Effects of social capital on self rated life satisfaction among residents evidence from vietnam

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

ERASMUS UNVERSITY ROTTERDAM
INSTITUTE OF SOCIAL STUDIES
THE NETHERLANDS

VIETNAM – THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

EFFECTS OF SOCIAL CAPITAL ON SELFRATED LIFE-SATISFACTION AMONG
RESIDENTS: EVIDENCE FROM VIETNAM

By

TRUONG NGOC ANH THU

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, November 2016


UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

EFFECTS OF SOCIAL CAPITAL ON SELFRATED LIFE-SATISFACTION AMONG
RESIDENTS: EVIDENCE FROM VIETNAM
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

TRUONG NGOC ANH THU

Academic Supervisor:
Dr. PHAM KHANH NAM

HO CHI MINH CITY, November 2016



DECLARATION
I hereby declare that the thesis “Effects of social capital on self-rated lifesatisfaction among residents: evidence from Vietnam”, which is submitted to Vietnam –
Netherlands Programme, is my original research work. All of the contents which are not
from my own work are cited carefully and clearly in this thesis.
I certified that the contents of this thesis have not been and are not being submitted for
any other degrees.
This thesis was done under the supervision and guidance of Dr. Pham Khanh Nam.
Any other contributions to this thesis are presented in the acknowledgement section.
Signature

Truong Ngoc Anh Thu

Ho Chi Minh City, 2016
In my capacity as the supervisor of this thesis, I certified that the statements above are
true to the best of my knowledge.
Signature

Dr. Pham Khanh Nam
Date:

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ACKNOWLEDGEMENT
First, I would like to express my great appreciation and huge thanks to VNP Lecturer
Team for their dedication and enthusiasm in teaching and guiding me in studying, giving me
so much knowledge and inspiring me in my academic study as well as my career. I am so
thankful to all of them.
Second, I would like to express my deep gratitude to Dr. Pham Khanh Nam, my
research supervisor, for his patient guidance and useful critiques of this research work.
I would also like to extend my thanks to all of my friends in VNP and VNP Staffs for
their great support and helpful activities during my time in VNP.
Finally, I would not forget to send my deepest thanks to my family, my dear friends
who always stand by me and encourages me to keep up with my study objectives.
I am so grateful to all of above people and many others that I could not name here.
Thank you very much for supporting me!

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ABSTRACT
This dissertation provides an insight into the relationship between self-rated lifesatisfaction and social capital, controlling for some demographic and individual

characteristics in rural Vietnam as well as tests the theoretical predictions of the social capital
investment model from the data of Vietnam Access To Resources Household Survey in
2014. Social capital is measured as a multidimensional concept including social network,
formal institution, cooperation and social trust. The results are quite consistent with the
predictions, which supports the theory about the social capital investment of Glaeser et al.
(2002) that people who have higher education would have more investment in their social
capital, and being stable in the residence also contributes to their investment of social capital
while relatively higher income affects their social network and trust negatively. Finally, the
association between age and formal institution follows the inverted U-shaped trend. Using
order probit model on data for 3415 households from twelve provinces in Vietnam, it is
found out that there is a significantly positive relationship between social capital in forms of
social network, formal institution and cooperation and an individual’s subjective
satisfaction. However, trust, on the other hand, is examined to be insignificantly associated
with a person’s self-rated satisfaction in this research.
Keywords:

social capital, social network, cooperation, formal institution, social trust,

happiness, life-satisfaction, order probit model, rural Vietnam.

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TABLE OF CONTENTS
DECLARATION .................................................................................................................. i
ACKNOWLEDGEMENT................................................................................................... ii
ABSTRACT .........................................................................................................................iii
TABLE OF CONTENTS ................................................................................................... iv
LIST OF TABLES .............................................................................................................. vi
LIST OF FIGURES ........................................................................................................... vii

CHAPTER 1: INTRODUCTION....................................................................................... 1
1.1

PROBLEM STATEMENT...................................................................................... 1

1.2

RESEARCH OBJECTIVES AND QUESTIONS ................................................... 2

1.3

RESEARCH SCOPE AND METHODOLOGY ..................................................... 3

1.4

THESIS STRUCTURE ........................................................................................... 3

CHAPTER 2: LITERATURE REVIEW .......................................................................... 4
2. 1 THEORETICAL FRAMEWORK ............................................................................. 4
2.1.1 Concept of social capital ....................................................................................... 4
2.1.2 Model of social capital investment ........................................................................ 5
2.1.3 Becker and Murphy (2000)’s theory on the relationship between social capital
and life-satisfaction ........................................................................................................ 6
2. 2 PREVIOUS EMPIRICAL STUDIES ........................................................................ 7
CHAPTER 3: DATA AND METHODOLOGY ............................................................. 11
3.1 DATA........................................................................................................................ 11
3.2 RESEARCH METHODOLOGY .............................................................................. 11
3.2.1 Variable description............................................................................................. 11
3.2.2 Econometric model .............................................................................................. 14
CHAPTER 4: RESULTS AND DISCUSSION ............................................................... 15

