THE EFFECTS OF URBANIZATION ON INCOME INEQUALITY IN VIETNAM

GDP 13B22010
Le Minh Hieu

1, Overview of recent urbanization in Vietnam

Vietnam is currently one of the most intensive urban transitioning countries in the world. Since 2010, its
urban population has been growing at about 3 percent per year, placing Vietnam’s urbanization rate
among the top of the Southeast Asian region. According to the forecast, half of Vietnam’s population
will be urban by 2039 and that figure will reach 60 percent by 2050, which is thought to be feasible since
the country has its urban population reached over 38% in 2021.
The socio-economic reform, known as Doi Moi (literally “new change”), has accelerated the shift from
rural to urban society in Vietnam since the mid-1980s. These reforms progressively liberalized the
economy and removed constraints on the movement of people from rural to urban places and allowed
occupational shifts away from agriculture.
The urban expansion of Vietnam has been driven by factors such as industrialization, economic growth,
and the search for better opportunities and living standards. Major cities like Ho Chi Minh City and Hanoi
have become bustling economic hubs, attracting businesses, investments, and a diverse workforce. As
urbanization progresses, the country has experienced improvements in infrastructure, transportation,
and access to essential services like education and healthcare. However, urbanization has also presented
challenges, including strains on urban infrastructure, income disparities, environmental issues, and
spatial segregation.

2, The positive benefits of urbanization in Vietnam

According to the Ministry of Construction, urbanization in Vietnam has brought about several positive
effects that have contributed to the country's economic and social development. One of the key benefits
of urbanization is the creation of economic opportunities. As major cities become hubs for industries,
businesses, and services, they attract investments and skilled workers, fostering economic growth and
job creation. This has led to a rise in urban incomes and an improvement in living standards for many
urban residents. Additionally, urbanization has facilitated better access to education, healthcare, and
other essential services. Cities typically offer a higher quality of education with more educational
institutions, research centers, and skilled educators, allowing residents to acquire valuable knowledge
and skills. Furthermore, the concentration of healthcare facilities in urban areas has led to improved
healthcare services and a higher level of medical expertise, benefiting the urban population and the
surrounding regions. Moreover, urbanization has spurred the development of modern infrastructure
and transportation networks, enhancing connectivity and facilitating the movement of goods and people
across the country. These developments have not only supported economic activities but also
contributed to a more efficient and interconnected society.

3, Issues relating to urbanization in Vietnam

On the other side, urbanization in Vietnam has also brought about numerous challenges and issues that
require careful management and planning. One of the primary concerns is the strain on urban
infrastructure and services. The rapid influx of people to cities has put significant pressure on housing,
transportation, healthcare, and sanitation facilities, leading to overcrowding and inadequate resources.
As a result, many urban areas face challenges in providing essential services to their residents,
particularly those from lower-income backgrounds.
Another major issue is the widening income inequality. While urbanization has contributed to economic
growth and the emergence of a middle class, it has also exacerbated income disparities between
different segments of the population. Skilled workers and those employed in high-growth sectors tend
to benefit more from economic opportunities, leading to wage disparities and socio-economic
stratification. This inequality not only impacts the well-being of individuals and families but also creates
social tensions and hampers social cohesion. Because income inequality becomes more and more
serious, it will make economic growth unstable. This causes mechanical migration from rural to urban
areas, from disadvantaged areas to more favorable areas, thereby putting overload pressure on urban
infrastructure and causing social disturbance (Hue Ly, 2014).
Urban planning and spatial development pose significant challenges as well. The rapid expansion of
cities has led to unplanned and haphazard growth, resulting in urban sprawl and inefficient land use. The
lack of proper urban planning can lead to issues such as traffic congestion, pollution, and the
degradation of natural environments. Moreover, the phenomenon of informal settlements and slums
has emerged as a consequence of urbanization, as many low-income migrants struggle to find affordable
housing, leading to the proliferation of makeshift settlements with limited access to basic services.

4, Migration from rural to urban areas in Vietnam

One of the major forces driving urbanization in Vietnam is migration. Migration to urban areas in
Vietnam has had a profound effect on the process of urbanization in the country. The ongoing influx of
people from rural to urban areas in Vietnam has been a significant and ongoing phenomenon driven by
various social, economic, and demographic factors. The migration of rural residents to cities has also
contributed to changes in the socioeconomic landscape, with income disparities and strain on public
infrastructure and services.
One of the key drivers of rural-to-urban migration is the search for better economic opportunities. As
Vietnam's economy has experienced rapid growth and industrialization, cities have emerged as centers
of economic activity, offering a wide range of job prospects in manufacturing, services, and technology
sectors. Many rural residents, particularly young people, are drawn to urban areas in pursuit of higher
wages, improved living standards, and the chance to escape poverty and subsistence farming. The allure
of urban lifestyle and modern amenities also plays a role in driving migration. Many rural residents are
attracted to the idea of living in dynamic, cosmopolitan cities with access to better infrastructure,
entertainment options, and a wider variety of goods and services. This urban lifestyle appeal has been
heightened through media and the internet, exposing rural populations to the urban way of life and
further stimulating migration. In addition to economic incentives, rural-to-urban migration is also fueled
by factors such as better access to education and healthcare in urban centers. Cities typically provide a
higher quality of education and a broader range of healthcare services, making them attractive
destinations for families seeking a better future for their children's education and well-being.
However, while rural-to-urban migration presents opportunities for those seeking a better life, it also
brings about various challenges. One significant challenge is the strain on urban infrastructure and
services. The influx of migrants places pressure on housing, transportation, healthcare, and sanitation
facilities, leading to overcrowding and strains on resources in cities. Additionally, rural migrants often
face difficulties in adapting to the urban environment. Cultural differences, language barriers, and social
integration can create challenges in finding suitable employment and accessing social services. As a
result, some migrants end up in low-paying jobs with poor working conditions, perpetuating urban
poverty and inequality. Furthermore, rural depopulation can have adverse effects on the countryside,
with the decline of agricultural labor potentially impacting agricultural productivity and rural
development. It may also lead to issues such as land abandonment and changes in land use patterns,
affecting rural communities and traditional ways of life.

