The effect of households characteristics on education expenditure in vietnam

iv | P a g eABSTRACT Collecting 4636 observations at household level from VHLSS 2012, this study aims to investigate the effects of current resources of family on education expenditure

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE EFFECTS OF HOUSEHOLD’S CHARACTERISTICS ON

EDUCATION EXPENDITURE IN VIETNAM

BY HOÀNG HƯƠNG GIANG

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, DECEMBER 2014

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE EFFECTS OF HOUSEHOLD’S CHARACTERISTICS ON

EDUCATION EXPENDITURE IN VIETNAM

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY HOÀNG HƯƠNG GIANG

Academic Supervisor:

DR TRẦN TIẾN KHAI

HO CHI MINH CITY, December 2014

Hoàng Hương Giang

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ACKNOWLEDGEMENT

I would like to thank the great assistance of my supervisor, Dr Trần Tiến Khai, who has given me valuable comment, important advices me to complete this thesis Besides, I sincerely thank all lectures in Vietnam – Netherlands Programme for their dedicated instruction and all the courses during the study In addition, I would like to thank all the academic and technical staffs of the Vietnam – Netherlands Programme for supporting during the course

I also would like to thank my family, especially my mother and my husband, who motive my effort and support me a lot to finish my study

Finally, I would like to thank my classmates, Ms Linh and Mr Quang, who has supported me to complete this work

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ABBREVIATION

GSO General Statistics Office

OLS: Ordinary Least Square

VHLSS: Vietnam Households Living Standard Survey

VND: Vietnam Dong

UNESCO: United Nations Educational, Scientific and Cultural Organization

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ABSTRACT

Collecting 4636 observations at household level from VHLSS 2012, this study aims

to investigate the effects of current resources of family on education expenditure ratio for children in Vietnam The findings of the study provide the whole context of the education expenditure situation in six regions of Vietnam as well as in urban and rural Besides, it is demonstrated that socio-economic status is the key indicators to education expenditure ratio Particularly, household’s income and education level of household head positively effect on the ratio Beside, the occupation of household head is associated with education expenditure ratio for children In addition, the correlation between demographic factors and education expenditure ratio is also analyzed Accordingly, the findings indicate that education expenditure ratio is associated with gender of household head In fact, families whose household head being mother have higher ratio than those whose household head being father Similarly, the education expenditure ratio of families being the Kinh is also higher than those being other ethnic minority groups Finally, the correlation between higher education expenditure ratio with higher number of schooling children confirms the fact that size of family is one the key factor influencing on education achievement of children Especially, the findings provide that the education expenditure ratio for the boys and the girls are relatively equal in Vietnam Furthermore, the policy recommendations relating to education expenditure were also drawn from findings to deal with the remaining disadvantages

Key words: current resources, education expenditure ratio, VHLSS 2012, economic, demographic factors, regions, policy

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TABLE CONTENTS

1.1 Problem Statements 1

1.2 Research Objectives 3

1.3 Research Question 3

1.3 Research Organization 3

CHAPTER 2 LITERATURE REVIEWS 2.1 Definitions 5

2.1.1 Education definition 5

2.1.2 Education expenditure 6

2.2 Theoretical reviews 7

2.2.1 Theory of Demand 8

2.2.2 Human Capital Theory 10

2.2.3 Integrated investment and consumption motives in a Neoclassical Model of demand for education 11

2.3Empirical studies 13

2.3.1 Effect of family backgrounds on education of children 14

2.3.1.1 Effect of Parental backgrounds on education of their children 14

2.3.1.2 Effect of demographic factors on education of children 16

2.3.1.3 Effect of geographic factors on education of children 18

2.3.2 Empirical researches on determinant on education expenditure 19

2.3.2.1 Determinant on education expenditure in rural India 19

2.3.2.2 Determinant on education expenditure in China 20

2.3.2.3 Determinant on education expenditure in United State 20

2.3.2.4 Determinant on education expenditure in Vietnam 21

2.4 Chapter summary 23

CHAPTER 3 DATA AND RESEARCH METHODOLOGY 3.1 Data descriptions 24

3.1.1 Data Source 24

3.1.2 Data Descriptions 24

3.2 Hypothesis 26

3.2.1 Socio – Economic Factors 26

3.2.2 Demographic factors 28

3.2.3 Geographical factors 29

3.3 Method and Estimation Strategy 31

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3.3.1 Variables 31

3.3.1.1 The dependent variable 31

3.3.1.2 The independent variables 31

3.3.2 Estimation strategy 33

3.3.2.1Tobit setup 33

3.3.2.2Empirical model 34

CHAPTER 4 EMPIRICAL RESULTS AND DISSCUSION 4.1 Education expenditure between regions of Vietnam 37

