Climate change and income diversification in the mekong river delta, a panel data analysis

INSTITUTE OF SOCIAL STUDIESTHE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS CLIMATE CHANGE AND INCOME DIVERSIFICATION IN THE MEKONG RIVER DELTA:

CLIMATE CHANGE AND INCOME

DIVERSIFICATION IN THE MEKONG RIVER

DELTA: A PANEL DATA ANALYSIS

BY

NGUYEN THI TUYET NGA

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, December 2016 UNIVERSITY OF

ECONOMICS HO

CHIMINHCITY VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

CLIMATE CHANGE AND INCOME

DIVERSIFICATION IN THE MEKONG RIVER

DELTA: A PANEL DATA ANALYSIS

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

I would first like to thank my thesis supervisorDr Pham Khanh Nam of the Vietnam –The Netherlands Programme (VNP) at Ho Chi Minh City University of Economics Heconsistently allowed this paper to be my own work, but steered me in the right directionwhenever he thought I needed it

I would like to express my gratitude to the VNP officers who were involved inmythesis processby updating thesis schedule and providing good conditions for myresearch process Without their passionate participation, the thesis process could not havebeen successfully conducted

Finally, thanks are also due to my classmates for providing me with unfailing supportand continuous encouragement throughout my years of study and through the process ofresearching and writing this thesis This accomplishment would not have been possiblewithout them Thank you

Nguyen ThiTuyetNga

Ho Chi Minh City, December 2016

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The main objective of this study is to analyze the impact of climate change and othersocio – economic determinants on the income diversification strategy in Mekong RiverDelta The data set is drawn from the VHLSS 2010,2012 and 2014, while climatic dataincluding temperature and precipitation are extracted from the statistics website of TheMinistry of Agriculture and Rural Development (MARD) Salinity data is collected fromthe Vietnam Institute of Meteorology, Hydrology and Climate Change.Findings of thestudy show that farmers have tendency to diversify their activities to reduce risk of cropsfailure when there is increasing temperature in dry season and precipitation in wet season.However, it is recognized that those relationships are non-linear Diversification behavior

is discovered not to be sensitive with the salinity intrusion and other climate variables.Regarding socio-economic determinants, the household labor ratio and land area holdingare found to be positively correlated with the income diversification, while educationalqualification has the negative effect A male household head would more likely todiversify their activities to disperse risk of climate change than female head From thisresult, many policies are recommended in order to support farmers to access an effectivediversification strategy, helping them to response actively to climate changeconsequences

TABLE OF CONTENT

Acknowledgement i

Abstract ii

Table of content iii

List of tables v

List of figures vi

1 Introduction 1

1.1 Research problem 1

1.2 Research objective 3

1.3 Research scope 3

1.4 Thesis structure 3

2 Literature review 4

2.1 Theoretical review 4

2.1.1 Climate change 4

2.1.2 Impact of climate change 4

2.1.3 Adaptation of people to climate change 5

2.1.4 Income diversification 7

2.1.4.1 Definition and classification of income diversification 7

2.1.4.2 Motivations of income diversification 8

2.1.4.3 Income diversification measurements 9

2.2 Empirical review 10

2.2.1 Impact of temperature and precipitation variation 10

2.2.2 Impact of high salinity intrusion to income diversification 12

2.2.3 Impact of socio-economic characteristics on income diversification 14

3 Research methodology 16

3.1 Analytical framework 16

3.2 Methodology 17

3.2.1 Income diversification index 17

3.2.2 Model specification 18

3.2.3 Variable description 20

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3.3 Data sources 24

3.4 Salinity measurement 26

4 Result and discussion 28

4.1 Overview of the Mekong River Delta 28

4.1.1 Geographical position and natural conditions 28

4.1.2 Socio – economic conditions 28

4.1.3 Impact of climate change on the Mekong River Delta 29

4.2 Salinity intrusion in the Mekong River Delta 31

4.3 Descriptive statistics of variables 34

4.3.1 Dependent variable 34

4.3.2 Independent variables 35

4.4 Empirical results 41

4.4.1 Findings of the Poisson model 41

4.4.2 Findings of the Tobit model 44

4.4.3 Interpretation 45

5 Conclusion 50

5.1Conclusion 50

5.2Policy implications 51

5.3Research limitations and research directions 52

Reference 53

Appendix 57

LIST OF TABLES

Table 3.1.Variable description 21Table 4.1.Descriptive statistics 34Table 4.2.Results of the panel Poisson model and panel Tobit model 42

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LIST OF FIGURES

Figure 3.1.Analytical framework 16

Figure 3.2.Salinity stations in Mekong River Delta 27

Figure 4.1.GDP share per sector in Mekong River Delta 29

Figure 4.2.Regional Division of Mekong River Delta 31

Figure 4.3.The salinity intrusion map of Mekong River Delta 32

Figure 4.4.Income shares of households in Mekong River Delta 35

Figure 4.5.Precipitation in Mekong River Delta 37

Figure 4.6.Temperature in Mekong River Delta 38

Figure 4.7.Salinity at stations in Long An and Ca Mau – Bac Lieu 40

Figure 4.8.Marginal effect of precipitation in wet season 44

Figure 4.9.Marginal effect of temperature in dry season 45

Figure A.1.Salinity at stations in Mekong River Delta 59

CHAPTER 1: INTRODUCTION

1.1 Research problem

Climate change has been the most controversial issue in the world due to its significantimpacts on many aspects of society and economy in which agriculture is the most vulnerablesector The variationof climate conditions is reflected through temperature rising, abnormalprecipitation, droughts, or floods Thoseare the main reasons for insects, diseases, and cropfailures (Zerihun, 2012) Climate change is generally harmful for crop production, butindeed, the impact is much diversified (IPCC, 2014).Specifically, higher temperatureshortens the growing period of rice, leading to rice yield reduction; however, in some studythe increased CO2 from the pollution has supported the photosynthesis process of some cropssuch as maize and wheatresulting in a better productivity of cereals In Japan, the increase of

