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1. Background and the relevance of the topic 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
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
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:
1.2.2 Irving Fisher and the intertemporal choice model Intertemporal budget constraint
Household’s preferences A particular utility function denoted by UL(C1, C2) behaves like any other utility function familiar from consumer theory. Household decision-makingHousehold 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
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: 2.1. Overview of
Source: 1986-1999: Economic Study, 1999, No 255, 2000-2002 World Bank
Unit: billion VND
na: Not Available Source: OECF Research paper No 9 1992- 1997, Vietnam banking review 1997-2000.
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
Unit: thousand VND
Source: Author’s calculation from Vietnam Living Standard Survey 1997-1998
2.2.3. Household expenditure
Unit: thousand VND
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