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


In this paper, we investigate the role of the social network nexus and the insurance nexus in determining household savings and productive capital formation in rural Vietnam. We analyze the issue in two dimensions, stocks and flows, and consider the exposure to negative shocks. The instrumental variable method is employed and unlike previous studies, we account for the endogeneity of all concerned variables. The results indicate that the social network nexus has more impacts in “ex ante” rather than in “ex post” households. In both households groups, the effects of the insurance nexus dominate over those of the social network nexus. In the case of the stocks, we also find that the precautionary view holds in liquid assets but not in productive assets.

Share and Cite:

Gries, T. and Dung, H. (2014) Household Savings and Productive Capital Formation in Rural Vietnam: Insurance vs. Social Network. Modern Economy, 5, 878-894. doi: 10.4236/me.2014.58081.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Blomstrom, M., Lipsey, R.E. and Zejan, M. (1996) Is Fixed Investment the Key to Economic Growth? The Quarterly Journal of Economic, 111, 269-276.
[2] Chow, G.C. (1993) Capital Formation and Economic Growth in China. The Quarterly Journal of Economics, 108, 809-842.
[3] Coen, R.M. and Hickman, B.G. (1980) Investment and Growth in an Econometric Model of the United States. American Economic Review, 70, 214-219.
[4] Denison, E.F. (1980) The Contribution of Capital to Economic Growth. American Economic Review, 70, 157-163.
[5] Eisner, R. (1980) Total Income, Total Investment, and Growth. American Economic Review, 70, 225-231.
[6] Papanek, G.F. (1973) Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries. Journal of Political Economy, 81, 120-130.
[7] Ang, J. (2009) Household Saving Behavior in an Extended Life-Cycle Model: A Comparative Study of China and India. Journal of Development Studies, 45, 1344-1359.
[8] Bellone, F. (2008) The Role of Domestic Savings in Outward-Oriented Growth Strategies. Journal of Evolutionary Economics, 18, 183-199.
[9] Brahmasrene, T. and Jiranyakul, K. (2009) Capital Mobility in Asia: Evidence from Bonds Testing of Cointegration between Savings and Investment. Journal of the Asia Pacific Economy, 14, 262-269.
[10] Esso, L.J. and Keho, Y. (2010) The Savings-Investment Relationship: Co-Integration and Causality Evidence from Uemoa Countries. International Journal of Economics and Finance, 2, 174-181.
[11] Herwartz, H. and Xu, F. (2009) Panel Data Model Comparison for Empirical Saving-Investment Relation. Applied Economic Letters, 16, 803-807.
[12] Hyun, K.N., Adam, D.W. and Hushak, L.J. (1979) Rural Household Savings Behavior in South Korea, 1962-76. American Journal of Agricultural Economics, 61, 448-454.
[13] Browning, M. and Lusardi, A. (1996) Household Saving: Micro Theories and Micro Facts. Journal of Economic Literature, 34, 1797-1855.
[14] Modena, F. and Gilbert, C.L. (2012) Household Responses to Economic and Demographic Shocks: Marginal Logit Analysis Using Indonesia Data. The Journal of Development Studies, 48, 1306-1322.
[15] Ersado, L., Alderman, H. and Alwang, J. (2003) Changes in Consumption and Saving Behavior before and after Economic Shocks: Evidence from Zimbabwe. Journal of Development Studies, 52, 187-215.
[16] Filippo, P. and Luigi, V. (2012) Family Dissolution and Precautionary Savings: An Empirical Analysis. Review of Economics of the Households, 10, 573-595.
[17] Feng, J, He, L. and Sato, H. (2011) Public Pension and Household Saving: Evidence for Urban China. Journal of Comparative Economics, 39, 470-485.
[18] Denizer, C., Wolf, H. and Ying, Y. (2002) Household Savings in the Transition. Journal of Comparative Economics, 30, 463-473.
[19] Horioka, C.Y. and Wan, J. (2007) The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data. Journal of Money, Credit and Banking, 39, 2077-2096.
[20] Kelley, A.C. and Williamson, J.G. (1968) Household Saving Behavior in the Developing Countries: The Indonesian Case. Economic Development & Cultural Change, 16, 385-403.
[21] Kraay, A. (2000) Household Saving in China. World Bank Economic Review, 14, 545-570.
[22] Kulikov, D., Paabut, A. and Staehr, K. (2007) A Microeconometric Analysis of Household Saving in Estonia: Income, Wealth and Financial Exposure. Working Paper of Eesti Pank 8, Tallinn, 1-42.
[23] Newman, C., Tarp, F., Broeck, K.V., Quang, C.T. and Khai, L.D. (2007) Household Savings in Vietnam: Insights from a 2006 Rural Household Survey. Vietnam Economic Management Review, 1, 34-40.
[24] Orbeta, J.A.C. (2006) Children and Household Savings in the Philippines. Discussion Paper Series No 2006-14 of Philippine Institute for Development Studies, Makati City, Philippines.
