Summary of PhD thesis: Remittance policy for economic development in Vietnam

The thesis aims at the theoretical basis system of remittance policy for economic development; assess the impact of remittances on economic development; analysis and evaluation of remittance policies for economic development; Analyzing and evaluating remittance policies for Vietnam''s economic development Fourthly, building a policy framework and proposing remittance policy solutions to develop Vietnam''s economy.

AND TRAINING

BANKING ACADEMY OF VIETNAM

-000 - TRAN HUY TUNG

REMITTANCE POLICY FOR ECONOMIC DEVELOPMENT

AND TRAINING

BANKING ACADEMY OF VIETNAM

-000 - TRAN HUY TUNG

REMITTANCE POLICY FOR ECONOMIC DEVELOPMENT

IN VIETNAM

Major: Finance – Banking Code Number: 9.34.02.01

SUMMARY OF PHD THESIS

2 DR NGUYEN THI PHUONG LAN

The thesis was defended in front of the thesis committee at … … on 2019 at the Banking Academy of Vietnam

The thesis can be found at:

- Library of the Banking Academy of Vietnam

- National Library

HÀ NỘI, 2019

INTRODUCTION

1 THE NECESSITY OF THE THESIS

Remittances are becoming increasingly important for the Vietnamese economy Since opening the economy, Vietnam has had policies to loosen remittance flows since 1999 Changes in foreign exchange management policies also create more favorable conditions for capital flows, in general and remittances in particular However, the policies related to remittances are still inadequate, not yet attracting the maximum amount of remittances to promote positive impacts and effective measures to limit the negative impact of remittances For example, the legal framework for receiving remittances is still incomplete, the target system and remittance policy solutions for the subjects are unclear In order to optimize overseas remittance capital for economic development, it is necessary to have a more synchronous and scientific policy system of remittances in accordance with the new situation

and situation In the above context, the study of the topic: "Remittance policy for economic

development in Vietnam" is necessary

2 LITERATURE REVIEW

2.1 Literature review in the world

The topic of remittance has attracted the attention of international organizations and scholars and policymakers on rich areas The trend of remittance research began to appear at large frequency after World War II when more open regulations on migration and immigration were applied by countries Since then, outstanding studies on remittances can be divided into three main contents: (i) definitions, measurement methods, remittance flows; (ii) factors affecting the decision to send remittances; (iii) use and impact of remittances

2.1.1 Definition, measurement methods and remittance flows

The definition of remittances differs between countries, leading to differences in remittance measurement (Kapur, 2003; Worldbank, 2007) Although all acknowledge the development and the increasing proportion of remittances sent from relatives abroad, the definition and methods used to measure remittances are not the same in all countries Some countries do not publish or publish part of official remittance data, while others only publish data from money transfer companies The difference between investment and remittances is also relatively unclear These inconsistencies lead to statistical issues and comparisons of remittances between disadvantaged countries (Worldbank, 2007)

2.1.2 Factors affecting remittances

Regarding factors affecting remittances, previous studies divided the factors into two levels: macro and micro In terms of macro level, factors include the macroeconomic situation

of sending and receiving countries such as interest rates, exchange rates, inflation, etc (Lucas and Stark, 1985) Wahba (1991) also pointed out that government policy, the development of financial intermediaries, the difference in interest rates between the two countries are also macro factors affecting remittances In terms of micro level, studies show that there are 4 main groups of factors, including: (i) culture, (ii) gender, (iii) demographics and (iv) overseas associations

2.1.3 Use and impact of remittances

a Remittances, consumption and investment

Behavior of remittance is a question that creates debate for scholars studying remittances Some studies show that remittances are mainly used for consumption and it almost does not affect local economic improvement Others argue that remittances are used for development investment such as education and housing - helping to improve human capital and employment and development opportunities for people Specifically, through education, people's qualifications increase, thereby, improving job search opportunities

Through investing in building houses, recipients of remittances or people with remittances have better living conditions, at the same time, income opportunities, jobs for local construction workers themselves direction

In addition to studies on the use of remittances for education, a number of other studies have learned about the use of remittances for investment and development (Osili, 2004

& 2007; Woodruff and Zenteno, 2007)