4.1 DESCRIPTIVE STATISTICS .................................................................................. 15
4.2 RESULTS OF SOCIAL CAPITAL INVESTMENT MODEL ................................ 20
4.3 RELATIONSHIP BETWEEN SOCIAL CAPITAL AND SELF-RATED LIFESATISFACTION ............................................................................................................ 24
4.4 ROBUSTNESS TESTS ............................................................................................ 36
CHAPTER 5: CONCLUSIONS ....................................................................................... 39
5.1 CONCLUSIONS ....................................................................................................... 39

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5.1.1 Concluding remarks from the test of model of social capital investment ........... 39
5.1.2 Concluding remarks from the estimations of relationship between social capital
and subjective life-satisfaction ..................................................................................... 40
5.2 POLICY RECOMMENDATIONS ........................................................................... 41
REFERENCES................................................................................................................... 44
APPENDIX A ..................................................................................................................... 48
APPENDIX B THE RESULTS OF ORDER PROBIT ESTIMATIONS ..................... 49

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LIST OF TABLES
Table 3. 1: Factor analysis of social capital ........................................................................ 12
Table 3. 2: Variable Description ......................................................................................... 13

Table 4. 1: Descriptive statistics. ........................................................................................ 16
Table 4. 2: Correlation coefficients among key variables .................................................. 18
Table 4. 3: Regression of demographic variables on social capital. ................................... 23
Table 4. 4: Results of estimations of the relationship between life-satisfaction and social
capital ................................................................................................................................... 26

Table 4. 5: Results of the test of the impact of relative income on the relationship between
life-satisfaction and social capital ........................................................................................ 30
Table 4. 6: Results of the test of the impact of children on the relationship between
satisfaction and social capital .............................................................................................. 32
Table 4. 7: Results of the test of the impact of the time of living in the same community on
the relationship between satisfaction and social capital ...................................................... 34
Table 4. 8: Results of estimations of the relationship between social capital and lifesatisfaction (robustness check) ............................................................................................ 37

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LIST OF FIGURES
Figure 2. 1: The framework of the relationships among social capital, other dependent
variables and life-satisfaction .............................................................................................. 10

Figure 4. 1: Average life-satisfaction in twelve provinces in 2014 ................................... 17
Figure 4. 2: The relationship between social network and life-satisfaction ...................... 19
Figure 4. 3: The relationship between formal institution and life-satisfaction .................. 19
Figure 4. 4: The relationship between cooperation and life-satisfaction ........................... 20
Figure 4. 5: The relationship between trust and life-satisfaction....................................... 20

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CHAPTER 1: INTRODUCTION
1.1 PROBLEM STATEMENT
Social capital has increasingly become an important topic in science and policy since
many empirical evidences suggest that social capital is connected with various aspects of
life (Putman, 2000) and may have a positive impact on the life-satisfaction of individuals
and the whole countries. Many findings from earlier studies have indicated that various

forms of social capital are strongly associated with the level of human’s subjective
satisfaction because they provide an individual with networks and connections of social
interaction as well as help he or she to gain support from other people in society (Helliwell,
2003). Bjornskov (2003) showed that social capital was an important element in explaining
why some countries are happier than others. Putnam (2000) also found that social capital
was positively related with happiness across the USA. Thus, it is said that communities
which are rich in social capital and individuals who have high levels of personal social
capital are believed to be generally able to enjoy more satisfaction.
However, conflicting results have been also reported due to the vagueness of the
definition of social capital and the measurement of satisfaction. Some researchers find no
statistical significance of the relationship between social capital and life-satisfaction in their
study. Yet the relationship social capital and subjective life-satisfaction has not been
investigated among residents in rural Vietnam. Since the country has experienced dramatic
social, economic, and political changes in the past years, which may lead to the changes in
the socio-cultural context which is one of the formations of social capital, the relationship
between social capital and life-satisfaction is worth researching in Vietnam. Moreover,
traditionally Vietnamese people tend to be very close to each other in family and the society.
Family, village and nations are considered to create a basic structure for Vietnamese society
(Hickey, 1964). Hence, people’s accumulated social capital could then affect their lifesatisfaction.
Furthermore, in recent years, economists have given more attention on the empirical
studies of happiness or life-satisfaction since life-satisfaction is considered as one of the
indicators of life quality which is an issue that many countries care and focus on. Lifesatisfaction is one of the keys for a wealthy country due to many reasons. A country can get
many benefits from its satisfied citizens in economic, social, and psychological terms. First,
satisfied people are healthy one who can live longer and make full use of their strengths,
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skills and abilities to contribute to their own well-being as well as that of the others and the
society. Second, a satisfied individual deals with depression better, he or she is less prone to
anxiety, stress or anger, hence is likely to commit in fewer crimes. Moreover, satisfied

