Impact of remittances on the households expenditure structure in vietnam

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... IN DEVELOPMENT ECONOMICS IM

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

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

INSTITUTE OF SOCIAL STUDIES THE NETHERLANDS THE HAGUE

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

Since the Vietnamese economic reform called “Doi Moi” in 1986, Vietnam haswitnessed a blooming in economy as well as the huge remittances flow from theinternal and external migrants Many researches choose the remittances behavior fortheir 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 valuabletheory about remittances, but also bring out a practical experiment for one of thedeveloping economy, Vietnam

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

TABLE OF CONTENT

1.1 The problem statement - Page 41.2 Research objective - Page 61.3 Thesis structure - Page 71.4 Scope of supply - Page 7

2.1 Household utility and expenditure theory - Page 82.2 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 163.2 International remittances - Page 163.3 Internal remittances - Page 18

4.1 Analytical framework - Page 224.2 Econometric model - Page 234.3 Description of variables - Page 244.4 Data sources - Page 26

5.1 Statistical result from VHLSS data - Page 295.2 Estimation results - Page 375.3 Interpretation of the results - Page 39

CHAPTER 6: CONCLUSION & POLICIES IMPLICATIONS - Page 41

LIST OF TABLES AND FIGURES

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

CHAPTER 1: INTRODUCTION

1.1 THE PROBLEM STATEMENT

Nowadays, with the explosion of economic transaction between country andregion, the numbers of people go to another place different from the birthplace forearning the living has been dramatically increased This migration human resourceflow 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 externalremittance 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 ofinternational 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 totalremittances 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 developingregions except for regions in Europe and central Asia- due to the Russia weakeconomy status and the depreciation of rupee, have been recorded positive growth onthe remittance flow Early this year, 2015, economics have expected the totalremittance 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 linewith the more positive global economic outlook For both estimation of remittancefrom 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 duringrecent 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 areassociated with the significant development impacts At the macro point, remittancehas several impacts on the financial system of country and the economy They areconsidered one of the sources of national income, foreign currency exchange togetherwith the FDI They have a dominant impact on providing financial support on theremittances recipient Orozco, et.al 2005 have made an empirical study and lead to theconclusion that, remittances have lift people out of the poverty and tend to have moresavings than those who not receive remittances One side of remittances impact is forthe global financial crisis During the recession, remittances to have positive impact oneconomy, 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 monetarysupport flow, targeted to help their family- recipient remittances household have abetter life

At the household level, remittances lead to a higher income that recipient canconsume, save or invest Secondly, they help diversify the sources of incomedepending on the usage of remittances For the developing countries, they are one ofthe important sources of income for necessary need such as consumption goods, healthcare, education, ect and reduce poverty With the up-level households, they can useremittance 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 andfriends Transparently, remittances directly help to reduce the poverty, increase thewelfare 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 ofexpenditure of each recipient household or not? If the answer is yes then remittancepromotes or inhibits the expenditure and how it affects to consumption section.Studying this impact of remittance flows on recipient households has importantimplications Understanding the impact of remittance flows to expenditure will helpraise awareness about the positive as well as the negative that we can promoteappropriate policy

1.2 RESEARCH OBJECTIVES

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

1.3 SCOPE OF STUDY

As introduced above, this thesis mainly focus on the household expenditurestructure affected by the remittances, which can be increase or decrease, or evenunchanged according to the fluctuation of remittances receipt To examine at thehousehold level, we use the VHLSS – Vietnam Household Living Standard Surveyconducted by The General Statistics Office (GSO) of Vietnam every two year In thethesis, 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 theinternational migrants and the internal remittances from domestic migrants

