Impact of remittances on the households expenditure structure in Vietnam

Remittances are the money and goods that called internal remittance if migrants living in the city bring back a part of their income to their families in rural area, and external remitta

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT OF REMITTANCES ON THE HOUSEHOLD’S

EXPENDITURE STRUCTURE IN VIETNAM

BY

LE THI NHU AN

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, DECEMBER, 2015

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT OF REMITTANCES ON THE HOUSEHOLD’S

EXPENDITURE STRUCTURE IN VIETNAM

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

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

LE THI NHU AN

Academic Supervisor:

Dr Nguyen Ngoc Thuy

HO CHI MINH CITY, DECEMBER, 2015

ABSTRACT

Since the Vietnamese economic reform called “Doi Moi” in 1986, Vietnam has witnessed a blooming in economy as well as the huge remittances flow from the internal and external migrants Many researches choose the remittances behavior for their study Learning from the way people send back their income and the way people

in the homeland use this source of financial support is not only support the valuable theory about remittances, but also bring out a practical experiment for one of the developing economy, Vietnam

Using the VHLSS 2012 data, this study explore the relationship between remittances and the six categories of household expenditure These categories are food product, non-food (consider for the consumer goods), medical services, education payment, housing facilities payment, durable goods The method using is Tobit regression for the education factor, and OLS for the other Our results show that overall, remittances have statistically significantly impact for food, housing, durable and the medical expenditure Meanwhile, consumption of remittance recipient households is not different from non-recipient households

TABLE OF CONTENT

CHAPER 1: INTRODUCTION - Page 4

1.1 The problem statement - Page 4 1.2 Research objective - Page 6 1.3 Thesis structure - Page 7 1.4 Scope of supply - Page 7

CHAPTER 2: LITERATURE REVIEW - Page 8

2.1 Household utility and expenditure theory - Page 8 2.2 Review of empirical studies - Page 10

- International studies - Page 10

- Related studies in Vietnam - Page 14

CHAPTER 3: PATTERNS OF MIGRATION AND REMITTANCE FLOWS IN VIETNAM - Page 16

3.1 Overview of Vietnamese remittances - Page 16 3.2 International remittances - Page 16 3.3 Internal remittances - Page 18

CHAPTER 4: RESEARCH METHODOLOGY - Page 22

4.1 Analytical framework - Page 22 4.2 Econometric model - Page 23 4.3 Description of variables - Page 24 4.4 Data sources - Page 26

CHAPTER 5: EMPIRICAL RESULTS - Page 29

5.1 Statistical result from VHLSS data - Page 29 5.2 Estimation results - Page 37 5.3 Interpretation of the results - Page 39

CHAPTER 6: CONCLUSION & POLICIES IMPLICATIONS - Page 41

LIST OF TABLES AND FIGURES

- Page 35 Table 11: Preliminary regression model of remittances impact on dependent variables - Page 37 Table 12:Regression results - Page 38

CHAPTER 1: INTRODUCTION

1.1 THE PROBLEM STATEMENT

Nowadays, with the explosion of economic transaction between country and region, the numbers of people go to another place different from the birthplace for earning the living has been dramatically increased This migration human resource flow certainly leads to one of the most important monetary flow- remittance Remittances are the money and goods that called internal remittance if migrants living

in the city bring back a part of their income to their families in rural area, and external remittance if migrants living abroad send to their families in the mother countries

Whether these funds come from internal or external, they can involve a change

in consumption patterns of the migrants' households back home Remittances are one

of two sources (along with inflows of direct investment FDI) shown in the balance of international payments as funds transfers (net), and represent for more than 10 percent

of gross domestic product

According to World Bank statistic represented on April 2015, the total remittances flow in all developing countries over the world was 351 billion USD in

2011, reach 436 billion USD in 2014 During these period (2011-2014), all developing regions except for regions in Europe and central Asia- due to the Russia weak economy status and the depreciation of rupee, have been recorded positive growth on the remittance flow Early this year, 2015, economics have expected the total remittance flow in developing countries will have a moderate increase to 440$ billion

as the result of the strengthening US dollar and tightening immigration policy Remittance flows are expected to recover in 2016 to reach $479 billion by 2017, in line with the more positive global economic outlook For both estimation of remittance from developing and developed countries, the total remittances transfer will reach to