people are less of a burden to health services, social welfare agencies, or the whole economy
in comparison with depressed and unsatisfied people. Therefore, it could be said that
increasing the level of satisfaction of an individual does not only affect that person but also
helps to improve the whole country. Moreover, though Vietnam is still a developing country,
it is usually known as a country with a high rank in happiness index in the world. According
to New Economics Foundation (2012 & 2016), Vietnam came second in Happy Planet Index
(HPI) among 151 countries in 2012, and ranks fifth in 2016 globally, second in the Asia
Pacific region. However, is it true in Vietnam rural area? Basing on the results of the survey
VARHS 2014, the level of self-satisfaction of Vietnamese people will be discussed to see if
Vietnamese are really satisfied with their life.
Besides, evaluating people’s social capital and estimating the determinants of selfrated life-satisfaction of people in rural Vietnam helps policy makers and local government
to make policy decisions in investment more effectively. Since Vietnam is in its process of
industrialization and modernization, suitable and good policies shall be introduced and
implemented in order to improve people’s life as well as to develop rural area in general.
Therefore, this empirical study aims to contribute to the literature the case study of rural
Vietnam about the relationship between social capital and life-satisfaction of Vietnamese
residents.
1.2 RESEARCH OBJECTIVES AND QUESTIONS
This research is to investigate the association between social capital and subjective
life-satisfaction in rural Vietnam. Social capital is measured as a multidimensional concept
consisting of social trust, network including formal institution and informal institution, and
cooperation while life-satisfaction is self-rated by Vietnamese residents.
This study attempts to answer the following questions:
What are the characteristics which contribute to the investment in social capital of an
individual?
Does an individual feel more satisfied with life if he or she has more social capital?
In other words, if an individual has more friends, joins more institutions, more trust and is
more cooperative, is he or she more satisfied with life?
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Do relative income, gender, the number of children, and the number of years living in
the same community affect the effects of social capital on an individual’s subjective lifesatisfaction?
1.3 RESEARCH SCOPE AND METHODOLOGY
The research uses the data from Vietnam Access To Resources Household Survey
(VARHS) conducted in twelve Vietnamese rural provinces in 2014.
The main methodology of this study is quantitative analysis. Specifically, order probit
estimation is used to estimate the relationship between self-rated life-satisfaction and social
capital.
Following Bjornskov (2003) and Frey and Stutzer (2002), terms “happiness”, “lifesatisfaction”, “self-rated happiness”, “self-rated life-satisfaction”, “subjective happiness”,
“subjective life-satisfaction”, and “wellbeing” in this research are used interchangeably to
indicate the happiness of an individual.
1.4 THESIS STRUCTURE
This thesis has five chapters. Chapter 1 introduces the background and motivation of
the research on the effect of social capital and life-satisfaction in Vietnam. Chapter 2 reviews
related theories and previous empirical studies. Chapter 3 presents the data as well as
summary statistics and methodology for producing necessary results. Chapter 4 shows the
results and discussions. Chapter 5 summarizes main research findings, suggests policy
implications.

