Luận văn thạc sĩ UEH does remittance affect on behaviour of households a case study of 12 rural

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DOES REMITTANCE AFFECT ON BEHAVIOUR OF

HOUSEHOLDS? A CASE STUDY OF TWELVE RURAL

PROVINCES IN VIETNAM

BY

NGUYỄN NGÔ PHƯƠNG DIỆP

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, October 2014

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DOES REMITTANCE AFFECT ON BEHAVIOUR OF

HOUSEHOLDS? A CASE STUDY OF TWELVE RURAL

PROVINCES IN VIETNAM

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYỄN NGÔ PHƯƠNG DIỆP

Academic Supervisor:

Dr. PHẠM THỊ THU TRÀ

HO CHI MINH CITY, October 2014

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DECLARATION

This is to certify that the substance of this thesis entitled “Does remittance

affected on behaviour of households?: A case study of twelve rural provinces in

Vietnam”, which is submitted by me in fulfillment of requirements for the degree of

Master of Art in Development Economic to the Vietnam – The Netherlands

Programme.

I certify that to best of my knowledge, any help received in preparing this thesis,

and all sources used, have been acknowledged in this thesis.

Nguyễn Ngô Phương Diệp

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ACKNOWLEDGMENT

First of all, I would like to express my greatest appreciation to my supervisor,

Dr. Phạm Thị Thu Trà, for her advices, instructions and comments, patient guidance, as

well as encouragement with all her heart during the time of studying and doing this

thesis. Without her guidance, I could not implement and complete my thesis.

I also would like to offer my special thanks to Dr.Phạm Khánh Nam and

Lecturer Lê Anh Khang for the valuable suggestions and materials that help me to

develop this thesis.

In addition, I would like to special thanks to all the lecturers at the Vietnam –

Netherlands Program for their knowledge of all the courses during I studied at the

program.

Besides my mentors, I would like to thank my friends who are always beside me

and support for my thesis.

Last, but not least, I am very deeply grateful to my family. Without their warm

encouragement, support, and attention, I would not be possible to complete this

dissertation.

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ABBREVIATIONS

ATE Average Treatment Effect’

ATT Average Treatment effect on the Treated

BPM Balance of Payment Manual

DID Difference in Difference

FDI Foreign Direct Investment

FEM Fixed-Effect Model

IMF International Monetary Fund

NPISH NonProfit Institutions Serving Household

ODA Official Development Assistance

OLS Ordinary Least Square

PSM Propensity Score Matching

TFP Total Factor Productivity

USD United States Dollar

VHLSS Vietnam Household Living Standard Survey

VARHS Vietnam Access to Resources Household Survey

WB World Bank

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ABSTRACT

During the past decades, remittance becomes a new capital source in developing

countries. This capital flow which is increasing every year in the developing countries

derived from origins such as exporting labors, or migration from countries with low

income to countries with medium or high income. Remittance considered the stable

capital flow for economic growth to labor exporting countries or countries with huge

migration, helps reducing poverty through increasing income of households. Until

1986, in most cases remittance received by households living in Ho Chi Minh city in

Viet Nam, after 1986 remittance inflow is expanded to households living in rural areas

of Viet Nam by labor exporting policy. Up to now, remittance is increasing more and

more, and it is also one of tools to alleviate poverty, and to enhance living condition of

Viet Nam households. So, the aim of this study will examine the effect of remittance

on behaviours of households receiving remittance in rural Vietnam. Estimation of this

effect based on impact evaluation method and data set of Vietnam Access to Resources

Household Survey (VARHS) in 2006, 2008, and 2010. This data set was carried out by

Institute of Labor and Social Sciences, a subsidiary of Ministry of Labor-Invalids and

Social Affairs, in 12 rural provinces in North, Middle and South of Viet Nam such as

Ha Tay, Lao Cai, Phu Tho, Lai Chau, Dien Bien, Nghe An, Quang Nam, Khanh Hoa,

Dak Lak, Dak Nong, Lam Dong, Long An.

