Internationnal remittances and the education of yuong generations : the case of Vietnam : Luận văn thạc sĩ

.

\

UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THEHUGUE

VIETNAM

THE NETHERLANDS

VIETNAM- THE NETHERLANDS
PROJECT OF M.A ON DEVELOPMENT ECONOMICS

INTERNATIONAL REMITTANCES AND THE
EDUCATION OF YOUNG GENERATIONS: THE
CASE OF VIETNAM

A thesis submitted in partial fulfillment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY

r-·-80GIAoot~c8AorJ?.o~·

·

TRUONG f)~l HQC I
NGUYEN HAl NGAN HA
Academic Supervisor:
DR. PETER CALKINS

HO CHI MINH CITY, OCTOBER 2009

TIIU VIEN
•

)

/

~ 3 L--


ACKNOWLEDGEMENT

I would like to express my sincere gratitude to my supervisor Prof. Peter
Calkins for his kind support of my Master study and research from initial to final
level, for his patience, enthusiasm, encouragement and immense knowledge. His
assistance has helped me a lot during the time of designing and writing this
research.

I am heartily thankful to Dr. Nguyen Trang Hoai, Dr. Nguyen Minh Due
and Dr. Tran Tien Khai for their comments and evaluation of my initial research
proposal.

I also send my gratefulness to Mr. Truong Thanh Vu and Mr. Luong Vinh
Quae Duy who help me to deal with VHLSS 2006 dataset and Stata software.

Special thanks go to my friends for their support and motivation during my
study at the Vietnam -Netherlands Program for M.A in Development Economics.

Last but not the least, I would like to thank my family: my parents for
giving birth to me, my parents-in-law, my husband and my older brother for
supporting me spiritually throughout my life.

Finally, I offer my regards and blessings to all of those who supported me
in any respect during the completion of the thesis.


CERTIFICATION

I certify that the substance of this thesis has not been submitted for any
degree and is not being current submitted for any other degree.

I certify that to the best of my knowledge, any help received in preparing
this thesis, and all sources used have been acknowledged in this thesis.

NGUYEN HAl NGAN HA
Date: 23 October, 2009

ii


ABSTRACT

Over the last decades, Vietnam has experienced a sharp increase in
international remittances inflows from overseas migrants. The total volume of
remittances accounts for approximately 6-8% of GDP. Many Vietnamese people
have migrated not only with the hope of getting more income and sending more
remittances to support their poor families in hometown, but also with the desire to
pay school fee for their young generations.
By lifting liquidity constraints, remittances raise the educational attainment
of young people left behind in receipt countries. The impact of remittances on the
education of young generations has been studied in many papers. However, this
relationship has not been tested empirically in Vietnam. Therefore, the
contribution of this paper is to investigate empirical evidences on the link between
international remittances and probability of being enrolled in schools of young
individuals in Vietnamese households through exploring data of the Vietnam
Household Living Standard Survey 2006 by applying Logit econometric model.
Our results show that remittance receipts statistically significantly increase
the probability of school enrollment, particular for girls and in rural areas. In
addition, this research also finds that the young who have to work tend to gain
lower chances to go to schools than their friends without any job. Based on the
findings, the author suggests many ways to improve the school enrollment rate of
young individuals. Methods aiming at stimulation of remittance income are
appropriate such as encouragement of labor exportation programs since Viet Kieu
has been getting older and less altruistic as well as lowering cross border money
transfer fees. Moreover, when reserved financial budget for young people
increases via the effect of attracting more remittance receipts, number of school
aged individuals participating in labor market at early ages tends to diminish
further.

iii

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ......................................................................... 1
1.1.

PROBLEM STATEMENT ...............................................................................

1

1.2.

RESEARCH OBJECTIVES .............................................................................

3

1.3.

RESEARCH QUESTIONS ............................................................................... 4

1.4.

RESEARCH HYPOTHESES ............................................................................ 4

1.5.

METHODOLOGY ......................................................................................... 4

1.6.

RESEARCH SCOPE .......................................................................................

5

1.7.

THESIS STRUCTURE ....................................................................................

6

CHAPTER 2: LITERATURE REVIEW ............................................................. 7
2.1.

