Determinants of computer ownership case of households in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- THE NETHERLANDS PROJECT FOR M.A IN DEVELOPMENT ECONOMICS DETERMINANTS OF COMPUTER OWNERSHIP: CASE OF HOUSEHOLDS IN VIETNAM By: VO THI THANH NGA Academic Supervisor: Dr VO VAN HUY B¢ GIAO ~UC VA DAO T~O TRUONG OH KINH TE TP.HCM THU VIF.:N HO CHI MINH CITY, 2007 ACKNOWLEDGEMENTS This thesis is a very important research during my study and it would not have been possible without the support and encouragement of many people First and foremost, I would like to acknowledge Dr Vo Van Huy, my supervisor, for his detailed correction and guidance throughout the th~sis process I am grateful to Prof Dr Karel Jansen, Dr Nguyen Hoang Bao and Dr Nguyen Trong Hoai for their insights and useful comments on the thesis Sincere thanks go to my friends, Mr Nguyen Ngoc Danh for his kind help in data issues and Mr Nguyen Van Cong for his inspiration and support I also would like to thank Ms Dang Kim Chi, the librarian, for her kindness to me throughout my study I would like to thank other professors, lecturers, classmates in the Project and other teachers and friends of mine for their help and friendship As for my parents, I just cannot thank them enough for their unconditional love and support CERTIFICATION I certify that the substance of this thesis has not been submitted for any degree and is not being currently submitted for any other degree I certify that to the best of my knowledge, any help received in preparing this thesis and all sources used have been acknowledged in this thesis ii ABSTRACT Low computer ownership rate has been proved to lead to low quality of life of households, slow down the economic development and make government administration less efficient This study investigates the determinants of computer ownership for the case of households in Vietnam, a developing country with a very low computer ownership rate The author reviews the literature and employs the Logit model and descriptive statistics to model the computer ownership and use; the data from the Vietnam Living Standard Survey 2004 Results support the empirical evidences that household socio-demographic characteristics greatly influence that household ownership of computer, which identifies the digital divide between types of households and regions Based on the results and empirical projects that have been carried out to enhance the computer availability, policy recommendation is given lll TABLE OF CONTENTS Page Chapter INTRODUCTION 1.1 Problem Statement ! 1.2 Objective of Study 1.3 Methodology and Scope of Research Chapter LITERATURE REVIEW AND RESEARCH METHODOLOGY 2.1 Basic Terms and Concepts 2.2 Economic Theories of Consumer Behavior 2.2.1 Neoclassical quantitative models of consumer behavior 2.2.1.1 The Indifference Curve Model 2.2.1.2The Marginal Utility Model 2.2.2 Demand for durable goods and qualitative choice models 10 2.2.3 Justification ofthe models 11 2.3 Empirical Studies 13 2.3.1 Methods of empirical researches applied 13 2.3 1.1 Methods of Internet access estimation 13 2.3 1.2Methods of computer use, computer expenditure and computer ownership estimation 14 2.3.1.3Justification ofthe methods in empirical studies 16 2.3 Major findings in empirical studies 17 2.3 2.1 Determinants of internet access 17 2.3 2.2Determinants of computer use, computer expenditure and computer ownership 17 2.3.2.3Justification of the determinants in empirical findings and some suggestions in the thesis research model 19 2.4 Econometric Model Specification 21 IV Chapter AN OVERVIEW OF THE COMPUTER MARKET AND COMPUTER OWNERSHIP IN VIETNAM 3.1 An overview of computer ownership, computer market and empirical projects to enhance the computer ownership in Vietnam 28 1.1 An overview of computer ownership of households in Vietnam 28 3.1.2 Computer market in Vietnam and prospect after Vietnam joined WT0 32 1.3 Some projects that have been carried out to enhance the computer ownership of households 3.2 Descriptive analysis on factors affecting computer ownership of households in Vietnam in VLSS 2004 38 Chapter ECONOMETRIC ANALYSIS 4.1 Logit model 45 4.2 The logit model in this study's estimation 46 4.3 Logistic regression results 47 4.4 Goodness-of-fit 49 4.5 Results interpretation 49 4.5.1 Coefficients and expected signs 50 4.5.2 Oddsratios 51 4.5.3 Probability estimated at different initial probability 54 Chapter CONCLUSIONS AND POLICY IMPLICATION 56 REFERENCES 60 APPENDIX Unrestricted model 63 APPENDIX Restricted model 64 APPENDIX Calculating P(computer)new from initial probability 65 v