Impact of remittance on households consumption patterns in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY VO THI HUYEN NHI IMPACT OF REMITTANCE ON HOUSEHOLDS CONSUMPTION PATTERNS IN VIETNAM MASTER'S THESIS Hanoi, 2020 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY VO THI HUYEN NHI IMPACT OF REMITTANCE ON HOUSEHOLDS CONSUMPTION PATTERNS IN VIETNAM MAJOR: PUBLIC POLICY CODE: 8340402.01 RESEARCH SUPERVISOR: Dr VU HOANG LINH Assoc Prof AKASHI JUNICHI Hanoi, 2020 ACKNOWLEDGEMENTS I would never be able to complete this Master thesis without the guidance of my supervisors, committee members, support from my family members, and help from friends First of all, I am extremely grateful to my supervisors, Dr Vu Hoang Linh for the thoughtful dedication with timely and crucial comments in completing this study I am also grateful to Dr Dang Quang Vinh, Professor Akashi Junichi, Professor Nguyen Thuy Anh, and Professor Naohisa Okamoto for your constructive opinions and suggestions Most importantly, I am indebted to the Public Policy Program and Vietnam Japan University for providing support when I need it most I am deeply indebted to my family and my colleagues as their support give me the motivation to complete this studying journey Any inadequacies or errors in this dissertation are entirely my responsibility i TABLE OF CONTENTS ACKNOWLEDGEMENTS i LIST OF TABLES iii LIST OF FIGURES iv LIST OF ABBREVIATIONS v CHAPTER 1: INTRODUCTION 1.1 Roles and impacts of remittance 1.2 The context of migration and remittance in Vietnam 1.3 Objectives and Scope of Research 1.4 Research questions and hypotheses .5 CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical Framework 2.1.1 Definitions and determinants of migration and remittance 2.1.2 Impacts of remittance on received household and home country .9 2.1.3 Consumption patterns theories .11 2.2 Empirical Studies .13 CHAPTER RESEARCH METHODOLOGY 16 3.1 Model specification 16 3.2 Data description 19 3.2.1 A brief of Vietnam Household Living Standard Survey in 2012, 2014, 2016 19 3.2.2 Data processing .20 3.3 Structure of regression .20 3.4 Hypotheses 24 CHAPTER RESEARCH FINDINGS .26 4.1 Descriptive results 26 4.2 Regression results .33 4.2.1 Regression results of impact on consumption shares .33 4.2.2 Regression results of the impact on consuming level 38 CHAPTER DISCUSSION AND CONCLUSION 42 REFERENCES 45 ii LIST OF TABLES Table 1.1 Top ten main sending remittance countries and host countries of Vietnam Table 3.1 List of variables in the regression model Table 3.2 List of descriptions for expenditure categories Table 3.3 Summary of independent variables in the regression model Table 4.1 Summary of consumption share by types of household Table 4.2 Summary of consuming level in seven consumption categories Table 4.3: Observations categorized by each type of household, spending patterns, and interviewing year Table 4.4: Ratio of remittances to expenditure by different groups Table 4.5 Regression result for consumption share Table 4.6 Regression result for the level of consuming 17 18 22 28 31 32 33 36 40 iii LIST OF FIGURES Figure 1.1 External financial capital to Low- and Middle-Income Countries Figure 1.2 Vietnam—Remittances and other foreign capital inflow iv LIST OF ABBREVIATIONS LMIC GDP FDI KNOMAD IFAD ILO IMO IOM ODA OECD PSO UN FPA VHLSS Low- and Middle-Income Country Gross Domestics Products Foreign direct investment Global Knowledge Partnership on Migration and Development International Fund for Agricultural Development International Labor Organization International Migration Organization International Organization for Migration Official development assistance Organization for Economic Co-operation and Development Provincial Statistic Office United Nations Population Fund Vietnam Household Living Standards Survey v CHAPTER 1: INTRODUCTION 1.1 Roles and impacts of remittance Migration and sending remittance seem to be a globally popular phenomenon that contributed to solving many issues of both home and host countries An estimated US$6.5 trillion in remittances will be sent to low- and middle-income countries between 2015 and 2030 Besides that, remittance is a very important capital source for developing countries The trend of remittance tends to increase over time despite the downward and fluctuation of FDI and ODA Figure 1.1 Remittance Flows to Low- and Middle-Income Countries are larger than Official Development Assistance and more stable than private capital flows, 19902019 Sources: Cited from World Bank staff estimates, World Development Indicators, and International Monetary (IMF) Balance of Payments Statistics The global business witnessed many unexpected events which increased the risk of oversea investment and the official borrowing from other countries also ties with political conditions so the ODA and FDI flow could not exceed for a certain amount Besides, the migration also lightens the pressure about job creations of many governments in low- and middle-income countries Most of the international remittance will be used by remittance-receiving families to reach well-being goals of a family: increased income, better health, and nutrition, educational opportunities, improved housing and sanitation, entrepreneurship, thus it would help to reduce inequality (IFAD, 2017) Ideally, remittances or any additional source of income potentially give migrants, households, and communities greater freedom to concentrate their activities and to allocate investments to fulfill further