INTRODUCTION ...........................................................................................

7

2.2.

THE CONCEPT OF INTERNATIONAL MIGRANT REMITTANCES ......................

7

2.3.

THEORETICAL FRAMEWORK AND EMPIRICAL STUDIES RELATED TO THE

IMPACT OF INTERNATIONAL REMITTANCES ON THE EDUCATION ...........................

2.3 .1

8

Theoretical literature .............................................................................. 8

2.3 .2. Empirical literature .............................................................................. 13
2.4.

THE ANALYTICAL FRAMEWORK ................................................................

18

2.4.1. Empirical model ................................................................................... 18
2.4.2. Variables introduction .......................................................................... 20
2.5.

SUMMARY ................................................................................................ 21

CHAPTER 3: OVERVIEW OF INTERNATIONAL REMITTANCES AND
EDUCATIONAL ATTAINMENT OF THE YOUNG IN VIETNAM ............ 22
3 .1.

INTRODUCTION .........................................................................................

3.2.

OVERVIEW OF INTERNATIONAL REMITTANCES IN VIETNAM ..................... 22

3.3.

OVERVIEW OF EDUCATION OF THE YOUNG IN VIETNAM ........................... 29

3.4.

SUMMARY ................................................................................................. 32

iv

22


CHAPTER 4: METHODOLOGY ...................................................................... 33
4.1.

INTRODUCTION .........................................................................................

33

4.2.

DATA DESCRIPTION ..................................................................................

33

4.2.1. Sampling method and sample size ....................................................... 33
4.2.2. Description of variables ....................................................................... 34
4.2.3. Descriptive statistics of variables ......................................................... 36
39

4.3.

STRENGTH AND WEAKNESS OF DATASET ..................................................

4.4.

MODEL SPECIFICATION ............................................................................. 40

4.5.

ESTIMATION STRATEGY ............................................................................ 43

CHAPTER 5: EMPIRICAL ANALYSIS ........................................................... 45
5.1. ESTIMATION RESULTS ................................................................................... 45
5.2. INTERPRETATION OF THE RESULTS ............................................................... 45
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS .................... 51
6.1.

CONCLUSIONS ...........................................................................................

51

6.2.

RECOMMENDATIONS ................................................................................

53

REFERENCES ..................................................................................................... 55
APPENDICES ....................................................................................................... 61
APPENDIX 1 ...................................................................................................... 61
APPENDIX 2 ...................................................................................................... 65

APPENDIX 3 ...................................................................................................... 70

v


LIST OF FIGURES
Figure 2.1 Home Investments in Young generations .......................................................... 9
Figure 3.1 Number of exported workers during 1992-2007 ............................................. 23
Figure 3.2 Percentage of Vietnamese migrant workers by countries 1992- 2006 ............ 24
Figure 3.3 Inward remittances from Vietnamese migrants during 2001-2009 ................. 25
Figure 3.4 Remittances as percentage of GDP during 1999-2008 .................................... 26
Figure 3.5 Uses of international remittances(%) ............................................................. 28
Figure 4.1 Distribution of independent variable "remittances per capita" ....................... 65
Figure 4.2 Distribution of independent variable "logarithm of remittances per capita" .. 65
Figure 4.3 Distribution of independent variable "income excluding remittances per
capita" ............................................................................................................................... 66
Figure 4.4 Distribution of independent variable "logarithm of income excluding
remittances per capita" ...................................................................................................... 66
Figure 4.5 Distribution of independent variable "age of young generations" .................. 67
Figure 4.6 Distribution of independent variable "percentage of school-aged children in
the household" .................................................................................................................. 67
Figure 4.7 Distribution of independent variable "age of household head" ....................... 68
Figure 4.8 Scatter plot of predicted value and standardized Peason residuals ................. 74
Figure 4.9 Scatter plot of predicted value and deviance residuals .................................... 74
Figure 4.10 Scatter plot of predicted value and leverage .................................................. 75
Figure 5.1 Predicted probability of school enrollment by remittances per capita ............ 46
Figure 5.2 Predicted probabilities of school enrollment by remittances per capita and
urban-rural areas ............................................................................................................... 48
Figure 5.3 Predicted probabilities of school enrollment by remittances per capita and
gender ................................................................................................................................ 49

