(Luận Văn) An Exploration Of The Causal Effects Of Alcohol Consumption On Income, A Case Study Of The Mekong River Delta Of Vietnam.pdf

27 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 relationsh[.]

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

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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

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

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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

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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:

ln(𝑦𝑖) = 𝛼𝑖𝑞𝑖 + ꞵ0+ 𝑋𝑖ꞵ + 𝑢𝑖 (1𝑎) where:

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

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

𝑋𝑖: a vector of household characteristics;

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

ꞵ0: the model intercept;

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

𝑢𝑖: the disturbance term;

and

𝑞𝑖= 𝛾𝑖ln(𝑦𝑖) + ξ0+ 𝑍𝜉 +𝑣𝑖 (1𝑏)

where:

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

ξ0: the model intercept;

𝜉: the correlation coefficients of Z on 𝑞𝑖; Z: the control variables including education, household size, the age and gender of household head;

𝑣𝑖: the disturbance term

In the system of equation (1a) and (1b), 𝑦𝑖 and 𝑞𝑖 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

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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 2010 2012 2012 2012 – 2014 panel 2014

Monthly real per capita income (’000 VND)

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

Monthly wine consumption per household (litres)

Schooling of household head (ranging from 0 to 12 years)

Gender of household head (male = 1; female=0)

Household size (the total number of household members)

Age of household head (years)

Source: VHLSS 2010–2014

4.2 Income – Alcohol Consumption Relationship

The effect of wine consumption on income is captured by a 3SLS model for both with the full three waves

of VHLSS 2010–2014 and the subsamples of the two pooled 2010–2012, 2012–2014 Generally, this study

explores a reduction in income per capita due to consuming wine For the full sample of three waves, Table 3

shows that rural MRD households’ income growth was statistically significantly hurt by alcohol drinking,

albeit this effect cannot pass the over identification test for the year 2012 Both in the two years 2010 and 2014,

we find a substantially significantly negative effect of drinking on income per capita at the 1% level In 2010,

other things being equal, at the mean, an additional litre of wine consumption decreased 55%of income per

capita growth This strong link between the two variables was still confirmed with a half of the initial level

after four years

However, Table 4 shows a smaller pattern in the negative correlation coefficient between the alcohol

consumption and income For example, in 2010, a litre of wine consumption rise, ceteris paribus, wiped out 20%

of income growth Then, in 2014, it took out more a tenth of individual earning expansion At any time,

individual earnings in rural areas across the country could be more seriously cut by alcohol consumption than

in MRD, albeit the over identification test is not hold for whole country data sample

This stringent impact of wine use could arise from the double interchangeable reasons People who drink frequently could be unable to work efficiently even when they are not heavy drinkers Specifically, in rural

MRD where the majority of earnings depend on agricultural activities, households can easily make a delay or

cut their self-control jobs on the field for the drinking purposes This also means that there were insufficient

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employments in the agricultural sector More importantly, intermediate and heavy drinking causes various

health problems which interrupt the employment or working time, and thus induce a fall in income growth

4.3 Other determinants of income growth

Turning now into the income drivers First, the similar correlation coefficients from both the full and

subsample data confirm that education is of importance to income growth Specifically, a year higher in

household’s head educational level can explain for 7.4% and 5.2% increase in income per capita in 2010 and

2014 respectively This result reaffirms the fact that education of the household head’s schooling improves not

only individual income but also the other family members’, especially their children’s earnings (e.g Nguyen

et al 2007, Hoang and Yabe 2011) Badiani et al (2012) also argued that income has a strongly positive

relationship to education, and thus improving educational level is a long-run strategy of poverty alleviation

The gender of household head generally shows a statistically significant correlation to income growth With the full data, income growth was more likely to rise in the male-led households In particular, those who lived

in the male-led households boosted 40% of their income compared with people belonging to female-led

households The correlation coefficient between income growth and the household heads’ gender was less

sizable in the year 2014, but income increased by over one-fifth in the households with the male head

However, this income and household head’s gender association was complicated when using the data from subsamples For the pooled panel 2010–2012, the correlation coefficient was neither statistically significant nor

positive This paper cannot find any rigorous support the exceptional outcomes for MRD when the model for

the national rural areas was positively significant at the 1% level Nevertheless, a limited sample size could

circumvent the validity of this computation It came as no surprise then that the proportionate correlation was

statistically significant

Finally, the household size positively contributed to income extension in spite of no statistically significant results in 2014 It is argued that a greater ratio between working and non-working members could underlie

this result The long-run family planning strategy of the Vietnamese Government reinforces the fertility rate

fall, and hence the number of children per household reduced monotonically, including the examined period