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TABLE OF CONTENTS

DECLARATION .............................................................................................................3

ACKNOWLEDGMENT..................................................................................................4

ABBREVIATIONS..........................................................................................................5

ABSTRACT.....................................................................................................................6

TABLE OF CONTENTS.................................................................................................7

LIST OF TABLES ...........................................................................................................9

LIST OF FIGURES........................................................................................................10

1. 1 PROBLEM STATEMENT ......................................................................................11

1. 2 RESEARCH OBJECTIVE ......................................................................................14

1. 3 RESEARCH QUESTION .......................................................................................14

1. 4 SCOPE................................................................................................................14

1. 5 DATA.................................................................................................................16

1. 6 METHODOLOGY ................................................................................................16

1. 7 THESIS OUTLINE................................................................................................16

CHAPTER II - THEORETICAL FRAMEWORK........................................................18

2. 1 RELEVANT CONCEPTS AND BROADER ISSUES OF CONCERN ..............................18

2. 1.1 Remittance ....................................................................................................18

2.1.2 Literature of migration and remittances .......................................................19

2.1.3 Theory of Remittances..................................................................................23

2. 2 LITERATURE REVIEW: REMITTANCES, INCOME, SAVINGS, ASSET, INSURANCE

AND BORROWING ........................................................................................................26

2. 3 SUMMARY OF LITERATURE REVIEW..................................................................33

2. 4 CONCEPTUAL FRAMEWORK ..............................................................................35

CHAPTER III - RESEARCH METHODOLOGY ........................................................36

3. 1 PROPENSITY SCORE MATCHING........................................................................36

3.1.1 Assumptions of PSM method .......................................................................37

3.1.2 Model Specification of Propensity Score Matching.....................................38

3.1.3 Software........................................................................................................44

3. 2 DIFFERENCE IN DIFFERENCE (DD) METHOD ....................................................44

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3.2.1 Theory...........................................................................................................44

3.2.2 Implementing DID........................................................................................45

3.2.3 Model of this study .......................................................................................46

3.3 COMBINING PSM WITH DID METHODS.............................................................50

3.4 DATA.................................................................................................................51

CHAPTER IV - EMPIRICAL ANALYSIS...................................................................55

4. 1 DESCRIPTIVE ANALYSIS OF THE SAMPLE...........................................................55

4. 2 EMPIRICAL RESULTS..........................................................................................58

4. 2.1 Propensity score matching (PSM) model .....................................................58

4. 2.2 DID model ....................................................................................................63

4. 2.3 Combining PSM Method and DID Method .................................................68

CHAPTER V - CONCLUSIONS AND RECOMMENDATIONS...............................72

5. 1 CONCLUSIONS ...................................................................................................72

5. 2 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCHES..........................73

REFERENCES...............................................................................................................74

APPENIX A. REMITTANCES DEFINED IN BALANCE OF PAYMENT OF

INTERNATIONAL MONETARY FUND....................................................................80

APPENDIX B. QUESTIONNAIRE..............................................................................84

APPENDIX C. PROPENSITY SCORE MATCHING METHOD ...............................91

APPENDIX D. DIFFERENCE IN DIFFERENCE METHOD ...................................127

APPENDIX E. PSM AND DID METHODS ..............................................................147

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LIST OF TABLES

Table 3.1 Variables of Propensity score Matching ........................................................41

Table 3.2 Population in each province...........................................................................42

Table 3.3 Weight of Population in VARHS 2006, VARHS 2008 and VARHS 2010 ..42

Table 3.4 Variables of Difference in Difference Method ..............................................49

Table 3.5 DID estimation between treatment group and control group. .......................50

Table 4. 1 Number of HHs receiving remittance and receiving no remittance .............55

Table 4. 2 Summary of Households with and without remittance.................................56

Table 4.3 Expected sign in PSM Model ........................................................................57

