'· UNIVER,SITY OF ECONOMICS HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES THE HAGUE VIETNAM THE NETHERLANDS VIETNAM- NETHERLANDS PROJECT FOR M.A IN DEVELOPMENTECONONUCS THE IMPACT OF EDUCATION OF HOUSEHOLD · HEAD ON HOUSEHOLD INCOME: THE CASE OF RURAL AN GIANG PROVINCE BY NGUYEN DUC THANG ACADEMIC SUPERVISOR: MA NGUYEN TID SONG AN HO CHI MINH CITY MAY, 2002 CERTIFICATION " I certify that the substance of this dissertation has not already been submitted for any degree and is not being currently submitted for any other degree I certify that to the best of my knowledge any help received in preparing this dissertation, and all sources used, have been acknowledged in this disssertation." NGUYEN DUC TRANG Date: ABSTRACT People can be died by poverty which suffers from extremely low income to cover the minimum needs in their lives, but no one died by lacking of education Unfortunately, an education level is a very important factor in comprising the income People with low education level will earn low income, therefore they easily drop in vulnerable situation of poverty, hunger, or even crimes The benefit of education has been justified for times as a stimulating factor in income comprising through its effects on labour productivity, technical efficiency, allocative efficiency, managerial skills and even change one's perceptions or habits Education therefore benefits anyone who attains it, no matter the job they work and the sector they engage On the other hand, with higher education people are easier to work in many types of jobs, thus education also helps households diversify their income sources, and hence makes their income become more stable An Giang province has a high rate of illiterate at 10%; and in the rural areas, 32% households are living in the poor situations caused by the low income level How to help these households overcome their current situations is the big question for everyone who concerns Of course, there are many reasons push the households into the poor status One of main reasons is low education level This research aims to help people improve their life by stimulating to increase their income through upgrading education, especially for formal education Recognizing the benefits of education and knowing the important role of the household head in household, this research tries to explore the relationship between household head's education level and household income, and it is found that this relationship is positive From the results of this research, some policies will be suggested to increase household income through the improvement of education factors CONTENTS Page CERTIFICATION i ABSTRACT 11 CONTENT iii LIST OF TABLE iv ACKNOWLEDGEMENTS v Chapterl Introduction 1.1 Problem Statement 1.2 Objectives of the Thesis 1.3 Research questions and hypothesis 1.4 Methodology 1.5 Organization of the research Chapter Literature Review 2.1 Concepts and some broader issues of concerned 2.1.1 Household 2.1.2 Household head 2.1.3 Household income 2.1.4 Education 2.2 The role of education 10 2.2.1 Education and household income 10 2.2.1.1 Schooling and farm income 10 2.2.1.2 Schooling and non-farm income 13 2.2.2 Other benefits of education 15 2.3 Determinants ofhousehold income 17 2.4 The relationship between education and income 20 2.5 Empirical evidences 22 Summary ofliterature review 23 Chapter Model Specification and data collection 24 3.1 Model Specification 24 3.2 Data collection 29 iii 3.2.1 The study area 29 3.2.2 Sample size 30 3.2.3 Sampling frame 31 2.4 Questionaire conducting 31 3.2.5 Limitations of data 32 Chapter remark 32 Chapter Research results and discussions 34 4.1 General characteristics 34 4.2 Household income 37 4.3 Education of household head 39 4.4 Relationship between household income and education 41 4.5 Results from econometric analysis 42 Chapter Conclusions and suggestions 47 5.1 Conclusions 47 5.2 Policy implications 48 5.3 Limitations of the research and further study suggestions 49 lll LISTS OF TABLES & FIGURES Table No Table 2.1: Determinants of household income 19 Table 2.2: Summary of the effects of education on household income 21 Table 3.1: Variable presentation 25 Table 3.2.: Sample size 30 Table 4.1: Household characteristics 35 Table 4.2.: Other characteristics of household head 36 Table 4.3: Sources of household income 37 Table 4.4.: Income source between poor and non-poor households 38 Table 4.5: Crop activities 39 Table 4.6: Household head’s education 40 Table 4.7: Household head’s education in poor and non-poor households 40 Table 4.8: Quartile of education household head and income 41 Table 4.9.: The regression beíòre tests 43 Table 4.10: The regression after test 44 Figure No.: Figure 1: Effects of education on farm production 12 Figure 2.: Effects of years of schooling on eamings 21 Figure 3.: Relationship between education level of household head on household income 42 ABBREVIATION ACR : An Giang Committee Report APAR : An Giang