The impacts of social network on non-farm self-employment: Evidence from Vietnam

Non-farm self-employment serves as a critical safeguard for rural communities, by reducing income fluctuations due to unexpected shocks and contributing to the overall enhancement of household well-being for sustainable development. Several factors influence rural households' decisions to pursue non-farm self-employment. Past research has shown a positive relationship between social networks and the choice of non-farm self-employment, underscoring the importance of understanding how these networks affect the economic shift from agriculture-centric occupations to diversified non-farm roles. Our research employs a heteroscedasticity-based instrumental variable model to assess household decisions to transition between farming and non-farm self-employment. Our results confirm that social networks' size and quality significantly influence the choice of non-farm self-employment among households in rural Vietnam. Specifically, we find that social networks tend to deter the transition from farming to non-farm self-employment. Rather social networks promote the movement from non-farm activities to farm-based activities. Not surprisingly we find that social networks also provide better access to credit and higher income for those engaged in farm-based activities but do not significantly benefit households engaged in non-farm self-employment. These findings shed light on the impact of social networks on the economic choices of households in rural Vietnam, offering valuable insights for policymaking aimed at poverty reduction and enhancing the income-generating capacity of rural families, particularly in the context of rural Vietnam. • A heteroscedasticity based IV model reveals causal effects of social networks. • Social networks impact rural livelihood choices, deterring shifts from farming to NFSE. • High-quality networks encourage NFSE households to transition back to farming. • Larger networks support farming stability, while NFSE sees fewer financial benefits.