Figure 5.4 Predicted probabilities of school enrollment by remittances per capita and
employment status of young generations .......................................................................... 50

vi


LIST OF TABLES
Table 3.1 Flow of international remittances by origin(%) ............................................... 26
Table 3.2 Percentage of households receiving international remittances ......................... 27
Table 3.3 Share of total remittances in urban and rural area ............................................ 27
Table 3.4 Net enrollment rate in year 2006 by urban rural areas and sex ........................ 29
Table 3.5 Average expense on education and training per person in the past 12 months in
year 2006 by expense item, urban rural, sex, age group and type of school .................... 31
Table 4.1 Investigated objects ........................................................................................... 34
Table 4.2 Descriptive statistics of independent variables ................................................. 37
Table 4.3 Descriptive statistics of dependent variable "Enrollment status" ..................... 68
Table 4.4 School enrollment status of young generations by amount of international
remittances ........................................................................................................................ 38
Table 4.5 School enrollment status of young generations by age group .......................... 38
Table 4.6 School enrollment status of young generations by employment ...................... 39
Table 4. 7 Description and measurement of variables ....................................................... 40
Table 4.8 Logistic regression results of Model I (full) .................................................... 70
Table 4.9 Logistic regression results of Model 2 (restricted) ........................................... 70
Table 4.10 Diagnostic test to compare Model 1 and Model 2 .......................................... 70
Table 4.11 Hosmer and Lemeshow's goodness-of-fit test ................................................ 70
Table 4.12 Diagnostic test for model specification error .................................................. 71
Table 4.13 Diagnostic test for Multicollinearity ............................................................... 72
Table 4.14 Logistic regression results of Model 3 (after excluding influential
observations) ..................................................................................................................... 76
Table 5.1 Estimation results of Logit Model .................................................................... 45

Table 5.2 Marginal effects of explanatory variables on the probabilities of enrollment.. 76

vii


ACRONYMS

ECV

Encuesta Condiciones de Vida- Quinta Ronda

EHPM

Encuesta de Hogares de Prop6sitos Multiples- National
Household Survey.

EMP

Employment status of young generations

ENIGH

Households Incomes and Expenditures National Survey of
Institute of Statistics, Geography and Informatics

ENROLL

Enrollment status ofyoung generations

FDI

Foreign Direct Investment

GDP

Gross Domestic Products

GSO

General Statistics Office

HDI

Human Development Index

HHAGE

Age of household head

HHEMP

Employment status of household head

HHGENDER

Gender of household head

HHSCHOOL

Number of completed school years of household head

IMF

International Monetary Fund

INER PC

Income excluding remittances per capita

LAMP-DR7

Latin American Migration Project-Dominican Republic
Survey

LFS

South Africa Labor Force Survey

LN INER PC

Logarithm of income excluding remittances per capita

LN RE PC

Logarithm of remittances per capita

viii


ML

Maximum Likelihood

MMP107

Mexican Migration Project

MOLISA

Ministry ofLabor-Invalids and Social Affairs

NLSS

Nepal Living Standards Survey

ODA

Official Development Assistant

OECD

Organization for Economic Cooperation and Development

PER SA CHILD

Percentage of school-aged children in household

PSLSD

Project for Statistics on Living Standards and Development

RE PC

Remittances per capita

SBV

State Bank ofVietnam

UNDP

United Nations Development Program

USD

United States Dollar

VHLSS

Vietnam Household Living Standard Survey

VND

Vietnam Dong

WB

World Bank

ix

CHAPTER 1: INTRODUCTION
This chapter will present the thesis topic that this study focuses on. The
problem statement will be discussed in section 1.1. Additional contents including
research objectives, questions, hypotheses and methodology are presented further
in section 1.2, 1.3, 1.4 and 1.5 respectively. Finally, research scope is mentioned
in section 1.6 and thesis structure will concludes this chapter.

1.1.

