This paper investigates the impacts of land fragmentation on economic diversity of farm households in Vietnam. To develop the empirical analysis, a model is presented in which the estimated impact of land fragmentation on economic diversification allows for non-neutral technical change. The paper tests the theoretical predictions of this model by providing empirical evidence of the impact of land fragmentation on farm and nonfarm outcomes such as labour supply, profits, labour intensity and productivity. By using different methods aimed at verifying and checking the consistency of the results, we find that land consolidation may reduce farm labour supply, labour intensity, and improve farm profits and productivity. Similarly, it may release more farm labour to nonfarm sectors and increase nonfarm profits. The empirical results show that factor-biased technical change plays an important role in explaining the impact of agricultural technical change on economic diversification in Vietnam