1oC in the 20th century has resulted in the drop of wheat, vegetables, milk, and eggproduction In Russia, the potential production of major crops is acknowledged to fallby 50%

on average due to the climate change.On the other side, climate change does notgive identicaleffects on agriculture sector in different areas in the world due to alternative naturalconditions and specific socio-economic characteristics of each region All demographicproperties and adaptive solutions of people in an area are the main factors, which determinedthe vulnerability to climate change.In spite of diversified impacts,it is undeniable that climatechange has severely affected food security all over the world

Being the second biggestrice exporter in the world just after Thailand, Vietnam has 90%

of exported production derived from the Mekong River Delta Located nearby the finalbranches of Mekong River before converging into the ocean, Mekong River Delta is the widefertile area, which is appropriatefor rice paddy cultivation and is known as the biggest ricegranary in Vietnam However, in recent years, Mekong River Deltaisseriously exposed tothreat of climate change, which is clearly shown in high saline intrusion in coastal areas,droughts, and the shortage of fresh water in dry season, resulting in the restriction of arableland.In particular, according to the projected climate scenario in 2100 of the Ministry ofAgriculture and Rural Development, if the sea level risesby 1meter, an approximate of 40%arable land could be sunk in salt water The yield shortfall has significantly caused the

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income loss for farmers, theincrease of poverty, and the social insecurity at the same time.However,overcoming all difficulties of natural conditions, Mekong River Delta still keeps astable development rate of production.

In order to deal with environmental challenge, farmers have applied many solutions toadapt with climate change and improve their lives In those solutions, income diversification

is considered as an effective response to climate change (Smit et al., 2000; Bryan et al.,2011).Specifically, income diversification helps farmers to reduce the risk of crop failureandincrease household’s total revenue (Zerihun, 2012;Haiwang et al., 2015).Incomediversification process is understood as the way in which farmers participate inmanyactivities to generate incomefor their households For example, household’s incomesources could stem fromgrowing varieties of rice, fruits and other cereals; livestock breeding;aquaculture rearing; or non-farm activities Although income diversification is observed invarious levels, researchers still concern aboutthe drivers of income diversification Severalstudies suggested that drivers are temperature, drought, salinity,price change, andinstitutional change Understanding separate channels that lead to the farmer’s behavior ondiversifying income is important since it allows policy makers to know what to focus on intheir policies for farmers Moreover, drivers of income diversification in the Mekong RiverDelta could be different from other areas and in the world where evidences could befound.Specific evidences for the Mekong River Delta are what policy makers need

In Vietnam, income diversification process, which is considered as an effort to reducethethreatens of climate change, is favorablyrecommended for farmers by VietnameseGovernment.Besides,Government policies also relate to the improvement of physicalinfrastructure, financial subsidy, and the openness of agriculture market However, bothuncertainties about determinants of income diversification and the response of farmers toclimate changecould lead to the inefficiency or less efficiency of Government supportingpolicies Therefore, a research of climate change and income diversification couldproducereliable and sustainable evidences for policy makers about the impact of climatechange on income diversification Based on those empirical findings, policy makers couldimplement policies, which are more efficient to support farmers in income diversificationprocess

1.2 Research objective

The main objective of this study is to analyze the impact of climate change on the degree ofincomediversification Climate change is reflected by the variation of temperature,precipitation, and salinity intrusionin both dry season and wet season.Besides, other socio-economic characteristicsare also investigated to clarify the responses of different households

in term of income diversification behavior

Relying on the empirical findings, this study helps policy makersto understandhowfarmers diversify their income, the reliable determinants of income diversification, and thebehavior of farmers with different socio-economic characteristics to climate change throughincome diversification Then, policy makers could design current and futurepolicies that aremore appropriate for farmers Those policies could reduce the potential risks of a specificconventional agricultural activity due to harmful effect of climate change, maintain andimprove the living standard of farmers

1.3 Research scope

This study employs apanel data analysis for 362 households in the Mekong River Delta ofVietnam, which is a coastal areaseverelyaffected by the climate change Most of householdsparticipate in the agricultural activities, which are the most vulnerable sectors The time spanfor the study is the period2010 – 2014 whichdraws an overall picture of the impact of climatechange and other socio-economicfactors on the income diversification, a common andeffective approach of adaptation

1.4 Thesis structure

The remaining of this study includes four chapters.Chapter 2 concentrates on theoretical andempirical reviews from previous studies.Chapter 3 gives analytical framework of the studyinterm of empirical model and variable description Chapter 4 shows us the data descriptionand givesempirical findings of the impact of climate change and other socio-economicdeterminants on income diversification behaviors in Mekong River Delta Finally, chapter 5summarizes the main findings of research paper, suggests policy recommendations, figuresout research limitations, and gives several further research directions

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CHAPTER 2:LITERATURE REVIEW

The chapter starts with the review of relevant issues on climate change, including theconcept, the impact and the response of people to climate change Then, the chapter provides

a brief theory on the motivations of income diversification, an effective adaptation behavior

to climate change and approaches to measure diversification degree An overview ofempirical researches contributes to the construction of a framework for estimating the impact

of climate change and other determinants on income diversification

2.1 Theoretical review

2.1.1 Climate change

Climate change is defined as: “A change in the state of the climate that can be identified bychanges in the mean and/or the variability of its properties, and that persists for an extendedperiod, typically decades or longer It refers to any change in climate over time, whether due

to natural variability or as a result of human activity”(IPCC,2007).That definition has a littledifference from the explanation of the United Nations Framework Convention on ClimateChange (UNFCCC) onclimate change: “A change of climate that is attributed directly orindirectly to human activity that alters the composition of the global atmosphere and that is inaddition to natural climate variability observed over comparable time periods”(UNFCCC,1992)

Following the definition, climate change could originate from natural changes of globalclimate such as the change of the Earth’s orbit, the ability to receive energy from sun, andvolcanic eruption However, the rapid warming of the Earth in recent decades could notflame only for the natural activities, but human activity is likely to be the main reason In thefourth report of IPCC, scientists demonstrated that human activities are responsible for over

90 percent possibility of the greenhouse effect intensification, a phenomenon that long-livedgases absorb heat radiated from the earth to space, making the earth surface warmer

2.1.2 Impact of climate change

The increase of greenhouse gas emission has produced harsh effects to the climate, makingthe climate change become more and more severe Climate change intensifies potential

diversifiesvia its unequal magnitude for different areas, and depends on vulnerability,sensitivity, and adaptation capacity of affected zones to climate change.