PROBLEM STATEMENT

International migrant remittances play a crucial role in developing
countries. The huge and growing volume of international migrant remittances is
even larger than the ODA amount flowing into developing countries. Most of the
remittance inflows come from overseas migrants with the purpose of family
support and investment in business or human capital. Remittances may g1ve
significant impacts on households especially low-income families. Remittances
may help receipt households to establish or expand their small business (Woodruff
& Zenteno, 2007; Amuedo-Dorantes & Pozo, 2006) and to pay for medical

expenses (Amuedo-Dorantes et al., 2007). In addition, remittance receipts are used
as an investment in the education of young generations in remittance receiving
families.
Vietnam was one of the top recipients of overseas migrant remittances
among developing countries in 2008 (WB, 2009). In 2007, average remittances per
person were 63 USD, compared with the average for OECD of 108 USD.
Remittance amount accounted for approximately 8% of total GDP and 220% of
net ODA receipts. The ratio of remittances to FDI was 0.8 (UNDP, 2009).

International remittance inflows reached 7.2 billion USD, accounting for about
6.4% of total GDP in 2008 (Nguyen, 2008). International remittance inflows come
from two main sources including temporary exported workers and permanent
migrants (Viet Kieu). While Viet Kieu has become older and less altruistic,
number of exported labors will be the main sources of international remittances in


future. Remittances are considered as person-to-person flows that are stable and
well targeted to the specific need of each individual recipient. In addition,
international remittances are not necessary to be paid back since they seem to be
altruistic money transfers. For that reason, policymakers will need much more
empirical studies on the use of international remittance inflows since remittances,
in fact, positively contribute to communities and hometown nations of abroad
migrants.
A large number of Vietnamese households are currently living below the
poverty line mainly because of unemployment, low wage and low educational
level. One of the ways for poor people gaining higher income is to migrate abroad
with the desire to send remittances back home for supporting their families and
offering more opportunities for their young children to go to school. During 1985
and 2007, the HDI of VietNam increased by 1.16% yearly from 0.561 to 0.725.
Vietnam has a rank of 116 111 out of 182 countries with data in 2007 (UNDP, 2009).
One of Vietnam's development goals is to push up its recent low ranking on HDI.
by improving educational factor in international HDI scale. In Vietnam, education
programs are still costly and of low quality. Moreover, national public budget is
not enough to support free or low cost education programs for young individuals.
Thus, remittance receipts seem to be one of substitute capital sources for public
educational investment rather than a complement.
Currently, there are a series of studies examining the impact of remittances
on the schooling of young generations in El Salvador (Edwards & Ureta, 2003;
Acosta, 2006), in Mexico (Hanson & Woodruff, 2003; Malone, 2007), in

Philippines (Yang, 2008), in Dominican Republic (Amueto-Dorantes et al., 2008)
and in Ecuador (Calero et al., 2008) and so on. Those studies have found that
remittances significantly reduce the likelihood of quitting schools, increasing
children's years of schooling used to invest in their education path as well as
pushing up the propmiion of school-aged children attending school. Through the
mechanism of diminishing liquidity constraints, amount of international
2


remittances probably encourages education investment and to some extent,
increasing financial budget spent on academic training for young people.
Until now, there is still no research on the impact of remittances on the
likelihood of school enrollment of young generations in Vietnam. Therefore, this
paper will explore whether remittances statistically significantly influence young
generations's schooling in VietNam. This paper will apply the Logit model using
Maximum Likelihood (ML) estimation method with data mainly taken from the
Vietnam Household Living Standard Survey 2006 (VHLSS). The result of this
study is crucial for policymakers to produce policies to encourage human capital
investment while experiencing large out-migration and remittance inflows.

1.2. RESEARCH OBJECTIVES

The principal objective of this thesis is to determine whether, how and to
what extent international remittances significantly affect the school enrollment
rate of young generations in specific types of Vietnamese households.
To meet this overall goal, the study will meet the following specific
objectives:
(i)

To investigate whether international remittances significantly

influence the school enrollment status of young generations in
households in VietNam.

(ii)

To consider whether there is differential impact of remittances on
educational outcomes by gender, urban-rural areas and employment
status ofyoung generations.