4.1.1 Expenditure ratio of education and of other goods 37

4.1.2 Education expenditure by education level of children 39

4.1.3 Education expenditure by gender of children 41

4.1.4 Education expenditure in urban and rural areas 43

4.2 Education expenditure by parents’ backgrounds 43

4.2.1 Education expenditure by education level of household head 43

4.2.2 Education expenditure by household head’s occupation 45

4.2.3 Education expenditure ratio by gender of household head 45

4.3 Tobit estimation 46

4.3.1 Estimation results and discussions 46

4.3.1.1 Effected by socio –economic factors 48

4.3.1.2 Effected by demographic factors 49

4.3.1.3 Effected by geographic factors 50

4.3.2Testing for regression 51

4.3.2.1Testing the significant of coefficients simultaneously for regressions51 4.3.2.2Heteroscedasticity test 52

CHAPTER 5 CONCLUSION AND POLICY IMPLICATION 5.1Conclusion remarks 53

5.2Policy implications 54

5.3Limitation of the study and recommendation for future researches 55

REFERENCES 57

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APPENDIX

Appendix 1: Matrix of correlation between variables 61

Appendix 2: Wald test of overall significance of the model 61

Appendix 3: Robust estimation of Tobit 62

Appendix 4: Tobit estimation result (schooling boy and schooling girl) 62

Appendix 5: Tobit estimation result (schooling age 63

Appendix 6: Tobit estimation result (boy and girl at schooling age) 63

Appendix 7: Distribution of education expenditure ratio 64

Appendix 8: Average income by region 64

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LIST OF TABLES

Table 3-1: The Observation proportion by regions 25 Table 3-2: Dummy variables 26 Table 3-3: Schooling age and enrollment rate between regions 30 Table 3-4: Statistical description of determinant household characteristics factors on education expenditure 36 Table 4-1(a): Expenditure ratio of education, Health care and Foods by regions38 Table 4-1 (b): T-test for mean of education expenditure ratio by regions 38 Table 4-2: Education expenditure ratio by primary, secondary, and high education level by regions 40 Table 4-3: Education expenditure ratio by gender of children 42 Table 4-4: Education expenditure ratio between urban and rural areas 43 Table 4-5: Education expenditure ratio by education levels of household head 44 Table 4-6: Education expenditure ratio by occupations of household head 45 Table 4-7: Education expenditure ratio by gender of household head 45 Table 4-8: Tobit Estimation Results 47 Table 4-9: Effect of number of schooling age and of schooling children on

education expenditure ratio 50 Table 4-10: Wald test result on significance of the model 51 Table 4-11: Tobit and Robust estimation of Tobit 52

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LIST OF FIGURES

Figure 3-1: Schooling age and enrollment rate between regions 30 Figure 4-1: Expenditure ratio of education, Health care and Foods by regions 39 Figure 4-2: Education expenditure ratio between regions by education level 39 Figure 4-3: Education expenditure ratio by gender of children 42 Figure 4-4: Ratio (a) and absolute value (b) of education expenditure by household head education 44

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CHAPTER 1 INTRODUCTION 1.1 Problem statements

The important of education has been acknowledged in both macro and micro side

At macro side, Adam Smith (1776) proved that education is The Wealth of Nation Marshall (1890) asserted that education is also considered as the Principle of economic Schultz (1961) concluded that education is one of the key factors for economic development of the nation Meanwhile, at micro side, many of researches proved the role of education in reducing unemployment rate, alleviating poverty Specifically, Singh (1992) and Van der Berg (2008) pointed out that person who gets higher education level has greater opportunity of being employed, thus, can earn more money Besides, Rao & Datta (1989) proved that level of salary is proportional with education level, means higher educational employees earn higher salary Therefore, education is one of the crucial factors which enhances income of people and in general, leads the family to be out of poverty (Becker, 1993)

Schaafsma (1976) and Kodde & Ritzen (1984), however, demonstrated that education decision for children may be constrained by the resources of family Specifically, household in developing countries, where has often had to self finance for their children’ education, must be tradeoffs between education expenditure to get future benefits of their offspring and other goods consumption to maximum utility of the family (Glewwe & Jacoby, 2004; Qian & Smyth, 2008) Consequently, how much to spend for education of children will depend on household budget constraint and parents’ preferences for next generation achievement Indeed, economist have been evidenced that education decision for children is depended on backgrounds of parents, including income and education level (Glick and Sahn, 2000), demographic factors (Poterba, 1996; Ray, 2000; Jæge, 2006), and geographic factors of family (Ersado, 2005; Park, 2008; Jeynes, 2007)

