Returns to education a case study in the mekong delta vietnam

THE UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM THE VIETNAM-NETHERLANDS PROJECT FOR MA PROGRAM IN DEVELOPMENT ECONOMICS RETURNS TO EDUCATION A CASE STUDY IN THE MEKONG DELTA - VIETNAM By TRAN NAM QUOC IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER 0F ARTS IN DEVELOPMENT ECONOMICS SUPERVISOR: Prof NGUYEN TRONG HOAI HO CHI MINH CITY, DECEMBER 2009 RETURNS TO EDUCATION: A CASE STUDY IN THE MEKONG DELTA- VIETNAM By TRAN NAM QUOC SUPERVISOR: Prof NGUYEN TRONG HOAI HO CHI MINH CITY, DECEMBER 2009 CERTIFICATION I certify that the substance of this study has not already 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 receiving in preparing this thesis, and all sources used, have been acknowledged in this thesis Ho Chi Minh City, December 2009 TRAN NAM QUOC ACKNOWLEDGEMENTS The thesis, titled "Returns to Education: A case study in the Mekong DeltaVietnam", is a fulfilled research of Vietnam Netherlands Program (VNP) This thesis is the quantitative analysis mainly based on data from the VHLSS 2004 and VHLSS 2006 which surveyed by General Statistical Office (GSO) In order to have an accomplishment of this research, the author had received a lot of precious supports from professors and office staffs ofVNP Firstly, the author would like to express special thanks to Prof Nguyen Trong Hoai, the author's supervisor, who advised many scientific instructions in during process to conduct the thesis Particularly, thanks to these worthy instructions and kindly help from Professor, the author completed the research and released scientifically convincible results I would like to thank Prof Karel Jansen, for worthy comments on Thesis Research Design (TRD) formation of this thesis I would like to express sincere thanks to Dr Nguyen Huu Dung who has provided valuable comments for completion of this thesis I would like to thank sincerely Mr Truong Thanh Vu, the visiting lecturer of VNP, for valuable comments and instructions in filtering the appropriate data set I am indebted to all teachers and staffs of the Vietnam - Netherlands Program at University of Economics HCM Finally, I am indebted to my family and others who gtve me great encouragement and support for my study 11 ABSTRACT The purpose of this research is to examine the return to education in Mekong Delta The author has applied descriptive statistics, econometric model to examine return to education classified by return to schooling (RTS) and rate of return to education (RORE) within each different level of education The return to education is also investigated separately for each of controlling variables in sub-groups The data sources are selected from VHLSS 2004 and VHLSS 2006 ofGSO This study found out meaningful findings Firstly, on average, RTS is increased overtime Thus, it increased from 3.46 percent in 2004 to 4.13 percent in 2006 RTS is higher for female than for male and higher for persons living in urban than those living in rural, at 7.45 percent and 3.26 percent, respectively It is also higher for individuals working in service sector and industry-construction compared to whose working in agriculture-forestry sector Secondly, RORE at high - school level is highest, at 11.49 percent" in 2004 and 11.89 percent in 2006 In addition, RORE of workers working in public sector is higher compared to private sector at all below education levels; however, RORE of individuals with university and working in private sector is 14.19 percent, higher than those in public sector (8.29 percent) Finally, in particular, RORE of workers with university and working in industryconstruction sector obtained highest rate, at 24.81 percent in 2006 This study also argued mainly significant policy implications Firstly, the policies attracting high educated labor force to work in rural areas are worth to be considered Secondly, the process of rural urbanization should be strengthened more quickly to develop private sector and create more