(iii)

To make recommendations to government on the policies and
program that might best promote the effective use of remittances in
human capital investment.

3


1.3. RESEARCH QUESTIONS
Based on the research objectives, this paper will mm to answer the
following questions.
1)

Do international remittances significantly affect the probability of
school enrollment of young generations in Vietnamese households?

2)

Are there significant differential impacts of remittance receipts on
school enrollment status by sex, urban-rural areas and employment

status ofyoung generations in remittance receiving households?

3)

What

policy

recommendations

could

help

the

Vietnamese

government better channel international remittance inflows into
human capital formation for the sustainable long term growth of the
Vietnamese economy in the age of Knowledge Economy?

. 1.4. RESEARCH HYPOTHESES
Based upon the results to these questions, the following research
hypotheses will be tested by using the Logit model
1) International remittances significantly 1mprove the likelihood of

attending schools of young generations in Vietnamese households.
2) The impact of international remittances on the schooling status of
young generations differs by gender, urban-rural areas and

occupation status.

1.5. METHODOLOGY
The research uses both qualitative and quantitative methods to evaluate the
impact of international remittance income on the enrollment status of young
generations in households. Qualitative analysis suppmis evidences on the right
selection of determinants affecting the education attainment of young generations.
Moreover, the Logit model is applied to investigate the significance and
magnitude of the effect of each input factor on the improvement of young
4


individuals' school enrollment rates. Upon the analytical results, suitable policies
will be suggested and discussed further.
Cross section dataset from Vietnam Household Living Standard Survey
2006 (VHLSS) will be used for this research. All information of the VHLSS was
collected by two times in the year of 2006 and by methods of direct interview with
the heads households & key commune officials. Main data used to run the
regression model are extracted from the Section 1 "List of household members",
Section 2 "Education" and Section 4 "Income" stated in the VHLSS dataset of
9,189 households surveyed.

1.6. RESEARCH SCOPE
In order to identify the impact of migrant international remittances on the
probability of attending schools of young generations, we only focus on
individuals ranging from the age of 6 to 20. Each individual is treated as one unit
of analysis instead of one household. This research will not choose a household as
one unit of analysis because of two reasons. First, this method will not allow the
author to examine effects of specific characteristics of an individual including age,
gender, job of each person. Second, due to limitation of VHLSS 2006 dataset,

exploration of the whole data at individual level will offer advantages of large
sample size enough to run Logit model by using ML estimation method.
This paper .aims to study the impact of international remittances from
migrants on education status of young generations left behind in all provinces in
Vietnam. It is difficult to focus on only one region in Vietnam because of limited
data on remittance receiving families in VHLSS 2006.

5


1. 7. THESIS STRUCTURE

The study consists of 6 chapters. Beside the chapter 1, the rest of this paper
includes 4 chapters as follows:
Chapter 2: Literature review will be discussed in this chapter. One section
is devoted for introducing the definition of international remittances. In addition,
theoretical frameworks relating to the motivation to remit, the microeconomic
effects of international migrant's remittances on the schooling of young
generations in destination households, determinants of young generations's
education attainment are also reviewed. And then the analytical framework will be
introduced with detailed variable descriptions.
Chapter 3: An overview of international remittances and education status of
young generations in Vietnam will be illustrated in this chapter.
Chapter 4: Methodology applied in this paper is mentioned. This chapter
will firstly mention the background of VHLSS 2006 data, sampling method and
sample size. In addition, it is necessary to evaluate the advantages and
disadvantages of VHLSS data in order to argue its representative and reliability.
Finally, the econometric model, estimation strategy are orderly presented.
Chapter 5: Estimation analysis is explained in details in this chapter.
Chapter 6: Conclusions and Recommendations are mentioned in this

chapter. It summarizes the finding results and raises some useful policy
recommendations.

6


CHAPTER 2: LITERATURE REVIEW
2.1.

INTRODUCTION

The main objective of this paper

IS

to investigate the influence of

international remittance inflows on the status of school emollment of young
generations. Therefore, the concept of international remittances will be clearly
illustrated in section 2.2. Then, theoretical and empirical literature related to the
link between international remittances and education will be discussed in section
2.3. Moreover, section 2.4 will be devoted to introduce the suggested analytical
framework. Finally, section 2.5 will briefly summarize some main ideas found in
this chapter.