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In Vietnam, education is always considered as the most important things of the country In fact, the Vietnamese put a very high value on education and households incline to spent significant amount of resources on their children’s education (Glewwe and Jacoby, 2000) There have been great studies dealing with education Most of them have focused on determinant return to education in Vietnam, such as Moock & Patrinos(1998), Glewwe and Patrinos (1999), Moock, Patrinos, &

household characteristics to education of children, especially, to education expenditure has not been documented in recent years Although there are some studies exploring this aspect of education but they have been conducted at provincial level, such as Diep (2008) or Oanh (2012), not at national level Therefore, this study is developed in order to find out the effects of household characteristics on education expenditure in the whole country of Vietnam In particular, the study concentrates on which the current resources of the family, including socio-economic status of the family, demographic factors and of geographic factors effect to education expenditure of children These findings of the study are to provide the whole context of up –to- date education expenditure situation between regions of Vietnam and to explain how the change in socio-economic status and in demographic structure of family effect to education expenditure of children

Besides, this research also differs from previous researches threefold First is that

we exploit impact of households characteristics to education expenditure in spite of

to education attainment which has been predominantly used by other researches

Sahn, 2000; Maitra, 2003; Blanden and Gregg, 2004) Education attainment is not only depended on the wealth of household but on the child’s capacity to study at school (Qian and Smyth, 2008) Therefore, centering on education expenditure is more advantage in term of reflecting financial capacities and backgrounds of family

to pay for education achievement of children than education attainment Second

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contribution of the research is about the independent variables, which are divided the into three groups, including socio-economic, demography and geography factor, which have not been done before by other researches in case of Vietnam Besides, the study uses the number of schooling children variable rather than the number of schooling age children which is often inputted by other researches (Huston, 1995; Knight and Shi, 1996; Tilak, 2002) In fact, family having schooling age children does not mean they will send that child to school Consequently, it does not reflect actual education expenditure spending for children In other words, the number of schooling age children variable may not be as good as the number of schooling children variable in term of measuring the effect to education expenditure Lastly, this study conducts with VHLSS 2012, which is updated and large scale dataset than previous studies

1.2 Research Objectives

The objective of this thesis is to identify the impact of household characteristic on educational expenditure in Vietnam In fact, it aims to point out that the families who have more resource and better human capital able to spend more resource on their children' education

1.3 Research question

The thesis aims to answer two questions:

- What are the differences in education expenditure between regions of Vietnam?

- What and how do the socio-economic status, demographic factors and geographic factors impact on education expenditure in Vietnam?

1.4 Research Organization

This study consists five chapters Next chapter reviews of theoretical and empirical studies relevant to this study Chapter 3 presents data analysis and methodology for

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estimation The results are presented and interpreted in Chapter 4 Finally, Chapter

5 provides conclusions and limitations of the study

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CHAPTER 2 LITERATURE REVIEWS

This chapter surveys the literatures on the education expenditure It first introduces some definitions relate to education Second, it presents the theoretical researches associating with education expenditure Finally, it shows a review of empirical

studies on defining which factors impact on education expenditure for children 2.1 Definitions

2.1.1 Education definition

Gillis et al (1992) asserted that education includes all channels through a person can

accumulate knowledge and skill in order to enhance his own human capital and productivity Accordingly, education is divided into three types, including formal education, informal education and non –formal education

Formal education refers to the procession of education and training conducted by the educational institutions, including schools, colleges, universities, institutes and educational centre

Non-formal education is the procession of education conducted outside schools This kind of education is usually for the purpose of enhancing the knowledge or skill for working by short time learning

Informal education is the procession of learning that takes place neither school nor organized program People study by the things happened in the working place or self-study at home

In Vietnam, the Education Law 2005 asserts that “The national education system consists of formal education and continuing education” The Vietnamese educational system comprises of Early Childhood Care and Education (ECCE), general education, vocational education and high education

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In particular, the Early Childhood Care and Education includes kindergartens, starting at from 2 year old to 5 year old General education constitutes three levels, including primary with five grades, from grade 1 to grade 5, starting at 6 year old to

11 year old, lower secondary with fours grades, from grade 6 to grade 9, and upper secondary with three grades, from grade 10 to grade 12 Vocational education has three level elementary, intermediate and college level, conducting over 1 to 3 years depending on the profession’s feature and requirement High education consists of college with 2-3 year course, undergraduate with 4-6 year course, master with 1-2 year course and doctorate level with 3-4 year course

