(Luận văn) international remittances and household welfare in vietnam from vhlss 2006 to vhlss 2008

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HUGE t to VIETNAM THE NETHERLANDS ng hi ep VIETNAM - NETHERLANDS w PROJECT FOR M.A IN DEVELOPMENT ECONOMICS n lo ad ju y th yi INTERNATIONAL REMITTANCES AND pl al n ua HOUSEHOLD WELFARE IN VIETNAM n va FROM VHLSS 2006 AND VHLSS 2008 ll fu oi m nh “This paper was submitted in partial fulfillment of the requirements for the at Masters of Development Economics (MDE) degree at the z z Vietnam - The Netherlands Programme (VNP), August/2012” ht vb k om l.c gm NGUYEN VAN PHUC jm BY n a Lu n va y te re Ho Chi Minh City, August 2012 ABSTRACT t to International remittances has more important role in progress of economy and society in ng Vietnam With US$ billions in 2011, Vietnam is one of 10 top countries received the hi remittances in the world This paper examines the impact of international remittances, which ep increases over time, on the household welfare of receiving households in Vietnam The thesis w has combined the propensity score matching and difference-in-differences methods with n panel data taken from Vietnam Household Living Standard Surveys 2006 and 2008 It is lo ad found that international remittances increases income and expenditures for recipients, but the ju y th 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 yi pl areas, the thesis found that the impact of international remittance on income and expenditures ua al are positive and statistically significant for rural areas and positive and insignificant for urban n areas; meanwhile, the paper has not detected the affects of foreign remittances on education va and healthcare in urban or rural areas n ll fu oi m Key words: international remittances, household welfare, household surveys, Vietnam at nh z z ht vb k jm om l.c gm n a Lu n va y te re TABLE OF CONTENTS ABSTRACT i t to TABLE OF CONTENTS ii ng hi CHAPTER 1: INTRODUCTION 04 ep 1.1 Problem statement 1.2 Research objectives w 1.3 Research question n lo 1.4 Thesis structure ………………………………………………………………… ad CHAPTER 2: LITERATURE REVIEW 08 y th 2.1 The key concepts ju 2.2 Empirical literature yi 2.3 Empirical framework pl 2.4 Overview of theory on impact evaluation al ua 2.5 Summary of PSM and DD methods n 2.5.1 Propensity Score Matching (PSM) va 2.5.2 Difference-in-difference (DD) n fu CHAPTER 3: METHODOLOGY AND DATA 22 ll 3.1 The research model m oi 3.2 Variable introduction nh 3.3 Data … at 3.4 Estimation Strategy z CHAPTER 4: INTERNATIONAL REMITTANCES IN VIETNAM 33 z vb 4.1 General view of migration remittances in Vietnam ………….………………… ht 4.2 Role of international remittances on economy…………………………………… jm 4.3 International remittances and household welfare in Vietnam…………………… k CHAPTER 5: EMPIRICAL ANALYSIS………………… 42 gm 5.1 Data description CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 55 n 6.2 Recommendations a Lu 6.1 Conclusions om 5.3 Interpretation of results l.c 5.2 Estimation results va 6.3 Limitations of the paper n te re REFERENCES y APPENDIX CHAPTER 1: INTRODUCTION t to 1.1 Problem statement ng hi After foreign direct investment (FDI), remittances by international migrants to their home ep 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 w n in migrants’ home countries Remittances are found to give significant impacts on receiving lo ad households, especially on low-income families It may help households to establish or expand y th their small business (Woodruff and Zenteno, 2007 and Amuedo-Dorantes and Pozo, 2006), ju increase of expenditures in family (Ahmed and et al 2010), or reduction on poverty (Adams, yi pl 1991 and Lopez-Cordova, 2005) ua al n Some other studies examine the impact of remittances on household welfare, such as savings, n va consumption, health care and education However, the empirical studies exposed the different ll fu results about the impact of remittances on household welfare For instance, Adams (2005), m Adams and Cuecuecha (2010) found that the remittances has positive impacts on health-care oi and educational expenditures in Guatemala Ahmed and et al (2010) showed the significant nh at impacts of remittances on food, education, clothing and recreation in Pakistan Conversely, in z the study of McKenzie and Rapoport (2006), the negative impact of migration detected on z vb schooling ratio of children; or Hildebrandt and McKenzie (2005) uncovered that the ht preventative health-care of children in receipt households lower than in non-receipt k jm households in Mexico gm According to Vietnamese Oversea Committee (2009), there are about millions Vietnamese l.c om living, working and studying permanently in 102 nations and territories in the world The from oversea Vietnamese sent to the home country in 2008-2010 by formal channel is bigger y te re living standard of receiving households in particular There are many studies on the impact of n the important of international remittances on economic progress in general and improve the va than $7 billion/year, which accounts more 7% of GDP in that period So the fact indicates n a Lu international remittances have been rising over time in Vietnam The average of remittances migration in Vietnam, such as Dang (2001), Djamba and et al (1999), Andrew T Pham (2010) 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) t to and Nguyen (2009) Pfau and Long (2008) studied the impact of international remittances on ng household welfare in term of economic inequality and poverty By using the Vietnam hi (Household) Living Standards Survey in 1992/93, 1997/98, 2002 and 2004, this study found ep 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 