[25] Pailwar, V.K., Kaur, J., Saxena, K. and Nijhara, M. (2010) Impact of Membership of Financial Institutions on Rural Saving: A Micro-Level Study. International Business and Economics Research Journal, 9, 139-147.
[26] Paxton, J. (2001) Subsistence Savings Strategies of Male- and Female-Headed Households: Evidence from Mexico. Eastern Economic Journal, 35, 209-231.
[27] Ramanathan, R. (1968) Estimating the Permanent Income of a Household: An Application to Indian Data. Review of Economics and Statistics, 50, 383-388.
[28] Seguino, S. and Floro, M.S. (2003) Does Gender Have Any Effect on Aggregate Saving? An Empirical Analysis. International Review of Applied Economics, 17, 147-166.
[29] WB (2012) World Development Indicators and World Development Finance. World Bank, Washington DC.
[30] GSO (2010) Vietnam General Statistics Office. Hanoi.
[31] Ballinger, T.P., Palumbo, M.G. and Wilcox, N.T. (2004) Precautionary Saving and Social Learning across Generations: An Experiment. The Economic Journal, 113, 920-947.
[32] Beverly, S.G. and Sherraden, M. (1999) Institutional Determinants of Saving: Implications for Low-Income Households and Public Policy. Journal of Socio-Economics, 28, 457-473.
[33] Chou, S.Y., Liu, J.T. and Hammitt, J.K. (2003) National Health Insurance and Precautionary Saving: Evidence from Taiwan. Journal of Public Economics, 87, 1873-1894.
[34] Engelhardt, G.V. (1996) Tax Subsidies and Household Saving: Evidence from Canada. The Quarterly Journal of Economics, 111, 1237-1268.
[35] Giles, J. and Yoo, K. (2007) Precautionary Behavior, Migrant Network, and Household Consumption Decisions: An Empirical Analysis Using Household Panel Data from Rural China. The Review of Economics and Statistics, 89, 534-551.
[36] Hemming, R. and Harvey, R. (1983) Occupational Pension Scheme Membership and Retirement Saving. The Economic Journal, 93, 128-144.
[37] Hubbard, G.R. and Skinner, J. (1996) Assessing the Effectiveness of Saving Incentives. Journal of Economic Perspectives, 10, 73-90.
[38] Maynard, A. and Qiu, J. (2009) Public Insurance and Private Savings: Who Is Affected and by How Much? Journal of Applied Econometrics, 24, 282-308.
[39] Carrin, G. (2002) Social Health Insurance in Developing Countries: A Continuing Challenge. International Social Security Reviews, 55, 57-69.
[40] Fafchamps, M. and Lund, S. (2003) Risk-Sharing Network in Rural Philippines. Journal of Development Economics, 71, 261-287.
[41] Hubbard, G.R., Skinner, J. and Zeldes, S.F. (1995) Precautionary Saving and Social Insurance. Journal of Political Economy, 103, 360-399.
[42] VARHS06 (2006, 2008) Vietnam Access to Resources Household Survey: Characteristics of the Vietnamese Rural Economy. Central Institute for Economic Management, Hanoi.
[43] Cameron, A.C. and Trivedi, P.K. (2010) Microeconometrics Using Stata. Stata Corp LP, Texas.
[44] Kedir, A.M. and Ibrahim, G. (2011) ROSCAs in Urban Ethiopia: Are the Characteristics of the Institutions More Important than Those of Members? Journal of Development Studies, 47, 998-1016.
[45] Jappelli, T. (1999) The Wealth-Age Profile and the Life-Cycle Hypothesis: A Cohort Analysis with a Time Series of Cross-Section of Italian Households. Review of Income and Wealth, 45, 57-75.
[46] Masson, A. (1986) A Cohort Analysis of Wealth Age Profiles Generated by a Simulation Model in France (1949-75). Economic Journal, 96, 173-190.
[47] Mirer, T.W. (1979) The Wealth-Age Relation among the Aged. American Economic Review, 69, 435-443.
[48] Shorrocks, A.F. (1975) The Age-Wealth Relationship: A Cross-Section and Cohort Analysis. The Review of Economics and Statistics, 57, 155-163.
[49] UNFPA (2011) Vietnamese Ethnicity: Analysis of Main Characteristics of General Population and Housing Survey 2009. The UN Population Fund, New York.
[50] Arun, T., Bendig, M. and Arun, S. (2012) Bequest Motives and Determinants of Micro Life Insurance in Sri Lanka. World Development, 40, 1700-1711.
[51] Chou, S.Y., Liu, J.T. and Huang, C.J. (2004) Health Insurance and Savings over the Life Cycle—A Semiparametric Smooth Coefficient Estimation. Journal of Applied Econometrics, 19, 295-322.
[52] Chou, S.Y., Liu, J.T. and Hammitt, J.K. (2006) Households’ Precautionary Behaviors—The Effect of the Introduction of National Health Insurance in Taiwan. Review of Economics of the Households, 4, 395-421.
[53] Gruber, J. and Yelowitz, A. (1999) Public Health Insurance and Private Savings. Journal of Political Economy, 107, 1249-1274.
[54] Barnett, S. and Brooks, R. (2010) China: Does Government Health and Education Spending Boost Consumption? IMF Working Papers, WP/10/16, Washington DC.

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.