In relation to the use of remittances for business investment and development, Woodruff and Zenteno (2007) find international migration (between the US and Mexico) increasing investment by 35-40% In particular, the authors found out through remittances, households receiving remittances may have capital to develop their business with a small business model (less than 15 employees)

Finally, Osili (2007) tested the level of remittances and savings in Nigiria affected by emotional factors, insurance engines The author pointed out that remittances into Nigiria are driven by sentimental factors when remittances increase when household assets (land) decrease However, savings in Nigeria are largely determined by the investment motivation because savings have a positive relationship with household assets

b Remittances and economic growth

Studies on the impact of remittances on economic growth through consumption channels and investment can be divided into two groups, of which the first group focuses on research at the multinational level, the other group studies within a country The trend of research results remains a controversial issue due to differences in methods as well as data collection

c Remittances and multipliers impact

Researching the scope of remittances to other variables in the economy is an important topic to determine the influence of remittances

In a study on micro-rural data, Taylor (1995) examined the direct and indirect impact

of remittances on a village in Mexico The author found remittances with a multiplier effect of 1.6, meaning that every 1 million dollars of remittances sent to the village would generate 1.6 million dollars in extra products In another study in Mexico, Taylor and Dyer (2009) used a general equilibrium model to conclude in the short term, every 10% increase in the number of migrants returning to the country resulted in a 5% increase in wages rural areas and 52% increase in investment in education In the long term, every 10% increase in return of migrants leads to 1% increase in rural income, 52% increase in investment in education and 15% increase in housing investment

d Remittances, poverty and inequality

Some studies have discussed the relationship between remittances, poverty and inequality Most studies have shown that remittances work to reduce poverty in developing countries (Adams and Page, 2005; Acosta et al., 2006; Loksin et al., 2007; Adams, 2006) In contrast, the relationship between remittances and income inequality is still controversial Many studies show that remittances only have a small effect on income inequality (Barham and Boucher, 1998; Adams, 2006), however, some also confirm the opposite (McKenzie and Rapport, 2007; Jones, 1998)

e Remittance and financial development

The relationship between remittances, increasing the level of access to finance and financial development in countries is also much concerned However, how remittances affect financial development is still a question that challenges scholars Previous studies have mainly described the relationship between remittances and financial development, and given that remittances will act as a catalyst for financial development when helping remittances to

reach households with financial and credit products In addition, remittances can impact banks' readiness in lending to households or areas that receive many remittances

2.2 Literature review in Vietnam

Remittances have played an important role in the economy, especially in developing economies like Vietnam Since 1999, the strong growth of remittance sources to Vietnam has caused issues of this capital source to receive more and more attention from researchers Some examples of typical studies on remittances such as Le Minh Tam and Nguyen Duc Vinh (1999), Nguyen Anh Dung etal (2005), Dang Nguyen Anh (2005), Hernández-Coss ( 2005), Sakr (2006), Pfau & Giang Thanh Long (2006), Nguyen Thi Thuy Linh (2006), Nguyen Duc Thanh (2007), Do Thi Duc Minh (2007), Do Thi Kim Hao etal (2013), Nguyen Kim Anh etal (2017) These studies can be classified into 2 main groups including: (i) descriptive statistics studies; (ii) studies using quantitative models

2.3 Research gap

First, in theory, previous studies have not clarified the definition of "remittance",

especially comparing the term "remittance" used in Vietnam with the term "remittance" used

in countries speaking English This will make it difficult to develop remittance management policies

Second, the previous study approached the system of remittance management policies

according to the objectives (attraction, management and use), but such a division may cause some policies to overlap between groups Therefore, access to remittance management policy system in the new direction, such as supply and demand in three phases, can help solve this problem

Third, except Hung (2016) who interviewed Vietnamese people who mainly reside in

the US, previous studies on Viet Nam's remittance issue have not yet done qualitative analysis through in-depth interview data

Fourth, on the channel of overseas remittance services, previous studies, although

there have been analyzes on overseas remittance channels in Vietnam, only stop at organizations with large transactions

Fifth, according to the latest research results from Nguyen Kim Anh et al (2017),