w n internal remittances on welfare of receiving households By using the panel data from lo ad VHLSS 2002 and VHLSS 2004, he concluded that the international remittances have positive y th and significant impacts on income, expenditures of non-food consumption (excluding health- ju care and educational spending); but not significant impacts on expenditures of food, health- yi pl care and education He also showed the effect of remittances in urban area is much more than ua al in rural area Differently from the paper of Nguyen (2009), the thesis of Toan (2010) and Ha n (2010) showed that the foreign remittances have positive and significant impacts on health- ll fu using data from VHLSS 2006 n va care and educational expenditures, but not significant between urban and rural areas through m oi Therefore, the objective of the paper is to re-examine the impact of international remittances nh at on the welfare of receiving household in Vietnam by some reasons The first, the last studies z used the series of data only until 2004, for instant in the period 2002-2004 the average of z vb international remittances is about more US$ 2.8 billion per year However, in our paper, we ht use the data from VHLSS 2006 and 2008 with the average of foreign remittances is double jm k more to US$ 5.8 billon per year in 2006-2008 compared to the period of 2002-2004 The gm 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 l.c om results of Toan (2010) and Ha (2010), based on VHLSS 2006, about the impact of the result of empirical studies is important referential sources for policy-makers on building n va suitable policies with different stages, because of the implementation of non-suitable policy n a Lu international remittances, which is difference from Nguyen (2009)’s results The last reason, y te re 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 suggest some suitable policies for the government to explore efficiently international remittances on improving the household welfare in Vietnam t to ng 1.2 Research objectives hi ep The thesis has three objectives: 1) To determine whether international remittances significantly influence the w n household welfare in Vietnam through total income, total expenditures, health- lo ad care expenditures and education expenditures y th 2) To examine whether there is the differential impact of remittances on ju household welfare between urban and rural area yi 3) To make recommendations to policy-makers for efficiently exploiting pl n va 1.3 Research question n ua al remittances, this improves the household welfare fu ll To meet the objectives, the study has three research questions: m oi 1) Does international remittance significantly influence on the household welfare at nh in Vietnam? 2) Is there the differential impact of international remittances on household z z welfare between urban and rural area? vb ht 3) What are the recommendations could help the policy-makers to explore jm efficiently remittances on improving the household welfare k l.c gm 1.4 Thesis structure om The thesis consists of six chapters The first chapter presents the research issues, research concepts, the results of empirical studies, and summarizes the methods of impact evaluation n va The third chapter presents the research model, describes the variables and the dataset, and n a Lu objectives and research questions, the thesis structure The second chapter describes the basic 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) y Vietnam, the role of the remittance for the economy in general and statistical descriptions of te re estimation strategy The fourth chapter illustrates an overview of international remittances in regression with propensity score matching (PSM), and interpretation of researching results The last chapter presents a summary of main findings, policy recommendations and the t to limitation of the thesis ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z ht vb k jm om l.c gm n a Lu n va y te re CHAPTER 2: LITERATURE REVIEW t to 2.1 The key concepts ng hi International Monetary Fund defined the economic concept of remittances as follows: ep “Remittances represent household income from foreign economies arising mainly from the temporary or permanent movement of people to those economies Remittances include cash w n and non-cash items that flow through formal channels, such as across electric wire, or lo ad through informal channels, such money or goods carried across borders They largely y th consist of funds and non-cash items sent or given by individuals who have migrated to a new ju economy and become residents there, and the net compensation of border, seasonal, or other yi pl short-term workers who are temporarily employed in an economy in which they are not n Manual” (2008) ua al resident” (Appendix on remittances to the “Balance of Payments and Investment Position n va ll fu In this research, we only examine international remittances by formal channels For informal m channels, it is very difficult to define how flows in amount of informal remittances and what oi the effects on the economy are It needs further deeply studies, which is excluded in the at nh research z z vb Welfare is physical and mental health and happiness, especially of a person It relates to the ht income and consumption of a person Household is a group of people, often a family, who jm k live together (Cambridge Advanced Learner's Dictionary) However, the economic concept gm of the household-welfare is very complex and wide In this paper, we only to analyze the impacts of international remittances on household welfare by examining the impact on n a Lu 2.2 Empirical literature