employment in rural areas Thirdly, high school, college and university education should be prioritized and more improved to increase more high-skilled labor force serving for economic development strategy in this region Favorable conditions and subsidies to make more opportunities for women increasing enrollment should be more considered Finally, advocacy programs should be strengthened for all organizations, families and individuals to change their perceptions and share roles and responsibilities for education and human development 111 CONTENTS Certification i Acknowledgements ii Abstract iii Content table iv List of Tables viii List of Figures ix List of Abbreviations x CHAPTER 1: INTRODUCTION 1.1 Introduction ! 1.2 Research objectives 1.3 Research hypotheses 1.4 Research methodology 1.5 Data 1.6 Thesis structure CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical background 2.1.1 Economics of education 2.1.2 Human capital theory - 2.1.3 Education and economic development 10 2.2 Theoretical methods and conceptual models 12 2.2.1 Theoretical methods 12 2.2.1.1 Cost Benefit Analysis methods 12 2.2.1.2 The Short-cut method 13 IV 2.2.1.3 The Reverse Cost- Benefit method 2.2.1.4 The Earning function methods 2.2.2 Conceptual models 2.2.2.1 Utility function 2.2.2.2 Mincerian model 2.2.2.3 Other conceptual models 2.3 Empirical approaches with determinants of rate of return to education 2.3 Empirical models 2.3 Empirical evidences 2.3.2.1 Schooling year and education level 2.3.2.2 Experience 2.3.2.3 Gender 2.3 2.4 Household characteristics 2.3.2.5 Private and public sector 2.3 2.6 Rural and urban area 2.3.2.7 Agricultural and Non- Agricultural sector 2.3.2.8 Ethnic group 2.4 Chapter summary CHAPTER 3: RESEARCH METHODOLOGY Key concepts Model specification v 3.3 Identification bias ability of missing an innate variable 35 3.4 Data set and variable measurement 36 3.5 Steps to estimate parameters in regression models 38 3.6 Chapter summary 39 CHAPTER 4: RESEARCH CONTEXT: THE MEKONG DELTA OVERVIEW 40 4.1 Geographic 40 4.2 Demographics 41 4.3 Education and Earning in Mekong Delta 41 4.3.1 Enrolment in general education 42 4.3.2 The important role of primary 42 4.3.3 Vocational and tertiary education 43 4.4 Regional and Sector 44 4.5 Human resource development of the region 45 4.6 Distribution of education attainment as a policy tools 46 CHAPTER 5: EDUCATION AND RETURNS TO EDUCATION IN THE MEKONG DELTA 47 5.1 Education - human capital and earnings of workers in the Mekong Delta 1.1 Education and human capital 1.1.1 Educational level structure 1.1.2 Labor structure classified by sectors 48 1.1.3 Schooling year classified by gender and region characteristics 49 1.1.4 Schooling year classified by sectors 50 1.2 Earnings of workers 51 5.1.2.1 Per capita income classified by gender and regions 51 Vl 5.1.2.2 Per capital income classified by sectors 5.1.2.3 Per capita income classified by education levels 5.2 Empirical findings 5.2.1 Examine the effect of parental education on RTS of workers 5.2.2 Estimation ofRTS in 2004 and 2006, Modell 5.2.3 Estimation ofRTS in 2004 and 2006 associated with Sub-group variables, Modell 5.2.4 Estimation ofRORE within each education level in 2004 and 2006, Model2 5.2.5 Calculation RORE within each education level for sub- group variables in 2006, Model 5.3 Charter remarks CHAPTER 6: CONCLUSION AND POLICY IMPLICATION 6.1 Conclusion 6.2 Policy implications 6.2.1 Economic policy 6.2.2 Education policy LIMITATION OF THE RESEARCH SUGGESSION FOR FURTHER RESEARCH REFERENCES APPENDICES Vll LIST OF TABLES Table 2.1: Return to education in the world Table 3.1: Definitions and notations of model variables Table 4.1: Gini coefficients in the Mekong Delta····································'·················· 46 Table 5.1: Mean of schooling year classified by gender and region characteristics Table 5.2: Mean of schooling year classified by sectors Table 5.3: RTS for workers having parental education (2006) Table 5.4: Estimation results of