To detect the nonlinear pattern o f household saving in the regressions, a variable o f age squared should be used However, in order to reduce a multicollinearity problem caused by using this variable, the variable o f

age squared is not included in the regression. The experiments conducted with the age squared showed that adding this variable does not influence much the result o f the OLS regression but affects significantly the 2SLS results. Since the study is concerned more with the age effect rather than the pattern, the variable o f age

household and the young household save less by 230 and 190 thousand dong per annum

respectively.

The effect o f education of the household head appeared to be very strong. In all the

regressions, the sign of the coefficient of education was found to be positive, indicating

that the household saving is likely to increase as the education level of the household head

increases. This result supports our hypothesis about the sign o f the coefficient of this factor.

An additional year o f schooling of the household head is found to make the household save

more, from 110 to 150 thousand dong per annum, ceteris paribus. The high level of

significance of the coefficient of the education variable, in addition to the income variable,

is interesting. It could be a reflection o f the fact that income is severely under-reported

among the educated (see Phan Dinh The 1998). But the most likely explanation of the

effect o f education on saving is the presence of a strong precautionary motive for saving.

With liquidity constraints and uncertainty prevalent, the more education the household

head has, the more he or she is capable of organising the household budget and saving to

face unexpected events (sickness, natural disasters). As a consequence, the findings seem

to suggest the presence o f a significant precautionary motive for household saving. The

question of the forms in which households choose to save is considered in more detail in

Chapter 7.

The marital status o f the household head has the expected effect on household saving. The

estimated coefficient of the marital status, MAR, was found to be statistically significant

marriage is likely to shift up the household saving level by 740 to 1130 thousand dong per

annum.

The negative sign of the coefficient of the dummy variable of gender, MALE, also

supported our expectation. The findings showed that households, where the head is male,

tend to save less than households that have a female as household head by a range of from

660 to 1120 thousand dong per annum. Although the magnitude is changed significantly

across models, the consistency of the negative sign of the coefficients supports our

argument about the labour division and the capability of a female household head to

manage and organise household work. The result seems to be reasonable because, as for

many other developing countries, mothers in Vietnam are observed to bear primary

responsibility for nurturing children. Faced with limited income sources o f the household,

the mother may attempt to secure more stable sources o f nurturing for her children. Thus

mothers would manage the household’s spending more carefully, and as a result, saving of

households would tend to be higher if household heads were mothers.

5.4 Conclusions

This chapter has presented an empirical investigation of the saving behaviour of

households in Vietnam using the data set o f the VLSS. Several saving models have been

applied for two types of household - the extended household with old people and the young

household without old people - to analyse the determinants of household saving. The

estimates of the saving determinants are relatively consistent across the models. Except for

empirical results support relatively well our hypotheses about the role, and the signs of the

coefficients o f the determinant variables influencing household saving.

The results suggest that the mps o f households in Vietnam is relatively high compared to

typical levels in developing countries. While the assets of households (non-human capital)

were found to have a negative impact, education (human capital) was found to have a

positive effect on household saving. The fact that the education of the household head

affects household saving positively suggests a possibly important role for precautionary

saving, although this is difficult to test directly at this stage with the available data.

Demographic factors were also found to have a significant effect. An increased number of

children was found to be important in decreasing household saving. This suggests that

while children may actively participate in household work, the cost o f raising them still

dominate the cost-benefit relationship of children and household saving. Marital status and

the gender o f the household head were found to be important in determining household

saving. Households whose heads are married were found to save more than the households

where the household head is single. Households that have female heads on average save

more than households with male heads.