om l.c indicators of household welfare: income and expenditures of the receipt households financing for household business (Woodruff and Zenteno 2007, and Amuedo Dorantes and Pozo 2006), covering medical expenses (Amuedo Dorantes and Pozo, 2006), and contributing y helping family members to improve their house’s infrastructure (Duryea et al 2005), te re of the nations The motivations of overseas migrants are altruism (Lucas and Stark, 1985), n va There are many researches, which describe the role of remittances in the economic progress in education investment of children (Edward and Ureta, 2003) Many empirical studies explore the impact of international remittances on welfare of receiving households, such as t to Quartey (2006) in Ghana, Soraya (2007) in Philippines, Subedi (2009) in Nepal, Adams and ng Cuecuecha (2010) in Guatemala, Ahmed and et al in Pakistan (2010) and Raihan (2009) in hi Bangladesh ep Quartey (2006) used Ghana Living Standards Survey (GLSS) to examine the impact of w n international remittances on household welfare in Ghana He concluded that international lo ad remittances is the important sources of income for consumption smoothing, improving y th household welfare and decreasing negative effects of economic shocks, and households ju which own land can withstand economic shocks and have better welfare than those without yi pl land Soraya (2009) found the positive and significant impact of international remittances on n ua al education and recreation expenditures in Philippines n va By using Nepal Living Standards Survey (NLSS) for analyzing in Nepal, Subedi (2009) ll fu realized that remittances from India increase income and decrease inequality on receiving m households At the micro-level, Nepal reached a significant reduction in poverty over the oi period of 1996-2006 (from 42% in 1995-1996 to 2003-2204), despite a low economic growth nh z declining the poverty in Nepal at and political instability in that period Therefore, the remittance is one of key factors for z vb ht Meanwhile, Raihan et al (2009) carried out the examining effects of international remittances jm k on household consumption and poverty at macro and household levels in Bangladesh, where gm the remittances accounted 10% GDP in 2008 At macro level, Raihan found the positive impact of foreign remittances on economy and reducing poverty At micro level, he l.c om discovered the different effects of remittances on indicators of household welfare: positive health-care, and negative and significant on durable good The positive and statistically y te re remittances on food, education, clothing and recreation n Cuecuecha, A 2010) In Pakistan, Ahmed and et al (2010) showed the significant impacts of va significant impacts on health-care of remittances also were found in Guatemala (Adams and n a Lu and significant impact on food and housing, positive but insignificant on education and In Vietnam, by using the Vietnam (Household) Living Standards Survey in 1992/93, 1997/98, 2002 and 2004, Pfau and Long (2008) included that foreign remittances come from throughout the world, but the United State is a main source The destinations of international remittances have become more diversification when they move away from Ho Chi Minh City t to and other urban areas to other regions and rural areas over time However, the percentage of ng household receiving external remittances held at around to percent of population The hi elderly, female-headed and the head not working households received disproportionately ep foreign remittances As a result, these remittances help improving equality in Vietnam in term of per-capita household expenditures, although the improvements are small w n Furthermore, international remittances are also to help to reduce poverty in Vietnam In the lo ad paper of Nguyen (2009), it was examined the impact of international and internal remittances y th on welfare of receiving households Namely, the paper focuses on direct welfare indicators: ju income, consumption expenditure, food and non-food expenditures, education and health- yi pl care By using the panel data from VHLSS 2002 and VHLSS 2004, he concluded that the ua al international remittances have positive and significant impacts on income, expenditures of n non-food consumption (excluding health-care and educational spending); but not significant n va impacts on expenditures of food, health-care and education ll fu oi m 2.3 Empirical framework nh As stated above there are various empirical studies analyzing the impact of international at z remittances on household welfare The most relevant to research questions mentioned in this z vb paper including the researches of Raihan (2009) in Bangladesh, Adams and Cuecuecha ht (2010) in Guatemala, Nguyen (2009) in Vietnam and Quartey (2006) in Ghana k jm gm Raihan and et al (2009) examined the relationship between remittances and expenditures in om Householdexp = ß0 + ∑ ßjXij + ε l.c Bangladesh by using the multivariate regression model, which summarized as follows: a Lu Where Householdexp is the household expenditures as dependent variable (i.e., housing, education and health-care, and negative and significant on durable good 10 y welfare: positive and significant impact on food and housing, positive but insignificant on te re revealed that an international remittance has different impact on indicators of household n education level of household head, religion, marital status, urban or rural etc The paper va international remittances, household and geographic characteristic, for instant household size, n medication, education, durable good and food) Xij is the explanatory variables including