LIST OF TABLES Page Table Number of computers of Vietnam in comparison with other countries in 2005 .29 Table The probability of computer ownership in Vietnam 30 Table Hardware market value in Vietnam 2000-2005 (million USD) 33 Table Mean of characteristics by groups of ownership and non-ownership 38 Table Percentage of households owning a computer by income quintile 39 Table Computer ownership by groups of households with head's education highest qualification 40 Table Group of households by binary characteristics 41 Table Groups of households by region and their computer ownership 43 Table Unrestricted logit model .47 Table 10 Restricted logit model .48 Table 11 Coefficients and expected signs 50 Table 12 Interpreting in terms of odds ratios 52 Table 13 Interpreting probability changes at different initial probability 54 LIST OF FIGURES AND CHARTS Figure Components oflnformation Society Index .28 Chart Households with a home computer, 2000-2005, percentage of all households 30 Chart Percent of households owning computer(s) by different education attainment of household head 40 Chart Percentage of households owning a computer by geographical regions .43 LIST OF BOXES Box Success of Thanh Giong Project Vl Chapter INTRODUCTION 1.1 Problem Statement Joining the WTO in November 2006, Vietnam made a remarkable step on the way of integration into the global economy However, its sustained success in international competition will depend increasingly on basic education, science, technology and innovation (UNDP Vietnam, 2002) Besides undeniable positive impacts of computer use in work places, many researchers believe that computers influence households profoundly A computer in the home often serves three functions: (1) interpersonal communication; (2) information acquisition; and (3) entertainment (Papadakis 2001 ) More and more households own computers nowadays due to: (i) the availability of affordable computers for households; (ii) the user-friendliness of horne computers and; (iii) the expansion of home-based business (Wen Yin 2003) Significantly, in Vietnam, more than 50% of households are household enterprises (World Bank, 2004) Computer ownership, therefore, plays an important role in improving the quality of life for every household For the whole economy, the use of information and communication technologies (ICT) by households, including the use of computer, undoubtedly has impacts on economic performance, according to a research by OECD (liS report 2005:47), because: (i) the demand for ICT goods (e.g computers) by households has stimulated the growth of ICT sector and ICT applications; (ii) this has stimulated demand for products in sectors which rely heavily on ICT (e.g media and entertainment), which leads to the growth in those industries as well; (iii) in the future, the wide diffusion of ICT and e-commerce can help firms to deliver their products to households more efficiently; (iv) ICT use by household can benefit companies that require experienced ICT users For the government, computers to households and access to the Internet is a way of education, access to information and policy propagation In other words, computer use by households plays a big role in improving the quality of life for households, making profound impacts on the whole economy and helping the government administration more efficient According to the Vietnam Development Report 2004 by the World Bank, the poverty rate has been reduced dramatically in the past years: from 17.2% in 2001 to 8.3% in 2004 and 7% in 2005 On average, 340,000 poor families escape poverty each year However, to have a complete computer set, one must have at least 500 USD while the GDP per capita for Vietnamese in 2005 was only around 640 USD and around 715 USD in 2006 Low income makes computer unaffordable for many households Only 5% of households in Vietnam own a computer (VLSS 2004 ), a very low rate compared to that in 2004 of a developed Asian country like Korea (78%) Low computer ownership rate, as proved above, leads to low quality of life of households, slows down the economic development and makes government administration less efficient Severely, the absence of computer in a household can cause social and economic disadvantages to that household, leading to social exclusion (Papadakis 2001) This creates the gap in ICT adoption between members in the society, called the "digital divide" The extent to which the digital divide exists and why it exists, therefore, must be addressed In other words, the issue to be explored is the computer adoption of households in Vietnam "Given the scarcity