goals in long term rather than spending for recurrent spending Even though, not every household could exploit successfully this resource so it is easy to recognize that remittance and migration not naturally lead to more development at the household level and the national level Such differences in a political scheme, social value, and economy of host and home countries have intervened in migrants' and household's behavior which then results in different levels of consumption categories of migrant families Remittances might negatively correlate with GDP growth because the shortage of labor supply, labor market participation, and consumers from emigrants is greater than remittance flow received by left behind households so in this case remittance could not become a source for economic development (Chami et al, 2005) Remittance could be seen as an additional income for households and there are arguments that it was fungible but in some other study shows it has an additional effect on the consuming attitude of households Consumption patterns could reflect the welfare of a household when it tells the preferences of a household and predict partially about the future of the household From the change in household consumption trend, the government could interpret the change of industrial structure which caused remittance flow, household consuming trend would shape the industrial composition in those emerging economics (Kuznets, 1973) 1.2 The context of migration and remittance in Vietnam Most of the Vietnamese migrants choose developed countries for their migration destination despite the long distances and completely different cultures (see Table 1.1) The United States is the country that attracted the largest Vietnamese migrant stock and it is five times larger than the second host country- Australia The major source of remittance to Vietnam also comes from the United States Some countries have a large number of migrant stocks like Japan or Cambodia but the amount of remittance sending is not equivalent to the rank of migrant stock so it could be interpreted that average remittance per capita is relatively low compared to other remaining countries Canada is the 3rd contributed remittance to Vietnam but the number of Vietnamese migrants is not so high to be ranked as the top ten host countries of Vietnamese migrants Table 1.1: Top ten main remittance-sending countries and main host countries of Vietnamese migrants No Sending Amount of remittance remittance country (million US$) Host country Migrant stock (people) United States 8333 United States 1,368,746 Australia 1421 Australia 265,018 Canada 1136 Japan 209,731 France 756 France 138,552 Korea, Rep 697 Korea, Rep 115,632 Germany 674 Germany 104,454 Japan 482 Malaysia 99,875 Malaysia 477 Czech Republic 46,631 Czech 326 Cambodia 38,744 182 United Kingdom 37,805 Republic 10 United Kingdom Source: Data generated by author from the United Nations database on migrant stocks and World Bank on remittance updated until 2019 Among the three main foreign financial streams, personal remittance has the largest foreign capital flow in comparison with other flows (Figure 1.2) This flow Table 4.5 Regression result for impact of international remittance on consumption shares Consumption Food Share category Health care Education share share Durable share Housing share Electricity Other share share R- Square 0.2454 0.1207 0.1025 0.1399 0.156 0.3934 0.0537 Logirmt -0.00000034 -0.00000053 0.0000002 0.0000005 0.00000012 0.00000005 0.0000002 (0.0000002) (0.0000001)** (0.00000001) (0.0000001)** (0.00000002) (0.00000003) (0.00000002) * logothic Hhsize age_05 age_614 -0.0302 0.0046 -0.0069 0.0186 -0.0187 0.0007 0.0318 (0.0033)*** (0.0024) (0.0016)*** (0.0021)*** (0.0027)*** (0.0004) (0.0027)*** 0.0046 0.0033 0.0041 0.0007 -0.0143 -0.0006 0.0022 (0.0049) (0.0035) (0.0024) (0.0031) (0.0041)*** (0.0007) (0.004) 0.0147 -0.0078 -0.0107 0.0012 0.0031 0.0006 -0.0010 (0.0062) (0.0045) (0.0031)** (0.0039) (0.0051) (0.0008) (0.0051) -0.0046 -0.0053 0.0031 0.0001 0.0006 -0.0006 0.0067 35 age_1560 head_age head_school fmhead married RR (0.0059) (0.0043) (0.0029) (0.0037) (0.0048) (0.0008) (0.0048) -0.0007 -0.0044 0.0101 0.0011 -0.0088 -0.0010 0.0037 (0.0046) (0.0034) (0.0023)*** (0.0029) (0.0038)* (0.0006) (0.0037) -0.0005 0.0000 -0.0001 -0.0001 0.0009 0.0001 -0.0003 (0.0003) (0.0002) (0.0001) (0.0002) (0.0002)** (0.00004)** (0.0002) -0.0026 -0.0007 0.0003 0024 0.0007 0.0002 -0.0003 (0.0008)** (0.00063) (0.0004) (0.0005)*** (0.0007) (0.0001) (0.0007) -0.0122 0.0000 0.0006 -0.0060 0.0059 0.0021 0.0097 (0.0094) (0.0068) (0.0047) (0.0059) (0.0078) (0.0013) (0.0076) 0.0087 0.0094 -0.0119 0.0054 -0.0065 0.0036 -0.0087 (0.0094) (0.0068) (0.0047)* (0.0059) (0.0077) (0.0013)** (0.0076) -0.0371 -0.0497 0.0050 -0.0039 0.1467 0.0020 -0.0631 (0.0425) (0.031) (0.0213) (0.0268) (0.0351)*** (0.006) (0.0347) 36 Urb wagejob nonagri Agri _cons -0.0239 -0.0062 -0.0032 0.0081 0.0415 -0.0020 -0.0143 (0.0257) (0.0188) (0.0129) (0.0162) (0.0212) (0.0036) (0.021) 0.0112 -0.0104 0.0064 -0.0029 0.0016 -0.0005 -0.0054 (0.005)* (0.0036)** (0.0025)* (0.0031) (0.0041) (0.0007) (0.0041) -0.0039 -0.0084 0.0046 0.0044 -0.0001 -0.0004 0.0037 (0.006) (0.0044) (0.003) (0.0038) (0.005) (0.0008) (0.0049) -0.0161 -0.0032 0.0021 0.0061 0.0086 -0.0001 0.0028 (0.0051)** (0.0037) (0.0025) (0.0032) (0.0042)* (0.0007) (0.0041) 0.7691 0.0226 0.0727 -0.1195 0.3225 0.0131 -0.0805 (0.0384)*** (0.028) (0.0192)*** (0.0242)*** (0.0317)*** (0.0055)** (0.0313)* Notes: *** p