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CHAPTER 2: LITERATURE REVIEW
This chapter first reviews the definition of social capital and the measurement of selfrated life-satisfaction. Then, two main theories relating to social capital model and the
relationship between social capital and satisfaction are introduced. The investment model of
social capital suggested by Glaeser et al. (2002) explains an individual’s decision in
accumulating social capital and the optimal condition where an individual maximizes his
returns to social capital. The theory of utility gained by social capital by Becker and Murphy
(2000) is, after that, presented to build the framework for the relationship between social

capital and satisfaction. At the end of this chapter, some related previous empirical analyses
are presented in order to provide a deep insight into the researches of life-satisfaction and
social capital before.
2. 1 THEORETICAL FRAMEWORK
2.1.1 Concept of social capital
Social capital is generally considered as a vague and intangible term which is difficult
to describe. Even until now, no single definition can give an accurate and broadly
recognizable concept of social capital. Hence, in order to build a good proxy for social capital
so as to analyze the relationships between social capital and individual’s subjective lifesatisfaction, in this study, a dimensional definition of social capital is constituted basing on
the theory of Coleman (1988), Putnam (2000) and Paxton (1999).
According to Coleman (1988), social capital is the social relation facilitating economic
and non-economic goods, including obligations within a group, trust, intergenerational
closure, norms and sanctions. These trust and obligations then encourage coordination and
cooperation among individuals. In this concept, Coleman illustrates how an individual
within a group can gain resource from the social structure of that group, which suggests the
idea of creating proxy of trust and cooperation in this study.
Putnam (2000) has widened Coleman’s social capital theory by putting more
emphasize on interpersonal networks. He defines social capital as a combination of trust,
norms, and formal and informal social networks which exists in all relations in people’s life.
Formal institution is the formal groups or organizations that individuals join. The chances
of meeting with others in a group enhance the frequency of interaction among individuals,
thus increasing social capital. Informal institution is while known as the interaction with
family and friends.
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Paxton (1999) also suggests that there are two components creating social capital. One
is the objective relations among people which bring them together and tie them to each other
in everyday life. Another is the subjective type of tie which happens among individuals such
as trust, reciprocal and positive emotion.

Overall, following these concepts, the proxy of social trust, and cooperation are created
in this study in order to indicate the individual’s trust in others as well as community and his
or her cooperation. Moreover, social capital is also measured by formal institution and
informal network that an individual engages in. In this research, a proxy for general social
capital index is tried to be created by the four above proxies of social capital. However, it
fails to establish this index. Therefore, only four proxies of trust, cooperation, social network
and formal institution are together used to estimate the associations between social capital
and individual’s self-rated life-satisfaction.
2.1.2 Model of social capital investment
Coming from the idea that though there are theories and evidences on the effects of
social capital, there has not yet existed a commonly accepted theoretical framework about
the determinants of investment in social capital, Glaeser et al. (2002) suggested an analysis
of the formation of social capital using a model of optimal individual investment decisions.
According to the model of investment in social capital suggested by Glaeser et al.
(2002), the dynamics of social capital stock S are followed by a dynamic budget constraint
and described as:
St+1 = 𝛿St + It
Where S is individual social capital, 𝛿 is the depreciation of stock of social capital
which is lower than 1 (𝛿 <1). So, 1 - 𝛿 is the depreciation rate. It is the level of investment
having a time cost C(It) in which C(.) is an increasing and convex function. The opportunity
cost of time is the wage rate w.
In the theory of Glaeser et al. (2002), social capital is defined as social characteristics
comprising of social skills, and charisma that enable a person to obtain market and nonmarket returns from the connections with other people in the society. It is said that when a
person invests in social capital in order to gain market and no-market returns, the acts of
accumulating social capital are positively associated with that person’s self-rated lifesatisfaction. If this investment does not mean to affect their subjective satisfaction, it may
due to the fact that that person is seeking for market returns. During a lifespan of T periods,
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the individual’s maximization problem of social capital could be expressed as:

Max ∑𝑇𝑡=0 𝛽 t[StR(𝑆̂) – wC(It)],

𝐼0,𝐼1,..𝐼𝑇

s.t. St+1 = 𝛿∅ St + It
Where 𝛽 is the future discount factor, 𝑆̂ is the aggregate per-capita social capital.
SR(𝑆̂) is the per period utility flow each person receives, including market returns and nonmarket returns. Market returns may include wages or better jobs for the socially skilled
person. Non-market returns may include the improvements in his relationships, health and
direct satisfaction. R’(𝑆̂) is assumed to be > 0 because an individual will reap nothing from
a group which has no other members. The symbol ∅ represents the depreciation factor
coming from mobility (∅ = (1 - 𝜃) + 𝜃𝜆), where 𝜆 is the depreciation of his social capital
when a person moves to another place. The optimal condition related with the investment
problem where an individual maximizes his returns to social capital is given by:
wC’(It) =

1−(𝛽𝛿∅)𝑇−𝑡+1
1− 𝛽𝛿∅

R(𝑆̂)