Poverty Alleviation Report ASO : An Giang Statistical Office CSO : Can Tho Statistical Office HCEF : Human Capital Earnings Function OLS :Ordinary Least Square Estimation VND :Vietnam's Unit Currency iv ACKNOWLEDGEMENTS Firstly, I would like to express my appreciation and special thanks to my supervisor MA Nguyen Thi Song An for her valuable comments and instructions I am very grateful to teachers and staffs of Vietnam-Netherlands Project on Development Economics Many thanks are given to Project leaders, Dr Haroon Akram Lodhi and Mr Tran Vo Hung Son for their greatest support, Dr Youdi Schipper, Dr Garbrielle and Mr Micheal Palmer for their valuable comments, the secretary-Ms Nguyet and the librarian-Ms Chi for their helps I am also very appreciate with helpful opinions and supports of all my friends, especially Mr Tai,.Mr Dong, Mr Hong and Ms Phuong, who has given me a lot of supports in doing this thesis I also send my thanks to people in An Giang province, local authorities and Woman Unions from three communes Thanh My Tay, Vinh Thanh Trung and Thoai Giang, who have helped me a lot in the process of doing survey Finally, I am indebted to my parents and relatives who have given me great encouragement and support v CHAPTER! INTRODUCTION 1.1 PROBLEM STATEMENT Everyone in everywhere all expects the enough life, but a living standard level is different across countries In one country, it also various from areas to areas, from urban to rural Knight and Sabot (1990) stated there is an inequality of income among households Most people in rural areas are at the low living standard level in comparison with other areas In the rural areas, although no one, a household wants to live in poor conditions of life, but a large amount of them They are not only live in poor condition but also face to poverty situation which is only caused by the low income Vietnam is considered as one of the poorest countries in the world, with income level is just about 1USD per head per day, and 37,4% of population which are living in poverty (VLSS 98) Therefore, the improvement of household income is very important for all households, especially for poor or poverty households to escape the present bad situation Carney (1998) argued that chief asset posed by the poor was their own labor Human capital refers to the labor available to the household: its education, skills and health On the other hand, Toulmin (1992) stated that human capital could be increased by investment in education and training or by getting the skills accumulated through the process of conducting their job with one or more occupations Modem theories of economic growth emphasized that the investment in human capital will get the sustainable growth and invest in public education, health is macro policies (Cornia and Jolly, 1987) The evidence about such expenditures fails to confirm the existence of a downward trend in real terms as a general proposition for low income adjusting economics (Sahn et al, 1996) This means that there have many factors affect income, however education is the most important In the broader view, Molin (1970) argued that next to the capital, the investment in education represented an important factor in economic development; a lack of knowledge and of skill will be a major obstacle to efficient production and productivity in either the agricultural or industrial sector In the narrower view, Schultz (1964; 1975) proved that the education level affected farm productivity by improving the quality of labor, by increasing the ability to manage and by implementing the tasks on farm, as well as by the willingness to adopt innovations As a result, education will lead to increase productivity and hence income of households While many theories and evidences support for the benefit of education on income, many reverse results such as research ofRonnas (1992) reveal the negative relationship between them Therefore, empirical research about this relationship is necessary to be examined in order to have the exact conclusion in a specific area Education contains all kinds of training and learning, in which the formal education is the most important one for people (Colear, 1990) The benefits of formal education have been known for a long time; Mincer (1974) stated the benefits of formal education on individual earnings; Basu, Narayan and Ravallion (2000) showed the knowledge shared within household; Lucas (1998) proved that education had benefits within village known as site effect; and as mentioned education can benefit entire the country at national level (Molin, 1970) This means that education can benefit people from individual, household, village to country level Lockheed, et al (1980) stated that there was a consistent conclusion on the impact of education levels on total household income in the areas where farms were modernizing In other words, education level has a relationship with household income in rural areas which are engaged in