2.2.

THE CONCEPT OF INTERNATIONAL MIGRANT REMITTANCES

Appendix 5 on remittances to the "Balance of Payments and International

Investment Position Manual", International Monetary Fund introduced the
economic concept of remittances as: "Remittances represent household income

from foreign economies arising mainly fi'om the temporary or permanent
movement of people to those economies. Remittances include cash and non-cash
items that flow through formal channels, such as across electronic wire, or
through informal channels, such as money or goods carried across borders. They
largely consist offunds and non-cash items sent or given by individuals who have
migrated to a new economy and become residents there, and the net compensation
of border, seasonal, or other short-term workers who are temporarily employed in
an economy in which they are not resident." (IMF, 2008)
That Appendix also offered 3 different definitions of remittances as
follows:
(i)

Personal remittance is considered as one kind of the household-tohousehold transfer and the net earnings of nomesident workers.

7


(ii)

Total remittances include personal remittances, social security and
pension remittance amounts.

(iii)

Total remittances and transfers to nonprofit institutions serving
households include total remittances and donation amount from the
government or enterprises to a charitable organization abroad. And

then this charitable institution will use such remittance receipts to
support families.

For the purpose of this research, remittances are "limited to personal
international remittances but not include social security, pension transfers or
transfers to nonprofit institutions serving households.

2.3.

THEORETICAL FRAMEWORK AND EMPIRICAL STUDIES RELATED TO THE
IMPACT OF INTERNATIONAL REMITTANCES ON THE EDUCATION OF
YOUNG GENERATIONS

2.3.1 Theoreticalliterature
The theory of family behavior
The process of children's education attainment has been viewed as one of
the aspects of the theory of family behavior (Haveman & Wolfe, 1995). This
theory considers one household as a production unit in which parents (or head of
household) will make important decisions on many fields such as generation of
family economic resources and uses of those resources (investment or
consumption). Actions of parents will influence the attainment of young people in
that family depending on the amount, the characteristics and the timing of the
distribution of above mentioned resources.

8


Figure 2.1 Home Investments in Young generations
Heredity

Ability (lQ)

Quality of Time Inputs
Parents' IQ
Parents' education

}

Quantity of Time Inputs
Final Schooling Level
Quality of Goods Inputs
Quantity of Goods Inputs

Post-school
investment

Family income

Source: Leibowitz (1974)

Figure 2.1 shows that final schooling level of children is generated from
genetic characteristics transmitted by their parents, family income and home
investment in time and goods devoted to young generations. The framework above
can be illustrated in three equation follows
(1) Children's IQ or ability= F (Heredity, Home Investment)
(2) Children's Schooling= F (Children's Ability, Home Investment, Family
Income)
(3) Children's Income= F (Home Investment, Children's Schooling, Postschool Investment, Children's ability, Family Income).
In this case, international remittances constitute a crucial part of total
family income. Inward remittances are considered as additional financial sources

to total family income that help to release liquidity constraints and allow extra
investment in education of young generations.
9


The theories related to motivation to remit

A series of studies have focused on exploring two aspects of remittances
including the motivation of foreign migrants to remit and the use of remittances in
destination countries. Over the past two decades, several researches have done to
explain and provide more evidences on the reason why international remittances
exist.
Firstly, one of the motives of international migrants to send money back
home is altruism or solidarity, the willingness of a migrant employee living abroad
to remit money in order to support the family members in the same household in
home country (Lucas & Stark, 1985). Thus, remittance flows create a close link
between international migrants and family member left behind in hometown.
Rapoport & Docquier (2005) presented that the amount transferred by a migrant
increases when his income goes up and the degree of altruism is higher. In
contrast, he will send back home less if his relatives in the home country earn
more income or his degree of altruism is lower.
Second, another motive to remit is exchanging (Cox, 1987). Abroad
migrants transfer money to their relatives with the purpose of repayment of loans
utilized to finance investment in human capital or expenses arising in their
household.

