Ethnic inequality is an issue that attracts considerable attention in many countries and is often the source of tension between large disenfranchised groups of relatively poor ethnic people and the majority population. Although ethnic inequality is not a characteristic of transitional economies alone, such concerns tend to predominate in these countries due to high, but unequally shared, growth in incomes and dramatically changing institutions and economic conditions that often leave the ethnic poor behind. Using a Hausman and Taylor (HT) method, this paper constructs measures of the sources of inequality between majority and minority groups in Vietnam based on a recent household survey data set for the year 2006. Vietnam offers a useful case study of a transitional economy with large reductions in poverty rates with economic growth, but vastly unequal gains across ethnic groups. The household survey data allows for key distinctions to be drawn between household and commune endowments and characteristics as explanatory variables. We show that the HT method can be used to provide unbiased estimators of both household and group level explanatory variables in the case where there is suspected endogeneity in all or some (unidentified) household variables, but exogeneity in all group specific variables. This represents a significant improvement over typical OLS approaches to explaining the sources of ethnic inequality, with its potential omitted variable bias, as well as previous fixed effects estimators which are unable to estimate group specific effects. The use of more recent household survey data also allows us to estimate the effects of differences in language and levels of integration between the majority and ethnic minorities. These turn out to be key explanatory variables in accounting for expenditure gaps between majority and ethnic groups.