of computers in lowincome countries like Vietnam, an operational strategy of increasing computer availability and skills would seem to offer considerable hope for increasing the incomes for the poor" (World Bank 2003) Hoan Long computer price list, Dec 2006 Korean National Statistical Office Unfortunately, there has been no research on computer ownership of households in Vietnam so far Therefore, studying the determinants of computer ownership for the case of households in Vietnam is chosen for the thesis research 1.2 Objective of the Study My study aims to answer the following questions: What are the main determinants of computer ownership of households in Vietnam? How is the current situation of the computer ownership of households and computer market in Vietnam today? How is the current digital divide in Vietnamese households? What can be done to improve the probability of computer ownership for households in Vietnam? The author aims to develop a conceptual model for estimating the demand for computer of households in Vietnam, and correspondingly suggest policy implications For policy makers, the research aims to give an overview of the demand for computers of households in Vietnam Based on the most significant determinants of computer ownership and from that, policy makers can have positive policies to enhance the computer availability, particularly in rural and remote areas to minimize the risk of social exclusion Besides, the government can estimate the demand for computer ownership and have a master plan for the development the computer industry together with the relevant plan for the development of the telecommunication system (internet broadband, telephone lines ) and supporting industries (other electronic production) For producers, the estimation of computer ownership while other determinants change can help computer producers to forecast the production and the targeted market This comes from the answer to the question: "Which types of households in regard to products that were related to technology Stahura's finding about gender factor was consistent with this for computer purchase and expenditure Life cycle stage factor was also a significant factor affecting the purchase of both hardware and software The life cycle stages have frequently been identified by age of the household head, marital status, and presence of children (Schiffman et al, 2001 and Xiao 1996) Life cycle stage factor was found significant for hardware expenditure Presence of children, especially presence of children at school-age is found to be a driver of computer choice in Robertson et al (2007), Stahura (2005), Venkatesh et al (2003) TAM (Technology Acceptance Model) variable, which consists of three perceptions: computer ease of use, computer usefulness and computer enjoyment, was found to possitively affect the home computer adoption (Robertson et al2007) 2.3.2.3 Justification of the determinants in empirical findings and some suggestions in the thesis research model In some empirical studies on internet access, the geographic specific price effect is an important determinant However, the price shall not be taken into account in the model of computer ownership estimation for the following reasons: (1) the survey in VLSS 2004 is crosssection data, not time-series data, so there are hardly any price differences; (2) the computer purchase price in the VLSS cannot be comparable, e.g the price of a computer purchased years ago cannot be compared to the price of a computer bought last month; (3) price of a computer set - an electronic good - is actually nearly the same between regions as given in some price list of major distributors, so it does not have the geographic specific price differences or price differences by providers like the internet service Besides some households characteristics, in this study, some other characteristics like age, education, gender, employment status shall be assigned to the characteristics of the household head (Becker's theory) Household life cycle stage factor, identified by (i) age of the household head, (ii) marital status, and (iii) presence of children, used in the model by Stahura, does have some pros and cons in the case of Vietnam In my study, the age of household head and the presence of schoolage children shall be added to the model However, the life cycle stage concept is derived from Western societies, based on nuclear families In Vietnam, despite the fast growth of nuclear families, there are still a large number of traditional families with more than generations together in a household So the stages mentioned