2.1.2 Education expenditure

Schultz (1961) proposed that education expenditure covers all cost arising from studying procession Accordingly, there are public expenditure and private expenditure

According to UNESCO’s definition, public education expenditure in education means the expenditure made by the state or the government or public authorities Becker (1993) suggested that private education expenditure refers to the spending of family for their children or the spending for education of themselves –studiers This kind of expenditure includes earning foregone and direct cost that spending of education cost such as tuition, uniform, notebooks, books, etc

Besides, Schaafsma (1976) asserted that at household level, education expenditure has been conceived as investment decision and consumption decision This decision

is not only depended on monetary benefits or return to education (investment side) but also on the tradeoffs between spending for education to get monetary benefits in future and spending for other goods to maximum utility of the family (consumption side)

Specifically, Becker (1967) stated that in term of investment education expenditure

is kind of capital which invested by parents for their offspring This case, parents

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hope that their children can earn more money when they graduate That is the factor, return to education, influence of schooling decision for children There have been many researches focusing on investment side of education Accordingly, they pointed out that on average, people with more schooling earn more than those with less schooling (Schultz, 1961, Mincer, 1974; Rao & Datta, 1989; Psacharonoulos &

Ne, 1991; Ram, 1992; Geogre & Patrinos, 2004) These results support for the belief of parent, as generally, which state that getting education is a way for their children having a better live Consequently, it can explain for the decision of parents for education of children even thought education is not profitable for parents (Kodde and Ritzen, 1984) In this circumstance, the schooling decision of parent for children is viewed as consumption decision of family or as kind of obligation of parents to children instead of investment decision (Glomm, 1997)

In term of consumption, education expenditure is presented the willing of parent to reduce family expenditure on other goods in order to augment education level of their children Consequently, education decision must be constrained by the wealth

of family As the matter of fact, this perspective has been examined by great studies

in many countries These results demonstrated that how much spend for education is depended on the endowment or characteristics of family (Huston, 1995; Glewwe& Patrinos, 1999; Tilak, 2002; Qian & Smyth, 2008) The details of these studies are presented in the empirical reviews section

2.2 Theoretical reviews

In this section, theory of demand and theory of human capital are confronted to explain for decision of education expenditure in accordance with consumption and investment aspect Then, it introduces the study that combines two theories to build the model of integration of investment and consumption motive in demand for education, which is used to build the empirical estimation model of this study in the chapter 3

First is to maximum utility function Utility is the term expressed the satisfaction of the consumer getting from a given goods consumption The economist use utility function which is presented by indifferent curve, which describes the combinations

of goods and service that get the same level of satisfaction

Second is consumer’s budget constraint

Supposed that m is the fixed amount of income available to a consumer and p = (p1,…pk) is the vector of price of goods, 1,…,k The budget of a consumer is depend

on the endowment A = (a1,…ak), the things that consumer can sold or can make the money, m

The set of affordable bundles, the budget of consumer, is given by:

B ={x in X: px<= m}

The problem of maximum utility function can be defined by:

Max u(x) Such that px<=m

x is in X Then, we can be rewritten two conditions above as:

v(x,m) =max u(x)

px =m

(2.1)

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The function v(x,m) defines the maximum utility achievable at given price p and income m The value of x solving this problem expresses how much of each good the consumer desires at a given level of price and income The demand function, which relates p and m to the demanded bundle, can be written as: x(p,m), Marshall demand function

The (2.1) can be rewritten as:

Therefore, supposed, a family would like to spend for education (s) and other goods (q) with the budget being m

We have the conditions family has to satisfy is that

Where:

s: is time of schooling for education

pf: is full cost of education, including earning foregone or opportunity cost (w1) and direct cost such as tuition fee, (ps)

p: is price of all other goods

q: is the vector of all other goods

From equation 2.3, we have the demand function for education is s(q, pf m) and can

be rewritten as

v(q,s,m) = max u (s,q) (2.3) q*p + s*pf=m

(2.4)

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Or

From the equation (2.5) we learn that decision of family for education expenditure,

as an consumption, will be depends on full cost of education including opportunity cost (earning foregone, w1) and direct cost (tuition fee, book and notebook, other related expense, Ps), and the endowment of family, the current resource of family

2.2.2 Human capital theory

According to human capital theory (Becker, 1993), education expenditure is viewed

as an investment For the investment, it is defined as the flow of resources into the production of new capital

