Luận văn thạc sĩ UEH international remittances and household welfare in vietnam from VHLSS 2006 to

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HUGE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROJECT FOR M.A. IN DEVELOPMENT ECONOMICS

INTERNATIONAL REMITTANCES AND

HOUSEHOLD WELFARE IN VIETNAM

FROM VHLSS 2006 AND VHLSS 2008

“This paper was submitted in partial fulfillment of the requirements for the

Masters of Development Economics (MDE) degree at the

Vietnam - The Netherlands Programme (VNP), August/2012”

BY

NGUYEN VAN PHUC

Ho Chi Minh City, August 2012

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ABSTRACT

International remittances has more important role in progress of economy and society in

Vietnam. With US$ 9 billions in 2011, Vietnam is one of 10 top countries received the

remittances in the world. This paper examines the impact of international remittances, which

increases over time, on the household welfare of receiving households in Vietnam. The thesis

has combined the propensity score matching and difference-in-differences methods with

panel data taken from Vietnam Household Living Standard Surveys 2006 and 2008. It is

found that international remittances increases income and expenditures for recipients, but the

effect of remittances on expenses of healthcare and education is not statistically significant

although the expenses also rise over time. When studying separately for urban and rural

areas, the thesis found that the impact of international remittance on income and expenditures

are positive and statistically significant for rural areas and positive and insignificant for urban

areas; meanwhile, the paper has not detected the affects of foreign remittances on education

and healthcare in urban or rural areas.

Key words: international remittances, household welfare, household surveys, Vietnam

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TABLE OF CONTENTS

ABSTRACT.............................................................................................................................. i

TABLE OF CONTENTS ......................................................................................................... ii

CHAPTER 1: INTRODUCTION............................................................................................. 04

1.1 Problem statement..................................................................................................

1.2 Research objectives ...............................................................................................

1.3 Research question .................................................................................................

1.4 Thesis structure …………………………………………………………………..

CHAPTER 2: LITERATURE REVIEW................................................................................... 08

2.1 The key concepts.....................................................................................................

2.2 Empirical literature..................................................................................................

2.3 Empirical framework...............................................................................................

2.4 Overview of theory on impact evaluation ........................................................

2.5 Summary of PSM and DD methods ......................................................................

2.5.1 Propensity Score Matching (PSM) .....................................................................

2.5.2 Difference-in-difference (DD) ............................................................................

CHAPTER 3: METHODOLOGY AND DATA........................................................................ 22

3.1 The research model.................................................................................................

3.2 Variable introduction..............................................................................................

3.3 Data .…...................................................................................................................

3.4 Estimation Strategy ................................................................................................

CHAPTER 4: INTERNATIONAL REMITTANCES IN VIETNAM ...................................... 33

4.1 General view of migration remittances in Vietnam..………….…………………..

4.2 Role of international remittances on economy…………………………………….

4.3 International remittances and household welfare in Vietnam……………………..

CHAPTER 5: EMPIRICAL ANALYSIS…………………....................................................... 42

5.1 Data description ......................................................................................................

5.2 Estimation results.....................................................................................................

5.3 Interpretation of results............................................................................................

CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS.............................................. 55

6.1 Conclusions .............................................................................................................

6.2 Recommendations ...................................................................................................

6.3 Limitations of the paper ..........................................................................................

REFERENCES............................................................................................................................

APPENDIX.................................................................................................................................

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CHAPTER 1: INTRODUCTION

1.1 Problem statement

After foreign direct investment (FDI), remittances by international migrants to their home

countries contribute the largest source of external finance to developing countries, around

$300 billion/year in stage of 1995-2005. The funds are used for consumption and investment

in migrants’ home countries. Remittances are found to give significant impacts on receiving

households, especially on low-income families. It may help households to establish or expand

their small business (Woodruff and Zenteno, 2007 and Amuedo-Dorantes and Pozo, 2006),

increase of expenditures in family (Ahmed and et al. 2010), or reduction on poverty (Adams,

1991 and Lopez-Cordova, 2005).

Some other studies examine the impact of remittances on household welfare, such as savings,

consumption, health care and education. However, the empirical studies exposed the different

results about the impact of remittances on household welfare. For instance, Adams (2005),

Adams and Cuecuecha (2010) found that the remittances has positive impacts on health-care

and educational expenditures in Guatemala. Ahmed and et al. (2010) showed the significant

impacts of remittances on food, education, clothing and recreation in Pakistan. Conversely, in

the study of McKenzie and Rapoport (2006), the negative impact of migration detected on

schooling ratio of children; or Hildebrandt and McKenzie (2005) uncovered that the

preventative health-care of children in receipt households lower than in non-receipt

households in Mexico.

