Title

The Ethnic Chinese and Economic Development in Vietnam: an Instrumental Variable Approach

Publication Date

April 2016

Advisor(s)

Masami Imai

Major

Economics (ECON)

Language

English (United States)

Abstract

Does the presence of the ethnic Chinese in Vietnam have positive impacts on the economic development of the country? The existing literature to date suggests that the ethnic Chinese abroad do play important roles in boosting Foreign Direct Investment (FDI), trade, and economic growth in host countries. However, all of these papers are country-level studies and do not deal with the possibility that the locational choice of the ethnic Chinese is endogenous to the underlying economic environment (e.g., they may gravitate toward more developed areas). In addition, past and present literature on the ethnic Chinese in Vietnam are mostly historical narratives with minimal use of data. This paper carries out a province-level study to empirically explore the economic roles of the ethnic Chinese in Vietnamese provinces in the contest of post-war development. In order to address the endogeneity of the geographical distribution of this ethnic group, we note an important historical episode that, between 1978 and 1981, the Vietnamese Communist Party’s policies to transform the South Vietnam to a centrally planned economy and the deterioration in Sino-Vietnamese diplomatic relationship caused a disproportionately large number of the ethnic Chinese population to seek a safe haven in the refugee camp in Guangxi province of China and elsewhere. We exploit this mass outflow of the Chinese population in constructing instrumental variables to extract the exogenous variation in the share of Chinese population across provinces. In the first stage regression, we find that, ceteris paribus, southern provinces had smaller share of Chinese population in 1989 than northern provinces, and more importantly, that the difference was large when the share of Chinese population was large to begin a decade earlier. We also find that, ceteris paribus, provinces located closer to the refugee camps for the ethnic Chinese tend to have smaller share of Chinese population in 1989, and again that the proximity to the refugee camp seems to be more important for provinces which had a larger presence of the ethnic Chinese population in 1979. These results are consistent with historical accounts. In the second stage instrumental variable regression, we find robust positive correlations between the 1989 share of ethnic Chinese population, which we instrument with the interaction of a dummy for south to the pre-exodus share of Chinese population and the interaction of distance to refugee camp to the pre-exodus share of Chinese population, and indicators of economic performance such as per capita Gross Domestic Product (GDP), per capita non-state industrial productions, share of workforce working in state-sector, and population density. We also find robust negative correlation between the (instrumented) share of ethnic Chinese and share of population living in poverty. These results confirm the findings of the literature on the economic roles of the ethnic Chinese abroad. In addition, these effects seem to persist to date, suggesting that the historical shocks that negatively affected some of the regional economies in Vietnam in the 1970s and 1980s have had long term negative impacts even after the decades of the market reform.

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