In the case of education, resources are spent in the expectation that to produce human capital The expectation, therefore, is the rate of return to education That is the money people can get in future after schooling

Supposed that an people who completes the secondary school resulting in earning whose PV can be computed as

Where: PVW is sum of present value of all future benefit over an individual’s n years of working Wt is benefit of year t and I is the interest rate, which discounted

future benefits

(2.5)

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Where: PVC is sum of present value of anticipated private cost and Pf equal to the opportunity cost, earning foregone while attaining school and plus direct cost paid

to school at year t The internal rate of return (r) is determined as follows:

From the equation (2.8) we learn that as an investment, education expenditure, the greater benefit and the lower cost, the higher is rate of return

2.2.3 Integrating consumption and investment motives in a Neoclassical

Model of demand for education

In this section, we provide the theoretical model that we use for our empirical specification Based on the theory on investment side of education, human capital theory and on the theory on consumption side of education, theory of demand, Kodde and Ritzen (1984) made the combination between two aspects of education, consumption and investment in a model

Accordingly, first, the study exploited the consumption aspect of education and then integrated in the human capital model

In particular, the model divides time for a person into two periods The first period

is the time for schooling, s, raises the future wage rate and the second period is working time to earn money after graduating

The relationship between schooling time, s, and the future wage rate in the second period is presented by w2(s)

The full price of education (pf) in the first period includes earning foregone, w1, the first-period wage rate, and education direct costs (tuition fees, book, notebook, and related expenses), ps.

P is price of all other goods

m is budget or money available

Then, similar to (2.3) that person wants to maximum utility of education with the budget constraint as follows:

Whereas, fw = A +wT is the full wealth, in which, A is endowment and T is total

time of the person to schooling and earning money; w = (w1+ w2(s)) is total wage rate of person can earn in time T Therefore, (2.9) can be rewritten as

The Lagrangian for this problem is

The first –order condition are:

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In the equation (2.13), W’2, is the marginal second –period discounted wage And from this equation, the study proves that on the one hand, if education expenditure viewed as an investment, then Us =0, the equation 2.13 is become the human capital model mentioned in equation (2.8) In particular, at the time T, the future discounted wage equals to full cost of education On the other hand, if education expenditure viewed as an consumption, W’2(s) =0, the equation (2.12) and (2.13) are become the demand function for education stated in equation (2.5)

Thus, the integrated investment and consumption motive of education demand is defined from equation (2.12) and (2.13) as:

The equation 2.15 is the integrated consumption investment model, combining two aspect of education expenditure It helps to explain some empirical studies which states that individual still demands for education even thought it is not profitable (w1+sPs > W’2(s)T)

2.3 Empirical researches

This sector presents two kinds of empirical studies relating to education First is about the studies exploring the effect of family backgrounds on education of children Second is about the researches which focus on consumption side of education expenditure

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2.3.1 Effect of family backgrounds on education of children

2.3.1.1 Effect of Parental backgrounds on education of their children

There are large of literature has focused on effect of parental backgrounds on outcome of their children, including education Among varies features of parents, there are two factors that influence significant to education of children, parental income and education

Glick and Sahn (2000), basing on utility theory, using ordered and binary probit models, investigated the effect of parental income and education on schooling of boys and girls in a West Africa Accordingly, they divide family’s life into two periods The first period is to work and support for their children The second period

is to retire In the first period, the household expenditure depends on current income

of the parents There are two kinds of expenditure at that time, including expenditure for children’s education or education investment and others consumption for life The education investment, in turn, decides the income of household in future, the second period when parents retired Therefore, parents have

to consider or have to trade off between two consumptions The result found that increasing in household income lead to the increasing on education attainment of girl children but none effect on the boys In addition, they also claimed that the positive effect is not only on the attainment but also demonstrates grade attainment Besides, the study stated that education of parents have positively combination with children schooling In particular, the higher level of parents education is, the higher attainment rate of children gets

Similarly, Blanden and Gregg (2004) proves that income of family and education attainment in United Kingdom has close relationship and this relationship has been strengthening over time They also claim that income does have a causal impact on educational outcomes

