Estimation results and interpretation

This subsection estimates three models of saving (l)-(3). The estimation results are

obtained for two types of household, extended households and young households. These

The sample used excluded unreasonable observations and outliers. The exogenous

variables are age o f household head (AGE), years o f schooling of household head (EDUY),

the number of children (NCHILD), the number o f old people (NOLD), marital status

(MAR) and gender of household head (MALE). Other exogenous variables representing

the number of children and old people are the young dependency ratio and the old

dependency ratio, D1 or D2 and PI or P2 respectively (see definitions of the variables in

Appendix 5.1). The additional instrument variables used in this study include age and

education (year of schooling) o f the household head’s spouse, household size and

geographical region. The estimation results were obtained after using White’s method

(1980) to calculate robust variances and covariances to correct for heteroscedasticity.

As often happens in estimations which use consumption and saving levels, the statistical fit

was quite good in the regressions for models using cross-section data: the coefficients of

multiple determination are quite high, ranging from 0.65 to 0.70. Overall, the results of the

estimation supported the hypotheses concerning the role of income, assets, education,

number of children, marital status and gender o f the household head in determining

household saving. The age of the household head and the number o f old people were found

Table 5.1: Saving of extended households

V ariables M o d e l 1 M o d e l 2 M o d e l 3

C o e f f ic ie n t s t - r a tio s C o e f f ic ie n t s t- r a tio s C o e ffic ie n ts t- r a tio s

Y 0.60** 4 .5 6 0.5 6 * * 4.71 0.48** 3.72 W -0.16** -2.48 -0 .15** -2.48 -0.11* -1.69 A G E 0.004 0 .44 -0.01 0.75 0.01 0.67 E D U Y 0.14** 3.44 0.1 5 * * 3.40 0.13** 2.87 N C H IL D -0.23** -2.42 N O L D -0.04 -0.12 D1 -0 .4 9 * * -3 .4 0 D2 -0.48 -1 .0 4 PI -1.37** -2.22 P2 -1.41 -1.38 M A R 0.74* 1.92 0.71* 1.74 0.86* 1.94 G E N -0.66** -1.96 -0 .8 0 * * -2.31 -0.86** -2.33 C o n sta n t -1 8 6 6 .8 4 * * -2.76 -1 6 6 7 .7 1 * * -2.13 -13 3 5 .9 4 * -1.72 N u m b e r o f o b se rv a tio n s 3972 3911 3972 R 2 0 .7 0 0.68 0.65

Note: The dependent variable is the saving level, in million dong. The asterisks * and ** denote the significance levels o f 10 per cent and 5 per cent respectively. Income (Y) and assets (W) are in million dong. A summary o f characteristics o f the variables is given in Appendix 5.2.

Table 5.2: Saving of the households without old people V a ria b les M o d e l 1 C o e ffic ie n ts t- r a tio s M o d e l 2 C o e f f ic ie n t s t- r a tio s M o d e l 3 C o e f f ic ie n t s t - r a tio s Y 0.51** 5.56 0.5 1 * * 6.41 0.47** 5.52 W -0.13** -2.62 -0.14** -2.95 -0.12** -2.48 A G E 0.001 0.09 -0 .0 0 2 -0.19 -0.002 -0.19 E D U Y 0.11** 2.58 0.12** 2.78 0.12** 2.64 N C H IL D -0.19** -2.20 D1 -0 .4 6 * * -3.02 PI -1.37** -2 .3 4 M A R 1.08** 2.27 1.00** 2 .0 9 1.13** 2 .26 G E N -0.99** -2.60 -1.08** -2 .7 8 -1.12** -2.78 C o n sta n t -1 2 0 6 .8 8 * * -1.69 -8 5 0 .0 6 -1.12 -6 7 8 .6 7 -0.84 N u m b e r o f o b se rv a tio n s 3237 3237 3237 R 2 0.70 0 .6 9 0.67

Note: The dependent variable is the saving level, in million dong. The asterisks * and ** denote the significance levels o f 10 per cent and 5 per cent respectively. Income (Y) and assets (W) are in million dong.

In all the models applied for two types of household (with and without old people),

household income was shown to have a significant positive effect on the household saving.

The marginal propensities to save out o f income (mps) are found to be in the range from

0.47 to 0.60. This range seems relatively high compared to the average level for developing

countries, except for the levels found in studies of farmers in Yugoslavia and Korea (Lluch

et al. 1977) which are 0.75 and 0.54 respectively. The mps found in this study can be

considered to be at the upper tail of the distribution when compared to the mps of 0.48 for

the households of India, (Gupta 1970), 0.45 for China (Ma 1993), 0.30 for the rural

households o f Chile (Betancourt 1977), and 11 per cent and 25 per cent for rural and urban

households, respectively, of Mexico (Lluch et al. 1977).

Assets o f the household head were found to have a significant negative effect on saving in

all the regressions using the saving level. These results are similar to the review of Snyder

(1972) o f developing countries. A possible mathematical explanation for the negative sign

o f household assets is provided in Appendix 5.3. The intuitive explanation for it may also

be related to the presence of financial and liquid assets (gold, dollars), because these assets

lessen a household’s dependence on current income sources. When income declines

temporarily, a household can easily draw on them to maintain its consumption level.

Hence, holding a higher stock o f assets allows a household to maintain its consumption,

thus depressing current saving. Ceteris paribus, an increase in the assets o f a household by

one thousand dong is likely to make that household save less in a range from 110 to 160

There is no evidence to suggest that a household will save less as the age o f the household

head increases. This is possibly because saving o f the household as a whole is the

contribution by all the household members, including young ones. In the extended

households the positive saving of young working-age members of the household may offset

the run-down in saving determined by the saving-age behaviour o f the household head.14

The number of dependent children (and related variables) appears to have a negative

impact on saving in all versions o f the models o f the saving level. These findings are

consistent with the results o f the studies using aggregate data in developing countries, such

as Leff (1969), Guptar (1971), Schmidt-Hebbel et al. (1992), and in studies of industrial

countries, such as Modigliani and Sterling (1983), Feldstein (1980), Horioka (1991), and

Weil (1994) (see Appendix 5.4). A noteworthy point is that, in the theoretical model, part

of the cost of raising children is educating them, and the rewards include higher incomes

for the household in later periods. Higher investment in childrens’ education, a higher cost

of raising children in the first period reduces saving. But second period income may

depend positively on this. To the extent that households spend out of lifetime income, this

also means that they may spend more on other things (meaning to save less) even in the

first period if they expect higher second period incomes from this investment. Thus, the

negative impact o f children on saving found in the estimated models may be partly

capturing this effect. To interpret the results in the saving model for the whole sample, an

additional child in a household will, ceteris paribus, on average make the extended

14 To detect the nonlinear pattern o f household saving in the regressions, a variable o f age squared should be