Household Savings and Productive Capital Formation in Rural Vietnam: Insurance vs. Social Network.

Transcription

1 Household Savings and Productive Capital Formation in Rural Vietnam: Insurance vs. Social Network. Ha Van Dung University of Paderborn, Germany

2 1. Motivation 1.1 General motivation Savings Ideal conditions Functions of Perfect financial market - Productive capital allocation - Risk pooling and insurance - Term-transformation Efficient capital allocation Highest possible growth 2

3 1. Motivation 1.1 General motivation Savings Bequest Down-payment Life-cycle Precautionary Investment Liquid assets Insurance Social network Productive capital 3 GROWTH

4 1. Motivation 1.2 Literature review Social network and Savings + Household membership: occupational pension scheme or financial institutions (Hemming and Harvey (1983), Pailwar et al. (2010)): Membership promotes savings + Household environment: social learning, migrant network (Fafchamps and Lund (2003), Ballinger et al. (2004), Giles and Yoo (2007)): promote savings 4

5 1. Motivation 1.2 Literature review Insurance and Savings + Social insurance (Hubbard et al., 1995, Maynard and Qiu 2009), + Disability insurance (Kantor and Fishback, 1996), + Unemployment insurance (Engen and Gruber, 2001), + Health insurance (Chou et al., 2003 and 2004) Most studies find a negative relation between insurance and household savings 5

6 1. Motivation 1.2 Literature review Disasters (negative shocks) Household member shocks: divorce, abandonment, family disputes, or illness Economic/natural shocks: crop prices, unemployment, unsuccessful investment, loss of land, robbery, theft to floods, landslides, typhoons, storms 6

7 1. Motivation 1.2 Literature review Households (%) and disasters No shocks Eco/Natural shocks 4 5 Shocks to hh members Source: VARHS08 All shocks 7 Ex ante: preparing for uncertainty Ex post: reacting to uncertainty

8 1. Motivation 1.3 Intention and results in a nutshell Intention - Does insurance system affect household savings and productive capital formation? - Is insurance nexus more important than social network nexus? - Do shocks make households behave differently? Results - Insurance affects HH savings and productive capital. - Insurance nexus is more important than social network nexus. - Shocks make households behave differently. 8

9 Contents Motivation Data Economic framework Results Conclusion 9

10 2. Data 2.1 Terminology Social network nexus: - strength of a household s social network and support system, - membership in organizations, - and assistance in the shape of visits from consultants Insurance nexus: - availability and affordability of insurance 10

11 2. Data 2.1 Terminology Liquid assets Deposits in financial institutions, ROSCAs, private moneylenders, or cash/gold/jewelry kept at home Productive capital Productive durable goods, cattle and land that can yield additional income for households Total assets (total capital formation) Aggregation of liquid assets and productive capital 11 Flows: Changes in asset holdings (asset formation) during the previous twelve months Stocks: Stocks of asset holdings at the time of survey

12 2. Data 2.2 Data 12 VARHS08: Vietnam Access to Resources Household Survey: Characteristics of the Vietnamese Rural Economy. - University of Copenhagen, - The Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), - The Institute for Labor Science and Social Affairs (ILSSA) 3227 households: - Northern midlands mountain area - North central - Central highlands - Mekong river delta

13 2. Data 2.2 Data 13 All households ex ante ex post households households Variables Mean S.D. Mean S.D. Mean S.D. Total stock ratio *** Stock liquid asset ratio *** 0.27 Stock productive asset ratio *** Total flow ratio *** 0.80 Flow liquid asset ratio *** 0.12 Flow productive asset ratio * 0.79 Shock Household member shocks Economic/natural shocks Observations

14 2. Data 2.2 Data 14 All households ex ante households ex post households Variables Mean S.D. Mean S.D. Mean S.D. Household head characteristics Gender Edu Edu Household characteristics Person Young rate Old rate Social network Supporters Organization Assistance Insurance Instruments Ethnicity Area Area Area Observations

15 3. Econometric framework 3.1 Model Model specification: Linear instrumental variable model Y i = b 0 + b j X ji + b j+k W ki + u i 15 endogenous variables included exogenous variables 4 endogenous variables: lnwealth, supporter, organization, and insurance Diagnostic test of: Endogeneity Instrument validity

16 3. Econometric framework 3.2 Variables Dependent variables Total stock ratio Stock liquid asset ratio Stock productive asset ratio Total flow ratio Flow liquid asset ratio Flow productive asset ratio Control variables Gender Edu2 Edu3 lnwealth Person Young rate Old rate Instruments Distance Lnage Lnage2 Ethnicity Area1 Area2 Area3 Major variables Supporter Organization Assistance Insurance 16