Table 4.4 Expected sign of variables in DD model .......................................................58

Table 4.5 Summary of Average Treatment Effect of on Treated Group .......................62

Table 4.6 Summary the impacts of remittance by PSM method ...................................63

Table 4.7 Results of DID Method in 2006/2008............................................................66

Table 4.8 Results of DID Method in 2008/2010............................................................67

Table 4.9 Results of PSM - DID Method in 2006/ 2008 ...............................................70

Table 4.10 Results of PSM – DID Method in 2008/2010..............................................71

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LIST OF FIGURES

Figure 1. 1 Global Remittances Inflow..........................................................................11

Figure 1. 2 ODA, FDI and Remittance in Viet Nam from 2000 to 2011 ......................13

Figure 2. 1 Neo-classical mechanism leading to equilibrium.......................................20

Figure 2. 2 Motives for Remittances............................................................................26

Figure 3. 1 Example of Common Support .....................................................................38

Figure 3. 2 An example of Difference in Difference .....................................................46

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DOES REMITTANCE AFFECT ON BEHAVIOUR

OF HOUSEHOLDS?

A CASE STUDY OF TWELVE RURAL PROVINCES IN VIETNAM

CHAPTER I - INTRODUCTION

1. 1 Problem Statement

Increasing remittance during the past decades revealed as the special

phenomenon in developing countries. According to World Bank’s statistical figures

indicated, that remittance has been quickly increasing over the past decades. In 1990,

global flow of remittance is from 68 billion USD, up to 131 billion USD in 2000, and

440 billion in 2010 as in Figure 1.1. This is an important source of external capital

contributing to economic growth and development as well as reducing poverty of

households in developing countries. Stemming from remittance, working papers

studied positive or negative effects of remittance on income, asset, borrowing and

saving as mentioned below supplying empirical evidences in developing countries.

Figure 1. 1 Global Remittances Inflow

Source: Migration Policy Institute, World Bank, 2011.

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Since the policy of “Doi moi” in 1986 and the even more radical market-oriented

reform of 1989, Viet Nam has been considered the country with high economic growth.

Average Gross Domestic Production growth in Vietnam is 7.6% during period 2000-

2007 (data of World Bank, 2013). The factors have contributed for economic growth

including capital, labor, and Total Factor Productivity (TFP), in which capital is count

for more than fifty percent. There are two kinds of capital such as foreign investment

and domestic investment. Foreign investment includes Foreign Direct Investment

(FDI) and Official Development Assistance (ODA), and domestic investment is

derived from saving of households, enterprises, and government. Household saving is

the major source of domestic investment and apart of household saving stems from

remittance.

According to World Bank (2011), Vietnam is ranked in top 20 remittance￾receiving countries in the world, and the second in East Asia & Pacific after

Philippines. Remittance flowing in Vietnam was increasing from 1.34 billion USD in

2000 to 8.6 billion USD in 2011. In comparison with Official Development Assistance

(ODA) in Vietnam, remittance has been more increasing and higher than ODA since

2002 to now, and remittance was higher than Foreign Direct Investment (FDI) in 2010

and 2011 (Figure 1.2).

Remittance is increasing year by year and becomes a stability finance for income

smoothing, as well as economic growth in developing countries and Viet Nam

particularly, during the past decades. Remittance inflow in Viet Nam is derived from

two sources including Vietnamese immigrant and labor exporting. Before 2000, Viet

Nam received remittances from Vietnamese immigration to the United States between

1971 and 2001 (Wade D.P, 2008). Since 1994, remittances have been sent by

Vietnamese workers in developed countries. Labor exporting in Viet Nam is policy of

Government; in particular, the Law and regulations encourage labor exporting for

purposes such as creating jobs, stabilizing social security, enhancing standard living,

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and poverty reduction in provinces of Viet Nam. The beginning is Conference