Vietnamese labor export priorities give priority to using the first remittance for debt repayment This proves that outstanding loans to export labor are relatively large, but many credit institutions now announce that the export surplus of labor has decreased significantly This situation poses a gap in the study of the relationship between remittance flows and credit for workers going to work abroad

Sixth, previous studies on remittance policies often focus on public policy Private

remittance policies are applied by organizations that receive and pay remittances that have not been systematically investigated and analyzed

Fourth, develop a policy framework and propose remittance policy solutions to

develop Vietnam's economy

4 SUBJECTS AND SCOPE OF RESEARCH

4.1 Research subjects

The main research object of the dissertation is (i) policies of management agencies on remittances; (ii) remittance policy in Vietnam; and (iii) the impact of remittance policy on Vietnam's economic development

3.2 Research scope

- Scope of research on space: remittance policy in Vietnam

- Scope of research on time: 1996 - 2018 period

For qualitative analysis, the topic uses data from in-depth interview techniques and focus groups in 2018 and 2019

For quantitative analysis, due to limitations on secondary data, especially data on remittances

in Vietnam, the research period for quantitative analysis in the VECM model lasts from the first quarter of 1996 to the fourth quarter in 2016 For the PSM model, due to the characteristics of the data from the 2016 VHLSS, the research data is a cross-sectional data type at the time of 2016

5 RESEARCH DESIGN

5.1 Research Strategy

There are two strategies which are survey and secondary database

For survey strategy, a three-period supply-demand model is utilized for identifying sample The first stage is senders sending money to an intermediary The second stage is that intermediary sending money to another one The last stage is money transfering from the last intermediary to the users/recievers The three-stage supply-demand model would be benefit to understand remittance policy, remittance in institutions manner in the world and Vietnam

For secondary database stategy, firstly, annual Worldbank reports are the best resource

Secondly, the quarterly volume of remittance would be collected from Nguyen Kim Anh etal

(2017) and State Bank of Viet Nam Thirdly, data from VHLSS 2016 is used

Hàm sản xuất Cobb- Doughlas

Macro: GDP Micro: Income, Poverty, Expenditure Intermediary Channel

Demand Personal/Institutions Use,

5.3 Research Methodology

The thesis used various methods and tools to cope with the research objectives Traditional ones are survey, statistic, compare, synthesis while the mordern ones are modelling issues into simple mathematical formulas, tables and diagrams

Firstly, for the objective of the system of theoretical basis on remittances, the policy of remittance management to serve economic development, research uses methods of synthesizing remittance policies applied in receiving large remittances countries around the world

Secondly, to assess the impact of remittances on economic development in Vietnam, the topic approaches two quantitative methods (VECM, PSM) and qualitative one (in-depth interview techniques in fieldtrips)

Thirdly, for the purpose of assessing the situation of remittance management policies in Vietnam, the topic will approach the three-phases demand - supply, and use qualitative methods through intensive interview techniques management agency

Fourth, to design and propose remittance policies for economic development in Vietnam, the thesis is based on international lessons learned from countries receiving remittances in the world, orientation of foreign exchange management including remittances

in Vietnam, characteristics of Vietnamese overseas, the result of in-depth interviews with Agribank's customers and quantitative models of VECM In addition, in-depth interviews from officials of relevant management agencies (SBV, Department of Overseas Labor Management, General Department of Customs, Overseas Vietnamese Committee and Ministry Diplomacy) will also be analyzed

6 NEW CONTRIBUTION

a Theoretical Contribution

- Clarifying remittance definition in terms of languages, especially the model of periods supply – demand, thus, diffrenciating public statistics in remittance provided by Worldbank and State Bank of Vietnam

three Presenting objectives, contents and tools of remittance policy for economics

developement

- Classifying remttance into various norms based on the three-periods supply – demand model, enabling policy makers to opt diversified policies related

b Practice Contribution

- Building remittance policies in system for Vietnamese economic development

- Building a system of solutions and recommendation for Vietnam policy makers to leveraging remittance benefits

There are three chapters in thesis including introduction, summary and reference list:

Chapter 1: Theoretical Framework of Remittance policy for economic development

Chapter 2: The current status of remittance policy for Vietnam’s economic development

