MSc graduate Nguyen Viet Cuong wanted to study how wealth can be distributed more equally in his poor home country Vietnam. His clearly written MSc thesis on this subject won him the Van der Plas thesis prize of 700 euro. He was awarded the prize after the MSc graduation ceremony last Monday 28 January.
Nguyen Viet Cuong explains that two different views exist on the relation between economic growth and income inequality. The first, mainstream view from the 1960s onwards, is that more inequality produces greater economic growth. Growth needs investment, and it is the rich that are capable of doing this. If wealth is equally distributed, less investment and less growth can be expected. This is a supply-driven approach. More recent studies, however, have shown that there is no positive relation between growth and inequality, Viet Cuong relates. A demand-driven approach is gaining weight. According to this way of thinking, economic growth is stimulated by more consumer spending. If a country's wealth is distributed more equally, more consumers will be capable of buying goods, thus promoting economic growth.
The government of Vietnam, Viet Cuong says, is aiming at the latter approach. Though that is a good thing, the government's policy of 'growth with equity' has only been partially successful. Income distribution is more equal than for example in China and Thailand. The poor are getting a share of economic growth, but the rich are still benefiting relatively more. Viet Cuong researched why that is, and found that especially poor ethnic groups in mountainous rural regions are lagging behind. People there depend on agriculture for their livelihood, but productivity is low. Infrastructure and education is poor in these regions, also due to the scattered population which makes the return on investment less high than in the cities. Migration to the cities is among the solutions that Viet Cuong proposes in his thesis. However, the former communist state-owned industry in urban areas is mostly capital intensive and not labour intensive, so there are not enough jobs for all.
Since most economists now agree that economic growth does not automatically reduce poverty, the government has an important role to play, says Viet Cuong. Its policies should redistribute wealth, reduce poverty and develop agriculture in regions that are lagging behind. Viet Cuong himself wants to continue research on this topic. "If I get a chance, I want to do PhD research on how to stimulate equality and development of the poor."