586$ billion in 2015 and 636$ billion in 2016, according to the report of World Bank Also, according to this report, five largest destinations for migrant are as follow: United State, Saudi Arabia, Germany, Russia and the United Arab Emirate

Remittances nowadays play an important role and increase significantly during recent decades In developing countries, remittances is not only the source of income,

it is also has a more important role than foreign direct investment Remittances are associated with the significant development impacts At the macro point, remittance has several impacts on the financial system of country and the economy They are considered one of the sources of national income, foreign currency exchange together with the FDI They have a dominant impact on providing financial support on the remittances recipient Orozco, et.al 2005 have made an empirical study and lead to the conclusion that, remittances have lift people out of the poverty and tend to have more savings than those who not receive remittances One side of remittances impact is for the global financial crisis During the recession, remittances to have positive impact on economy, unlike the capital flows or FDI, tends to fall during the downturn period Another saying, remittances are much more stable than many kinds of financial flow The explanation for this stability is that, remittances are migrant-to-family monetary support flow, targeted to help their family- recipient remittances household have a better life

At the household level, remittances lead to a higher income that recipient can consume, save or invest Secondly, they help diversify the sources of income depending on the usage of remittances For the developing countries, they are one of the important sources of income for necessary need such as consumption goods, health care, education, ect and reduce poverty With the up-level households, they can use remittance as a source of capital for small businesses and entrepreneurial activities

Thirdly, at the micro level, have important implications and financial stability, especially for the international remittance Especially during hard time or in recession

period, migrant tend to send more and more remittances to support their family and friends Transparently, remittances directly help to reduce the poverty, increase the welfare of the recipient household Remittances are also used to settle small business, create job for many people

The important question is whether the remittances impact on the structure of expenditure of each recipient household or not? If the answer is yes then remittance promotes or inhibits the expenditure and how it affects to consumption section Studying this impact of remittance flows on recipient households has important implications Understanding the impact of remittance flows to expenditure will help raise awareness about the positive as well as the negative that we can promote appropriate policy

1.2 RESEARCH OBJECTIVES

The major objective of this study is to identify the impacts of remittances on the expenditure structure of Vietnamese recipient households The study also aims at offering policy recommendations regarding foreign employment and an effective use

1.3 SCOPE OF STUDY

As introduced above, this thesis mainly focus on the household expenditure structure affected by the remittances, which can be increase or decrease, or even unchanged according to the fluctuation of remittances receipt To examine at the household level, we use the VHLSS – Vietnam Household Living Standard Survey conducted by The General Statistics Office (GSO) of Vietnam every two year In the thesis, we will use the most updated VHLSS data published in 2012

The study is narrow to the spending of the household, classified into two groups, receive or not receive the remittances Source of remittance are come from the international migrants and the internal remittances from domestic migrants

The expenditure structure is classify to six main categories include food consumption, consumer goods, education, health, housing facilities and durable goods

1.4 STRUCTURE OF THIS THESIS

The paper is structured in 6 chapters and each chapter will cover the following content Chapter 1 gives the introduction about the research topic including the overall information of remittances and theirs effects; the research objectives to find out what should be focused on this paper Chapter 2 briefly introduces the migration patterns and remittances in Vietnam, Chapter 3 is some literature review covered the impact of remittances on the household consumption structure from the previous researchers Next, Chapter 4 aims at explaining the methodology of research Chapter5 is the statistical models to discuss about the empirical analysis and present regression results and detailed explanation Finally, chapter 6 gives a conclusion for what has been found and some policies recommended based on these finding

CHAPTER 2 LITERATURE REVIEW

2.1 HOUSEHOLD UTILITY AND EXPENDITURE THEORY

The methodology of this paper is conducted base on the Engel curves Ernest Engel (1821-1896) firstly introduced in his study published in 1857 for the basic theory between food consumption and the income of household He stated that, the spending

on food would decline when the household income increase The relation between household expenditure and household income are mathematized as follow:

Ci=fi(X,Y,Z,U) (1) where, Ci: expenditure on category i; X: total expenditure; Z: household characteristic; Y: Income of household; u: unobservable variation

It represents the relationship between the household bud get shares changed by the specific types of good to total household expenditure Using this model, the difference

in consumption between households with different income can be observed To apply this function to this study, income here can be understood by the remittances definition Based on the Engel curve, several functional forms have been proposed for the remittances variable For example, Deaton and Muellbauer (1980) used the Engel curves to exploit the relationship between remittances and spending; they found when income increases, spending for food decrease, spending for clothing, fuel, lightning fee remain the same, whereas the share of luxury goods increase