Resolution of Party Central Committee No.02/NQ-HNTW dated December 24th, 1996

mentioned training skilled workers for industrial zones, export processing zones, taking

into account the demand for labor export. The next is Law No. 72/2006/QH11 dated

November 29th, 2006 of Government promulgating Law on Vietnamese guest workers;

and in particular Decision No.71/2009/QD-TTg date April 29th, 2009 approved the

Project of supporting the poor districts for labor exporting to reduce sustainable

poverty in period 2009-2020. The latest is Instruction No.19-CT/TW dated November

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th, 2012 of Viet Nam Party Central Committee on enhancing the Party's leadership to

train vocation for rural workers.

Figure 1. 2 ODA, FDI and Remittance in Viet Nam from 2000 to 2011

Source: World bank (2012).

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Remittance is increased rapidly by Labor exporting policy of Viet Nam

Government, however, the households having members attending labor exporting

whether changing being better than not attending, especially in rural provinces. Based

on these literatures and empirical evidences, the aim of this study considers connection

of remittance and its influence on rural receiving-remittance households in Vietnam.

1. 2 Research Objective

Based on mentioned above concerns, the thesis was carried out for the purpose

exploring whether or not there were any effect of remittance on behaviour of

households receiving-remittance in Vietnam rural, based on a comparison between

households with and without remittances. By applying research result to reality and

based on collected data, the thesis will then suggest the recommendation relating how

to use remittances to improve living condition in rural households.

1. 3 Research Question

By limiting the objective of this research to twelve provinces in rural Viet Nam,

this thesis tried to outline the income receiving-remittance and receiving-no remittance

rural households. Specifically, we tried to find the answers to the question “How is

effect of remittance on behaviour of rural households receiving remittance in

Vietnam?”

1. 4 Scope

For the recent decades, remittance inflow becomes diverse in Viet Nam, it is not

only focus on big cities as Ho Chi Minh city and Ha Noi city but also move to other

urban and rural areas, and origins of foreign remittances derived not only from

immigrating relatives of households but also from exporting labor.

The economic globalization and trade liberalization have led to free flows of

capital, goods, and human resource from countries to countries. The movement of

human resource across countries - known “exporting labor” - has brought significantly

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economic value as well as social benefits to developing countries and Vietnam, in

particular.

The national policy of Viet Nam always considers labor export as an important

factor of external economic to create jobs for laborers and reduce unemployment,

especially in rural provinces. There are a few studies of relationship between

remittance and welfare (Nguyen Viet Cuong, 2009), remittance and expenditures

(Wade Donald Pfau and Long Thanh Giang, 2010). These studies were major based on

Vietnam Household Living Standard Survey (VHLSS) datasets of 1990s, having in

comparison and extension for VHLSSs in 2002 and 2004. The question given “Is there

any effect of remittances on behaviour of remittance-receiving households in rural

provinces of Viet Nam?” To my knowledge, the earlier studies of remittances are based

on VHLSS data for all provinces and cities in Vietnam, and papers in particular for

impacts of remittance on rural households in Vietnam based on VARHS are rare.

Therefore, the purpose of this study presents changes income, borrowing, saving and

asset of receiving-remittance households and receiving-no remittance households in

rural provinces of Viet Nam. To pursue this purpose, we chose data sets of Vietnam

Access to Resources Household Survey (VARHS) in years of 2006, 2008 and 2010.

VARHS has designed to provide the information collected by the General Statistical

Office (GSP) under the umbrella of the Vietnam Household Living Standard Survey

(VHLSS) every two year. VARHS datasets were surveyed by Institute of Labor and

Social Sciences, subsidiary unit of Ministry of Labor - Invalids and Social Affairs, in

twelve rural provinces of Viet Nam including: Ha Tay, Lao Cai, Phu Tho, Lai Chau,

Dien Bien, Nghe An, Quang Nam, Khanh Hoa, Dak Lak, Dak Nong, Lam Dong, and

Long An.

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