Motivation: Vulnerability to poverty derives from adverse shocks and adaptive capacity. To alleviate poverty, policy-makers must understand sources of vulnerability, household coping strategies, and the effectiveness of current insurance. Vietnam is an important case due to the many hazards that rural households face and the inadequacy of social safety nets.

Purpose: This article investigates the role of adverse shocks on vulnerability, coping strategies, and recovery of households in rural Vietnam. Approach and methods: Using a unique panel data set from Vietnam Access to Resources Household Surveys (VARHSs) during 2008-2016, I first estimate and deconstruct sources of vulnerability. To examine household behaviour when coping with adverse shocks, I use a multivariate probit model; to investigate whether coping strategies help households recover from shocks, I use a multinominal probit model. Finally, I evaluate the effectiveness of existing risk-management mechanisms.

Findings: The average rural household in Vietnam experiences a 72% decrease in utility due to shocks. Idiosyncratic shocks contribute 32% of the loss. Rural households are highly dependent on informal coping, such as reducing food consumption, withdrawing savings, taking children out of school or selling capital assets. Household savings allow the wealthiest households to recover; but for low-income households, consumption has to be cut, which depletes human capital development and prevents recovery.

Policy implications: Rural Vietnamese need more public support to cope with and recover from shocks. Because idiosyncratic shocks hit households hard, public support should focus on alleviating their impacts. Expanding health insurance to all rural households should be a priority. Households suffer less in areas with higher levels of economic development, so economic growth is a defence against shocks. More roads and links to towns and more irrigation would help.