One of the most famous practical studies using the Engel curve, Working-Leser (Working, 1943, Leser, 1963) represented the model which is used as a foundation econometric model of this study The model describes the linearly relationship between the budget shares of one certain expenditure category to the logarithm of the total household spending:

(2)

where, Ci/EXP is the budget share of food i spending over total expenditure Note

that , total expenditure=1

The marginal budget share for good i and household j is defined as follows:

From the quotation (2), we take the partial derivative of budget share with

respect to the consumption:

(4)

Adding quotation (4) for solving the quotation (3), we have:

(5)

This quotation can be calculate after estimation for quotation (2)

The expenditure elasticity of household j for good i will be as follow:

(6)

2.2 REVIEW OF EMPIRICAL STUDIES

INCENTIVES TO REMIT

Before going to details for the literature review of remittance, it is a good idea to begin with figure out the reason why migrant people sending part of their income to their family living in their birthplace area De Bruyn and Kuddus (2005) concluded in their finding that the reason for migrants sending remittances to their family is based

on five main incentives: mutual benefit, obligation, altruism, self-choice, and the last one, pride Having the same interest in this issue, Lucas and Stark (1985) have mentioned in their report that the sending remittance behavior across regions is led by the altruism and self-interest The relationship between sender and receiver, although they are living separately, they are still family, one united household Lucas and Stark pointed out that, when sending and receiving remittances, both of them have a Pareto – mutual benefit in which remittance take the important part in redistributing the gains One easier saying, the migrant is sending the education fee/ living fee for the household as the repayment Another standpoint comes from Portes (1995), he concludes that the remittance sending behavior is based on the responsibility of the family member

contract, international play an important role in at the household level Table 1 below describe more detail of the De Bruyn, T and Wets, J (2006) finding:

Table 1 Possible Positive and Negative Impacts of Remittances

Positive Impact of Remittances Negative Impact

Macroeconomic

level

 Strengthening balance of payments by provision of foreign exchange

 Remittances are stable and counter-cyclical

 Deterioration of balance of trade by stimulation of import and appreciation

of local currency

 Deterioration of ‘social balance’

 Remittances tend to decrease as migrant community is more established in the destination country

 Economic dependency of remittances

Household level  Allow family to meet basic

needs

 Opening up of opportunities for investing in children’s education, health care etc

 Loosening of constraints in family budget to invest in business or savings

 Emergency resources

 Social security resource base

 Dependence on remittances and neglect of local productive activities

by families

 Hardly used for productive investment

Community and

regional level

 Boost local economy

 Financing local development projects

 Increase inequality between families who receive remittances and those who do not

 Inflation

Source: De Bruyn, T and Wets, J (2006)

Various studies have been conducted on migration, remittances and their impacts Tonga Acosta et al (2008) provide a comprehensive report of the remittance

of seven Latin-American countries including Mexico, El Salvador, Guatemala, Peru, Nicaragua, Jamaica and Dominican Republic) using the surveys on household expenditure for standard categories such as food, durable goods, ect For the food sector, remittance recipient households aim to pay more for nondurable goods, durable goods, housing, education, and health than for food with the exception for Jamaica They found a strong impact of remittances on the structure of expenditure for education with the case of El Salvador, Guatemala and Peru, but not for Mexico, Nicaragua, Jamaica and the Dominican Republic Remittances have strong allocation for the health expenditure in all countries except for Nicaragua Higher education and health spending only have the changing in the group of middle and upper-class recipient The expense for durable goods varies across countries Consumption on durable goods is only affected the most significantly by remittances in Mexico and Jamaica then gradually reduces in Peru, El Salvador and Guatemala In Nicaragua and Dominica, the effect of remittances on durable goods is not considerable