This first order condition shows that the social capital investment (1) increases with
the discount factor, 𝛽, (2) rises with occupational returns to social skills, R (.), and (3)
increases with communities with more aggregate social capital 𝑆̂, while it (4) declines with
mobility, 𝜃, (5) decreases with the opportunity cost of time, w, (6) declines with the rate of
social capital depreciation, (1 – 𝛿), (7) declines with the rate of social capital depreciation
due to relocation (1 - 𝜆) and (8) declines with ages, t. This study will test these theoretical
suggestions of model of social capital investment.
2.1.3 Becker and Murphy (2000)’s theory on the relationship between social capital and
life-satisfaction
Since the beginning of human civilization, life-satisfaction is the common ambition

that individuals and countries are trying to reach. Though there are many ways to evaluate
satisfaction, subjective measures of life-satisfaction have been believed to be reliable and
valid in terms of assessing a person’s well-being because many researchers found that the
subjective well-being measures or satisfaction measures are highly correlated with
measurements of satisfaction from both laboratory experiments by observing attendees’
facial expression and vocal tones and sources from people closed to the attendees (Diener,
1994). Therefore, the self-judged life-satisfaction applied in this research is considered to be

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reliable in terms of assessing a person’s wellbeing.
As suggested by Denier (2000), individual’s satisfaction is affected by both internal
and external factors. The internal factors could be subjectively inner mental and physical
feelings which create sense of satisfaction while external factors could be environment, and
social capital. The literature has provided many evidences that there may be relationships
between social capital and satisfaction since social capital provides an individual with kinds
of support, chances of seeing others as well as sharing and then creates a sense of trust and
belonging. According to Becker and Murphy (2000), besides goods and services consumed
which are believed to affect people’s utility, social capital is also considered as an input that
yields a person’s utility directly. The function is as below:
U = U (x, y; S)
Where x and y are all kinds of goods and services, S is social capital which does not
shift the utility function, but moves the utility level up or down, which means social capital
is not just a part of environment which is usually ignored or left in the background like in
other theories but is a direct element affecting level of utility of an individual. For example,
the fact a person is less satisfied or more satisfied depends on how many friends he or she
has. Because individuals have more social relationships and attend more social activities,
they feel more satisfied with their life. This approach is appropriate when the social
environment is stable. When the environment changes as when a family moves, social forces

may shift the utility function (Becker & Murphy, 2000). This theory is the base to build the
model:
H = U (S)
Where H is the level of life-satisfaction, S is social capital. Social capital directly
affects the level of satisfaction of an individual.
2. 2 PREVIOUS EMPIRICAL STUDIES
Many researchers have found that social capital positively influences self-reported
satisfaction at individual level in form of social network since social capital offers people
with some sort of support and chances of sharing which may provide people the feeling of
belonging and integration in the society (Putnam, 2000; Helliwell and Barrington-Lee, 2010;
Leung et al. 2013; Rodríguez-Pose & Berlepsch, 2014). Pichler (2006) indicates that social
networks help people to find their own position in the society. Time with family, friends,
and neighbors is estimated to be positively related with life-satisfaction (Lelkes, 2006;
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Powdthavee, 2008; Peasgood, 2007). Helliwell and Putnam (2004) suggest the marriage,
family, and contact with friends and neighbors, and involvement in community appear
robustly related to happiness and satisfaction. Powdthavee (2008) describes life-satisfaction
could be increased proportionally with the increasing of frequency of social contacts.
However, this relationship is not robust according to Bjørnskov (2008) when he finds no
statistical significance of the relationship between informal networks and satisfaction in his
cross-sectional analysis for the United States.
Furthermore, as a part of social capital, social trust and formal participation are found
to be highly correlated with life-satisfaction. Rodríguez-Pose & Berlepsch (2014) run ordinal
logistic regression from the individual data for 25 European countries and finds that social
capital affects satisfaction positively, especially social interaction and trust. Helliwell and
Putnam (2004), Helliwell (2006), and Bjørnskov (2006) all suggest that trust has a positive
impact on satisfaction. Bjørnskov (2006) finds a positive relationship between generalized
social trust and life-satisfaction by running regression of an international sample of more