Modell Table 5.5: RTS associated with Sub-group variables, Modell Table 5.6: Estimation results ofModel2 Table 5.7: RORE for each education level Table 5.8: Estimation results for sub- group variables, Model2 Table 5.9: RORE within each education level 60 vm 5.2.17 Return to schooling of individuals working in industry and construction sector in 2004 reg lnEARN SCHOOL Linear EXP EXPSQR ==1, REGIONGEN robust STATE if INDU_CON regression lnEARN - SCHOOL EXP EXPSQR REGION GEN STATE Constant (C) 5.2.18 Return reg lnEARN Linear lnEARN - SCHOOL EXP EXPSQR REGION Constant (C) 5.2.19 Return to schooling of individuals working in industry and construction sector in 2006 reg lnEARN Linear regression - E Constant (C) 5.2.20 Return to schooling of individuals working in service reg lnEARN Linear regression - lnEARN I SCHOOL EXPSQR REGION Constant (C) 5.2.21 parameters of education levels reg SERVICE, robust lnEARN Linear regression lnEARN I - HISCHO 5.2.22,parameters of education levels reg SERVICE, robust lnEARN Linear regression sector in 2006 - -5.2.23 parameters of education levels of individuals in urban in 2004 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR GEN STATE INDU CON SERVICE ETHINIC if REGION ==1 robust Linear - INDU Constant 5.2.24 parameters of education levels of individuals reg REGION lnEARN ==0 Linear regression 5.2.25 parameters if of education levels reg of individuals in urban in 2006 lnEARN Linear regression ~ -5.2.26 parameters of education levels of individuals in rural in 2006 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR GEN STATE INDU CON SERVICE if REGION ==0, robust -+ Constant (C) 5.2.27 parameters of education levels reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR REGION STATE INDU CON SERVICE if GEN ==1 , robust -+ -PRIMA S H E R INDU SE Constant 5.2.28 parameters of education levels reg ==0 , lnEARN Linear regression l - P S H EX INDU SE Constant 5.2.29 parameters of education levels of male in 2006 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR REGION INDU CON SERVICE if GEN ==1, robust Linear regression -+ Constant (C) 5.2.30 parameters of education levels of female in 2006 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR STATE INDU CON SERVICE if GEN ==0 robust Linear regression -+ Constant (C) 5.2.31 parameters of education levels STATE reg lnEARN == Linear regression lnEA - PRI SEC HISC U E EXPS REG INDU C SERV Constant (C) 5.2.32 parameters of education levels ==0 reg lnEARN ro Linear regression lnEA PRIMA I 022371 0434342 0.52 0.607 -.0628227 1075647 -5.2.33 parameters of education levels of individuals reg robust lnEARN Linear regression - Constant {C) -5.2.34 parameters of education levels of individuals in private sector in 2006 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR GEN INDU CON SERVICE if STATE ==0, robust Linear regression -+ Constant {C) 5.2.35 parameters of education levels of individuals in industry and construction sector in 2004 reg lnEARN PRIMA SECON HISCHO UNIV EXP EXPSQR GEN STATE ETHINIC if INDU_CON==1 , robust Linear regression -+ Constant (C) 5.2.36 parameters of education levels reg robust lnEARN Linear regression - Con 5.2.37 sector parameters of education levels of individuals in in 2006 reg ==1, robust lnEARN Linear regression industry and construction -+ -5.2.38 parameters of education levels reg robust lnEARN Linear regression - Constant (C) ... Other, mainly automatic increase of human capital - Learning (from education and training - Learning by doing Receiving tacit knowledge Inventing, innovating Stock of human capital -Level of education. .. emphasized that individuals invest in human capital as investors invest in education to earn higher income in the future The fundamental of the human capital theory is the analogy between physical... capital: conceptual schema of a company Flow of intellectual capital Investing in intellectual capital, Automatic increase of intellectual capital - Learning in personnel - Organizational learning