Essays on trust, risk preferences and institutional changes in Vietnam

Abstract

This thesis consists of four empirical chapters contributing to an explanation of the sources of social trust, risk preferences and institutional changes in Vietnam. The results from Chapter 2 show that the Vietnam's war veterans has had long-term effects on economic development through their impact on overall provincial economic governance and other disaggregated economic institutions, such as the pro-activeness of provincial leadership and the quality of the legal institutions and services supporting business development. In Chapter 3, the variations in economic institutions across the provinces in Vietnam are shown to be associated with rising foreign direct investment (FDI) through trade liberalisation agreements. Increasing foreign investment helps to promote the quality of local governance across provinces and has greater short-term impacts on institutional quality in the northern provinces. Chapter 4 demonstrates that the physical environment has a profound impact on establishing social trust in rural Vietnam. Here, it is shown that individuals who are seriously threatened by negative climate fluctuation exhibit more trust in their neighbours and other people in close groups. The evidence indicates that the effects of natural weather variation on social trust are transmitted by strengthening cooperation among village peasants in coping with risk and uncertainty. However, these increased village relationships do not erode family ties. The results from Chapter 5 indicate that the natural environment can affect individual risk preferences. Households highly affected by weather volatility show long-term risk aversion and are more willing to buy insurance to protect against crop losses. This chapter also supports the hypothesis that when people are accustomed to living in a risky environment, an incremental increase in risk affects their risk preferences less.