The theories on how remittances are spent, especially used in
educational investment

In addition to researches on remitting motivation, an increasing number of

current studies have concentrated on the use of remittances at the micro level.
Remittance receiving households may use the money sent by their relatives living
outside to run or develop their small companies (Woodruff & Zenteno, 2007;
Amuedo Dorantes & Pozo, 2006) or to cover medical expenditures (Amuedo
Dorantes et al., 2007). Remittances are not only spent on daily consumption, but
also are used for investment in human capital (Edwards & Ureta, 2003). This
10


paper only focus on discussing a series of papers exploring the mechanisms by
which the migration and remittances influence the educational results of young
generations in family left behind.
First, international remittances will rmse the educational attainment of
children in receipt households through the mechanism of lifting liquidity
constraints (Ilahi, 2001; Edwards & Ureta, 2003; Hanson & Woodruff, 2003;
Borraz, 2005; Yang, 2005; Rapoport & Docquier, 2005; Calero et al., 2008). In
developing countries, the standard living in households is still very low. Parents do
not have enough money to support the education fees of their children even
supported by small public budget on education. Attending school will impose an
additional cost and thus, lead to the substantial decrease in total income or
household consumption. In this case, internationally transferred money is a
considerable fraction of the total family's budget and may help loosen the liquidity
constraints. Rapoport and Docquier (2005) mentioned the model of liquidity
constraint and human capital investment. The model consumed that in the first
period, people left behind earn little income and regularly receive a fraction of
money saved by relatives living outside. Therefore, the next generation in
remittance receipt households obtains more opportunities to attend schools with
the condition that savings are not negative at the end of the first period. In the
second period, it assumed that migrants wished to return and living in their
original country, then send all savings back home.

Second, by studying liquidity constraint and human capital investment
theory, one would expect that remittances significantly have positive effects on
education attainment of young generations in the households having overseas
migrating members. However, the above-mentioned positive impact seems to be
ambiguous because remittances may produce the so-called disruptive effect of
household migration on the educational results of young generations in the event
that the household has one or more family members abroad (Hanson & Woodruff,
2003; Rapopmi & McKenzie, 2006; Amuedo-Dorantes & Pozo, 2006; Milligan &
11


Bohara, 2007). If households have a family member going overseas, for example
father, mother or older brother and so on, that may cause a negative effect on total
household production, as a result, the inflow of income may also decrease. Thus,
members left behind especially young boys may need to pick up the slack and
work harder than before in order to gain more wages. Therefore, the probability of
higher educational level of those young is lower than that of children in nomigration households.
Finally, negative effects of international remittances on the educational
attainment may arise if remittances from family members focus on facilitating the
migration of other people left behind. Kandel and Kao (200 1) argued that
migrants' transfer money might produce negative or positive impacts on the
attainment of education of family members in the home country depending on the
benefits of the education in the host country. For instance, if education is actually
not valued in the host nation, the probability of migrants in the home country
using remitting resources to facilitate out-migration instead of investing in
education in the home country becomes higher.
In order to describe the conceptual framework of relationship between
remittances and education investment, it is important to investigate the
interrelationship between migration, remittances and human capital decisions.
Migration, remittances and human capital decisions are one part of the overall

household strategy, thus rarely made by an individual but within the whole family
(Brown, 2005). The link of three factors above is so complicated and sophisticated
that one may get easily confused. At first, the correlation between remittances and
migration will be reviewed. It is reasonable to argue that migration causes
remittances since remittances will never flow into host countries if migration does
not exist. On another hand, the decision to migrate overseas mainly comes from
the desire to earn more income, and is influenced by remit motivation (remittances
probably cause migration). Similarly, the relationship of migration and human
capital investment also occurs like the former. While the schooling attainment of
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the young generation partly drives parents to migrate (human capital causes
migration), so too can migration opportunities influence the decision of investment
in human capital (migration causes human capital investment). Finally, there is
also a tight relationship between remittances and investment in human capital.
Any investment including human capital investment need to be funded by
financial sources such as savings or credit of the households. People can not
implement investment in education if savings or credit sources are not available at
the time of making investment decisions. In this event, remittances can be a
considerable fraction of families' budget to finance human capital investment
strategy. The inflow of remittances will help eliminate the financial constraint
faced by households and make the decision of human capital investment become
real. Upon the relationship between remittances and human capital investment, it
is clear that the existence of remittances is a necessary condition but not a
sufficient condition for investment in human capital (Brown, 2005). This argument
is rational in the case that remittance receiving households may not use the money
sent by their overseas relatives to cover education related expenditures but may
prefer to finance in other fields such as business establishment or new house
building.