Chapter 3: Solutions on remittance policy for Vietnam’s economic development

CHAPTER 1 THEORETICAL FRAMEWORK OF REMITTANCE POLICY

FOR ECONOMIC DEVELOPMENT

1.1 OVERVIEW OF REMITTANCE

1.1.1 Migration and Labor Movement

If the trend of shifting labor from surplus to the lack of labor is mainly due to income difference, migration trends often occur including two groups of objective causes: (i) instability in the country home origin and (ii) society In particular, social migration is a form

of migration that tends to increase today In addition to migrating according to family reunification, a form of social migration is the marriage of foreigners

1.1.2 Remittance definition

In this thesis, international remittance is focused

According to the supply side, remittances are part of the income of the sender of remittances to the country of origin According to intermediaries, remittances are transfers between countries According to the demand side, remittances are all income of households from foreign countries The remittance statistics should clearly define the collection method

to transparent remittance data

1.1.3 Remittance classification

Remittance classification plays an important role in managing and proposing remittance management policies for appropriate economic development The criteria for classifying remittances are based on supply-demand patterns Specifically:

Table 1.3: Classification of remittances according to criteria

Supply

Senders

Labour (illegal) Occupatiion:

Migrants

Sending economy Developed Economy (South-South)

Developing Economy (North-South)

Foreign currency, Gold Account

Kinds Source Cá nhân gửi Nhóm gửi (Collective Remittance)

Intermediary Channel

Formal

Licensed Credit Institutes Licensed Money Transfer Organization Fettching foreign currency with report Informal

Non-licensed Organization Three hands transfer Fettching foreign currency without report

Demand Use

Consumption Paying debt Education, Medical (à labor quality)

Goods: domestic, imported Saving Short-term Medium-term

Long-term Investment Assets Security

Side Criterias Classifcation

Real Estate Others Development

Development Project SMEs

Social Funds/voluntary User

Household Urban Rural Institute State

Personal

Source: syntesized by author

1.2 IMPACT OF REMITTANCE ON ECONOMIC DEVELOPMENT

Remittance contributes to the process of capital accumulation, labor quality development, thereby promoting economic development

1.3 POLICY POLICY TO SERVICE ECONOMIC DEVELOPMENT

1.3.1 The concept of remittance policy serves economic development

According to The University of Sydney (2018), the policy is basically understood as a deliberate principle system that guides decisions and achieves reasonable results In this study, remittance policy for economic development is defined as a system of regulations or tools used by state agencies to influence senders, recipients and intermediaries, through That contributes to promoting economic development towards reducing the dependence of the economy on remittances

1.3.2 The objective of remittance policy serves economic development

In terms of the ultimate goal, remittance policy is aimed at economic development In essence, economic development lies in the fact that the economy not only has economic growth but also the economic structure has been changed in a positive way, ensuring long-term economic growth or otherwise Sustainable growth

In terms of subjects, the objectives of remittance policy to serve economic development include three parties: (i) depositors; (ii) intermediary organization and (iii) money users In particular, users can be individuals and/or organizations (businesses, localities)

In terms of priority, for different countries, based on the situation of receiving and using remittances, the objectives of remittance policy to serve economic development over time may not be the same Although the priority order at a time for remittance policies for economic development may be different in each country, the general trend of the remittance policy goal for economic development is compiled by time Time is as follows: (i) attract remittances; (ii) attract remittances into official channels; (iii) directing remittances into economic development

1.3.3 The content of remittance policy serves economic development

Contents of remittance policies are presented according to the objects in the model including: overseas remittance providers, remittance intermediaries and recipients - using remittances

For overseas remittance policies for the supply side, the content of remittance policies often focuses on attracting and securing future remittances supply through policies for workers who go abroad for a certain period of time and vaccination for settlers

For remittance policies for money transfer intermediaries, the content of remittance policy aims to liberalize money transfer channels to reduce money transfer costs, creating benefits for service users

For remittance policies for remittance recipients, the policy content focuses on recipients being individuals/households and organizations/localities, with priority given to

using remittances to develop consumers, production and business for individuals/households and directing remittances into welfare investments for organizations/localities