17 4. Results Stocks Preparing for uncertainty "ex ante" households VARIABLES a Total stock ratio a Stock liquid asset ratio a Stock productive asset ratio Supporter *** 0.18*** *** (3.99) (0.06) (4.01) Organization (14.25) (0.21) (14.34) Assistance 0.45** ** (0.20) (0.003) (0.20) Insurance 38.47*** -0.38** 38.85*** (11.89) (0.17) (11.96) Diagnostic Tests Wooldridge's robust score test (p-value) 33.2 (0.00) 16.1 (0.00) 34.1 (0.00) Robust regression F test (p-value) 7.8 (0.00) 4.1 (0.00) 8.1 (0.00) Sargan Test chi2 (p-value) 2.98 (0.39) 0.14 (0.99) 2.97 (0.40) Observations 1,352 1,352 1,352 Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1 a The set of instruments: Distance, Ethnicity, Lnage, Lnage2, Area1, Area2, and Area3.

18 4. Results Stocks Reacting to uncertainty "ex post" households VARIABLES Total stock ratio Stock liquid asset ratio Stock productive asset ratio Supporter ** -6.21* (3.73) (0.04) (3.75) Organization (15.72) (0.15) (15.80) Assistance (0.21) (0.002) (0.21) Insurance 88.35*** -0.79*** 89.14*** (26.86) (0.30) (27.05) Diagnostic Tests Wooldridge's robust score test (p-value) 31.3 (0.00) 46.0 (0.00) 31.8 (0.00) Robust regression F test (p-value) 7.8 (0.00) 11.8 (0.00) 7.9 (0.00) Sargan Test chi2 (p-value) 0.91 (0.64) 1.04 (0.60) 0.91 (0.64) Observations 1,875 1,875 1,875 Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1 The set of instruments: Distance, Lnage, Lnage2, Area1, Area2, and Area3.

19 4. Results 4.1 Stocks Social network nexus: Affect mostly in ex ante households Insurance nexus: impact on both ex ante and ex post households In stocks, Insurance nexus has impacts on hh savings and productive capital formation. Insurance is more important than social network nexus. Shocks create difference in household behavior. 19

20 4. Results Flows Preparing for uncertainty "ex ante" households VARIABLES Total flow ratio a Flow liquid asset ratio a Flow productive asset ratio Supporter 0.35** 0.12*** 0.10 (0.18) (0.04) (0.11) Organization * (0.55) (0.14) (0.41) Assistance -0.03** ** -0.01* (0.01) (0.002) (0.007) Insurance -1.72*** -0.39*** -0.94** (0.61) (0.12) (0.41) Diagnostic Tests Wooldridge's robust score test (p-value) 19 (0.00) 55 (0.00) 9.8 (0.04) Robust regression F test (p-value) 4.7 (0.00) 14.1 (0.00) 2.5 (0.04) Sargan Test chi2 (p-value) 1.3 (0.53) 2.20 (0.53) 3.15 (0.39) Observations 1,352 1,352 1,352 Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1 a employ full set of instruments: Distance, Ethnicity, Lnage, Lnage2, Area1, Area2, and Area3. Others use the set of instruments without Ethnicity.

21 4. Results Flows Reacting to uncertainty "ex post" households Flow liquid asset a Flow productive VARIABLES a Total flow ratio ratio asset ratio Supporter (0.06) (0.03) (0.04) Organization (0.32) (0.09) (0.28) Assistance (0.003) (0.001) (0.003) Insurance -0.76* -0.52*** (0.42) (0.20) (0.35) Diagnostic Tests Wooldridge's robust score test (p-value) 25 (0.00) 66 (0.00) 10 (0.03) Robust regression F test (p-value) 6.3 (0.00) 17 (0.00) 2.6 (0.03) Sargan Test chi2 (p-value) 2.1 (0.55) 1.1 (0.58) 1.3 (0.7) Observations 1,875 1,875 1,875 Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1 a employ full set of instruments: Distance, Ethnicity, Lnage, Lnage2, Area1, Area2, and Area3. Others use the set of instruments without Ethnicity.

22 4. Results 4.2 Flows Social network nexus: more effects in ex ante liquid assets Insurance nexus: Has impacts on both ex ante and ex post households In flows, Insurance nexus has impacts on hh savings and productive capital formation. Insurance is more important than social network nexus. Shocks create difference in household behavior. 22

23 5. Conclusions - Insurance has impacts on HH savings and productive capital formation in rural Vietnam. - Insurance is more important than social network. - Shocks make households behave differently. 23

24 Household Savings and Productive Capital Formation in Rural Vietnam: Is Insurance More Important than Social Network? by Thank you for your attention! University of Paderborn, Germany 24 Thomas Gries