First, the temperature increase makes the atmosphere becomehotter and more unpleasant,and promotes the evaporation and precipitation Glaciers and ice in the oceans areremarkably meltedwhen the oceans water becomes warmer, making the sea level riseconstantly around the world As a result, storms and floods happen more frequently andintensely The dry and hot weather in some regions has led to an increase of violent forestfires and wildfires over recent decades, destroying the fresh atmosphere and threateninghabitats and lives

At the end of the 21st century, the average temperature increases by about 1.9 – 3.4oC, theglobal precipitation increases by 3.3 – 5.0%, and the sea level risesby over 18 – 24 cm incomparison with those of the 1990s (IPCC,2013) The climate change has been the reason formany long-lasting changes in the structure of the Earth surface and the remarkable, pervasivechange of the ecosystem in both continents and oceansall over the world The water reserve

is harmfully influenced in term of both quantity and quality In detail, fresh water shortagebecomes more hazardous, and high saline water gradually encroaches to the interior field.Agriculture sector is heavily affected in both cultivation and animal husbandry, for example,cropfailure rises due to drought, insects, diseases and salinity intrusion, soildegradation;increase of cattle dead is caused by droughts or floods

2.1.3 Adaptation of people to climate change

Agricultural system is the combination of biological, physical and chemical agents, whileclimate plays a key part in influencing all three above processes.The vulnerability of theagricultural sector is determined not only by harmful effects of climate change but also bythe adaptive capacity taken by people to overcome difficulties(Marshallet al.,2010)

Parry et al.(2007) gave a definition for “adaptation to climate change”as the “adjustment

in natural orhuman systems in response to actual or expected climatic stimuli or their effects,whichmoderates harm or exploits beneficial opportunities” (IPCC, 2007).Adaptation andmitigation areusually considered as the same, but in fact, they are just similar in thepurposeaspect Mitigation is the practice to reduce emissions of greenhouse gases, whileadaptation is the response to climate change by exploiting new opportunities resulting from

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climate variation According to Mastrandreaet al (2010), adaptationcould reduce thesensitivity and vulnerability of a society to the impacts of climate change.

In agriculture sector, key drivers which determine adaptive behaviors consist ofawareness and preferences of farmers (Godfray et al., 2010), the experience to cope with theinfluences of climate change (Parry et al., 2007; Spies et al., 2011), market signals andgovernment policies (Preston et al., 2011) Besides, inventions and innovations fromresearches contribute to the determination of adaptation investments because they proposenew and effective solutions.The harmonization of those drivers would promote the efficiency

of the adaptation solution and facilitate the optimal measure to response to climatevariability.One of the most important factors, which affects the adaptation method decision,

is the assessment of the costs and benefits achieved from the adaptation response Thecomplicated happening of the climate scenario and the tentative performance of the adaptiveprocess make it difficult to measure the economic effectiveness of the adaptive typology.Researchers proposed that the adjustment action would be more efficient if it is taken at largescale (Adger et al., 2007)

Adaptation behaviors are categorized by multi-dimensional aspects such as space or timespan, intentionality (active or non-active behaviors), specific purpose (to adjust or reducesusceptibility), the performer (individual, household, enterprise or government), the outcome(increase heat tolerance or remain income), or approach(physical or technological measure).Adaptation behaviors could also be the combination of many abovementioned attributes(Smit

et al., 2002; Adger et al.,2007).Because of the complex and ambiguous happenings of climatechange, adaptation solutions should be taken at multiple dimensions, requiring thecollaboration of many participants including farmers, researchers and policy makers

The vulnerability of the agricultural system strongly depends on human behaviors toadjust with the climate change Therefore, the mission to improve the adaptive capacity ofagriculture is very necessary to intense the resilience of the system This process isimplemented through improving the awareness of socio-economic and biologicaldeterminants of the adaptive capacity, evaluating the costs and benefits of the response,assessing the social and technological feasibility and resource limitation All the adaptationstrategies focus on the objective of developing a sustainable agriculture economy

The designation of a typology of adaptation strategies is rather complicated due to thedynamic and complex relationship between the climate change, the agricultural system andthe limitation of natural resources The typology of adaptation behaviors is describedobviously in the case of Smit et al (2002), in order to response to the variability of climateconditions The rising of seasonal temperature and reducing precipitation are determined asthe key drivers of adaptive strategies In term of farm production, farmers are encouraged toswitch cultivars, change planting dates, use drought resistant crops, and build irrigationsystem In the aspect of financial management, economists suggest that farmers shouldengage in crops insurance, invest on crops shares future, or diversify their income generatingactivities Regarding to farm infrastructure, the installation of the water management,irrigation system, and weather forecast systems are essential Concerningscientificresearches, demands for studying drought tolerant crops, accurate weather forecasting orabnormal climate phenomenon areproposed Among many actors, government plays a majorrole in planning and supporting the most effective and appropriate adaptive strategies throughsubsidy, government insurance, market connection or investment on technology.

Among many adaptation strategies of the agriculture system to climate change, incomediversification is assessed to be one of the most effective approach, which is suitable foralmost conditions Diversification could be implemented in scope of farms by expandingcrops, engaging in more sources of farm income (animal husbandry, aquaculture), orparticipating in non-farm activities Income diversification is highly appreciated by itsefficient financial management aspect, which presents by the ability to prevent excess lossdue to harmful impact of climate change Due to the convenience and efficiency aspects,income diversification is greatly encouraged by policy makers when establishing adaptationtypologies

2.1.4 Income diversification

2.1.4.1 Definition and classification of income diversification

Income diversification is defined as an effective adaptation method in which a householdengages in a portfolio of different income sources, including farm income, off-farm income,and remittances (Kelly &Adger, 2000; Mendelsohn, 2000; Ellis, 2000, Minot et al., 2006)

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In term of farm-scale activities, Smit et al., (2000) referred two types of farm incomediversification, including geographic diversification and crop diversification First,geographic diversification needs a large area for integration many crops inside, requires ahigh expense for fertilizers, labor, and management, and is just suitable for immense zone Inthe comparison with geographic diversification, crop diversification is assessed to be moresuitable in case of limited labor and arable land, and is more favored due to its high economiceffectiveness Crop diversification introduces growing more short-day crops that couldtolerate severe natural conditions (high salinity or droughts) and could enhance the soilquality and maintain moisture for land beside the main crop (e.g rice, wheat) Diversifiedcrops with different harvest stages are grown in rotation, and help farmers to take benefitfrom using land most efficiently.Moreover, farm income diversification also consists oflivestock breeding and aquaculture to take advantages of products from cultivation and createadditional value for farm activities (Bradshaw,Dolan, &Smit, 2004).