than 80 countries. According to Bjørnskov (2008), a high level of social trust allowed people
to share and work with others whom they do not know, thus making a happier life. This
prediction was proved by the robust results in analysis of 48 the US States. Chang (2009)
run the order probit estimation of 35070 observations in Taiwan and finds that trust has a
positive impact on the level of satisfaction. Yip et al (2007) reports that cognitive social
capital such as social trust is positively correlated with the psychological health as well as
subjective wellbeing at the village level. They further find that trust affects health and
wellbeing through social network and support. Moreover, Uslander (1999) suggest trust as
the most essential factor of social capital creating the vibrancy in the community. Hence, a
positive parameter for trust and satisfaction is expected. However, Ram (2010) documents
that the relationship between trust and satisfaction is very fragile and statistically
insignificant in different cross-country samples. Leung et al. (2013) run the bootstrap
hierarchical regression in the survey of 24951 participants who are 15 years old and older
across the ten Canadian provinces and find that only trust in family is significantly related
with satisfaction, trust in neighbors or strangers do not affect people’s satisfaction.
Regarding the formal network, there is little statistical and inconsistent correlation
between structural social capital (organizational membership) and people’s satisfaction.
According to Bjornskov (2006), civic participation is found to be negatively associated with
8


people’s wellbeing. Leung et al (2013) in their research in Canada also report that people
who engage in civic participation are not happier than others who do not join. Yet, in a study
of European countries, it is found that there is a strong relationship between the membership
in organizations and self-rated satisfaction even when other social explanatory factors are
taken into account (Gundelach & Kreiner, 2004). Miller and Buys (2008) contribute to the
empirical studies by the study in Australia which finds that social capital and participation
in community activities predict happiness, health and life-satisfaction.
Cooperation, in form of social capital, also has an impact on life-satisfaction. Some
researchers predict that cooperation could affect people’s satisfaction because the feeling of

engaging in an activity together creates people’s excitement and satisfaction (Argyle & Lu,
1990). Less cooperativeness over working with other people might be very risky to
satisfaction (Lu & Argyle, 1991). Though the finding in research of sixty-three adult subjects
by Argyle & Lu (1990) shows that cooperation fails to be correlated with the level of
satisfaction, which may come from the inadequate measure of cooperativeness. Lu & Argyle
(1991) reports a positive relationship between life-satisfaction and cooperation when they
run regression for a small sample of 114 participants from 18 to 65 years old. Furthermore,
using a number of small samples, Crandall (1980) also finds that cooperation is associated
with self-reported life-satisfaction.
Besides social capital, many other factors could affect people’s life-satisfaction,
Diener et al. (1999) describes that demographic variables such as age, sex, income, race,
education and marital status could influence satisfaction, though they only account for 820% of the variance in explaining satisfaction. Age square is added to the model since
Blanchflower and Oswald (2008) show that people around the age of fifty is reported to have
the lowest life-satisfaction, which may imply that younger people have higher lifesatisfaction than older people. Gender is also a determinant in estimating the relationship
between social capital and life-satisfaction. Because women are usually found to be more
socialized than men (Hudson, 2006), the effects of social capital on their satisfaction may be
bigger than men’s one. Furthermore, the relationship between money and satisfaction is
believed to be positive but not really significant (Diener et al., 1993; Frey & Stutzer, 2010).
Finally, health plays an important role in self-rated life-satisfaction (Kozma & Stones, 1983).
Perneger et al. (2004) explores that the feeling of satisfaction all or most of the time
respondents in his cross-sectional survey of 1257 randomly selected university students in
9


Geneva, Switzerland is not only strongly related with better mental health, but also with the
feeling of getting enough love and affection (from social capital). However, the association
between satisfaction and physical health is found to be weak and statistically non-significant.
When analyzing the relationship between social capital and satisfaction, however,
some problems need to be addressed. Recent researches have found the non-robustness of
the association between social capital and satisfaction. According to Bjørnskov (2008), this

relationship is only stable once the country being investigated has reached a certain income
threshold. Moreover, the vagueness of the definition of social capital leads to the
inconsistency in the use of proxies, which make the differences in the empirical results.
Therefore, in this study, multidimensional concept of social capital comprising social trust,
network including formal institution and informal institution, and cooperation is employed
to transfer as much as possible the influences of social capital on self-rated life-satisfaction.
2.3 THE CONCEPTUAL FRAMEWORK
Basing on the background of the aforementioned literature review in relation to both
theories and empirical studies, the conceptual framework of the relationships between social
capital and life-satisfaction is proposed in below figure 2.1.
Figure 2. 1: The framework of the relationships among social capital, other dependent
variables and life-satisfaction

Demographic characteristics:
age, gender, education,
income, marital status.