The expenditure structure is classify to six main categories include foodconsumption, 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 followingcontent Chapter 1 gives the introduction about the research topic including the overallinformation of remittances and theirs effects; the research objectives to find out whatshould be focused on this paper Chapter 2 briefly introduces the migration patternsand remittances in Vietnam, Chapter 3 is some literature review covered the impact ofremittances on the household consumption structure from the previous researchers.Next, Chapter 4 aims at explaining the methodology of research Chapter5 is thestatistical models to discuss about the empirical analysis and present regression resultsand detailed explanation Finally, chapter 6 gives a conclusion for what has been foundand 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 theorybetween food consumption and the income of household He stated that, the spending

on food would decline when the household income increase The relation betweenhousehold 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: householdcharacteristic; Y: Income of household; u: unobservable variation

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

in consumption between households with different income can be observed To applythis function to this study, income here can be understood by the remittancesdefinition Based on the Engel curve, several functional forms have been proposed forthe remittances variable For example, Deaton and Muellbauer (1980) used the Engelcurves to exploit the relationship between remittances and spending; they found whenincome increases, spending for food decrease, spending for clothing, fuel, lightning feeremain 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 foundationeconometric model of this study The model describes the linearly relationship betweenthe budget shares of one certain expenditure category to the logarithm of the totalhousehold 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:

(3)

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:

(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 tobegin with figure out the reason why migrant people sending part of their income totheir family living in their birthplace area De Bruyn and Kuddus (2005) concluded intheir 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 lastone, pride Having the same interest in this issue, Lucas and Stark (1985) havementioned in their report that the sending remittance behavior across regions is led bythe altruism and self-interest The relationship between sender and receiver, althoughthey are living separately, they are still family, one united household Lucas and Starkpointed 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 thehousehold as the repayment Another standpoint comes from Portes (1995), heconcludes that the remittance sending behavior is based on the responsibility of thefamily 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

Macroeconomi

c level

Household

level

Positive Impact of Remittances Negative Impact

Strengthening balance of Deterioration of balance of trade bypayments by provision of foreign stimulation of import and appreciation

Remittances are stable and Deterioration of ‘social balance’

migrant community is moreestablished in the destination countryEconomic dependency of remittances

Allow family to meet basic Dependence on remittances and

Opening up of opportunities for by familiesinvesting in children’s education, Hardly used for productive investmenthealth care etc

Loosening of constraints infamily budget to invest inbusiness or savingsEmergency resourcesSocial security resource base

Increase inequality between familieswho receive remittances and thosewho do not

Various studies have been conducted on migration, remittances and theirimpacts 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 householdexpenditure for standard categories such as food, durable goods, ect For the foodsector, remittance recipient households aim to pay more for nondurable goods, durablegoods, housing, education, and health than for food with the exception for Jamaica.They found a strong impact of remittances on the structure of expenditure foreducation with the case of El Salvador, Guatemala and Peru, but not for Mexico,Nicaragua, Jamaica and the Dominican Republic Remittances have strong allocationfor the health expenditure in all countries except for Nicaragua Higher education andhealth spending only have the changing in the group of middle and upper-classrecipient The expense for durable goods varies across countries Consumption ondurable goods is only affected the most significantly by remittances in Mexico andJamaica then gradually reduces in Peru, El Salvador and Guatemala In Nicaragua andDominica, the effect of remittances on durable goods is not considerable

Many empirical researches have been contributed to the analysis of theremittances’ impact on the expenditures in migrant-sending households Initially, therelationship between the remittances and spending can be linked by consideringremittances a source of households’ income Tabuga (2007) investigated the impact ofremittances based on the household surveys in Philippines He found that aconsiderable percentage of remittances are spent on the apparently spending for basicneed such as consumer goods (fuel, light water, household operations, andtransportation and communication), leisure The spending for education and housing isalso increase due to the remittances Furthermore, households receiving remittancesspend less on tobacco and alcohol Castaldo and Reilly (2007) used the data fromAlbania Living Standards Measurement Survey in 2002 in four categories of

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

Many papers in Mexico take into account the impact of remittances on healthexpenditure Amuedo-Dorantes et al (2007) support the positive relationship betweenremittances and health spending by using the linear regression function They focus onthe 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 mostpopular 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 theyreceive 100 pesos of remittances