Besides farm activities, more and more farmers have tendency to involve in non-farmactivities, which are not volatile and independent on the abnormal weather Non-farmactivities develop together with the growth of infrastructure (Escobal, 2001; Lanjouw, 2001).Building new roads and expansion of water supply and electricity network have opened newopportunities for the market economy,supported processing industry and services, andprovided hundreds of jobs for people in rural areas

2.1.4.2 Motivations of income diversification

There are three main purposes of income diversification First, diversification could reducethe volatility result from yield risk caused by climate change or price risk caused by themarket instability Income diversification is “a trade-off between a higher total incomeinvolving greater probability of income failure, and a lower total income involving smallerprobability of income failure” (Ellis, 2000) Farmers accept to diversify in order to ensuresecurity although income may not be as much as specialization in just one income source.Second, diversification is a medium of meeting household’s requirement, especially withremote areas from the city The difficult conditions, high expense of exchangingconsumptiongoods, and necessities motivate farmers to engage in new activities to meet their owndemand Finally, diversification is appreciated as an effective strategy to overcome “the

diminishing marginal returns to labor problem” which is a common problem of farmactivities.

The motivations of income diversification could be classified into push and pull factors(Davis &Bezemer, 2003; Haggblade et al., 2002) Push factors involve harmful exteriorelements such as climate change and policy adjustment causing adverse effect on farmer’sincome Pull factors mention favorable conditions, which motivate farmers to diversify Pullfactors could originate not only from inside resources such as educational qualification,gender, and age, but also from outside resources such asinfrastructure improvement, industryzone investment in rural areas, and evolving market Pull factors provide opportunities forhouseholds to engage comfortably in new income generating activities, while push factorsdrives households to diversify compulsorily With specific conditions of each household andeach zone, it is hard to compare the influence of pull and push factors on the incentive ofdiversification

2.1.4.3 Income diversification measurements

Income diversification measurements could be classified into two groups, including the sided indexes and two-sided indexes The first group evaluates the diversity by simplycounting the number of activities that generate income for a household or focusing on thevariation in the volumes of an important representative source; whereas the remaining groupsucceeds in the combination of both dimensions of diversity (Zhao et al.,2013)

one-First, the one-sided group consists of following proxies:

(1) The approach, which is based on the quantity of income sources, is suitable with theoriginal definition of the concept of income diversification However, this proxy could notdescribe the level of participation in each activity

(2) Another method to evaluate the rural diversification is to differentiate farm andnonfarm activities, or low value and high value agricultural activities By this approach, thetimespentfor each income source, or the share of income from each source in the total income areused as the measurement of diversification (Lanjouw&Feder, 2001; Davis &Bezemer, 2003).(3) In term of commercialization characteristic of farming, diversification is regarded asthe ability to switch from raw material crops to commercialized products This index is measured

by several ways such as the share of yield, the share of value, and the share of income from sold

or bartered products in the total agricultural output (Minot et al., 2006)

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Second, the two-sided index is higher evaluated than the one-sided one due to itsflexibility in describing the degree of diversification With many varieties of incomegenerating sources unequally distributed, the proxies in this group give results that are moreaccurate by taking into consideration all dynamic characteristics of diversification process.These proxies include Shannon-Weaver index, Simpson index, Herfindahl index,andHerfindahl-Hirschman index (Ellis, 2000; Bithal et al., 2007; Minot et al., 2006) Theseindexes reflect not only the income sources but also the share of each income source in totalincome sources or the evenness of income sources Specifically, Shannon-Weaver index iscalculated by taking the sum of the proportion of each income source multiplied with itsnatural logarithm This index is less popular than the remaining indexes because of its lesssensitivity to the evenness of the sample(Colwell& Robert, 2009) Simpson index andHerfindahl index are closely related due to the relevant calculation, based on the sum ofsquare of proportion of income source, with reverse value in the same range from 0 to 1.Both Simpson index and Herfindahl indexare considered as the most common indexes inmeasuring income diversification in many previous studies.

2.2 Empirical review

2.2.1 Impact of temperature and precipitation variation

Seo and Mendelsohn (2008) have made a breakthrough in the history of researching the way

to switch crops to adapt with climate change In previous studies, researchers only focused onthe harmful impact of severe climate on a specific crop yield The crop failure makes therevenue of farmers drop down significantly, and the quantitative method by using Ricardianmodel is often estimated to evaluate the effects However, in reality, farmers always try theirbest to adapt by switching main crop to alternative crops that could sustain harsh naturalconditions By observing these adaptation behaviors, Seo and Mendelsohn (2008) conducted

a research on the farmers’ crop choice on South America by using a multinomial logit model

By collecting data from 949 farmers in seven countries, that study indicates a relationshipbetween farmer’s choice with both precipitation and temperature Farmers have tendency togrow fruits and vegetables rather than maize and wheat to cope with the global warming.Wetter climate is more suitable for potatoes, rice and fruits, whereas dry climate seems to beappropriate for maize and wheat Study also indicates that farmers switch to not only a singlecrop but also a combination of multiple crops at the same time, as well as reaching the goal

Similarly, in a study about African farmer’s behaviors in livestock management, Seo andMendelsohn (2007) showed that the choice of income diversification much depends onclimate change Three econometric models have been used to investigate the farmer’sperformance First, primary choice multinomial logit model is applied to find out the mostprofitable livestock species Second, the optimal portfolio model is used to investigate thepossible portfolio of livestock that farmers feed together Finally, the demand systemmultivariate probit model is regressed to check the probability of choosing specific species.The research is performed in ten countries with a data collection of 9000 households, and hasrevealed that farm options always correlate with the variation of climate change Farmersprefer crops to livestock under cool temperature and high moisture climate When thetemperature increases, farmers tend to choose goat and sheep rather than beef cattle andchicken With higher precipitation, goats and chicken are more chosen than cattle and sheepbecause the goats and chicken favor forest, which is more popular than savanna in wetweather Furthermore, the study simulated the models based on climate scenarios, and gaveresults that livestock would continue to develop in warm and dry climate, but would decrease

in case of high precipitation, and heat tolerant species would be dominant in African infuture