farm activities As being stated in the chapter 2, in each household, the role of the household head is very important Household head is the decision-maker within the household about the production, the investment, children's education and many other household activities Household head is also the one who connects the household to the outside In the South of Vietnam, An Giang is known as the largest paddy output and the highest productivity provinces through times Paddy productivity attains 5.3 tons/acre on average and output is 2.385 million ton (ASO and CSO, 1998) However, it also is known as the highest population among Mekong Delta provinces (ACR, 1999}, and as the abundance of labor force 49.95% population (ASO, 1999) The quality of this labor force is poor in terms of education and of working skills, unskilled labor are at 96% (AS0,1999) Although there is high literacy at 92.8%, the general education level of population is still at low rate with 51.04% household head under primary graduation (ACR, 1999) In addition, the number of poor households accounted for 38.841 households in 1996, the highest rate in Mekong Delta, and this number absolutely increased year by year and reached 39,210 poor households by 2000 (APAR, 2000) which mainly dropped in rural areas The above general indices indicate that An Giang has high economic potential, but there have still many households which are living below the poverty lin/ How to raise their household income is the big question for all whom concern While the benefit of education has been generally demonstrated, the benefit of education of the household head- as the household decision-maker- to the household income is not clearly explored, especially in rural areas That is the reason why I choose the topic: the impact of the education level of the household head on household income in rural An Giang In rnral area, the household has income per capita per month less than 100,000 VND was defined as poor household In the urban area, the number is I 50,000 VND (Steering Committee ofHunger Eradication and Poverty Alleviation ofAn Giang province, 200 1) This definition coincide with the definition of Vietnam Bl REGRESSION AFTER TESTS Table B.1 regress ltotalin eduofhhh ageofhhh exprhhh currwhhh gendhhh otheredu otherage hhsize lan2 lproas Source ss df MS -+ -Model I 30.1586497 10 3.01586497 Residual I 27.3114353 139 196485146 -+ -Total I 57.470085 149 Number of obs F( 10, 139) Prob > F R-squared Adj R-squared Root MSE 385705268 150 15.35 0.0000 0.5248 0.4906 44327 Coef Std Err t ltotalin I [95% Conf Interval] P>ltl -+ -eduofhhh ageofhhh exprhhh currwhhh gendhhh otheredu otherage hhsize lan2 lproas cons 0772434 -.0033955 008155 112562 0478334 01494 0002659 0594826 0816634 0069452 14.51976 0145635 0050208 0056554 0983685 0951994 0167561 0052746 0217022 0274065 0273411 4176074 30 -0.68 1.44 1.14 0.50 0.89 0.05 2.74 2.98 0.25 34.77 000 0.500 0.152 0.254 0.616 0.374 0.960 0.007 0.003 0.800 0.000 0484487 -.0133227 -.0030267 -.08193 -.1403927 -.0181898 -.0101628 0165736 0274758 -.0471131 13.69407 106038 0065316 0193366 307054 2360596 0480698 0106947 1023917 135851 0610035 15.34544 MULTICOLLINEARITY TEST Table B.2 HETEROSCEDASTICITY TEST hettest Cook-Weisberg test for heteroskedasticity using fitted values of ltotalin Ho: Constant variance chi2(1) 4.46 Prob > chi2 0.6347 Table B.3 vif Variable I VIF 1/VIF -+ -ageofhhh exprhhh lan2 currwhhh eduofhhh lproas otheredu hhsize gendhhh other age 4.28 94 2.05 83 75 62 1.29 26 08 05 0.233597 0.254092 0.487349 0.547717 570346 0.616913 0.774094 0.791865 926764 0.947886 -+ -Mean VIF I 2.02 Table B.4 NORMALITY TEST swilk ui Variable I Shapiro-Wilk W test for normal data Obs W V z Prob>z -+ ui I 150 0.99404 0.693 -0.831 0.79710 Figure B.l THE GRAPH OF REGRESSION RESIDUAL graph ui, bin(lO) norm 206667 1.11184 Residuals END OF THE APPENDIX APPENDIX AN GIANG HOUSEHOLD QUESTIONNAIRE 2000 Name of villages: Day of interview: Name of interviewer:··················································-·············· Name of interview: male/ female COMMON HOUSEHOLD CHARACTERTSTICS Code: (name/year of birth/sex/HH size) Household categorized by local Ethnic : Kinh ; Khome Rich Middle Chinese; How many people are there in the household now? Number of working age members Characteristics of main labor living in the household: I f· · ·· ·-· ·-···-·-·-·-·-·-l-·· ·-·····-····-········-·················~·····-························· ' i i ···=::===·~~:~~:~~::==].i~:==~~~-:~:.:.=:===::::==]_!:::~.-~::=:::=======].1 -·-····-· j ······-········· -·· -t··-············ -· ··i L -···-· -· -····· j-··-· -·-······-··-·-·· ····· -1-·-·-·····-···· -· ·-·-· ····i f· -··· -·-·-· -·-· f-·-···-····-····-·-····· ···-·-·-·····+······-··-······-··I (year) ' r,,·::-~~-~-==:~=:==:~-.~~J,,~-.=~~=:~-.~-~:~:~:::·············t ·- ··:.::::.::: ! Very Poor E";q;·;;rie-~ce T· -· ··-Note-·-·-··-·-·1 years ~-·-·· ·-· ·-· ·-·-· f ····-··· -·············-···· ····-:.=rob's.