Table 3: Results from 3SLS model for the full cross-sectional data Dependent variable: log of income per capita

Variable

Vietnam

Vietnam

Vietnam Wine consumption -0.555***

(0.02) -0.418*** (0.01) -0.150*** (0.039) -0.324*** (0.006) -0.279*** (.041) -0.533*** (0.005)

(0.002)

0.045***

(0.004)

0.108***

(0.008)

0.085***

(0.003)

0.052***

(0.008)

0.045***

(0.005) Age of household

head (0.004) 0.006 (0.001) 0.001 -0.0007 (0.001) (0.0008) 0.0004 (0.002) 0.001 -0.0006 (0.001)

household head

0.390**

(0.14)

0.351***

(0.043)

0.101**

(0.049)

0.320***

(0.030)

0.232**

(0.072)

0.433***

(0.048)

(0.04) 0.026** (0.01) (.019) 0.015 0.054*** (0.007) (0.021) 0.030 0.083*** (0.012) p-value of

Hansen-Sargan test

Note: *: p<0.1, **: p<0.05, ***: p<0.01; standard errors are in the bracket ();

results from equation (1b) are suppressed and could be provided upon requests

Source: VHLSS 2010–2014

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Table 4: Results from 3SLS model for the subsample pooled data of 2010–2012 and 2012–2014 Dependent variable: log of income per capita

Variable MRD Pooled 2010–2012 Rural Vietnam MRD Pooled 2012–2014 Rural Vietnam

(0.01)

-0.543***

(0.018)

-0.121***

(0.023)

-0.349***

(0.007) Household head’s education 0.095***

(0.014)

0.024**

(0.01)

0.076***

(0.012)

0.060***

(0.007)

(0.003)

0.0003 (0.002)

-0.001 (0.002)

0.001 (0.001)

(0.108)

0.338***

(0.084)

0.176**

(0.086)

0.283***

(0.061)

(0.09)

0.109***

(0.02)

0.021**

(0.008)

0.020***

(0.005)

Note: *: p<0.1, **: p<0.05, ***: p<0.01; standard errors are in the bracket ();

results from equation (1b) are suppressed and could be provided upon requests

Source: VHLSS 2010–2014

4.4 Hansen-Sargan statistic test

To check the model validity, this study applies the Hansen-Sargen test of over-identification to the system

of two simultaneous equation (1a) and (1b) The test investigates whether the variable of interest is

over-identified based on Sargan’s (1958) and Basmann’s (1960) tests of overidentifying restrictions for the

simultaneous equation model (Baum et al 2007) Specifically, it detects the probability of appropriateness of

econometric modelling with respect to the effects of alcohol consumption on income per capita The null

hypothesis is that the model is properly identified at the 5% level of confidence interval

Generally, the test confirms that the full samples and sub-samples for the rural MRD are more likely to obtain the validity condition than the whole data for rural Vietnam (not any case is confirmed its validity by

this test) The reasons could be that the heteroscedasticities existing in the sample for rural Vietnam are much

more worried than that for MRD For the full data of MRD, Table 3 illustrates that the model is valid for the

wave 2010 and 2014 but not 2012 of VHLSS The sub-samples (Table 4) report that both the two pooled

cross-sectional data results pass this test, as such the validity of the model is confirmed and the Hansen-Sargan test

of over identification is robust to the model results

5 Concluding remarks

The economics of drinking is still in its early stage of development and far from a consensus on the alcohol consumption – income correlation This study supports a hypothesis that drinking is detrimental to individual

income growth In the case of MRD, both income and consumption expenditure on alcohol soared in the period

2010–2014 The strong negative relationship between income per capita and drinking is apparent; the greater

the consumption on wine, the smaller the pattern in the income growth The Hansen-Sargan test is robust to

this causal correlation The pattern in increased alcohol consumption per capita was greater for the higher

income cohort

Home-brewed alcohol products stimulate the demand due to cheap prices (Lincoln 2016) Additionally, the law and regulations on production and consumption on alcohol have been on the stage of establishment,

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