One of the most important drivers of income diversification is the high vulnerability ofthe agriculture In Southern Ethiopia, the arid climate is a great challenge to the livestockproduction due to detrimental effect on water shortage; wither pasture, hot weather, anddisease risk.Megersa, Markemann, and Ay (2014) made a survey with 242 households in twoprovinces Dike and Yabelo A set of data about socio-demographic properties such as familysize, gender and education level of household head, and livestock holding behaviors iscollected through interview process directly each household The study focused on five mostcommon species in the region, including cattle– the most dominant species, camel, goat,chicken, and donkeys Livestock diversification is assumed to recognize when the householdhas at least three species The participants are asked about the tendency in livestock holdingwhen there are changes in temperature, precipitation, and drought The study used linearregression to estimate the impact of climate variables on livestock adoption, with the rankingmodel to rank the livestock priorities, and then logit model to measure the probability toselect livestock alternatives from the most to the least

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Through evaluating the tolerance of each species by measuring the average mortality oflivestock in the drought, they find out that cattle is the least adaptive species in 4 kinds ofspecies, while camel and goat have more ability to suffer the water scarcity and foodshortage Analysis of rainfall and temperature in long term has indicated that the frequency

of droughts has increased remarkably, making the annual precipitation reduce much, whiletemperature only changes slightly on average Therefore, livestock diversification isevidenced to be negatively correlated with precipitation, but seems to be not meaningful withthe temperature

By contrast,Brenshaw, Dollan, and Smit (2004) showed an opposite farming option offarmers in Canadian prairies compared to previous studies That study is conducted by estimatingcropping behaviors of farmers during a long period 1994 – 2002 The average number of crops inthe period is recorded for each prairies farms, and Herfindahl index is used to measure cropdiversity level Researchers believed that cropping diversification is a useful adaptation method

to reduce risk from climate change In contrast to researchers’ expectation, the study shows thatfarmers have tendency to specialize in their cropping rather than diversification The reason forthis matter is that Canadian prairies confront many difficulties and limitations in diversification.The start-up cost is high, the ability to catch up new technologies in producing new crops islimited, and the benefits reduce due to economies of scale Another interesting finding from theresearch is that farmers feel more likely to diversify income sources rather than crops switching.Off-farm activities are preferable selections of farmers to reduce challenges from climate risk andother economic risks

2.2.2 Impact of high salinity intrusion to income diversification:

The two most common threatens to the coastal and low-lying delta are the seawaterinundation and the increased salinity in the soil and underground water, which adverselyinfluence on agriculture

IPCC (2014) proposed many adaptation measures to respond with salinity intrusion, inwhich new and diversified livelihood seems to be the most important method Shannon(1997) emphasizes the importance of researching the threshold of salinity tolerance of eachplant before selecting plants for the coastal area According to the study, barley and wheatare higher salinity tolerant than rice and corn Cotton and sugar beet have higher degree of

more sensitive to salinity than canola and safflower Fruits and citrus are not popular in thecondition of saline area Bithal et al (2011) suggested that crop varieties in the coastal andlow-lying delta should enhance the ability to resist to drought, heat and salinity Pitmann andMichael (2002) recommend genetic engineering as the effective approach to make plantsendurable with high salinity and even be irrigated by brackish water Besides, Ahmed (2010)and Khan et al (2012) introduced other adaptation methods including non-rice crops infloating gardens, or exploiting small-scale fish and other aquacultures on inundated land.

In Vietnam, as an obvious illustration for the risk of salinity intrusion, Mekong Delta hascoped with detrimental effects from this phenomenon in recent years, especially in the dryseason Seawater could intrude 40-60 km from the coast (Miller,2003), leading to the factthat millions hectares of arable land have been highly saline Crops failure happens morefrequently, the agricultural production is strongly affected in both quantity and quality.Binh (2015) measured the vulnerability to salinity intrusion of Mekong River Delta in theperiod 1995 – 2011 by using both the quantitative and qualitative methods Result of thestudy showed that the rate of intrusion becomes more and more rapidly and widespread in theyears later By a survey of 512 households in TraVinh, researchers indicated many adaptationmethods, which are applied in this zone to cope with the hazard, including dyke building,crop rotation, and ground water management Many previous studies asserts that dyke systemhas developed to prevent floods and salinity intrusion, so that farmers could rise into 2 to 3crops per year, contribution to the increase of rice production (Hoanh et al., 2003; Tuongetal., 2003; Can, 2005) De et al (2002) introduced new short day and high saline tolerant ricevarieties, promising that these crops would be well appropriate with the coastal area

From 2000, the Vietnamese Government promoted policies for rice quality upgrade,integrated system of rice, fish or shrimp in order to induce the benefit from agriculturalproducts, including crops and aquaculture Farmers in coastal zone has tried and succeededwith the rice – shrimp farming, taking advantage of both floods and brackish water to raisetheir income (Brennan et al., 2002) The system is a combination of the dry season for ricecultivation and the wet season for shrimp farming This model helps farmers to reduce risk ofshrimp mortality or crops failure in the adverse climate, and satisfies household consumption.Being opposite toPhong et al (2002) and Brennan et al (2002), De et al (2002)suspectedthe

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high revenue efficiency of rice shrimp system due to salt leaching They presented evidencethat yield would be higher in the rice monoculture system.