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Another study made by Tansel and Bircan (2006), using survey of household expenditure in 1994 from Turkey, also indicated that household with high income spend more for education of their children than the household with low income Furthermore, Hashimoto (1995), using OLS model, estimated the elasticity of income of education in Japan, claims that the average income elasticity is 1.72 That

is, when income rise one percent (1%), education expenditure will increase one point seventy two percent (1.72%) This elasticity is much higher than the elasticity

of the other consumption expenditure Similarly, Huston (1995) point out the same result, which implies that when income of family increases, education expenditure ratio, which is calculated by education expenditure over total expenditure of family,

is risen

In Vietnam, there is close relationship between education of children and household

income Behrman and Knowles (1999) made the research which focused on

illustrating the relationship between household income and cost of education, the expenditure which parents pay direct to school Indeed, it combined three implications to evaluate the relationship The implications were cost of education directly paid to school, quantity of school and quality of school The result pointed out that there is higher income of parent there is more money for education expenditure In fact, the elasticity is about 0.650 In other words, when income of household rises 1 percent, the expenditure for education rise 0.65 percent as well Besides, it also claims that household income effect positively to enrollment rate Briefly, there exist many studies addressing the effect of parental backgrounds on education of their children Indeed, income and education of parents positively impact on schooling of their children

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2.3.1.2 Effect of demographic factors on education of children

Demographic factor is defined as size of family and gender factor

Jæge (2006), using data from Wisconsin Longitudinal study, with OLS and instrumental variable (IV) approach, found out the impact of family resources, parental resource allocations to and children’s outcomes Accordingly, this study estimated the impact of parental resources and inputs including economic, time, social, and interpersonal to their children The results suggested that when number

of schooling age children of the family increases the total amount of parental resources and inputs available children increase but decrease to each child

Ray (2000), using data of Employment survey in Rural and Urban in India conducted in 1993, combining the expenditure, demographic and employment information, investigated the impact of household size and gender of household head on child welfare in India To estimate, the study combined the relationship between household size and gender of household head to the economic status of the family Accordingly, the research pointed out that the cause of poverty is related to household size and the economic position of female headed household in India As

a result, this leaded to the negative impact on child welfare, education attainment In fact, it demonstrated that children in family whose household head being female or those whose belong to backward class do not go to school Besides, the research also presented that children from larger families are less likely to receive schooling than those from smaller one

Smits and Hosgor (2006), investigating effect of family backgrounds on education participation in Turkey, claimed that gender factor, education level of parent, number of children, household income and occupation of parents are the primary factors defining the school attainment rate in Specifically, it proved that there is the gap in the participation rate of the boys and girls In fact, the participation of the girls is much lower than the boys In addition, mother plays an important role in

Huston (1995), making the research on effect household size, which is denoted as number of schooling age children, to educational expenditure ratio The result implies that when household size increase, educational expenditure ratio, is measured as ratio between educational expenditure over total family expenditure, increase as well In other words, when number of schooling age children increases, the percentage of educational expenditures on total expenditure of family tends to rise as well Indeed, the relationship between household size and education of children is positive

In short, there are a lot of studies on impact gender factor and of household size on education of children The general result is that, gender of household head or gender

of children also plays the role in schooling decision In addition, when number of schooling age children go up, on the one hand, the educational spending for each child is reduced On the other hand, it leads to an increasing in total amount of education spending for children

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2.3.1.3 Effect of geographic factors on education

Ersado (2005), using multinomial logit frame work with data from Nepal, Peru and Zimbabwe, scant the factors influence on schooling decision in urban and rural Accordingly, there is the different between rural and urban areas related to education attainment of children In fact, urban education attainment rate is higher than rural areas In rural area, children will be in labor market instead of going to school if income of family is very low The decision for schooling also depends on the ability to access to commercial bank In fact, there is positive effect on schooling by accessing the bank In addition, when rural infrastructure is improved, increasing of number of school, education attainment rises

Similarly, Park (2008) pointed out that there are some differences in education between urban and rural in China First difference is school enrollment rate The rate in urban, from 93 percent to 95 percent, is higher than the rate in rural, from 84 percent to 90 percent Second difference is quality of education in these areas In fact, family in rural cannot afford for their children finishing nine years mandatory

in accordance with education law

Another research made by Jeynes (2007) finds out the impact of parent on education

of children in urban areas in the United State Accordingly, the result suggests that there is positive impact of parental involvement on education of urban children

In Vietnam, Glewwe and Patrinos (1999), using household data survey in 1992 –

1993, found that households living in urban spend more 79 percent on education than those living in rural of Vietnam Furthermore, Booth and Le (2010), using Vietnam Living Standards Surveys from 1993 to 1998, exploring the rural –urban inequality in Vietnam, suggest that there is the gap between rural and urban in Vietnam In fact, the primary cause to the gap is education, ethnic and age Accordingly, the result points out that return to education, defined as real per capita