1.3.4 Tool to implement remittance policies

About tools to implement remittance policies, 3 basic groups of tools include: legal, organizational and financial In addition to the above three basic tools, propaganda tools can also be used Depending on the characteristics and structure of migrants of each country, the propaganda tool may be designed differently

1.4 INTERNATIONAL EXPERIENCE ON HARASSMENT POLICY FOR ECONOMIC DEVELOPMENT AND LESSONS FOR VIETNAM

1.4.1 International experience on remittance policies for economic development

a Experience on remittance policy on the supply side

First, implementing policies to maintain close relations with migrants

Second, policies to protect the rights and interests of migrants

Third, remove barriers to overseas remittances

Fourth, develop labor export market

Fifth, mobilize remittances through financial instruments

Sixth, improve financial knowledge for the community

b Experience on remittance policy to intermediaries

Firstly, licensing, classifying and creating a legal corridor for overseas remittance service providers to operate

Secondly, building and improving the payment infrastructure connecting domestic domestic remittance service providers and starting to link with foreign countries to reduce transaction costs and enhance access to finance in the region countryside

Third, create a mechanism to supervise organizations providing remittance services, make the market transparent

c Experience of remittance policy on the demand side

First, encourage overseas Vietnamese to borrow money to buy houses in the country Second, issue programs and investments to support local infrastructure development projects

Thirdly, implementing a personal finance education program to orient the effective use

of remittances

1.4.2 Summarizing international experience on remittance policies for Vietnam's economic development

1.4.2.1 Experience in designing and building remittance policies

Design and construction of remittance policies should be based on the characteristics and trends of national migrants Each country has different economic, social and historical contexts, so the migration process and characteristics of migrants are not the same

In order to build and implement effective remittance policies, the Government's remittance management regime should be concerned

1.4.2.2 Experience on policy for the supply side

For overseas remittance supply, there are two important lessons: one is that it is necessary to maintain friendly policies with overseas Vietnamese in order to not only make use of the remittance source but also the gray matter from the overseas community; secondly, labor export policy should shift to the developed market to increase income and skills for workers, contributing to local labor transfer in the future

1.4.2.3 Experiences on policies for intermediaries

Considering remittance as a resource for development investment, it is necessary to transparent information about remittances This transparency lies in the fact that state management agencies publish information about remittances accurately and promptly

1.4.2.4 Experience of policy on the demand side

Experiences from the countries show the importance of using remittances in development investment activities To help households receive sustainable remittances, world experience indicates the role of financial education before, during and after temporary workers abroad In Vietnam, we can first take advantage of the extensive network of VBSP, people's credit funds and post offices in disseminating financial education After that, deploy financial education training from primary, secondary, high school and college and university levels

CHAPTER 2 THE CURRENT STATUS OF REMITTANCE POLICY FOR

VIETNAM’ S ECONOMIC DEVELOPMENT

2.1 THE CURRENT STATUS OF REMITTANCE IN VIETNAM

2.1.1 The current status of remittance into Vietnam from the supply side perspective

Firstly, on the subject of remittances, the subjects sending remittances to Vietnam are

diverse but can be divided into two main groups: (i) export workers and (ii) settlers Based on the scale, especially for Vietnamese settlers, it can be divided into 3 small groups, including: Vietnamese emigrating in the context of war crisis, Vietnamese brides who marry foreign husbands and others

Secondly, in the form of remittances, before 1999, when the regulations on foreign

exchange management in Vietnam were very tight, the cost of remittance was high so the form was mainly goods; after 1999, foreign exchange management regulations were relaxed, especially the encouragement of remittances, the development of institutions, the service of receiving and paying foreign currencies, leading to the form of remittances in currency in Vietnam increased

Thirdly, the country sending remittances to Vietnam, remittances from the US and

Canada account for the highest proportion, averaging about 64% in the 2011-2015 period Remittances from groups of developed countries such as Australia and European countries such as France and Germany are of great value, accounting for 5-9% of remittances into Vietnam and growing relatively sustainably

2.1.2 The current status of remittances into Vietnam from intermediaries perspective

Table 2.2: Description of remittance channel to Vietnam

Formal

Economic Organizations

Belongs to Credit Institutes

Via International MTOs

Private MTOs Post Office Fetching foreign currency with report to cusody