However, almost adaptation measures are not carefully taken into consideration for thelong term impact of sea level rise The vulnerability to salinity is different betweendistinctive regions, especially between dyke and semi dyke protection regions Renaud(2015)proposed some other adaptation methods besides advanced crops varieties, that ismaintaining the agri-ecosystems by managing river flows, infrastructure development,improving the degraded areas These solutions are assessed to be long term strategy inadaptation to climate change, and should be encouraged and directed by the government todevelop the Mekong Delta

2.2.3 Impact of socio-economic characteristics on income diversification

When considering the vulnerability to the global warming problem, many researchersconcern about social and economic factors Kelly andAdger (2000) proposed four measures

to response to harmful effects relevant to human communities caused by climate change,consisting of poverty reduction; maintaining the security, income diversification to disperserisk, and protecting property management rights

The vulnerable state of agriculture depends much on the economic power of a country Adeveloping country with poor living standard, less-developed infrastructure, low educationallevel and inefficient policies are incapable of doing many strategies to adapt with detrimentaleffects of climate change (Zorom et al., 2012; Kelly & Adger,2000) Zorom et al (2012)conducted a research about adaptation in Sahel, one of the poorest country in the world Theresearch was performed mainly by survey process with direct interview of hundreds offarmers in Sahel Grain growers and livestock breeders are more vulnerable than off-farmworkers and gardeners Severe climate seems not to correlate with the off-farm workersactivities Grain growers are traditional farmers with the major grain crop, which is needmuch rain-fed, so become the most vulnerable groups The most commonly strategy offarmers to adapt with droughts in this area is combination of growing dry-tolerant vegetablesand short cycle varieties Although Sahel farmers know that income diversification is the bestway for them to reduce vulnerability and react with the severe climate, they meet manydifficulties and barriers in achieving capital investment and suitable policies from

Megersa, Markemann, and Ay (2014) concluded that livestock diversification issignificantly impacted by family size and per capita holdings of cattle, while other socio –economic seems to be insignificant, meaning that livestock diversification depends much onlabor and income source from cattle keeping.

Binh (2015) emphasized that the vulnerability also depends on financial capacity,educational standard, distance to farms, to market, to the industrialization zone, and jobopportunity By measuring the vulnerability index of each ethnicity, the Khmer people isfound to be more sensible than the Kinh people, mainly due to their less adaptationbehaviors The study notes the importance of taking into account suitable adaptationmeasurements in different social groups

To sum up, it is undeniable that the efficiencyof adaptation behaviors is much influenced

by social and economic factors Therefore, it is necessary to do comprehensive assessmentbefore applying an approach to response with climate change

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CHAPTER 3: RESEARCH METHODOLOGY

This chapter connects all information from literature review to set up an analytical

framework for the research Then, the most suitable methodology is proposed to estimate the

impact of climate change on income diversification behaviors Many variables, which are

representative for determinants, are selected toincorporate into the empirical model

Moreover, this chapter also gives a detailed discussion about the definition, presentation and

expected relationship between dependent and independent variables The data source is

introduced to clarify the way to employ variables used in the regression

3.1 Analytical framework

Based on theoretical and empirical literature review, an analytical framework is built to

clarify the motivations and determinants of income diversification of households in Mekong

River Delta (Figure 3.1)

Natural change andhuman activities

aquaculture

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Climate change is a phenomenon caused by long-term effects of natural change andhuman activities, in which over 90% of the reasons belongs to human activities The impact

of climate change on the agricultural activities is diversified and depends on thecharacteristics of specific area Because Mekong River Delta is a coastal delta with lowelevation, climate change could be described through changes of temperature, precipitationand salinity intrusion In particular, the weather becomes hotter, dry season lasts longer,rainfall reduces remarkably, fresh water is scarce and the salinity intrusion gradually happensharshly, creeping far interior Being a rice bowl of the country with over 50% of national riceproduction, the Mekong River Delta is severely affected by climate variation Crops failurehappens more frequently due to abnormal weather, and leads to the significant rice yielddrop Government has oriented farmers many adaptation approaches to response to climatechange In which, income diversification is encouraged and applied by many households.Farmers in Mekong River Delta often incorporate rice cultivation, other crops cultivation,livestock and aquaculture breeding, and non-farm income The combination of theseactivities helps farmers to disperse risk of traditional rice cultivation, and optimizes theirearnings in bad conditions caused by climate change

3.2 Methodology

3.2.1 Income diversification index

The income diversification degree is represented by one-sided or two-sided proxies To make

an overall and accurate assessment of the impact of climate change and other determinants onincome diversification behaviors of households, the study applies both measurements in theregression, the one-sided and the two-sided index groups

The first income diversification index is the number of income sources, representing forthe one-sided group It is the simplest method to calculate the diversification degree, with theinteger value range from 0 to 4, corresponding with the participation in 0 to 4 incomegenerating activities The higher the index is, the more diversified the household becomes.Thus,

where m is source of income, and m is from 0 to 4

The second income diversification index is Herfindahl index, which stands for the sided group (Ben, Holly,& Barry, 2004) Herfindahl index is first used to measure industryconcentration, contributing to assess the oligopolistic status of an industry Based on thenature of quantifying the diversity degree, Herfindahl index was developed to calculate theincome diversificationgradation This type of index reflects both dimensions ofdiversification: the income sources and the distribution of each income source in total.Specifically,

Due to the difference between two methods of measuring income diversification degree,the study has to use two distinct models to estimate the impact of climate change and otherdeterminants on income diversification The panel Poisson model is applied for the firstindex, while the panel Tobitmodel is a more suitable option for the second index

3.2.2 Model specification

In order to adapt with the climate change, rural households in Mekong River Delta rely onmany activities which could be classified into four main income sources including ricecultivation; planting other varieties such as fruit, sesame, soybean, and coconut; livestockand aquaculture breeding; and non-farm income

The general model is estimated as follows:

where DI it is income diversification index of household i in year t Kit represents climate

variables including temperature, precipitation, and salinity levelof household i in year t Sitrefers to some controlling variables related to farmers characteristics such as gender, age,

educational level of household head, household size, labor ratio, migration status, and land area owned byhousehold i in year t Then, the estimation methods of both panel Poisson

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model and panel Tobit model are figured out in order to prove the existence of critical point

of 

 The panel Poisson model

The regressand in the first model is the number of income sources with integer value from 0

to 4 It has the form of count data and follows Poisson probability distribution Specifically,

The Hessian is always negative, so  could be estimated when the equation gets themaximum value.The prediction is ˆ

 The panel Tobitmodel

Since the dependent variable Herfindahl index ranges continuously fromzero to one, a doublecensored regression model, in particular a two-limit Tobitmodel (Tobin,1958) is used to

analyze the determinants of income diversification The index of the i th household at year t inthe sample is regressed on independent variables that changes by time for each household

regconized that the Hessian of the function is always negative This means that the

log-likelihood could reach the maximum value, and at that point, the  could be determined

3.2.3 Variable description

Table 3.1 gives a brief description of variables, which are incorporated into the model.Dependent variables include two types of income diversification index Independentvariablesare classified into two groups.The proxies of climate change includescaled salinity,and the average value of temperature and precipitation in the dry season and wet season andits quadratic form The controlling variables group includes socio-economic

characteristicssuch as age, gender, educational level of household head, household size,household’s labor ratio, land area, and migration status of the household.