Self-rated lifesatisfaction

Social capital:

Memberships

Social network

Trust

Cooperation
Source: author’s summarization

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CHAPTER 3: DATA AND METHODOLOGY
This chapter introduces data, social capital, life-satisfaction measurements, and
methodology. First, the data used in this research is collected from Vietnam Access To
Resources Household Survey in 2014. The proxies of social capital, life-satisfaction, and
other controlled variables are then explained in this chapter. Finally, the econometric model
and variable description are given in order to explain more about the data and the
methodology.
3.1 DATA
Data was taken from Vietnam Access To Resources Household Survey (VARHS)
which was conducted in the rural areas of twelve provinces in Vietnam (including ex-Ha
Tay, Nghe An, Khanh Hoa, Lam Dong, Dak Lak, Dak Nong, Lao Cai, Dien Bien, Lai Chau,
Phu Tho, Quang Nam and Long An) in 2014 by a collaborative project among Central
Institute for Economic Management (CIEM) of the Ministry of Planning and Investment
(MPI) and the Centre for Agricultural Policy Consulting of the Institute of Policy and
Strategy for Agriculture and Rural Development (CAP-IPSARD) of the Ministry of
Agriculture and Rural Development (MARD), the Institute of Labour Science and Social
Affairs (ILSSA) of the Ministry of Labour, Invalids and Social Affairs (MoLISA), and the
Development Economics Research Group (DERG) of the University of Copenhagen. The
data used for analysis was filled for only people aged 18 years and older (reduced the
observations to 3415). Thanks to the large observations, it ensures that the sample is
representative of the rural population within the sampled provinces and also makes the
VARHS become a strong and reliable tool for getting detailed and good information about
the economy and society of rural Vietnam and then doing research.
3.2 RESEARCH METHODOLOGY
3.2.1 Variable description
In this dissertation, social capital is a multidimensional concept measured by social
trust, network including formal institution and informal institution, and cooperation.

(i)

Formal institution is measured by the number of formal associations that the
respondents participate.

(ii)

Informal institution or social network is measured by the number of people that
the respondents can ask for help when they have difficulties.

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(iii)

Trust is calculated by the question asking “most people are basically honest
and can be trusted”, the responses are “Agree”, “Disagree”.

(iv)

Cooperation is measured by choosing between two options. Option 1 is to get
and farm 1/2 hectare of land entirely by their own while option 2 is to join to
farm 3/2 hectares of land with other family (not related to them).

Moreover, a composite social capital index is tried to be built in this model so as to
see the general effects of social capital on an individual’s self-reported life-satisfaction.
However, when applying the factor analysis, it seems impossible to create this index because
it is not valid for estimations since no factors can be used as a representative for social capital
in this research (see details in Table 3.1).
Table 3. 1: Factor analysis of social capital

Factor analysis/correlation
Method: principal factors
Rotation: (unrotated)
Factor
Factor1
Factor2
Factor3
Factor4

Eigenvalue
0.18046
0.13856
0.00452
-0.21574

Number of obs
=
Retained factors =
Number of params =
Difference
0.04190
0.13404
0.22026
.

3415
3
6

Proportion

1.6742
1.2855
0.0419
-2.0016

Cumulative
1.6742
2.9597
3.0016
1.0000

LR test: independent vs. saturated: chi2(6) = 178.90 Prob>chi2 = 0.0000
Factor loadings (pattern matrix) and unique variances
Variable
Factor1
Factor2
Factor3
Uniqueness
Network
0.3306
0.0742
- 0.0047
0.8852
Formal institution 0.1024
0.0127
0.0635
0.9853
Cooperation
0.2326
-0.2140

-0.0165
0.8998
Trust
0.0811
0.2951
-0.0135
0.9062
Regarding the measurement of subjective life-satisfaction, the level of self-rated lifesatisfaction is measured by a four-point scale of answers to the question: “Are you pleased
with your life?” The four choices are “very pleased” (3), “rather pleased” (2), “not very
pleased” (1), and “not at all pleased (0).
Other dependent variables are demographic variables including people’s age, age
square, gender, their income, education, marital status, the number of children and the
number of ill days in a year to see how health affects a person’s life-satisfaction as well as
the number of years that he or she lives in the same community.

