Does urbanization reduce rural poverty? Evidence from Vietnam

•We investigate the urbanization-poverty nexus in Vietnam - a transition country.•Urbanization stimulates the transition from farm to non-farm activities in rural areas.•Rural households experience a reduction in farm income and increase wages and non-farm income.•The transition process helps rural households increase their income and expenditure.•Urbanization helps rural households decrease their expenditure poverty rate.

This paper uses data from household surveys to contribute to the urbanization-poverty nexus literature by assessing the effect of urbanization on income, expenditure, and poverty in rural households in Vietnam. We find that the urbanization process stimulates the transition from farm to non-farm activities in rural areas. More specifically, urbanization tends to reduce farm income and increase wages and non-farm income in rural households. This suggests that total income and consumption expenditure of rural households are more likely to increase with urbanization. Finally, we find also that urbanization helps decrease the expenditure poverty rate of rural households, albeit by a small magnitude.