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Table 3.1 Variable description

behavior

Dependent variables

Income diversification index1 diversity_index1

Income diversification index 2 diversity_index2

Independent variables

sources: 0,1,2,3,4Equal sum of square of thenet revenue from each

income source in the totalincome, and continuousfrom 0-1

Salinity degree

Average temperature in the dry season

Average temperature in the wet season

Average precipitation in the dry season

Average precipitation in the wet season

Square of average temperature in the

Square of average precipitation in the sqr_wetprecipitation mmHg2

Household’s labor ratio

Number of migrators in a household

Educational qualification of household

First, it is necessary to describe two popular proxies of climate change, which aretemperature and precipitation The variation of the average seasonal temperature andprecipitation through years between different zones are recorded and added to the estimation.

It is believed that the severe climate with high temperature, drought, and scarcity of rainfallcould be the push factor for farmers to diversify their activities (IPCC, 2007) The quadraticforms of temperature and precipitation are used to assess the impact of climate change inlong term

The group of socio-economic characteristics of household includes gender of householdhead, education level of household head, age of household head, household size, household’slabor ratio, land area of household, and migration level of household Gender is a dummyvariable that defineshousehold head is male or female Gender is equal to 1 if the householdhead is a male, 0 if otherwise It is difficult to find the correlation between gender ofhousehold head with the capacity of diversification However, it is expected that men would

be more fearless of trying new crops or new income generating activities compared towomen(Kimsun&Sokcheng,2013)

Educationvariable represents for the educational level of the household head Thatvariable is a categorical variable in which 0 corresponds with the level below the 5th class, 1

is respective with completing primary level, 2 equals finishing secondary school, 3corresponding with passing high school level, 4 is college, and 5 is equivalent to universitygraduation It is believed that a higher-educated head could have more opportunities todiversify their income, approaching new technology of other farming activities beside theirtraditional crops cultivation as well as participating in non-farm activities (Nhan et al.,2012;Reardon et al., 2000;Minot et al.,2006) On the other hand, some points of view indicate that

a qualified household head could be more proficient in their traditional activities and focus

on agricultural specialization to increase their profits Therefore, the effect of educationalqualification of household head on the diversification level of household is mixed

In addition, agevariable is the age of the household’s head Reardon et al (2006) arguedthat the impact of age of household head on income diversification is hard to anticipate.Some people believe that an older household head could be more experienced in his family’sfarming activities, so that he could facilitate specialization Another aspect also supports thisviewpoint is that old person has the tendency to avoid risk He would not be ready to apply

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new technology or to take part in new activities On the contrary, older household head isexpected to accumulate enough assets to be self-confident when joining nonfarm activities ortrying new kinds of income source.

On the other hand, household size is understood as the number of members in thehousehold Bigger households are believed to have more opportunities to engage in manykinds of labor activities, especially in case of limited farm size(Oyewole et al.,2015) Theexpectation of the relationship between household sizeand the income diversificationdegreeis a positive relationship Household’s labor ratio is the ratio of members who are atthe working age in a household over total household’s member It is expected that if thenumber of labors increases, the family accumulate more assets to diversify their incomegenerating activities (Abdulai&Crolerees, 2001).Land area variableis the area of land owned

by a household A household could take advantage of the large area to diversify their farming(Abdulai&Crolerees, 2001;Reardon, 1992) The expectation for the income diversificationdegree and land area is a positive association

Besides, migrationis the number of members who live far from home over 6 months forwork.People often migrate from their hometown to the city to find a better job that couldcreate a stable earning for them, often non-farm activities Earnings from migration, whichare oftentransferred to their relatives by remittance, contribute to the revenue of thehousehold There are two opposite viewpoints about the correlation between migration andincome diversification The first idea is that migration could support the diversificationbehavior The remittance helps many rural families to have abundant capital to try new forms

of work Migrators also establish a new social relationship so that the family could easilywiden their nonfarm activities (Reardon et al., 1997) On the contrary, the second idea is thatwith enough finance from remittances, families could afford their lives and do not need todiversify their livelihoods for earning money; otherwise, migration is regarded as substitutefor income diversification (Sakho-Jimbira, 2007) Therefore, the impact of migration in thisestimation is hard to anticipate

3.3 Data sources

The study primarily uses the dataset of Vietnam Household Living Standards Surveys(VHLSS) This is a biennial survey program provided by General Statistics

nation-wide scale, the survey provides detailed information at households and communeslevel of 64 provinces through direct interview approach The investigation is strictlyconducted by carefully trained enumerators Respondents are interviewed face to face acarefully designed questionnaire covering many varieties of social economic aspects Thecore content of the survey is concentrated on the income and expenditure information ofindividuals and households Besides, education, health status and many other demographiccharacteristics are incorporated into the survey Over many years, results from VHLSSdatabase processing have greatly contributed to the social economic policy planning of thegovernment.