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All variables are described in the following summary table:
Table 3. 2: Variable Description
Variable
Social capital
Formal institution
Social network
Trust

Cooperation

Description
Number of formal associations participated

Number of people that respondents could ask for help
A two- point scale response to the statement “Most people are
basically honest and can be trusted” (Agree (1)– Disagree (0))
A dummy variable. Choose between two options. Option 1 (0)
is to get and farm 1/2 hectare of land entirely by their own while
option 2 (1) is to join to farm 3/2 hectares of land with other
family (not related to them)

Subjective life-satisfaction
Averagesatisfaction
Average of life-satisfaction of individuals in a community.
Answers to the question: “Are you pleased with your life?” The
Satisfaction
four choices are “very pleased” (3), “rather pleased” (2), “not
very pleased” (1), and “not at all pleased (0)
Demographic characteristics
Age
Age of the respondent
Age2
Age square of the respondent
Sex
Dummy variable: Female =0, Male = 1
Children
Number of children the respondent has
Illdays
Totalincome
Relativeincome
Yearsliving
Married
Widowed

Divorced
Separated
Shortvocational
Longvocational
Specializedhighschool
College
University
Master

The number of days that the respondent was not able to perform
normal activities due to sickness during the past twelve months.
Annual income (VND)
The relative income of a household in the province
The number of years of living in this commune
If married, married = 1; otherwise, married = 0
If widowed, widowed = 1; otherwise, widowed = 0
If divorced, divorced = 1; otherwise, divorced = 0
If separated, separated = 1; otherwise, separated = 0
If short vocational, short vocational = 1; otherwise short
vocational = 0
If long vocational, long vocational = 1; otherwise long
vocational = 0
If specialized high school, specialized high school = 1;
otherwise specialized high school = 0
If college, college = 1; otherwise college = 0
If university, university = 1; otherwise university = 0
If master, master = 1; otherwise master = 0

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3.2.2 Econometric model
Ordinary least square estimations are used to test the model of social capital
investment.
SCk = α0 Yk + εk
SCk stands for social capital. Yk includes some demographic variables such as gender,
age, the number of children, marital status, education, income and the number of years living
in the same community.
Ordered Probit estimations are used to investigate the relationship between self-rated
life-satisfaction and social capital. The estimation function takes the form:
HAPPIi = α1 SCi + α2 Xi + εi
HAPPIi is the dependent variable of an individual’s self-rated life-satisfaction while
SCi stands for social capital. In this study, SC1 is the social network, SC2 is the formal
institution, SC3 is cooperation and SC4 is social trust.
HAPPI1 = α11 SC1 + α21 Xi + εi1
HAPPI2 = α12 SC2 + α22 Xi + εi2
HAPPI3 = α13 SC3 + α23 Xi + εi3
HAPPI4 = α14 SC4 + α24 Xi + εi4
Xi includes demographic characteristics: age, age square, gender, income, education,
marital status, the number of ill days, the number of years living in the same address and the
number of children.
To test which factors amplify the relationship between social capital and lifesatisfaction, some interaction terms are added into the model as below:
HAPPIi = α1 SCi + α2 Xi + α3 SCi Xi + εi
In this research, the factors which are tested are the relative income, gender, the
number of children and the number of years living in the community.

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CHAPTER 4: RESULTS AND DISCUSSION

In this chapter, tables and charts of variables are presented to show the descriptive
statistics, including mean, standard error, min and max. Moreover, some graphs are
introduced to compare the satisfaction level among twelve provinces in Vietnam and the
relationship between social capital and life-satisfaction. The estimation results are then
presented and the main findings are, after that, discussed. According to the results, except
for trust, all other forms of social capital (formal institution, informal network, cooperation)
are positively associated with people’s subjective satisfaction. Some factors such as relative
income, children, the number of years living in the community are somehow estimated to
amplify the effects of social capital (in forms of network, trust) on people’s satisfaction.
Robustness test is finally discussed.
4.1 DESCRIPTIVE STATISTICS
According to table 4.1, the average number of formal institutions that a household
joins is 0.83, which means most of people join at least one association in their daily life.
There is someone who does not join any associations and there is someone who joins four
organizations at the most. A respondent has nearly five friends who can help them by
average. But still there is someone who does not have any friends that they trust while there
is someone who has up to fifty friends who they can ask for help. More than 80% of
respondents believe that most people are honest and can be trusted. However, most of
households are not cooperative since they choose to work alone instead of cooperating with
others.
In addition to social capital, the independent variables also include demographic
variables such as gender, age, education level, marital status, children, income and the years
of living in the residence which reflects the mobility of households. Most of the participants
answering the question of satisfaction are male, and at the age of around 50, married and
have two children by average. Around 14% of participants pursue a short-time vocational
training, which indicates the low level of education. Besides, the variable Illdays is added to
illustrate health of participants. Mean of the number of ill days is nearly twelve days within
the year, demonstrating that one is sick in at least one day per month. Finally, the average
satisfaction in a province is created adding to the model so as to test whether the respondents
feel happier if the people who are around them are happier than others in the other

communes.
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