In developing countries in general
and in Vietnam in particular,
capital mobilization plays a decisive role in economic development. Since the
renovation, the Vietnamese government has carried out many favorable policies to
attract foreign investment and has gained some success. However, foreign
investment may be affected by many controllable and uncontrollable factors and
that the mass withdrawal of foreign investment in the region created many
difficulties for the host economies.
In 1995- 2001 period, household
saving in Vietnam accounted
for from 31 to 48 percent of the total domestic saving (Chinh et al,
2002). However, saving rates among households is still very low. Household on
average saves VND 823 thousand a year, which equals to 6 percent of total
household disposable income.
This thesis seeks to contribute to
the existing literature on the empirical study of household saving behavior in
two ways: by focusing on household in Vietnam
and by using econometrical tool to analyse the quantitative impact of the
related variables affecting household saving in Vietnam in a particular period
of 1997-1998.
2. Focus and scope of the thesis
2.1. Focuses
The study focuses on analysing the
impact of determinants of household saving behavior in Vietnam based on data from Vietnam
Living Standard Surveys
2.2 Scope
The thesis focuses on the household
level, rather than aggregate, private saving in a nation wide framework.
3. Research questions
The central research question of the
thesis is “What are the major determinants of household saving in Vietnam?”
4. Research methodology
The thesis makes an extensive use of
econometric methods. Qualitative and descriptive methods will also be used in
the analysis.
5. Data sources and limitation
The primary data were obtained from
the VLSS conducted in 1997-1998. Secondary data: these data were collected from
various sources as VLSS 92-93, official and unofficial reports and documents.
The study would be more interesting
if the data at household level were available
6. Structure of the thesis
Chapter I:
Theoretical frameworks and empirical studies
on household saving behavior
1.1. Concepts and Definitions
This section devoted to
analyse the concept and definition of household and household members
as well as consumption and saving
1.2. Theoretical framework on household saving behavior
1.2.1. Keynesian
view of saving
Keynes
approach started on his introspection and casual observation. His saving
function was constructed based on three conjectures as follow:
·Marginal propensity to
save (MPS) varies from 0 to 1.
·Average Propensity to
Save rises as income rises.
·Income is the primary
determinant of consumption and saving
Keynesian consumption and saving
functions are often written in the form below:
C= C0 + MPC.Y
S= -C0 + MPS.Y
In which
C:
Household’s Consumption
S:
Household’s current Saving
C0:
Autonomous consumption
MPC:
Marginal propensity to consume
(exogenous variable)
MPS:
Marginal propensity to save
(exogenous variable)
1.2.2 Irving Fisher
and the intertemporal choice model
Intertemporal budget
constraint
C1+ C2/(1+r)=
Y1+ Y2/(1+r)
Household’s preferences
A particular utility function denoted
by UL(C1, C2) behaves like any other utility function
familiar from consumer theory.
Household decision-making
Household would like to end up with
the best possible combination of consumption in the two periods i.e. on the
highest possible indifferent curve. However, the budget constraint requires that
the household must also end up on or below the budget line
Irving Fisher’s intertemporal choice
model can be used to explain how a household behaves when there is a change in
one of the exogenous variables such as income, real interest rate.
1.2.3. Franco
Modigliani and the life cycle hypothesis
Based
on Fisher’s model, Modigliani (1966) has developed a model, which emphasizes
that income varies systematically over people’s lives, and that saving allows
consumers to move income from these times in life when income is high to those
when income is low (Mankiw, 1994).
Consider a consumer who expects to
live another T years, has wealth of W, and expects to earn annual income Y until
he retires R year from now.
The saving functions can be found as
S= -(1/T).W+
(1-R/T).Y
(1.15)
1.2.4. Milton
Friedman and the permanent income hypothesis
Milton Friedman’s permanent income
hypothesis used Irving Fisher’s theory to argue that consumption should not
depend on current income alone. The PIH emphasizes that people exerience random
and temporary changes in their incomes from year to year.