Many empirical researches have been contributed to the analysis of the remittances’ impact on the expenditures in migrant-sending households Initially, the relationship between the remittances and spending can be linked by considering remittances a source of households’ income Tabuga (2007) investigated the impact of remittances based on the household surveys in Philippines He found that a considerable percentage of remittances are spent on the apparently spending for basic need such as consumer goods (fuel, light water, household operations, and transportation and communication), leisure The spending for education and housing is also increase due to the remittances Furthermore, households receiving remittances spend less on tobacco and alcohol Castaldo and Reilly (2007) used the data from Albania Living Standards Measurement Survey in 2002 in four categories of

commodity considered are food, non-food, durables and utilities to analyze whether the remittances has allocated the expenditure pattern of the households In contract with what Tabuga (2007) has expressed in his report, Castaldo and Reilly (2007) realized that Albanian households use their remittances mainly on durable goods and utilities The interesting finding in their report is that people who receive remittances display only a little bit higher proportion by 3.1% than those who do not receive any remittances They explained that the remittances recipient households do not consider the food as their necessary goods anymore

Many papers in Mexico take into account the impact of remittances on health expenditure Amuedo-Dorantes et al (2007) support the positive relationship between remittances and health spending by using the linear regression function They focus on the spending of recipient external remittances from the primary to advanced health

services They found that the total amount spent for health increase when the

remittances increase, but varies between groups Primary health care is the most popular services among remittances recipient households as it account of between 5% and 9% of total remittances Valero-Gil (2008) also looks at the impact of remittances

on health They find that each household will spend 6 pesos for health care when they receive 100 pesos of remittances

Many studies provide the evidence that the remittances recipient households will increase the spending for education when their remittances increase For examples, Cardona Sosa and Medina (2006) make the conclusion that beneficiary households are using about 10% more in education than those who do not receive any benefit from remittances Furthermore, people who live in remittances households tend

to have a 14% higher possibility studying in private institution These conclusion is made based on their empirical results from Colombia Living Standards Measurement Survey 2003 with 20 000 household samples Edwards and Ureta (2003) find a similar result that remittances have a positive effect on the education The data in this reports

is a cross-sectional data collected from the El Salvador Annual Household Survey

1997 with 14,286 individuals from age 6 to age 24 The authors apply the Cox proportional hazard model to estimate the remittances impact They conclude that this source of income allocate the decision of households when making investment on schooling both in urban and rural area Two years later, with the report from Adams (2005) investigated the relationship between remittances and poverty, a similar conclusion is made The data in this report is divided into three groups: group 1 for those who have no remittance, group 2 for internal remittances (from Guatemala) and the last group is for internal remittances (from USA) Household receiving remittances (both group 2 and 3) have higher percentage expenditure for education with 45% more for internal remittances and 58% more for external remittances Edwards and Ureta (2003) and Yang (2005) both support for the theory that there is a significant positive impact of remittance to the possibility of retention school rate in El Salvador and Philippines Although most of the reports show the positive impact of remittances on education, the fact is the effect can be positive or negative, even unknown depend on each particular case Cattaneo (2012) show the evidence for no relationship between remittances and education

RELATED STUDIES IN VIETNAM

Remittances and consumption are also one of the interest topics of Vietnamese researches Most of them explore the relationship between the migration and remittances in Vietnam over the time The most popular studies can be listed as studies from Dang et al., 1997; Dang, 2001; Dang and Nguyen, 2006

VHLSS 1992/93 and VHLSS 1997/98 is the most sufficient information data for the migration, remittances, house-holds’ behavior for sending – receiving remittance Consequently, many researches use these dataset to settle their studying For example, Cox (2004) uses this data to examine the internal transaction financial support including the remittances and loans With the model base on the characteristic

of household for the transfer receipt, the transfer between generation, he finds that, remittances is the main sources for the financial support distribution The empirical number to prove this is the remittances transaction is more the twice of the public transfer

Another study published in 1999 by Le and Nguyen (1999) By using the VHLSS 1992/93, they focus on the international and internal remittances flow in Vietnam Their finding is that, the household with female head have more probability

to receive the remittances Meanwhile, Friedman et al (2003) finds no significant impact of gender on the support transaction between generation, after control other factors (marital status and age)

Remittance is one of the interesting topics for Vietnamese researchers Many studies have been investigated the impact of remittances in Viet Nam listed as remittances on household welfare and poverty by Nguyen (2008), Nguyen (2009), Pfau and Giang (2009), Nguyen et al Other studies do not find the positive effect of remittances on household consumption and poverty (e.g., Nguyen and Mont, 2012; Nguyen et al., 2012)