With the study site at Mekong River Delta, the dataset limits in 13 provinces includingLong An, Dong Thap, Ben Tre, Vinh Long, Can Tho, TienGiang, HauGiang, KienGiang, AnGiang, SocTrang, TraVinh, Bac Lieu and Ca Mau The aim of the empirical study is to assessthe effects of climate change on adaptation behaviors of households by incomediversificationin the period 2010 – 2014 Specifically,362 households who could satisfy therequirement of completing all three surveys of GSO The ultimate sample incorporates 1086observations of 362 households scattering around 13 southern provinces in 2010, 2012 and2014

The income diversification represents by the participation in many kinds of activities togenerate income In Mekong River Delta, there are four major income sources, which could

be observed, include income from rice cultivation, other crops cultivation,livestock andaquaculture husbandry,and non-farm activities Dependent variable of the empirical study iscalculated by two ways The first index issimply measured by the number of incomegenerating activities that a household participates The second index is calculated by takingthe sum of square of each net income source in the total income of the household The netincome of the household in an economic sector is accounted by extracting relevant expensefrom its revenue.Other controlling variables reflecting socio-economic characteristics such ashousehold size, household’s labor ratio, educational level, gender and age of the householdhead, migration status and land area of the household are also explored in the VHLSS

The study site constitutes an immense area of 390,000 km2 and 740 km along thecoastline Mekong River Delta is characterized by tropical monsoon climate, but includesmany distinct ecological regions in which climatic properties of each region seem to begreatly different from the others In this study, climatic variables include temperature and

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precipitation, which are recorded at 10 meteorology stations across the Mekong RiverDeltawith available figures posted in the statistics website of The Ministry of Agriculture andRural Development (MARD) Climatic data is collected by months per year at each station.The South of Vietnam has two seasons including rainy season extending from May toNovember, and dry season lasts the other months Temperature and precipitation used for thestudy are measured by taking the average of each season Climatic variables of a householdare attached with the climate figures of the nearest meteorology station.

3.4 Salinity measurement

Salinity data is collected from the Vietnam Institute of Meteorology, Hydrology and ClimateChange With 8 over 13 provinces along the coastline, the salinity intrusion performsseverely in many regions of the delta Saline water intrudes inland through estuaries, riversand canals Salinity stations are located along Tieu, Dai, Ham Luong, Co Chien, CungHau,Dinh An, Tran De, Ong Doc, Cai Lon estuaries (Figure 3.2) There are 29 stations along thecoast with detailed longitude and latitude Their co-ordinates are reflected on the map ofMekong River Delta and marked carefully

Salinity concentration (salinity) is measured by specialized sensor instruments, then

signals are transmitted automatically to the receiving and processing data center Thestatistical figures are recorded every two hours daily from February to May, the peak period

of the dry season with serious phenomenon The raw figures are used to calculate theaverage, max and min salinity concentration In scientific researches, the maximum salinityconcentration is the most important and interested figure, because it affects directly thesustainable ability of crops or creatures For example, the saline threshold of common rice is

4 g/L, some salt tolerant rice could endure higher salinity, but the yield would reduce 20-50%depending on the growing stage When the salt concentration is over 6 g/L, almost rice wouldcompletely die However, the saline threshold of aquaculture is higher than crops Catfishcould live at salinity up to 12 g/L, while shrimp grows best at the saline environment 15-25g/L (Giới thiệu hệ thống quan trắc và xâm nhập mặn,2016).That is the reason why thesalinity could be regarded as a motivation for the income diversification to reduce risk fromproduction failure

The salinity statistics are available at each station, however, the location of the householdplays an important role in determining the saline level As report of the Water Resource

very scarce, not enough for production and daily activities At zones far from the sea around

45 to 65 km, the ability to be saline higher than 4 g/L is very high The distance 70 to 75 kmfrom the sea is considered to be the safety zone to be protected from salinity intrusion Thesphere of influence increases by years, gradually far inland

This study is the first in Vietnam to develop a new measurement to convert the salinity atthe nearest station to the salinity at each specific position The measurement method isdeveloped from Dasgupta et al.,(2015), however, due to the limitation of available data, thestudy has to use a simple method based on the distance from the household location to thenearest salinity station to re-estimate the specific salinity It is recognized that the greater thedistance is, the lower the impact would be For the distance not over 30 kmfrom the station,the salinity is almost unchanged For the distance from 30 to 60 km, 60 to 90 km, salinityreduces about 30% and 60%, respectively For the distance over 90 km, the salinity remainsonly 10% of the origin The scaled salinity is assessed to be more accurate in estimating thetotal impact of salinity intrusion at a specific household.This variable takes account not onlythe saline intrusion affected zone but also the salinity level at the nearest station

Figure 3.2 Salinity stations in Mekong River Delta

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CHAPTER 4: RESULT AND DISCUSSION

This chapter firstly gives an overview of the Mekong River Delta, the study site which isheavily affected by consequences of climate change Then, results of the empirical estimationare introduced and analyzed in detail to clarify: (1) determinants of income diversificationstrategies; (2) the relationship between climate change and income diversification

4.1 Overview of the Mekong River Delta

4.1.1 Geographical position and natural conditions

Mekong River Delta locates in the Western South of Vietnam, with two sides contiguous tothe Eastern Sea The total area is over 3.9 million hectares The delta is divided by two finalbranches of the Mekong river (Bassac or Hau River and Tien River), with hundreds of smallbranches and canals across the terrain There are 13 provinces responsible for administrativemanagement in the area, including Ben Tre, Long An, Vinh Long, TraVinh, SocTrang,TienGiang, Can Tho, Dong Thap, Bac Lieu, An Giang, Ca Mau, KienGiang, HauGiang.Mekong River delta has a flat and low-elevated terrain, with the average elevation just about3-5 meters above the mean sea level, some places only 0.5-1 meters above In the rainyseason, upstream floods flows into the delta up to 3meters depth, making a large areasubmerged in water, especially the Plain of Reeds and the Long Xuyen Quadrangle In thedry season, the low river flow causes high salinity intrusion over a widespread coastal area

4.1.2.Socio-economic conditions

Agriculture sector plays a dominant role in the economy of Mekong River Delta With theadvantages of large area, fertile soils, abundant fresh water supply, the delta has acompetitive rural economy with high production of rice, about 50% of the national rice yield,contributing to the second-ranked exporter of Vietnam in the world Moreover, this regionalso promotes the capacity of growing fruit orchards and vegetable crops Along withcultivation, the aquaculture grows rapidly with increasing production of brackish wateraquaculture, especially shrimp and catfish, contributes to the high GDP shares totally.Besidesfarm activities, the rapid growth of industrialization and modernization has promoted thenon-farm sector, increased the ratio of industry and services contribution in GDP, which is