2.3.2 Empirical researches on determinant of education expenditure

Education expenditure of family has been studied in many countries Using different model, the results of these studies suggest that the different characteristics between households lead to the different in education expenditure

2.3.2.1 Determinant on education expenditure in rural India

Tilak (2002), using NCAER survey data on Human Development in rural India, with the OLS regression, determining the factor effect to education expenditure in rural India

Accordingly, household expenditure function can be expressed as a functional relationship that relates expenditure to its determinants:

HHEX = f(X) Where HHEX is household expenditure on education, and X is a set of independent variables as the household characteristic, including four categories:

First is social status which consist variables of Caste, Religion, ethnic background Second is economic factor which comprise variables of household income, occupational of household head

Third is demographic factor which the variable is size of household

Last is education factor which variable is education level of household head

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The results point out that household income and education level of household head effect positively on educational expenditure The demographic factor, size of family, play negatively impact on educational expenditure as the cost burden of family It also claims that social status has positively related to educational expenditure Finally, it found out that religion variable played little impact on education expenditure

2.3.2.2 Determinant on education expenditure in China

Using Tobit model, with data from 32 selected cities of China in 2003, Qian and Smyth (2008) found out the factors that influence on educational expenditure in Urban of China Accordingly, the study identify the effect household’s characteristics, including household income, education and occupation of parents, number of schooling age children, geographic residence and married status, on education expenditure

The results state that income is the key factor determining the magnitude of families’ expenditure on education Besides, the research also state that the family where mother have senior secondary school or college education and father are working in professional occupations are likely to spend more on education for their children This result is consistence with other researches from China such as Knight and Shi (1996), points out that parent's education positively effect on their children's education In fact, father's education level is more important than mother's education level Furthermore, the result also point out number of schooling age children impact positively on education expenditure In other words, family which has more schooling age children will spend more for education

2.3.2.3 Determinant on education expenditure in the United State

Huston (1995), using the educational expenditure ratio to measure the value of education to family In particular, the study collected data from the 1990 -1991 Consumer Expenditure Survey in United State to valuate how important of

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education is Accordingly, education expenditure ratio is defined as indicator of the reclative value of education to family Education expenditure ratio is calculated by education expenditure divide to total expenditure of family The hypothesis is that household which distributes higher percent of education expenditure will consider higher value of education comparing to those which lower percent of education expenditure

Thce study uses the consumer demand theory to built the model In particular, from the modified Engel Function, the function to estimate is expressed as follows:

ER = f( I, HC) Where: ER is education expenditure ratio

I is current income of family and HC is all household characteristic

The result point out that income of family, education of parent, gender of household head, number of schooling age children, region and race are significant effect to education expenditure ratio In particular, education expenditure ratio is reduced when income of family increases In other words, education expenditure tend to be constant or stable comparing to other goods consumption Besides, education of household head plays positively impact on education expenditure ratio Moreover, region and race also demonstrate important result Accordingly, families which live

in the North of the country tend to view value of education higher than those locating in the rest of the country Similarly, families which household head being the Black tend to view education less important than other which household head being the White

2.3.2.4 Determinant on education expenditure in Vietnam

There are some studies researching the demand for education in Vietnam which explore the consumption aspect of education In fact, the studies consider education expenditure as a consumption of family instead of being as an investment term

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Glewwe and Patrinos (1999), using data of VLSS 1992-1993 with OLS regression, investigated the role of private sector in education of Vietnam Accordingly, the study defined which factors of family effect on education expenditure of children in private sector of education In particular, the results suggest that education level of parents, household size, income of family positively effect to education expenditure Especially, it asserted that education is not a luxury good due to the elasticity of education expenditure by income less than 1 The research also claimed that there

is the difference in education expenditure for children between rural and urban areas, between regions (North uplands, North central, Central Coast, Central Highlands, Southeast and Mekong delta) of Vietnam, between ethnic groups Indeed, family living in urban areas spent more 79% than those living in rural areas Finally, it found out that there is very little different in education expenditure between religious groups

Another research made by Glewwe and Jacoby (2003), using data of nationwide household panel from period of 1993 to 1998, pointed out the relationship between household resource and demand for education Accordingly, they assert that schooling decision of parent is not only depend on return to education but also depend on family resources In particular, the authors defined educational expenditure as household wealth and focused on current resources of family effecting to schooling education They applied the model of joint determination of schooling investment and consumption expenditure in the life –cycle theory