may not be the same in Vietnam (e.g more than couples, the cycle will not end with the death of the spouses but still continue throughout 10 next generations) Therefore, marital status is difficult to identify in these households, so I expect the marital status variable to be irrelevant in my study TAM variable, despite its usefulness, is unfortunately not available in the VLSS 2004 data As VLSS is a general household living standard survey, it does not go into details in the perceptions ofthe interviewee toward computer This is the limitation of the thesis research 2.4 ECONOMETRIC MODEL SPECIFICATION In the Logit model, the dependent variable is whether or not a household owns a computer The independent variables are chosen from the literature review justification already mentioned Following hereunder is to discuss how the proxies of these independent variables are chosen and their hypotheses 1/ Log of household monthly expenditure per capita: The variable of household monthly income will be replaced by household monthly expenditure per capita, as according to Nguyen Trong Hoai et al (2005) expenditure is not only rarely understated than income but also is more stable through years, hence, we have enough evidence to use the expenditure to measure the living standard I take the log of household expenditure per capita to reduce the skewness and it is more comparable in the form of logarithm (expenditure increase by 1% makes more sense than increase by unit of currency) Other determinants are summarized in the following: HypoDeterminants Variables Measurement thesized Related evidences sign Household characteristics Log of monthly expenditure per capita Kridel, Chaudhuri, LOCA location SIZE Household size school age Rappoport, Stahura, Microsoft, Robertson Household residential Presence of children at + LNEXPPC SCH CHILD Urban= + Stahura Kridel, Chaudhuri, persons Stahura, Venkatesh Presence= + year ? Robertson, Stahura, Venkatesh Household head characteristics Age HEAD AGE Kridel, Chaudhuri, 11 Microsoft, Stahura Age square - HEADAGE2 dummies: Educational attainment (based on highest qualification obtained) (Note: No qualification as the base category) Gender EDUI primary school = I, ? EDU2 secondary school = I, ? EDU3 high school= I, ? EDU4 college= I, + EDU5 university degree = I + GEN Male= I + Kridel, Chaudhuri, Rappoport, Stahura, Microsoft, Robertson Kridel, Stahura (administrator/leader/a professional in Occupation occu technology/education/s + Sakellariou and Patrinos, Stahura killed work or an office clerk)= I Regional effects: dummies (8 regions) with North_West as base Stahura dummy RED- RIVERDELTA NORTH- EAST NORTH CENT Red river delta= I ? North east= I ? North central coast =I ? South central coast = I ? Central highland = I ? South east = I ? Mekong river delta = I ? RAL COAST SOUTH CENTRAL COAST CENTRAL HIGHLAND SOUTH- EAST MEKONG RIV ER DELTA 12 Chapter AN OVERVIEW OF THE COMPUTER MARKET AND COMPUTER OWNERSHIP IN VIETNAM 3.1 An overview of computer ownership, computer market and empirical projects to enhance the computer ownership in Vietnam 3.1.1 An overview of computer ownership by consumers/households in Vietnam According to the Vietnam ICT Outlook 2006, the Information Society Index of Vietnam in 2005 dropped step, ranking end of the listed countries (53/53) It gives an urge to boost the socialization of information technology and computer access to households According to VLSS 2004 statistics, only 5% of Vietnamese households own a computer Number of computers of Vietnam in comparison with other countries in 2005 Total number of computers (thousand units) Number of computers/ 1000 people China 52,990 4.08 India 17,000 1.54 Country/ Region Indonesia Korea 3,022 1.36 69.200 54.15 26,201 54.49 4,900 19.16 3,684 4.46 Taiwan 11,975 52.78 Thailand 3.716 5.83 Vietnam 1,044 1.26 226,640 6.51 17,450 2.24 Asia Afi·icim America Oceania World 296,491 34.73 236,116 30.21 16,119 50.73 792,816 13.30 Chart Households with a home computer, 2000-2005, percentage of all households 00 1112000 N~2003 •12001 02004 1112005 80 60 40 20 i: s· [ :;,> Gl ~ I I ~ " Ii ~ ~ iii [ -< " :;r ~ It · 1}: · [I g z • N " § ~ l ~ ~ 00 00 i [ { i § c c ~ ~ "' :.;" i 00 13 Mr Than Trong Phuc, CEO of Intel group - Indochina region, said that Vietnam has approximately: - million households with annual income over 6,000 USD; - million households with annual income between 2,000 and 6,000 USD, and; 12 million households with annual income less than 2,000 USD With the first group, computer ownership doesn't matter them However, with the second and third group, how