**1. Introduction**

Remittances are a common source of income for households in many developing countries (McKenzie and Sasin 2007), and Vietnam is no exception (Nguyen 2008). The flow of external remittances into the country increased significantly between 2000 and 2021. According to the World Bank's *Migration and Development Brief 36*, in 2021, Vietnam received an inflow of remittances estimated at 18 billion USD, equal to 4.9% of GDP (Ratha et al. 2022, p. 31). In addition, Vietnam's rapid urbanisation and the migration of labourers from rural to urban areas have led to an increasing trend in internal remittances (World Bank 2012). In spite of the fact that both external and internal remittances have become more prevalent in the country, there are only a few papers that have investigated the effects of remittances on income and welfare (Nguyen 2008; Nguyen and Mont 2012; Nguyen et al. 2017; Nguyen and Vu 2018). This paper contributes to the literature on the effects of remittances in Vietnam by studying how they affect saving behaviour and expenditure patterns.

In general, quite a few papers have examined the effect of remittances on savings and expenditure patterns (see, e.g., Castaldo and Reilly 2007; Ang et al. 2009; Tabuga 2010; Clément 2011; Haider et al. 2016; Quartey et al. 2019; Opiniano 2021; Salahuddin et al. 2022). Both the life-cycle theory of Modigliani and Brumberg (1954) and the permanent income hypothesis proposed by Friedman (1957) have been influential with regard to the identification of possible relations among remittances, expenditures, and savings. According to the life-cycle theory, how much households consume and save depends on

**Citation:** Hua, Thanh Xuan, Roselinde Kessels, and Guido Erreygers. 2022. The Impact of Remittances on Saving Behaviour and Expenditure Patterns in Vietnam. *Economies* 10: 223. https://doi.org/ 10.3390/economies10090223

Academic Editors: Ralf Fendel, Robert Czudaj and Sajid Anwar

Received: 18 July 2022 Accepted: 29 August 2022 Published: 14 September 2022

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**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

the total income they receive rather than on the specific sources from which they derive their income. This means that remittances are fungible and used like income from other sources, such as wages. The implication is that remittances, like any other income, can influence both household consumption and household saving (Haider et al. 2016; Nguyen and Vu 2018). Likewise, remittances can be used both for investment expenditures (such as education, health, and housing) and consumption expenditures (such as food, non-food, and utilities), as shown by Castaldo and Reilly (2007), Adams et al. (2008), Ang et al. (2009), and Tabuga (2010). In this view, there would be no significant differences between the expenditure patterns of households that receive remittances and those that do not.

According to the permanent income hypothesis, however, remittances can be either a type of permanent income or a type of transitory income. In the first case, remittance income is perceived as stable over time, and households tend to use it for consumption. Therefore, remittances are predominantly used for consumption expenditures rather than for savings and investments. For example, Clément (2011) found that, in Tajikistan, households receiving remittances allocated a higher share of expenditure to food and utilities and a lower share to housing and investment than households not receiving remittances, concluding that remittances are not used productively. Likewise, Zhu et al. (2014) found that Chinese rural households tend to use their remittances for consumption rather than for investment, concluding that, in rural areas of China, remittances should be considered as permanent income. Their findings were confirmed by Démurger and Wang (2016), who stressed that remittances could be detrimental to sustaining investment in human capital for rural families in China. By contrast, if remittances are treated as a form of transitory income with unexpected, accidental occurrence, then they will be used mainly for saving and investment due to the zero propensity to consume from this income component. In this way, remittances would have a productive use and influence the growth and development capabilities of households (Yang 2008; Randazzo and Piracha 2019). For example, Adams and Cuecuecha (2010) found that, in Guatemala, households receiving external remittances used these productively on two forms of investment expenditure: education and housing. Moreover, these households also spent less on food than households not receiving remittances. The productive use of remittances for education was also found in the studies of Cardona-Sosa and Medina (2006) in Colombia, Yang (2008) in the Philippines, and Randazzo and Piracha (2019) in Senegal. In addition, Taylor and Mora (2006) found that, in Mexico, remittances increased expenditures on education, health, and housing rather than those on consumption goods. Similar findings were obtained by Ponce et al. (2011) for Ecuador, and by Berloffa and Giunti (2019) for Peru. Using a dataset of 141 countries, Ait Benhamou and Cassin (2021) found that remittances tended to increase investment in education at the expense of investment in physical capital.

As far as Vietnam is concerned, the literature about the impact of remittances has focused mainly on income and expenditure. Most studies have relied on the Vietnamese Household and Living Standards Survey (VHLSS) datasets and defined remittances as receipts of households from other people, such as migrant members, relatives, and friends. Using the VHLSS 2002 and 2004 datasets, Nguyen (2008) found that, as far as external remittances are concerned, the impact on income was much higher than the impact on consumption expenditures, which suggests that a large proportion of these remittances were used for saving and investment. For internal remittances, by contrast, the effect on consumption expenditures was only slightly smaller than the effect on income.

The effect of external remittances on investment expenditures was confirmed by Nguyen and Mont (2012), who used the updated VHLSS 2006 and 2008 datasets. Households receiving remittances were likely to invest these in housing, land, debt payments, and saving, rather than to increase their consumption. In addition, Nguyen and Vu (2018) examined the patterns and impact of migration and remittances on household welfare in Vietnam using data from the VHLSS 2010 and 2012 datasets. They found that remittances help households increase per capita income and per capita expenditure, with the effect of

remittances on expenditure being smaller than the effect on income. They concluded that households receiving remittances use these not only for consumption but also for saving.

Lastly, Nguyen et al. (2017) conducted a study to investigate the effect of remittances on the expenditures of internal migrant households in rural areas of three provinces (Ha Tinh, Thua Thien Hue, and Dak Lak) for the years 2007, 2008, and 2010, using data from a non-VHLSS survey. Remittances were defined as household receipts from migrant members who had moved to urban areas outside the original province for at least 1 month. The authors showed that migration with remittances had a positive effect on housing and other non-food expenditures, while migration without remittances had a positive effect on food, healthcare, and other non-food expenditures, but a negative one on education expenditures.

This paper focuses on the impact of remittances on the saving behaviour and expenditure patterns of Vietnamese households. More specifically, our research question was the following: when it comes to saving, investment, and consumption, do households that receive remittances differ from households that do not receive remittances? Using the propensity score matching (PSM) approach proposed by Rosenbaum and Rubin (1983), we compare households that receive remittances to households that do not, as well as explore how the former use their remittances. As far as saving behaviour is concerned, we look at the saving amount and the saving rate. Regarding expenditure patterns, we consider both the shares and the per capita expenditures on education, health, assets, house repairs, food, non-food, and utilities. We treat the first four categories as household investment expenditures, and the last three as household consumption expenditures. We also explore whether remittances increase household income, by comparing the incomes of receiving and non-receiving households.