5, The effect of urbanization on income inequality in Vietnam

As urbanization in Vietnam continues to accelerate, it has had a profound impact on income inequality
across the country. While urbanization has brought about various economic opportunities and
development, it has also exacerbated existing disparities, leading to a complex relationship between
urban growth and income distribution.
In recent years, the number of rich people in Vietnam is increasing rapidly. Despite being a minority
group, these rich people own a lot of material wealth, and at the same time, the income gap between
this minority group with other groups in society, especially the poorest group, also increases rapidly fast.
The gap between rich and poor can be clearly seen between urban and rural areas, between social
classes, between economic regions, or even within each urban area, especially in big cities like Hanoi, Ho
Chi Minh City... Urban rich-poor disparity leads to inequalities in urban services such as housing,
employment, education, health, electricity, water, sanitation, utilities, or urban quality of life. (Quang
Truong, 2021)
One of the primary factors contributing to increased income inequality in urban areas is the unequal
distribution of economic opportunities. As major cities like Ho Chi Minh City and Hanoi attract
businesses and investments, they become centers of economic activity, creating more job opportunities
in sectors such as manufacturing, services, and technology. However, these opportunities are not evenly
distributed, and certain segments of the population, particularly those with higher education and skills,
benefit more than others. This uneven distribution of opportunities leads to wage disparities and widens
the income gap between skilled and unskilled workers.
Moreover, the rapid influx of rural migrants to urban areas seeking employment and better living
standards has put further strain on urban labor markets. Many of these migrants end up in low-paying
jobs with limited job security and benefits, further contributing to income inequality. As rural migrants
often lack the necessary skills and qualifications for high-paying jobs, they are left with few options, and
their presence in the labor market often drives down wages in certain sectors.
The cost of living in urban areas is also significantly higher than in rural regions. As urbanization
progresses, property prices and rents in cities have soared, making housing less affordable for lower-
income groups. Consequently, the poor often face difficulties finding suitable housing options within
their budget, forcing them to live in overcrowded and substandard conditions in informal settlements
(Ministry of Construction, 2022 ). In contrast, the wealthier population can afford better housing, which
not only widens the income gap but also perpetuates spatial segregation within cities.
Furthermore, urbanization has led to the rise of a growing middle class in Vietnam, which has seen
significant income growth and improved living standards. However, the benefits of economic growth
and urban development have not been equally shared, leading to the concentration of wealth and
economic power among the urban elite. The middle class, while better off than those in poverty, still
faces challenges, especially regarding access to quality education and healthcare, which further
influences income disparities.
The inadequate provision of public services in urban areas also contributes to income inequality.
Although the government has invested in urban infrastructure, access to essential services such as
education, healthcare, and public transportation remains unequal. Wealthier residents often have better
access to private services, while lower-income individuals rely on underfunded public facilities,
perpetuating social and economic stratification.
The effect of urbanization on income inequality is not solely restricted to urban areas. Rural regions,
which have experienced depopulation due to migration to cities, may also face increased poverty and a
lack of economic opportunities. The concentration of economic activities in urban centers has led to the
neglect of rural areas, leaving them behind in terms of development and further deepening the divide
between urban and rural incomes.

6, Conclusion

Overall, Vietnam has experienced a high speed of urbanization in recent years. Urbanization has played
a significant role in Vietnam's progress, fostering economic growth, improving access to services, and
enhancing the overall quality of life for many of its urban residents. However, urbanization in Vietnam
has presented a series of challenges, ranging from strains on infrastructure and services to income
inequality, environmental degradation, and educational constraints. Rural-to-urban migration in
Vietnam has been a significant and complex phenomenon, driven by economic opportunities, access to
education and healthcare, and the allure of urban lifestyles. While it offers the potential for improved
livelihoods and better living standards for migrants, it also poses challenges related to urban
infrastructure, social integration, and rural development. Unequal distribution of economic
opportunities, low-paying jobs for rural migrants, soaring living costs, and unequal access to public
services have all contributed to widening income gaps in urban areas. Addressing income inequality
requires comprehensive policy measures that promote inclusive growth, improve access to education
and healthcare, and ensure that the benefits of urbanization are more equitably distributed across the
population. It is essential to ensure that migration is well-managed and accompanied by sustainable
urban planning and rural development initiatives while mitigating its negative consequences. By tackling
these problems, Vietnam can head toward more sustainable development in the next few decades.

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