can they get access to computers? A recent market research carried by the AC Nielsen in 2006 showed that the rate of Vietnamese owning computers is increasing rapidly, in 2006 that rates in Hanoi and Ho Chi Minh City respectively are 48% and 45% Internet use boom also boosts computer ownership in households Year 2006 saw a fast growth rate of internet and telecom in Vietnam At the end of 2006, Vietnam passed the world's average internet user rate (16.8%) (E-commerce Report 2006) According to Mr Chris Morley, CEO of AC Nielsen Vietnam, 60% of Vietnam population is under 30 years old "Vietnam is one of the youngest population in the world, which is a very good market for computers and mobile phones", said Mr Morley 3.1.2 Computer market in Vietnam and the prospect after Vietnam joined WTO Hardware industry (including hardware manufacture for domestic consumption and exports) in 2005 saw its first time pass.ing billion USD and became one of the industries having the largest exports However, most products were mainly produced by foreign invested companies (FDI companies) in Vietnam for export to other countries Low income makes households unaffordable for computers, or, computer price is still too high for households After Vietnam joined the WTO in November 2006, tariff bands are expected to lower to between 0% - 5%, especially for laptops (from 10% to 0% in 2010) Rapid changes in technology (every 12-18 months) resulting in decreased costs induces manufacturers to reduce price of products of prior technology However, later, computer manufacturers said that the computer price will not be lowered more Mr Phuc gave out some reasons: (1) Most of components have to be imported and import tax on components at present is 0-5%, which is already very low and cannot be cut down more; (2) Computer price will increase because consumers have to pay for software copyright Then, we may not expect low incoine households to very soon purchase computers at low price This urges us to have different measures to enhance the computer availability of households 14 3.1.3 Some projects that have been carried out to enhance the computer ownership of households Thanh Giong Project Thanh Giong Project, a !-billion USD project and the largest ever one, was approved by Prime Minister in 2004, is carried with cooperation of many ministries, enterprises and the Youth Union The leading manufacturer is Intel Vietnam Thanh Giong Project period is years, with the aim to (1) provide households in rural areas with million good quality and low-price computers (from donation of society, from the preferential price offered by manufacturers, and credit support for poor households); (2) call upon million volunteers to teach computer skills to 20 million youths in Vietnam A Thanh Giong computer is produced with preferential cost and sold at low price of around million VND To your attention, similar projects on preferential low price computer manufacture have been carried out successfully in Thailand and Malaysia Mv First Computer Project The program "My First Computer" in 2005 was initiated by Intel Vietnam, with the participation of CMS - the original equipment manufacturer (OEM) in Vietnam of Intel, the Ministry of Education and Training (MOET), Can Tho University, Vietnam Post and Telecom group (VNPT), Mekong Housing Bank (MHB) and Asia Commercial Bank (ACB) In the program, students, teachers in 10 provinces and cities who have the demand for computer purchase but cannot afford, will have the financial support from MHB and ACB with the loan of 6-25 million VND/person Computers in the program are assembled by domestic companies and installed softwares ready to use OneClick and Unlimited Potential Program OneClick program, declared by Bill Gates in April 22, 2006 at Bac Ninh province, is a cooperation between Microsoft, VDC and CMS computer manufacturer to enable Vietnamese with mid-income to have the chance to own a computer Buyers can pay the computer in installments, with Windows package and Internet connection VDC through the post offices network nationwide provides the financial support and payment Also at Bac Ninh, Bill Gates declared about the Project Unlimited Potential The program with the cooperation with USAID, Qualcomm and EVN aims to develop the opportunity of life-long study for disadvantaged children, build community technology centers and provide CDMA450 and free internet use for 64 provinces and cities throughout Vietnam 15 3.2 Descriptive analysis on factors affecting computer ownership of households in Vietnam in VLSS 2004 Household characteristics Ownership