According to Vietnamese Oversea Committee (2009), there are about 4 millions Vietnamese

living, working and studying permanently in 102 nations and territories in the world. The

international remittances have been rising over time in Vietnam. The average of remittances

from oversea Vietnamese sent to the home country in 2008-2010 by formal channel is bigger

than $7 billion/year, which accounts more 7% of GDP in that period. So the fact indicates

the important of international remittances on economic progress in general and improve the

living standard of receiving households in particular. There are many studies on the impact of

migration in Vietnam, such as Dang (2001), Djamba and et al. (1999), Andrew T. Pham

(2010).

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Nonetheless, there are only a few of studies that examined the impact of international

remittances on household welfare in Vietnam, such as the studies of Pfau and Long (2008)

and Nguyen (2009). Pfau and Long (2008) studied the impact of international remittances on

household welfare in term of economic inequality and poverty. By using the Vietnam

(Household) Living Standards Survey in 1992/93, 1997/98, 2002 and 2004, this study found

that foreign remittances reduce inequality and poverty in Vietnam with regards to per-capita

household expenditures and income. Nguyen (2009) examined the impact of international and

internal remittances on welfare of receiving households. By using the panel data from

VHLSS 2002 and VHLSS 2004, he concluded that the international remittances have positive

and significant impacts on income, expenditures of non-food consumption (excluding health￾care and educational spending); but not significant impacts on expenditures of food, health￾care and education. He also showed the effect of remittances in urban area is much more than

in rural area. Differently from the paper of Nguyen (2009), the thesis of Toan (2010) and Ha

(2010) showed that the foreign remittances have positive and significant impacts on health￾care and educational expenditures, but not significant between urban and rural areas through

using data from VHLSS 2006.

Therefore, the objective of the paper is to re-examine the impact of international remittances

on the welfare of receiving household in Vietnam by some reasons. The first, the last studies

used the series of data only until 2004, for instant in the period 2002-2004 the average of

international remittances is about more US$ 2.8 billion per year. However, in our paper, we

use the data from VHLSS 2006 and 2008 with the average of foreign remittances is double

more to US$ 5.8 billon per year in 2006-2008 compared to the period of 2002-2004. The

increasing trend of remittances over time, which may be change the relationship between

remittances and household welfare, compared the last studies. The second reason is the

results of Toan (2010) and Ha (2010), based on VHLSS 2006, about the impact of

international remittances, which is difference from Nguyen (2009)’s results. The last reason,

the result of empirical studies is important referential sources for policy-makers on building

suitable policies with different stages, because of the implementation of non-suitable policy

may lead to waste social resources.

Relying on that, the thesis is to contribute some new findings to the debate about

relationships between international remittances and household welfare in Vietnam and

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suggest some suitable policies for the government to explore efficiently international

remittances on improving the household welfare in Vietnam.

1.2 Research objectives

The thesis has three objectives:

1) To determine whether international remittances significantly influence the

household welfare in Vietnam through total income, total expenditures, health￾care expenditures and education expenditures.

2) To examine whether there is the differential impact of remittances on

household welfare between urban and rural area.

3) To make recommendations to policy-makers for efficiently exploiting

remittances, this improves the household welfare.

1.3 Research question

To meet the objectives, the study has three research questions:

1) Does international remittance significantly influence on the household welfare

in Vietnam?

2) Is there the differential impact of international remittances on household

welfare between urban and rural area?

3) What are the recommendations could help the policy-makers to explore

efficiently remittances on improving the household welfare.

1.4 Thesis structure

The thesis consists of six chapters. The first chapter presents the research issues, research

objectives and research questions, the thesis structure. The second chapter describes the basic

concepts, the results of empirical studies, and summarizes the methods of impact evaluation.

The third chapter presents the research model, describes the variables and the dataset, and

estimation strategy. The fourth chapter illustrates an overview of international remittances in

Vietnam, the role of the remittance for the economy in general and statistical descriptions of

the relationship between the remittance and household welfare in particular. The fifth chapter

shows statistical description of the variables, the results of difference-in-difference (DD)

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regression with propensity score matching (PSM), and interpretation of researching results.

The last chapter presents a summary of main findings, policy recommendations and the

limitation of the thesis.

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