The results found out that during the mid 1990s, in Vietnam, in accordant with the wealth of family, child school enrollment increase as well Moreover, the study also pointed out that there is higher wealth, per capita expenditure, there is lower the rate

of leaving school Besides, they also asserted that during this period, in Vietnam, there was not significant between return to education and demand for education In other word, an increasing in return to education did not raise demand for education

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Diep (2008), using VHSLL 2004 and semi-log model, investigated the influencing

of household characteristics on education expenditure per child in Mekong River Delta of Vietnam, pointed out that in Mekong River Delta areas, income per capita negatively impact on education expenditure ratio per child In other word, when income of family increases, the education expenditure ratio goes down Besides, there is the positively associated between education level and occupation of parent with education expenditure for children Similarly, age and gender of house head play positively impact on education expenditure per child

2.4 Chapter summary

Theoretical and empirical reviews for the study are presented in this chapter

Firstly, as being an investment decision of family, education decision can be explained by human capital theory (Becker, 1993) As being a consumption decision of family, we can apply theory of demand to maximum utility of spending for education (Varian, 1992)

Secondly, we can combine two aspects of education, mentioned above, in the model

of integrating consumption and investment motives in demand for education (Kodda & Ritzen, 1984)

Lastly, we know that socio –economic factors, demographic factors and geographic factors play an important role in education of children

These main points are used to build our hypothesis and model mentioned in the Chapter 3

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CHAPTER 3 DATA AND RESEARCH METHODOLOGY

This chapter first comes with the description of the dataset used in this study Then,

we introduce research methodology applied for estimation Accordingly, the effect

of household characteristics on education expenditure was estimated by Tobit regressions with data collected from VHLSS 2012 Moreover, variables used in the estimation are also explained in detail

3.1 Data descriptions

3.1.1 Data Source

Data for this research is sourced from the 2012 Vietnam Household Living Standards Survey (VHLSS) The 2012 VHLSS is conducted by General Statistics Office with technical support from the World Bank This survey, covers 46.995 households from 3.133 wards/communes sample, presents for rural and urban and six geographic regions with 883 urban areas and 2250 rural areas, includes very detail data on them Household level data observes information on income and expenditure, asset, production and durables ownership Individual level data states information on education, employment, health, migration and demographics

The 2012 survey differs from e earlier round (2002-2010) in term of content and sampling design The principle chance is that there is shortening questionnaire, reframing of the consumption modules, and drawing of the sample from the 2009 instead of the 1999 Population Census (Lanjouw, Marra, & Nguyen, 2013)

3.1.2 Data Descriptions

This study employed 4636 households which have children being at schooling age children, who are legally obligated to attend school, from 6 years old to 23 year old, respective to primary, lower secondary, upper secondary and high education level and have education expenditure information Therefore, schooling age children

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includes children being at school (schooling children) and those being out of school, drop out of school As a result, there are 3874 families, accounting for 83.56 percent

of total observations, whose children are schooling, have education expenditure and

762 families (16.44 %) whose children are at schooling age group but are out of school have the education expenditure being zero

Besides, these households are collected from 63 provinces through Vietnam which are gathered into six main ecological regions as shown in the table 3-1 Accordingly, the largest proportion of observations (23.77%) is from the North Central and Central Coastal region, 1102 households And the lowest proportion of observation (7.92%) is from the Highland region, 367 households Moreover, these are 72.33 percent living in rural areas and 27.67 percent living in urban areas

In addition, there are 81.47 percent families being the Kinh and 18.53 percent being other ethnic, minor groups Furthermore, in our data, there are 83.54 percent of household whose the head is male or father (Table 3-2)

Table 3-1: The observation proportion by regions

Northern highland and

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Table 3-2: Dummy variables

3.2.1 Socio – Economic Factors

The socio– economic factors at household level that can be affected to education expenditure are defined as household income, household’s head level of education and ethnic or culture of the family

Household income can impact on education expenditure of children The reason is that there are costs for education The education costs consist of opportunity cost and visible cost Opportunity cost is the cost that children cannot help parents to do family works at home or in farm or, even thought, to make money as child labor Visible costs include tuition cost, book and stationary cost, transport cost, uniform cost and others These costs have to be paid by parents However, according to customer behaviors, parents face with budget constrain If parents want to spend more money for education, they have to spend less for other things in case that income is constant

As mentioned in empirical reviews, there are close relationship between income of parents and children education Indeed, income of parents, effect positively to education attainment of children (Glick and Sahn, 2000; Blanden and Gregg, 2004& Tansel and Bircan, 2006 & Hashimoto, 1995) Besides, income of parents also positively effect to education expenditure ratio, which is percentage of education