World food prices have experienced dramatic increases in recent years. These “shocks” affect food
importers and exporters alike. Vietnam is a major exporter of rice, and rice is also a key item in domestic
production, employment and consumption. Accordingly, rice price shocks from the world market have
general equilibrium impacts and as such, their implications for household welfare are not known ex ante.
In this paper we present a framework for understanding the direct and indirect welfare effects of a global
market shock of this kind. We quantify transmission of the shock from global indicator prices to
domestic markets. Then we use an applied general equilibrium model to simulate the economic effects of
the price changes. A recursive mapping to a nationally representative household living standards survey
permits us to identify in detail the ceteris paribus effects of the shock on household incomes and welfare.
In this analysis, interregional and intersectoral labor market adjustments emerge as key channels
transmitting the effects of global price shocks across sectors and among households.