An exploration of the causal effects of alcohol consumption on income a case study of the mekong river delta of vietnam

An Exploration of the Causal Effects of Alcohol Consumption on Income: A Case Study of the Mekong River Delta of Vietnam Phan Van Phuc Can Tho University, Vietnam Abstract Research on th

An Exploration of the Causal Effects of Alcohol

Consumption on Income: A Case Study of the Mekong

River Delta of Vietnam

Phan Van Phuc

Can Tho University, Vietnam

Abstract

Research on the relationship between alcohol consumption and economic outcomes is relatively underdeveloped This paper presents an analysis of the nature of the relationship between alcohol consumption and income per capita in the rural Mekong River Delta of Vietnam Applying a three-stage least squares estimator to the Vietnam Household Living Standard Survey data, this study finds that income per capita was detrimentally affected by alcohol use over the period 2010–2014 This research suggests that the Government should consider deploying more legal restrictions and reforms with respect to alcohol production and consumption

1.Introduction

Since the beginning of Doi Moi (Reform) in the late 1980s, the extraordinary economic progress has fostered significant growth in income per capita In the period 2000–2015, the Vietnamese average income grew rapidly from less than US$400 to over US$2000 (World Bank 2017) It is also not surprising to observe a simultaneous expansion in alcohol consumption per capita as incomes have increased The General Statistics of Office of Vietnam (GSO) reported that, on average, individual consumption of beer and wine increased from 0.7 to 0.9 litres (wine and beer together) per month over 2006–2014 (GSO 2016) However, it is argued that unrecorded drinking could mean that the level and growth of expenditure and

consumption of alcohol is much higher than these official statistics (e.g Bao Giang et al 2013,

Lincoln 2016)

Several studies have focused on the reasons behind the binge drinking decisions and damages related to alcohol use For instance, Dee (2001) argued that economic status causes binge drinking Rather than enjoying free time with beer or liquor, individuals drink more due

to their bad economic conditions (e.g unemployment induces the likelihood of drinking) However, to the best of our knowledge, research of the effects of alcohol use on economic outcomes is still in its relative infancy

Focusing on the consequence of drinking, the literature paints an opaque picture of alcohol consumption influences on economic outcomes; existing studies show conflicting directions of

the causality between the alcohol consumption and income On the one hand, Pu et al.

(2008) argued that the consumption of alcohol and tobacco together reduces living standards and overall wellbeing; the least wealthy groups are most severely affected by

consuming these commodities In the United States, Bouchery et al (2011) estimated that the

economic loss to income per capita due to drinking was US$746, of which the damage resulting from labor productivity decline was the largest (over 70%), followed by medical expenses (10%) and court costs (9%)

In contrast, other studies found that drinking alcohol did not lead to any observable adverse economic consequences for either gender after employment was taken into account

(Feng et al 2001) Ormond and Murphy (2016) even explored a positive correlation between

income and the level of alcohol consumption The aforementioned controversies in empirical studies conceive the fact that the alcohol consumption – income

nexus is relatively complex and may be conditional on other factors The lack of consensus induces us to test a hypothesis whether there is a negative effect of expenditure of alcohol in the case of Vietnam

In this paper, to shed light on the alcohol consumption – income link, the rural Mekong River Delta (MRD) of Vietnam over the period 2010–2014 serves as our case study With a much less productivity than the national average1, MRD is still agriculture-based region where agriculture, forestry and fishery contribute a lion’s share to the total income This salient feature of the economy reinforces a low living standard of MRD households Nonetheless, alcohol consumption in the region as well as the whole country tends to be persistently going

up (e.g Bao Giang et al 2013, Lincoln 2016).

We base our investigation of the alcohol use – income association on an application of

a system of simultaneous equations, being the three-stage Least Squares model (3SLS hereafter) A key reason behind the chosen methodology is that 3SLS can account for a potential endogeneity caused by bidirectional correlation between income and alcohol use Data for our study is extracted from the Vietnam Household Living Standard Survey (VHLSS) which is multi-purpose and most reliable data in the case of Vietnam

The remainder of paper proceeds as follows Section 2 introduces the background of alcohol consumption and its multiple impacts in Vietnam Section 3 focuses on data and methodology

in more detail Results and discussion is in Section 4, following by suggestions in the conclusion

2.A Brief Review of Alcohol Consumption and Its Consequences in Vietnam

For the case of Vietnam, there is a dearth of economic research on alcohol consumption effects Less than ten relevant publications on alcohol, of which none are in the economic area,

in the Vietnamese language and limited international studies on the economic cost of alcohol consumption were found The literature focuses primarily on the drinking level, suggestions for and implications of binge drinking prevention without any economic assessment of the alcohol consumption effects on income and household expenditures For example, Nguyễn Hiền Vương and Phạm Việt Cường (2016) found that, at the mean, a drinker consumed 12.4 litres in 2013 and adults aged 25–34 drank the most (15.76 litres) The consumption of alcohol doubled in only five years (3.8 and 6.6 litres in 2005 and 2010 respectively) These figures substantially differ from the officially statistical data that demonstrates a steady in alcohol use over the period 2006–2014 GSO (2016) reported that urban and rural residents drank the same total amount, at approximately 10.8 litres per month in 2014 Higher income quintile consumed alcohol notably more than the lowers