However, a few studies about remittances in Vietnam are available to researchers examined the relationship of remittances and the households expenditure patterns though this topic has been carried out in many other countries Le and Nguyen (1999) use the 1992/93 VLSS to study domestic and international remittance flows in Vietnam We assume that each household has to allocate its expenditure on several commodities and we want to understand whether receiving remittances have any impact on the household decision The analysis is conducted using different approaches and empirical methodologies to ensure robustness of the results

CHAPTER 3: PATTERNS OF MIGRATION AND

REMITTANCE FLOWS IN VIETNAM

3.1 Overview of remittances flow in Vietnam

Vietnam began the economics reformation called Doi Moi in the late 1980s that had led to the rapidly economic growth and large-scale economic transformation Additionally, since 1986, population increase put Vietnam into the shortage of landing, more people but less land for agriculture purpose This has been motivated many individuals as well as the whole family make the migration, from rural to urban and from Vietnam to foreign countries With the positive impact of the migration flow, since the 1990s, the remittance flow has experienced the dramatic increase, for the transfers within the countries and from abroad as well The main motivation for the mutual migration is that due to the rapid industrialization and urbanization, the need for employment in urban area increase; meanwhile, the unemployment in the rural area maintained in the high rates, push people leaving their home to seek for living at a new place

Vietnam is a rare case for the remittances In most of the countries, people migrants due to the economics reason and their personal wishes, but for Vietnam, people migrant because of the effect of the non-economics factors as political reason for the international remittance and government policy for the case of internal remittances

3.2 International remittances

It is not easy to summarize the external remittances as the information regarding the number of Vietnamese migrant that had been considered migrant worker External remittances from abroad have significant increase since the early 2000s The increase can be considered the positive impact of a new policy of the Government of Vietnam

The governors open the door to welcome back overseas Vietnamese people who had left the country for political reason after the Vietnam War in 1975 During 1970s period, Vietnam has been through a big migration oversea The biggest destination for Vietnamese migrant is United State of America, account for 62.1% per total migrant Then, in 1990s, with the open market policy, Vietnamese government opened the gate welcoming migrants back to Vietnam Synonymously, they can legally connect with their relatives in Vietnam and send the financial support for them As the result

of this, a lot of financial assistances are sent through many channels to Vietnam from migrant to their family in the homeland Only after three years of open market policy, around $0.5 billion are sent to families and relatives in Vietnam (Nguyen Trieu, 1995) This number even doubled in the next year, to $1 billion in 1996 The oversea remittances to Vietnam comes from about $2.6 billion in 2003 to $10 billion in 2010 (equivalent to 10% of GDP), nearly five times increase within 7 years More than that, the number of total remittances in 2010 is nearly equal to the total value of two main financial sources: ODA – Official development assistance and the FDI: Foreign direct Investment

Following is the summary for the value of remittances in Vietnam According to the World Bank’s economic prospects for 2006, Vietnam received the external remittances from other countries is total 1.2$ billion in 1990s., nearly double compared with the 1990s

The most recent report of World Bank (report 22 of year 2014) has summarized the top ten of largest receiving remittances countries Table 2 show the information for this top ten The largest remittances recipient country is India, then China These two countries have a considerable total value of remittances, $70 and $60 billion respectively in year 2013 Also according to this report, Vietnam ranked the number nine in the table 2, accounted for $11 billion US dollar, up to 6.5% higher than the year

2012

FIGURE 1: TOP TEN REMITTANCES COUNTRIES

2.3 Internal remittance

Between 1998 and 2006, the share of the population living in urban areas increased from 22 to 27 (1998 and 2006 Vietnam Household Living Standard Surveys) According to the 2009 Population and Housing Census, about 6.7 million individuals

or 8.6 percent of the population aged five and older in Vietnam changed their places of residence during the period 2004-2009 (General Statistics Office (GSO) of Vietnam, p.21, 2011) Only in 2009, around 1.3 million individuals had migrated between provinces This number account for 2.5% of total population in Vietnam at that time, really a considerable number The annual increasing rate of migration for period 2009

is 4.2% and expected to rise to 6.4% in 2019, reaching for 6 million people that have made migration

These migrants, mostly are young and active people, leaving family including elderly parents, brothers, sisters, wives, children, in turns they send back part of their

income back to the family as for the responsibilities, to care for the household’s living standard Contributing to the characteristic of domestic migrant is the generation With the open market, more and more teenagers have freedom and choose what they want They prefer challenge from potential change from another land than their mother birthplace, and motivate their migration