2.3.2. Empirical literature

The previous empirical studies have found some important determinants of
schooling attainment of young generations including families' characteristics
(household income, place of birth, parental schoolings, parents' occupation,
household size, gender of household head, and so on) and young individuals'
characteristics (age, gender, birth order, and so on)
Parents' education is one of the most important factors that determine the
schooling results of children in households. · Educational rates of parents and
grandparents significantly influence young generations's schooling attainment
(Lillard & Willis, 1994 ). The result was found by using data extracted from the
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Second Malaysia Family Life Survey, which provided enough information on the
education of four generations within a family. Especially, the schooling of mother
significantly have larger impacts on schooling of children than that of the father in
Nicaragua (Behrman & Wolfe, 1984).
In addition, parents' income and occupation also affect the final education
outcomes of children (Parish & Willis, 1993). This empirical study was conducted
in order to explain the completed education level of each child in one Taiwanese
household. The regression results showed that the background of an individual is
very important to their schooling level. Children, who obtained higher education
level than others, born and growing up in urban areas and had mother and father
originating from mainland, and living in families with parents of higher status in
income, education and work.
Gender of household head also significantly influence the education
attainment of young generations. Previous studies have reported that female
headship in a family would lead to higher educational level of young generations

since mothers were more likely than fathers to spend money on education
expenditure of their young generations (Buchmann, 2000).
Young individuals' characteristics including birth order, age and sex also
affected their education attainment. People born early would get less education
than those born late in Taiwan. The academic process is also different between
boys and girls. Boys usually get higher schooling level than girls in Taiwanese
urban areas (Parish & Willis, 1993).
There are still very few empirical studies analyzing the impact of
international remittances on schooling. The complicated relationship between the
international remittance receipts and academic outcome of young generations in
households is still unclear and inconsistent among related studies in recent years.
While many studies found out that remittance inflows did have significantly
positive effects on educational outcomes of children (Edwards & Ureta, 2003;
Acosta, 2006; Yao & Donald, 2007; Malone, 2007; Amueto-Dorantes et al., 2008;
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Calero et al., 2008), others reported negative or unambiguous results (Borraz,
2005; Amueto-Dorantes & Pozo, 2006; Milligan & Bohara, 2007). That
inconsistence partly comes from different methodologies, dataset and research
places selected by each author.
Edwards and Ureta (2003) conducted a nationally representative
households survey from El Salvador (1997 EHPM) in order to study the impact of
remittances on school retention rates of young generations between 6 and 24 years
of age. The study applied the Cox proportional hazard model with the purpose to
investigate how two types of income, international remittances and other financial
sources in total family budget, affect the schooling of the young. This paper
presented the results that remittances have a much larger influence on the hazard
of leaving school in both rural and urban areas than other kinds of income. The
effect of remittances on school attendance rates in poor areas was much larger

than this in rich provinces although parents obtained low education level. In urban
areas, the effect of remittances is 10 times larger than the size of the impact of
other financial sources. In rural areas, the effect of remittances is about 2.6 times
larger than the size of the impact of other kinds of income. Estimated results also
insisted that parental schooling is one important determinant that significantly
influences the probability of leaving school. Moreover, household's budget
constraint is proven being a key factor that determining the education level of
young generations. However, one of the large disadvantages of Edwards and Ureta
(2003) is the methodological problem of failing to consider the potential sample
selection and endogeneity of remittance receipts.
By using a different model compared with Edwards and Ureta (2003 ),
Borraz (2005) tried to explore relationships between international remittances and
education ofyoung generations by multivariate regression model.

Y

= ~o

+ ~ tR + ~2A + ~iXi + e

15