Table 1 Official data on drinking and the Vietnamese alcohol market

Annual alcohol consumption per capita (litres) 8.4 8.4 10.8 10.8 10.8 Annual liquor supplied (million litres) 330.9 318.1 312.7 Annual beer supplied (million litres) 2420.2 2978.7 3287.2

Sources: (GSO 2016, pp.216&790-92)

Free access to the alcohol market is one of the reasons for the increased consumption over time It is critiqued that there was an absence of efficient official prohibition on the alcohol sales to young drinkers although several laws and regulations for alcohol production

and sales were illustrated (Bao Giang et al 2013) As such, buyers only take a 10-minute walk for a deal (Trần Thị Đức Hạnh et al 2016) Lincoln (2016) claimed that more than 250 million

litres of unregistered strong liquor were produced at home in 2007 Home-made alcohol

soared by 15% in 2006–2010 This untaxed and underestimated production maintains cheap prices, and thus stimulates the demand for the alcoholic products

1It is only about one-third of the whole economy’s average (GSO 2017, p.146).

Regarding the consequences of drinking, Nguyen Huu Minh (2016) argued that binge drinking was one of the fundamental causes of marriage problems Male married drinkers are more likely to lose their self-controls and make a half of the total number of domestic violence

In addition, Bao Giang et al (2013) found that, in the households having heavy drinkers,

drinking accounted for a greater share of the total consumption expenditure than the average; it means that they sacrificed other items in the consumption portfolio for the drinking purpose

3.Data and Methodology

3.1 Data

Data are extracted from the Vietnam Household Living Standard Survey (VHLSS) spanning 2010–2014 We choose VHLSS because of two main reasons First, although unofficial data from several hospitals reported that drinking caused the majority of traffic accidents and fatalities, exclusive data for alcohol consumption is not readily available for the whole country, including MRD In addition, several studies using anthropological approach claims that interviewed drinkers were reluctant to point out possible bad effects of drinking but the

information on drinking decisions instead (Luu et al 2014).

Second, VHLSS provides multiple characteristics of households including variables of interest (i.e alcohol use), education, employment and income that suit an analysis of alcohol consumption – income relationship The panel data structure of VHLSS provides us an additional examination of the alcohol consumption effect as well

In this paper, the data are used in two ways We firstly use the full cross-sectional data which demonstrate the research outcomes year-by-year separately The sample size for each wave fluctuates around 1400 households for MRD Then, from the full sample size, we select retrospective households who were interviewed twice continuously and group them in the two pooled subsamples 2010–2012 and 2012–2014 The subsample sizes however fall considerably

to only over 400 observations; therefore, they are treated as pooled cross-sectional instead of panel data to guarantee the sample size representation This choice is also consistent with a 3SLS model

3.2 Problems of Endogeneity

Before embarking on an analysis of the relationship between alcohol consumption and household income, this paper addresses the issue of potential endogeneity The endogenous bias may ensue from the dependent variable (household income) and independent variable (alcohol consumption) dual relationship, missing variables or/and measurement errors A

consensus is that income causes drinking and vice versa (Ormond and Murphy 2016) Another

potential cause of endogeneity is observable or omitted variables that correlate with the white noise error term Data constraint could be a weakness with respect to carrying out endogeneity The measurement errors are also a trouble which affects the estimate of correlation coefficients Endogeneity in the Ordinary Least Squares (OLS) estimators violate the assumption of non-covariance between independent variables and the disturbance term Once this condition is not held, econometric results are biased and inconsistent in OLS (Gujarati 2004, Gujarati and Porter 2009, Wooldridge 2009) This problem is called simultaneity bias

A common econometric strategy to avoid biased and inconsistent estimates caused by endogeneity is to find an instrumental variable that correlates with the explanatory variable but not with the dependent variable (Gujarati 2004, Gujarati and Porter 2009) This strategy is called Instrumental Variable (IV) model However, the appropriate instrumental variable is less

likely available in practice due to insufficient data Therefore, a 3SLS model tackling the endogeneity problems is feasible, which is discussed in the following section

3.3 Model and Variable Specification

The bidirectional relationship between alcohol consumption and income is carried out

by the 3SLS estimators developed in Zellner and Theil (1962) This system concisely consists of three steps: First, it computes predicted values of each endogenous variable (functioned as the dependent variable) on the exogenous variables in the system This stage

is identical to the first step in the Two-stage Least Squares (2SLS) estimators Then, using the residuals of structural equations obtained from the first step, the metrics generates a consistent calculation for the covariance matrix of equation disturbance Finally, applying a generalised least squares method to the covariance matrix obtained in the second stage, 3SLS estimates the parameters of right- hand-side endogenous variables using the instrumented values (Stata Corporation n.d.)

