Re-examining the sources of ethnic inequality in Vietnam, we use an instrumental variable approach to provide consistent estimators of explanatory variables at household and commune levels for ethnic differences in household expenditure per person. Four key conclusions are drawn. First, removing language barriers significantly reduces ethnic inequality, especially through enhancing the gains earned by minorities from education. Second, variations in returns to education favour the majority in mixed communes, suggesting that the special needs of minority students have not been adequately addressed, or that there exists unequal treatment in the labour market. Third, with the exception of hard-surfaced roads, there is little difference in the benefits drawn from enhanced infrastructure at the commune level across ethnic groups. Finally, contrary to established views, we find that as much as 49 to 66 percent of the ethnic gap is attributed to differences in endowments, not to differences in the returns to endowments.