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

to have a 14% higher possibility studying in private institution These conclusion ismade based on their empirical results from Colombia Living Standards MeasurementSurvey 2003 with 20 000 household samples Edwards and Ureta (2003) find a similarresult 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 Coxproportional hazard model to estimate the remittances impact They conclude that thissource of income allocate the decision of households when making investment onschooling both in urban and rural area Two years later, with the report from Adams(2005) investigated the relationship between remittances and poverty, a similarconclusion is made The data in this report is divided into three groups: group 1 forthose who have no remittance, group 2 for internal remittances (from Guatemala) andthe last group is for internal remittances (from USA) Household receiving remittances(both group 2 and 3) have higher percentage expenditure for education with 45% morefor 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 positiveimpact of remittance to the possibility of retention school rate in El Salvador andPhilippines Although most of the reports show the positive impact of remittances oneducation, the fact is the effect can be positive or negative, even unknown depend oneach particular case Cattaneo (2012) show the evidence for no relationship betweenremittances and education

RELATED STUDIES IN VIETNAM

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

VHLSS 1992/93 and VHLSS 1997/98 is the most sufficient information datafor the migration, remittances, house-holds’ behavior for sending – receivingremittance Consequently, many researches use these dataset to settle their studying.For example, Cox (2004) uses this data to examine the internal transaction financialsupport 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 empiricalnumber to prove this is the remittances transaction is more the twice of the publictransfer.

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

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

Remittance is one of the interesting topics for Vietnamese researchers Manystudies have been investigated the impact of remittances in Viet Nam listed asremittances 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 ofremittances 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 toresearchers examined the relationship of remittances and the households expenditurepatterns 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 inVietnam We assume that each household has to allocate its expenditure on severalcommodities and we want to understand whether receiving remittances have anyimpact on the household decision The analysis is conducted using differentapproaches 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 thathad 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 manyindividuals as well as the whole family make the migration, from rural to urban andfrom Vietnam to foreign countries With the positive impact of the migration flow,since the 1990s, the remittance flow has experienced the dramatic increase, for thetransfers within the countries and from abroad as well The main motivation for themutual migration is that due to the rapid industrialization and urbanization, the needfor employment in urban area increase; meanwhile, the unemployment in the rural areamaintained in the high rates, push people leaving their home to seek for living at a newplace

Vietnam is a rare case for the remittances In most of the countries, people migrantsdue to the economics reason and their personal wishes, but for Vietnam, peoplemigrant because of the effect of the non-economics factors as political reason for theinternational 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 regardingthe number of Vietnamese migrant that had been considered migrant worker Externalremittances from abroad have significant increase since the early 2000s The increasecan 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 hadleft the country for political reason after the Vietnam War in 1975 During 1970speriod, Vietnam has been through a big migration oversea The biggest destination forVietnamese migrant is United State of America, account for 62.1% per total migrant.Then, in 1990s, with the open market policy, Vietnamese government opened thegate welcoming migrants back to Vietnam Synonymously, they can legally connectwith their relatives in Vietnam and send the financial support for them As the result ofthis, a lot of financial assistances are sent through many channels to Vietnam frommigrant 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 oversearemittances 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 mainfinancial sources: ODA – Official development assistance and the FDI: Foreign directInvestment.

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

The most recent report of World Bank (report 22 of year 2014) has summarized thetop ten of largest receiving remittances countries Table 2 show the information for thistop ten The largest remittances recipient country is India, then China These twocountries have a considerable total value of remittances, $70 and $60 billionrespectively in year 2013 Also according to this report, Vietnam ranked the numbernine in the table 2, accounted for $11 billion US dollar, up to 6.5% higher than the year2012

FIGURE 1: TOP TEN REMITTANCES COUNTRIES

2.3 Internal remittance

Between 1998 and 2006, the share of the population living in urban areas increasedfrom 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 ofresidence during the period 2004-2009 (General Statistics Office (GSO) of Vietnam,p.21, 2011) Only in 2009, around 1.3 million individuals had migrated betweenprovinces 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 havemade migration

These migrants, mostly are young and active people, leaving family includingelderly 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 livingstandard Contributing to the characteristic of domestic migrant is the generation Withthe open market, more and more teenagers have freedom and choose what they want.They prefer challenge from potential change from another land than their motherbirthplace, and motivate their migration.

