UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M. IN DEVELOPMENT ECONOMICS RETURNS TO EDUCATION IN VIETNAM: A CLUSTERED DATA APPROACH BY: NGUYEN THI NGOC THANH MASTER OF ARTS IN DEVELOPMENT ECONOMICS HOCHIMINH CITY, DECEMBER 2012 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M. IN DEVELOPMENT ECONOMICS RETURNS TO EDUCATION IN VIETNAM: A CLUSTERED DATA APPROACH A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By: NGUYEN THI NGOC THANH Academic Supervisor(s): Assoc. NGUYEN TRONG HOAI Dr.
PHAM KHANH NAM HOCHIMINH CITY, DECEMBER 2012 TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEDGEMENT First of all, I would like to express my sincere thank to the Vietnam – Netherlands Programme (VNP) for such a challenging but interesting programme, whereby I enjoyed unforgettable time beside my classmates and broadened my networking via class. I am much grateful to famous whole-hearted professors at home and abroad for advanced knowledge and updated information they gave us in class and beyond the class-time. Specially, I would like to deeply thank two supervisors: Assoc. Nguyen Trong Hoai and Dr.
Pham Khanh Nam for their helpful and valuable advices on the last but utmost duty, this thesis, that helps me fulfill my study career. From the bottom of my heart, I always feel thankful to my Family for their daily care, daily worries, daily happiness with every failure or achievement I get in life. I keep looking for chances to bring them happiness. To my C16 Classmates, I can say that two-year was a great memory when I am with you all.
Thank you for your kindness, sharing and support. Especially, I cannot forget the enthusiastic disinterested help from Mr. Le Anh Khang – our class “Hero” before every final exam. He has inspired and motivated me a lot.
I would like to take this opportunity to say thanks to him formally.Life is still ahead of us, let’s just stop a moment to celebrate our achievement today and keep going forward afterward. I wish you all good health, happiness and success for the coming New Year 2013. Cheers ! TIEU LUAN MOI download : skknchat@gmail.com ABSTRACT Moock et al. In this paper, I replicate the job of Moock et al.
(2003) to re- estimate the returns to education by using the 2008 Vietnam Household Living Standard Survey (VHLSS) and Mincerian earnings functions, but with a different regression method, called clustered data at household level using panel commands. The study reveals that (1) an additional year of schooling associates with 8.95% increasing in the average rate of return to education, comparing with only 5% in 1992/1993. In terms of gender gap, females experience higher returns to school than males (11. This pattern is unchanged when referring to result in 1992/1993 (6.4%); (2) workers in public sector get higher rates of return to education than those in private sector (9.
However, foreign sector is the one has the highest rates of return among the three, 11.9%; (3) university is the best option for schooling investment with the rate of return of 19% higher than upper secondary level while this number was 11% in 1992/1993. Primary level brings back 16% rate of return vs. The rates are 10% for vocational vs. primary (4% in 1992); 8% for upper secondary vs.
lower secondary; while only 2% for lower secondary vs. Key Words: return to schooling, education, Vietnam, Human Capital, Mincer earnings function, clustered data, random effect model. 1 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENTS CHAPTER 1.5 Structure of the Thesis .2 A Standard Model of Human-Capital Investment .3 Empirical Studies on Estimating Returns to Education .1 Selective Empirical Studies in the World .2 Empirical Studies in Vietnam .3 New Approach - CLUSTERED DATA APPROACH in Estimating the Returns to Education .4 Empirical Models of the Returns to Education. RESEARCH FINDINGS AND DISCUSSION .1 Distribution of the Dependent and Explanatory Variables .2 Descriptive Statistics of the Dataset.
37 2 TIEU LUAN MOI download : skknchat@gmail. CONCLUSION AND POLICY RECOMMENDATION .1 Conclusion of the Study .3 Limitations of the Study.4 Suggestion for further Studies. 48 REFERENCE 3 TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 2.1: Empirical studies in Vietnam utilizing Mincer earnings function over the period 1992-2008 .1: Sample of cross-sectional data .2: Sample of clustered data .3: Description of the Variables and Variable Coding .2: Earnings function by years of schooling.3: Earnings function by sector of employment .4: Earnings function with schooling levels (for all, males, and females) .5: Private rates of return to schooling by level of education (%). 42 LIST OF FIGURES Figure 4.1: Histograms of log of earnings (by gender) .2: Histograms of log of earnings (by sector) .3: Histograms of years of schooling and log of hours worked/week .4: Scatterplots of monthly earnings and years of schooling .5: Scatterplots of monthly earnings and education levels .6: Scatterplots of monthly earnings and years of experience.
36 4 TIEU LUAN MOI download : skknchat@gmail.com LIST OF ABBREVIATIONS ADB : Asian Development Bank GSO : General Statistics Office IV : Instrument Variable RE : Random Effect OLS : Ordinary Least Squares VHLSS : Vietnam Household Living Standard Survey VLSS : Vietnam Living Standard Survey 5 TIEU LUAN MOI download : skknchat@gmail. INTRODUCTION This chapter explains the context of the thesis, its objectives and research questions. In addition, a brief of methodology is also mentioned in this part. Finally, the structure of the thesis is presented.1 PROBLEM STATEMENT Education plays an important role in modern labor markets.