The results did not support the hypothesis regarding the role of old dependent people for

the case o f the whole sample. However, the significant impact o f this demographic factor

on saving o f households became apparent when the sample was divided into urban and

rural regions, as shown in the next chapter. The break-down of the sample into different

areas and different geographic regions is needed because of differences in natural

Appendix 5.1

Definitions of the variables:

Y : A n n u a l to ta l in c o m e o f h o u s e h o ld

W : A s s e ts o f h o u s e h o ld , in c lu d in g h o u s in g , o th e r p h y s ic a l a n d fin a n c ia l a s s e ts ,

m in u s to ta l d e b ts

S A V IN G : S a v in g o f h o u s e h o ld d u rin g o n e y e a r, c a lc u la te d b y s u b tra c tin g e x p e n d itu r e

fro m th e in c o m e o f th e h o u s e h o ld

A G E : A g e o f h o u s e h o ld h e a d

E D U Y : E d u c a tio n o f h o u s e h o ld h e a d , c a lc u la te d b y y e a rs o f s c h o o lin g

N C H IL D : N u m b e r o f c h ild re n : n u m b e r o f h o u s e h o ld m e m b e r s a g e d u p to 17 y e a rs

N O L D : N u m b e r o f o ld p e o p le : n u m b e r o f h o u s e h o ld m e m b e r s o v e r 6 4 y e a rs

D l : Y o u n g d e p e n d e n c y ra tio , c a lc u la te d a s th e ra tio o f th e n u m b e r o f c h ild re n by th e n u m b e r o f p e o p le o f w o rk in g a g e

D 2 : O ld d e p e n d e n c y ra tio , c a lc u la te d a s th e ra tio o f th e n u m b e r o f o ld p e o p le by

th e n u m b e r o f p e o p le o f w o rk in g a g e

P I : Y o u n g d e p e n d e n t ra tio , c a lc u la te d a s th e ra tio o f th e n u m b e r o f c h ild re n

o v e r th e to ta l n u m b e r o f h o u s e h o ld m e m b e r s P 2: O ld d e p e n d e n t ra tio , c a lc u la te d a s th e ra tio o f th e n u m b e r o f o ld p e o p le by th e to ta l n u m b e r o f h o u s e h o ld m e m b e r s M A R : D u m m y fo r m a rr ia g e ; ta k e s th e v a lu e 1 i f th e h o u s e h o ld h e a d is m a rrie d , a n d 0 i f sin g le M A L E : D u m m y fo r g e n d e r o f h o u s e h o ld h e a d ; e q u a ls 1 i f th e h o u s e h o ld h e a d is m a le , a n d 0 i f fe m a le

Appendix 5.2

Summary statistics of variables

V a r ia b l e s S y m b o l s M e a n S t a n d a r d d e v i a t i o n I n c o m e ( t h o u s a n d d o n g ) Y 7 8 1 7 1 3 2 6 3 S a v i n g ( t h o u s a n d d o n g ) S 2 1 2 9 1 2 2 3 0 A s s e t s ( t h o u s a n d d o n g ) W 9 7 1 6 2 8 7 7 9 A g e o f h o u s e h o l d h e a d s A G E 4 5 . 3 9 1 4 .5 9 E d u c a t io n ( y e a r s ) E D U Y 6 .4 0 4 .3 5 N u m b e r o f c h i l d r e n N C H I L D 1 .9 6 1 .6 7 N u m b e r o f o ld p e o p l e N O L D 0 .2 7 0 .5 6 U r b a n a r e a s U R B A N 0 .2 0 0 .4 0 R e g i o n s ( N o r t h ) N O R T H 0 .5 3 0 .5 0 G e n d e r ( M a le ) M A L E 0 .7 3 0 .4 4 M a r r i a g e M A R 0 .8 1 0 .3 9 Y o u n g d e p e n d e n c y r a ti o ( d e f i n i t i o n 1) D 1 0 .9 2 0 .8 4 O ld d e p e n d e n c y r a tio ( d e f i n i t i o n 1) D 2 0 .1 2 0 .3 0 Y o u n g d e p e n d e n c y r a ti o ( d e f i n i t i o n 2 ) P I 0 .3 6 0 .2 5 O ld d e p e n d e n c y r a tio ( d e f i n i t i o n 2 ) P 2 0 .0 7 0 .1 8

Appendix 5.3

Saving, defined in the empirical study as the difference between total income and total expenditures, is

S = Tw] +1" W2 ~ nci ~ mc4 ~ Xm

or

where

Y = 7wj + /" w2