but unequally shared growth in incomes, substantial differences in initial endow- ments and dramatically changing institutions and economic conditions that often quickly leave the poor behind. Vietnam offers a useful case study in this regard. In the tran- sition to a market-based economy, Vietnam has experienced remarkable success in economic growth and poverty reduc- tion. GDP per capita in 2008, for example, was three times lar- ger than that in 1986, when Vietnam first made a landmark commitment to economic reform (General Statistic Office, 2000, 2009). Between 1993, when the first household expendi- ture survey was conducted, and 2006, the poverty rate among the population as a whole fell from 58% to 16%. Nonetheless, the gains from growth have not been shared proportionately among different groups of people. For exam- ple, while the poverty rate of the Kinh and Chinese (defined as the ‘‘majority” in this paper) fell from 54% in 1993 to 10% in 2006, for other ethnic minorities as a whole (defined as the ‘‘minority”), it decreased more modestly, from 86% to 52% over the same period of time (World Bank, 2007). Moreover, in 2006, the minority group accounted for 44% of the poor and 59% of those classified as ‘‘hungry” in Vietnam, despite repre- senting only 14% of the country’s population (World Bank, 2007). The gap in expenditure between the two groups has also widened over time (Baulch, Nguyen, Nguyen, & Pham, 2010; Baulch, Pham, & Reilly, 2012). The Government of Vietnam has a number of policies and programs in place to help the minority group. These policies and programs are based on two approaches, those that target communes and those that target households. As an example of the former, Program 135 largely finances local infrastructure improvement (e.g., the provision of roads, power, and water) in communes faced with extreme difficulties, often in remote and mountainous areas with large minority populations. For the latter, the Hunger Eradication and Poverty Reduction Program (HEPR), targets poor households (largely the minor- ity), by providing access to credit, exemption from education fees, and support for health care, among other benefits. In spite of these policies and programs, progress in raising the liv- ing standard of the minority has been much slower than that for the majority. This paper examines what drives the gap in the living stan- dard between the majority and minority groups, measured by differences in household expenditures per person. In particu- lar, we investigate the role of language barriers 1 and how they may hinder minority households from taking advantage of their acquired skills and attributes; whether commune infrastructure, a key instrument used by the Vietnamese Government to narrow the ethnic gap, works for or against * Special thanks to Martin Rama for helpful discussions on earlier versions of this work and on ethnic inequality in Vietnam in general. Comments and advice from reviewers, Henrik Hansen, Dung Doan, Yuk Chu Liu, Nguyen Thang and seminar participants at the Crawford School of Public Policy, the 2nd Vietnam Economics Workshop at the Australian National University, the 8th Australasian Development Economics Workshop at Monash University, and the 12th Econometric Society Australasian Meetings in Melbourne are greatly appreciated. Final revision accepted: March 5, 2017. World Development Vol. xx, pp. xxx–xxx, 2017 0305-750X/Ó 2017 Elsevier Ltd. All rights reserved. www.elsevier.com/locate/worlddev http://dx.doi.org/10.1016/j.worlddev.2017.03.004 1 Please cite this article in press as: Nguyen, H. -T. M. et al. Language, Mixed Communes, and Infrastructure: Sources of Inequality and Ethnic Minorities in Vietnam, World Development (2017), http://dx.doi.org/10.1016/j.worlddev.2017.03.004