Hundreds of studies in many different countries and time periods have confirmed that better educated individuals earn higher wage than the less-educated ones 1. A variety of studies have been started with the seminal work by Mincer (1974) who was the first to derive an empirical formulation of earning over the lifecycle. In his basic formulation, the logarithm of earnings can be interpreted as years of schooling, years of experience and squared years of experience. In Vietnam, since the Vietnam Living Standards Survey (VLSS) firstly conducted in 1992–93 till present, many studies have employed the VLSS data and the Mincerian earnings function to examine rates of return to education in Vietnam, such as: Glewwe & Patrinos, 1998; Gallup, 2002; Moock et al., 2003; Liu, 2006; Nguyen Xuan Thanh, 2006; Vu Trong Anh, 2008; Vu Thanh Liem, 2009; Doan & Gibson, 2010; etc.
The results are also diverse. The most cite study is from Moock et al. (2003), in which the authors attempt to analyze the returns to education in Vietnam by using Mincerian earnings function based on the data of VLSS 1992–93. The authors find that the estimated rates of return are quite low (4.
In particular, on average, the rates of return to primary and 1 Psacharopoulos and Patrinos (2002) contains rate of return estimates for 98 countries spanning more than 30 years; Trostel, Walker and Woodley (2002) contains estimates for 28 countries; Polachek (2007) contains estimates for 42 countries; etc. 6 TIEU LUAN MOI download : skknchat@gmail.com university education are 13% and 11%. But these rates are just 4% and 5% at secondary and vocational levels. For higher education (colleges, universities or above), the returns are higher for females (12%) than for males (10%).
Now, 20 years have passed, I return to the issue and question for now, what are the returns to education in Vietnam? How have the returns changed? Especially, in term of gender gap, between males and females who receive higher returns to education? In term of sectoral gap, among public, private, and foreign sectors, any discrepancies among these three? The findings are important implications for policy makers in directing the wage and educational policies. I would like to replicate the job of Moock et al. (2003) to answer these questions by using the Vietnam Household Living Standard Survey (VHLSS), conducted by General Statistic Office (GSO), in 2008 and Mincerian earnings function, but with a different regression method which is first time applied in this kind of estimation, called Clustered data at household level using panel commands 2, instead of using a simple standard cross-sectional OLS estimator. From the results, I would like to suggest some policy implications.2 RESEARCH OBJECTIVES There are 03 main objectives in this study: (1) To estimate private returns to education by years of schooling and by levels of schooling for both sexes, for males and females; and in private, public and foreign sectors recently; (2) To assess the variation in returns to education by comparing with the findings from Moock et al.
(2003); 2 Please refer to the chapter on methodology (Chapter 3) for more details. 7 TIEU LUAN MOI download : skknchat@gmail.com (3) To propose some policy options.3 RESEARCH QUESTIONS The research questions are proposed: (1) What are the rates of return to education by years of schooling, by levels of education for both sexes, for males and females; and in private, public, and foreign sectors recently? (2) How are the rates of return to schooling different comparing with 15 years ago? Should the rates increase or decrease? (3) What are policy recommendations? 1.4 RESEARCH METHODOLOGY In the study, I use the VHLSS conducted by GSO in 2008 and the Human Capital Model developed by Mincer (1974), with the regression method so-called Clustered data at household level using panel commands, instead of using a simple standard cross-sectional OLS estimator.5 STRUCTURE OF THE THESIS The paper is structured as follows: Chapter 2 provides the literature review and empirical studies over the world and in Vietnam. Chapter 3 describes the data samples and specifies the research methodology. The results based on descriptive statistics and econometric models are presented in Chapter 4.
The last chapter comes up with conclusion, policy recommendation, limitations of the study, and suggestion for further studies. 8 TIEU LUAN MOI download : skknchat@gmail. LITERATURE REVIEW The first part of this chapter gives preliminary definition of main terms used in the context. The next part comes to provide theoretical foundation for empirical research.
A standard model of human-capital investment by Mincer (1974) is introduced to briefly explain how to form up the standard Mincerian earnings function. Some of selective empirical studies on returns to education in the world and in Vietnam are then recalled to summarize the empirical results found by different researchers. This chapter also is going to build up analytical framework for the study.1 DEFINITION Human Capital Human capital is ".the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country " (Oxford Dictionaries. Oxford University Press).
Rate of Return Rate of return is ".the gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security plus realized capital gains" (Retrieved from http://www.com/terms/r/rateofreturn.asp, accessed on Dec. Return to Education (Schooling) The return to education is captured only indirectly by different methods depending on which level the study is examined at. Specifically, at society level, the return to education is presented as the investment in education relative to national wealth; At enterprise level, it is the investment in training in effect with enterprise 9 TIEU LUAN MOI download : skknchat@gmail.com performance; In term of individual, the return to education is described as years of schooling relative to life income.
At individual level, the "individual return to education" is also termed as "private return to education" to distinguish with "social return to education" at society level. This study covers at individual level.