Non-ownership Household monthly expenditure per capita (thousand VND) 945.38 373.29 Household size (persons) 4.53 4.40 Household head's age (years) 49.83 49.05 The mean of monthly expenditure per capita of households with a home computer is 945,380 VND, 2.5 times higher than that of households without a computer, 373,290 VND This means income actually has a significant effect on the computer ownership of households Household size of household group owning a computer is slightly bigger than that of household group without a computer This is only a slight effect Household head's age of the two groups of households is nearly the same The next factor is household head's education attainment The effect shows to be very strong Only 1%, 2% and 4% of people without qualification or graduated from primary or secondary school respectively have a computer in their house, meanwhile, these number are 22% and 36% for college and university graduates groups For the case of households in the urban areas, 15.49% of them have a computer in their home, a very high proportion compared to only 1.66% in the case of households in rural areas However, the proportion of people in urban areas is small in Vietnam, in this VLSS2004, only 24.5% of all households in Vietnam reside in urban areas Descriptive statistics show the adverse trend when the group with children at school age has a lower rate to own a computer than that rate of the group without children at school age, although the frequency (number of households) with a computer is three times as large This may be explained in table 6, when the group of households that have children at school age accounts up to 77.57% of all households in Vietnam Group of households by binary characteristics Household characteristics Ownership Frequency Non-ownership Percent Frequency ( 1) Percent (2) Total households (3) =(1 )+(2) Percent of total households (4) =(3) /9177 Location Urban Rural Om•••••••~•4•~•••••••• 115 •••••••••••••1 9.:.4.~•••••••••• •• 1.66 m •• ~?~•~••••••• 6,815 84.51 98.34 ?•.?4? 24.49% 6,930 75.51% 16 Yes 343 No 1.?9 4.82 §.83 ~xz~ 95.18 z,JJ~ 77.57% J!~~~ 94.17 ?.Q§~ 22.43% Gender of household head Male 298 4.29 ~!~?~ 95.71 ~!~?1 75.74% Female 165 7.41 ?!Q~J 92.59 ?!??~ 24.26% If household head's occupation is alan administrator/leader, a professional in science/technology/ education/ski/led work or an office clerk Yes 180 24.59 552 No 283 3.35 8,162 96.65 732 7.98% 8,445 92.02% Source: VLSS 2004, author's calculation Gender of household head, surprisingly, has a different effect on computer ownership in Vietnam We can find the presence of computers in 7.4% of households headed by women, while this figure for households headed by men is just 4.29% Kind of job of household head, especially administration and skilled work is a strong factor positively affecting computer ownership in households Up to 24.6% households in the first group have a computer, and only 3.4% of the latter have one Regional effect is one of the factors to be considered for its effect on computer ownership Statistics have shown that 14.5% of households owning a computer in South East region, meanwhile only households out of 1,000 households in the North West own a computer South East is known as the most affluent area in Vietnam, while North West is known as the worst BQ GIAO Dl)C VA 8AO TP,-0 TRUdNG 8H KINH TE TP.HCM THUVItN 17 Chapter ECONOMETRIC ANALYSIS Data set: The data set is based on data of households surveyed both on expenditure and income, therefore it is 9.188 observations In educational attainment dummies, we base on highest qualification of the household head Because post-graduates accounts just for 0.1% of all observations, therefore, these observations are excluded to simplify the dummies (highest qualification, then, is Bachelor degree) After excluding some observations of missing value, the data sample finally is 9.168 observations Stata package is used to run the logit model and statistics are used to test the hypotheses 4.1 Logistic regression results Firstly, the logit is runned for the unrestricted model, with 20 variables The results shows that the presence of children at school age, age square of household head, and region dummy North East (SCH_CHILD, HEADAGE2 and NORTH_EAST) are not statistically significant at 5% level Then, another trial is a restricted logit model with these three variables omitted Restricted logit model Logistic regression Number of obs = 9168 LRchi2(17) = 1432.21 Prob > chi2 = 0.0000 Pseudo R2 = 0.3976 Log likelihood= -1084.9926 Computer ownership (Yes= 1) ~qg gf~~P~IJ9it.~r~P~rg§pit.§ ~