One of the important explanations for the migration explosion in Vietnam is thesupport from the Government policy As is the case in many developing countries, themigration in Vietnam will present numerous challenges for policy makers and beclosely related to the government decisions The Vietnamese Government strictlycontrol 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, theincreasing in migration from period 2004-2009 is foreseen based on the Decisions andDecrees issued to stimulate the migrant among Vietnam

The Decision No 190/2003/QD-TTg is the beginning for this blooming The mainobjective of this Decision is to relocate, arrange and settle population to the certainarea pointed by Government to develop the potential development in a new land Thetarget individuals of this program are free migrant, nomadic households, landlesshouseholds, less-production land located households, ect These migrant will get thebest support from the Government for their migration by both financial support andphysical support The Vietnam Internal Migration Survey in 2004 can be considered asurvey reporting for the result of the Decision No 190/2003/QD-TTg This survey wascarried 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 totalearning back to their home.

Douglass et al (2002) computed around most of people moving from the rural tourban for a better living are employment famers Also, they are pointed out threeimportant 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 northernupland, 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, DaNang city, Quang Ninh, Binh Duong and Dong Nai (according to the finding ofBrennan et al 20012)

TABLE 2 : RATIO OF IMMGRATION AND MIGRATION IN 1999 AND 2009

* ratio between immigrant over the total local household

* ratio between migrant over the total local household Source: Vietnamese internal migration report by UN, page 27

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 toVietnam Compared with the year 1999, although Highland region attracted manymigrants, 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 notonly has severe climate, but has lack of resources for development That is the reasonwhy the migration rate of Central regions always in top, but the immigration rate is atthe 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

Household

Medical

characteristic

DurableMigration

Educationplace of living

Housinghousehold size

gender

age

education

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 + εijij

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 isthe binary variables that whether household receive remittances or not We have threedummy variables as follow: only receiving domestic remittance, only receiveinternational remittance, receive both international and domestic remittance, the zerovalue 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 differenttypes of remittances on the relevant budget share αj and βj are parameters to beestimated and εijij is an error term

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

Yij= αi +βi +ββ i log(expj) +β β 2 IN_REM +β β 3 EX_REM +β β 4IN_EXREM +ββ6Zi +β ei

where Xi = total annual household expenditure of household i Yij = ratio ofhousehold 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 withinVietnam or from abroad, or from both, the zero value stands for do not receive fromboth IN_REM = Domestic remittances dummy variable (1 if household receives only

Domestic remittance, 0 otherwise) EX_REM = Foreign remittances dummy variable(1 if household receives only Foreign remittances, O otherwise); IN_EXREM = bothsource of remittance (1 if household receive both, 0 otherwise)

Z is the characteristic of the household that can have impact on the spendingbehavior including: household size, place for living, household head characteristic(sex, education, age)

The original dependent variable is expenditure for 06 categories introducedabove, defined by the total kinds of money send back to home in the past 12 months inmillions of dong For variable education, we will use the tobit regression as it has avalue of zero for a considerable number of observations but are still continuous withstrictly positive values

Yij*= α +βremit + µZij +€ij

Yij= Yij* if Yij*>0

Yij=0 if Yij*=0

4.3 DESCRIPTION OF VARIABLES

(a) Dependent variables:

- FOOD: the budget share of food expenditure over the total expenditure This data isextracted from the Sect 5A asking for the total food categories used for daily and for

important holiday in Vietnam (Tet holidays,…)

- NONFOOD: the budget share of consumer goods expenditure (exclude theexpenditure for food and beverage) over the total expenditure This data is extracted fromthe Sect 5B asking for the nonfood categories used for daily and for annual goods

- MEDICAL: the budget share of medical expenditure over the total expenditure Thisdata is extracted from the Sect 3 asking for the total value using for the health careservices