The current income Y is the sum of
the two components permanent income (denoted by YP) and transitory
income (denoted by YT)
1.2.5. Conclusion of
the theoretical framework:
1.3. Outstanding Empirical studies on household saving behavior
There have been much empirical
literature on saving behavior base on the aggregate (macro) data and household
(micro) data, however many issues remain unresolved. This section devoted to the
main hypotheses that have guided previous works will be discussed.
1.4. Chapter remarks
Chapter 2:
Overview of Vietnam's economy and household saving
2.1. Overview of
Vietnam's economy
Source: 1986-1999: Economic Study, 1999, No 255, 2000-2002 World Bank
Table 2.3: Saving mobilization through the baking system, 1991-1999
Unit: billion VND
12/92
12/93
12/94
12/95
12/96
12/97
12/98
12/99
Deposit in VND
8,091
10,590
14,376
22,497
28,063
35,023
37,649
42,534
of which
Demand deposit
3,971
4,796
4,903
6,882
9,354
14,273
11,695
12,465
Time/Saving deposit
4,210
5,794
9,473
15,597
18,709
20,750
25,954
30,069
Foreign currency deposit
8,214
7,406
8,193
11,061
12,084
15,456
na
21.536
Total
16,305
17,996
22,569
33,540
40,147
50,479
na
64,070
na: Not Available
Source: OECF Research paper No 9 1992- 1997, Vietnam banking review 1997-2000.
Table 2.5: Cross- country comparison of ICOR
in 1991-1998
1991
1992
1993
1994
1995
1996
1997
1998
Vietnam
2.4
1.8
2.2
2.8
2.7
3.1
3.6
5.3
Hong Kong
5.3
4.3
4.7
5.1
8.2
7.7
6.1
-
Korea
3.5
7.7
6.3
4.1
4.1
5.2
7.0
-
Singapore
5.7
5.5
3.4
3.9
3.7
4.8
4.5
-
Taiwan
3.0
3.4
3.9
3.9
3.9
4.2
3.1
4.6
China
3.6
2.4
2.7
3.4
3.9
4.3
4.6
4.9
Indonesia
3.4
4.7
4.6
3.9
3.8
4.1
6.3
-
Malaysia
3.7
4.9
4.5
4.1
4.3
5.1
5.4
-
Philippine
-
-
9.90
5.4
5.0
3.7
4.4
-
Source: Economic Study, No 255, 1999.
2.2. Trend of household saving in
Vietnam
2.2.1.
Characteristics of households in Vietnam
The proportion of males and females
were 48.78 and 51.22 percent respectively in 1990 and has reduced to 49.16 and
50.84 percent in 2000. In 1998, the urban population accounted for 22.43% and
the rural population accounted for 77.57%. The average household size also
changes from region to region with the greatest household size of 5.2 people in
rural South and the smallest household size of 4.0 people in urban North. The
overall dependency ratio
was 0.79 of which children accounts for 0.61. Male household heads made up 74.44
and most household heads have low level of education (81.02% have not finished
general education of which 7.99% never attending school).
2.2.2. Household
income
Table 2.7: Household income by components in 1998
Unit: thousand VND
Urban
Rural
Farm
Non-farm
Total
Farm
Non-farm
Total
Number of Household
190
1,540
1,730
3,248
1,021
4,269
Total income
15,538
25,246
24,180
11,001
16,480
12,311
By components:
Agricultural
10,586
315
1,442
7,176
2,848
6,141
Wages
1,008
8,258
7,463
1,156
4,585
1,976
Non-farm income
1,473
11,040
9,990
1,074
6,881
2,462
Pension & Scholarship
1,343
876
928
430
306
399
Domestic remittance
246
1,726
1,564
180
417
237
Oversea remittance
364
802
754
255
432
298
Other income
519
2,227
2,039
729
1,012
797
Household size
4.0
4.5
4.5
4.9
4.9
4.9
Per capital income
3,711
5,909
5,667
2,377
3,496
2,645
Per capital consumption
3,232
5,477
5,230
2,212
2,836
2,361
Source: Author’s calculation from Vietnam Living Standard Survey 1997-1998
2.2.3. Household
expenditure
Table 2.9: Household expenditure by components in 1998