To specify the income per capita – alcohol use model, the system of two simultaneous equations is constructed as follows:

wher

e: ln(��) = ���� + ꞵ0 + ��ꞵ + �� (1�)

ln(��): the logarithmic form of real monthly income per capita;

��: household alcohol consumption (litres) per month, the variable of interest, endogenous with ln(��);

��: a vector of household characteristics;

ꞵ : the correlation coefficients of X on ln(��);

ꞵ0: the model intercept;

��: the correlation coefficient of alcohol consumption on household income;

��: the disturbance term;

and

wher

e: �� = �� ln(��) +

ξ0 + �

��: the correlation coefficient of household income on alcohol consumption;

ξ0: the model intercept;

: the correlation coefficients of Z on ��;

Z: the control variables including education, household size, the age and gender of household head;

��: the disturbance term

In the system of equation (1a) and (1b), �� and �� are jointly determined or they are

endogenous variables

For the first direction, the central focus of this paper is the effect of alcohol consumption on income We want

to check the extent to which alcohol drinking affects on income However, the correlation coefficient will be biased if the estimation is only based on equation (1a) due to the inverse effects The second direction, as described in equation (1b), concedes a probability that higher income could nurture consumption expenditure on alcohol The statistical yearbook of Vietnam reveals that the wealthiest quantile of population drank twice as much as the poorest one (GSO 2016) Lincoln (2016) emphasised that the rate of alcohol consumption escalated monotonically as a result of increasing wealth Thus, the dual directional effects are estimated simultaneously in this analysis In addition to endogenous variables, the control variables, X and Z, which are assumed to be exogenous2 are added in the model

ꞵ

�

2This condition will be checked with the Hansen-Sargan test after estimations.

4.Results and Discussion

4.1 Descriptive Statistics

We firstly observe the entire data from VHLSS for the rural MRD over three waves separately (2010, 2012 and 2014) The number of observations for this region fluctuates from 1199 to

1455, which accounts for 13–16% of the total VHLSS sample size These data show opposite trends in the growth of income per capita and wine consumption Income nearly doubled whereas wine consumption reduced significantly

It is doubtful that the fall in wine consumption could be a statistical error as it contrasts the national trend reported by GSO Therefore, this study carefully checks with the pooled data from the two panels (2010–2012 and 2012–2014) Unlike the full sample data, the subsample pooled data 2010–2012 and 2012–2014 show that alcohol consumption remained nearly unchanged (about 2 litres over 4 weeks prior to the survey) irrespective of a similar pattern in the income growth It is noting that we could unable to create the only one 2010–2014 panel due to seriously observational drops that impacts the econometric modelling and research results

Real income per capita increased rapidly from 1280 to 2238 (thousand Vietnamese

Dong (’000 VND hereafter)) in 2010–2014, of which income rose in the first two years faster than in the later phase The regional average income was below the national level (from 1507

to 2497 respectively) as the agricultural activities were the main drivers of the household income3 The data from the two pooled subsamples also confirm an expansion in income, albeit with a less impressive rate

Wine consumption per household indicates a sophisticated issue of drinking in the region It

is used as a proxy for alcohol consumption in this study as (rice) wine is traditionally used on a regular basis in rural Vietnam While the entire sample shows a remarkable decline in wine consumption, it only decreased marginally according to data from the subsamples The drinkers in the rural MRD drank more than the average (1.85, 1.95 and 1.54 litres in 2010–

20144) It is expected that wine consumption negates income

Schooling of household head increased steadily over time from 5.2 to 5.5 years irrespective

of the type of data used As the average years of schooling in national rural areas steadied from 6.6 to 6.75, there was a remarkable gap in educational achievements between rural Vietnam and MRD households Education is expected to contribute positively to income

Gender of household head informs that three-fourths of the households were led by male

in MRD, which shares a similarity with the other rural areas across Vietnam The literature reveals ambiguous relationship between this characteristic and income as there is an equal number of evidences of both negative and positive association in the income – (fe)male head

link Analogously, the household size may negate the household income per capita with

respect to the number of household nonworking members; however, more employed working members could raise earnings Obviously, income can be proportionately influenced by

household head’s age that is considered as the return of experience on income Thus, a

positive effect of this independent variable on the dependent one is expected

Table 2: Descriptive statistics for model variables

Year 2010 2012 2014 2010 – 2012 panel 2012 – 2014 panel

Monthly real per capita income (’000 VND)

Mean 1280 1816.9 2238.3 1341.1 1895.1 1881.5 2168.9

SD 1078.9 1657.7 2026.3 1152.1 1678.5 1713.6 1536.4

VHLSS 2010–2014

4 VHLSS 2010–2014

5 VHLSS 2010–2014