One of the important explanations for the migration explosion in Vietnam is the support from the Government policy As is the case in many developing countries, the migration in Vietnam will present numerous challenges for policy makers and be closely related to the government decisions The Vietnamese Government strictly control the migration by the migration polices with the support from the management

of Household registration system (Ho Khau in Vietnamese) As a result of this, the increasing in migration from period 2004-2009 is foreseen based on the Decisions and Decrees issued to stimulate the migrant among Vietnam

The Decision No 190/2003/QD-TTg is the beginning for this blooming The main objective of this Decision is to relocate, arrange and settle population to the certain area pointed by Government to develop the potential development in a new land The target individuals of this program are free migrant, nomadic households, landless households, less-production land located households, ect These migrant will get the best support from the Government for their migration by both financial support and physical support The Vietnam Internal Migration Survey in 2004 can be considered a survey reporting for the result of the Decision No 190/2003/QD-TTg This survey was carried out by General Statistic Office of Vietnam, the same owner with the VHLSS They announced that nearly 50% of total internal migrants have sent their remittance to their families and relatives in previous 12 months

Several years later, the migration in Vietnam is still under the The Decision No 190/2003/QD-TTg Until 2006, new policies are applied with Decision No 193/2006/QD-TTg in 2006 and Decision 33/2007/QD-TTg in 2007 Then Miimi, et.al

(2009) stated that on average, one migrant would send around 17% of their total

earning back to their home

Douglass et al (2002) computed around most of people moving from the rural to

urban for a better living are employment famers Also, they are pointed out three

important internal migration flows within Vietnam: 1) from the North to the South, 2)

from the northern uplands to Red river delta 3) From the central coast, the northern

upland, the red river delta to the central highlands Also, according to the VHLSS data

in 2009 (published in 2011), more than 2 million people migrated from the rural area

to the urban area Most of the destinations are Ho Chi Minh City, Hai Phong city, Da

Nang city, Quang Ninh, Binh Duong and Dong Nai (according to the finding of

According to the population survey in 1999 and 2009, represented as data in Table

2, the Southeast region is the largest destination for migrant, account for 135.40% in

2009 as it has a lot of industrial parks and having received most of the FDI coming to Vietnam Compared with the year 1999, although Highland region attracted many migrants, up to 86% of the total migrants as the result of government decision, in 2009,

it is taken the first place by South east region The central region of Vietnam is not only has severe climate, but has lack of resources for development That is the reason why the migration rate of Central regions always in top, but the immigration rate is at the bottom

CHAPTER 4: RESEARCH METHODOLOGY

4.1 ANALYTICAL FRAMEWORK

As introduced in chapter 2, the simplest model can be written under the summarized function as follow:

Ci=fi(X,Y,Z,U) (1) The relationship between the remittances and the household expenditure can be figured out as below table:

Table 3: REMITTANCES AND HOUSEHOLD EXPENDITURE

Food Non-food (consumer goods)

Medical Durable Education Housing

4.2 ECONOMETRIC MODEL

This study is based on the Working-Leser model, which is expressed as:

Yij= αi + βi log(expj) + µ Xj + ∞i Dj + εij

where: Yij is the functional form for the budget share in good i for household j,

Xj is characteristic of household j; Expj is the total expenditure of household j; Dj is the binary variables that whether household receive remittances or not We have three dummy variables as follow: only receiving domestic remittance, only receive international remittance, receive both international and domestic remittance, the zero value in each binary remittance variables will represent the base value for the non-receiving remittance household ∞i is the vector which shows the effect of the different types of remittances on the relevant budget share αj and βj are parameters to be estimated and εij is an error term

In order to capture whether behavioral changes exist at the marginal level, we interact the log of total expenditure with the mutually exclusive dummy variables controlling for the different remittances status A general specification of the model for our particular purposes takes the form:

Yij= αi +βilog(expj) + β2 IN_REM + β3 EX_REM + β4IN_EXREM +β6Zi + ei

where Xi = total annual household expenditure of household i Yij = ratio of

household expenditure of household i on j expenditure categories

We include here three binary variables IN_REM and EX_REM, IN_EXREM, stand for four value, whether or not the household receive the remittance within Vietnam or from abroad, or from both, the zero value stands for do not receive from both IN_REM = Domestic remittances dummy variable (1 if household receives only