Public Disclosure Authorized Household Income and Child Schooling in Vietnam Jere Behrman and James C. Knowles Public Disclosure Authorized Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture Peter Lanjouw and Martin Ravallion Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico William F. Maloney Tax Incidence in Madagascar: An Analysis Using Household Data Stephen D. Younger, David E. Sahn, Steven Haggblade, and Paul A. Dorosh Genuine Savings Rates in Developing Countries Kirk Hamilton and Michael Clemens Public Disclosure Authorized Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina Omar Chisari, Antonio Estache, and Carlos Romero Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence Ash Demirgiu-Kunt and Harry Huizinga K ' fU:tE C'08Y~~~~~~~~~~~~~~~~~~~~~~~~~------- 0L- PY Public Disclosure Authorized 021-770 I ~~~Coming in the next issue of THIE WORLD BANK FmON(MI REVITFW An-W U A_. v ^ ~ 1%_.1 _~. 1NjL_.ff V ALW.. Seprtembpr 1999 Volume 13, Number 3 * Calm After the Storms: Income Distribution in Chile, i987-i994 FranciscoH.G. Ferreiraand Julie A. Litchfield * Change in the Perception of the Poverty Line During the Times of Depression: Russia 1993-96 Branko Milanovic and Branko Jovanovic * Labor Market Analysis and Public Policy: The Case of Morocco J-uZiu nuiZerm Hakim,andjavier-vi-randa Av vmnn.0ium rn Pdli- ti-n inrliifin. * Can Private School Subsidies Increase Schooling for the Poor? The Quetta Urban Fellowship Program Jooseop Kim, Harold Alderman, and Peter Orazem * Central Mandates and Local Incentives: The C.JL,.iiAa Educatllion Vouche; .Prog1r afml Elizabeth M. King, Peter F. Orazem, and Darin Wohlgemuth * Do Community-Managed Schools Work? An Evaluation of El Salvador's EDUCO Program Emmanuel Jimenez and Yasuyuki Sawada * Schooling Outcomes in Phiiippine Elementary Schools: The Impact of Four Experiments Jee-Peng Tan, Julia ane, and Grard Tassibille ... THE WORLD BANK ECONOMIC REVIEW Volume 13 May 1999 Number 2 Household Income and Child Schooling in Vietnam 211 Jere R. Behrman and James C. Knowles Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture 257 Peter Lanjouw and Martin Ravallion Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico 275 William F. Maloney Tax Incidence in Madagascar: An Analysis Using Household Data 303 Stephen D. Younger, David E. Sahn, Steven Haggblade, and Paul A. Dorosh Genuine Savings Rates in Developing Countries 333 Kirk Hamilton and Michael Clemens Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina 357 Omar Chisari, Antonio Estache, and Carlos Romero Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence 379 Asli Demirgii-Kunt and Harry Huizinga THE WORLD BANK ECONOMIC REVIEW, VOL. 13, NO. 2: 211-56 Household Income and Child Schooling in Vietnam Jere R. Behrman and James C. Knowles The stronger are the associations between household income and child schooling, the lower is intergenerationalsocial mobility and the less equal is opportunity. This study estimates the associations between household income and children's school success in Vietnam. The estimates indicate that these associations are considerable. For example, the income elasticity of completed grades is five times the median estimate of earlier studies. Moreover, this association is strongest for grades completed per year of school, not for completed grades, on which most of the previous literature has focused. There are some gender differences, the most important being a smaller association between income and grades completed per year of school for boys than for girls. This difference implies that schooling of girls is treated as more of a luxury (less of a necessity) than is schooling of boys. This article also investigates some ways in which policies relate to household in- comes. School fees are progressive, but school fees are only about one-third of what households pay directly to schools and are a much smaller proportionof a household's total school-related expenditures. Total household expenditures paid directly to schools increase with household income less proportionately than do school fees alone, so the overall structure of such payments is less progressive than is the structureof school fees. Because school enrollment is positively related to household income, moreover, the struc- ture of school fees is less progressive for the entire population than for the selected subset that has children enrolled in school. Further, the two school quality measures that have the strongest positive associationwith children'sschool success are much more available to higher-income households, meaning that higher-income households have greater school expenditures in part because they are obtaining higher-qualityschooling and not because charges for the same quality schooling are progressive across income classes. Schooling is widely seen as critical to the development process and poverty alle- viation. Recent studies confirm that schooling is particularly important when complex new technologies and market options become available (for example, Rosenzweig 1995). Recently, many countries, including Vietnam, have under- Jere R. Behrman iswith the Department of Economics at the University of Pennsylvania, and James C. Knowles is an economic consultant based in Chapel Hill, North Carolina. The analysis that led to this paper was initiated with funding from the Asian Development Bank, through Contract COCS/95-000 under the Financing of Social Services Project: Vietnam (T.A. 2135-VIE) directed by Nguyen Van Tien of the General Statistical Office, Government of Vietnam. Behrman's subsequent input was funded by NIH 5-ROl-HD30907, NIH I RO1-AG-11725-01, and NSF SBR95-11955. The authors benefited from discussions with Benjamin E. Diokno from the University of the Philippines, who also worked on the project, and from the comments of Harold Alderman, three anonymous referees, and the editor. (D1999 The International Bank for Reconstruction and Development/THE WORLD BANK 211 212 THE WORLD BANK ECONOMIC REVIEW, VOL. 13, NO. 2 gone considerable macroeconomic stabilization and market liberalization pro- grams. The returns to schooling will probably increase following such programs. Therefore decisions about who is schooled now are likely to be critical in deter- mining Vietnam's future economic growth and distribution of income. A rising concern for many in Vietnam and other developing countries has been the possibility of greater inequality and reduced intergenerational social mobility under these economic reforms. Part of this concern is that family "dynasties" will be reinforced if children from higher-income households are more likely to re- ceive more and better schooling, and thus reap greater gains from schooling in the future than children from lower-income households. Two different societies with the same income distribution at a point in time may be viewed as having different levels of social welfare if they have different degrees of social mobility. For example, Friedman (1962) argues that a given extent of income inequality that arises in a rigid system in which each family stays in the same position each period may be a cause for more concern than the same degree of income inequal- ity that arises in a fluid system because of the great mobility and dynamic change associated with equality of opportunity. Because of the concern that schooling could perpetuate social immobility and inequality, the recent policy-related literature has considered targeting public school resources toward children from poorer families (van de Walle and Nead 1995 provide examples and references). The concerns in Vietnam have been about whether family dynasties are becoming more powerful and whether schooling is targeted toward children from poorer households or if it is instead reinforcing the advantages of children from better-off households. Educational reforms have exacerbated these concerns (see World Bank 1996). The reforms are intended to make schools more efficient, but some of their components (such as the introduc- tion of user charges) may affect children differently depending on their house- hold income. I. INDICATORS OF SCHOOL PROGRESS We examine four indicators of individual school progress for children ages 6- 17 by income quintile in Vietnam: age when started school, grades passed per year of school, last completed grade, and exam score in last completed grade (table 1). Each of these indicators captures important and different dimensions of schooling from the point of view of individual children and their families. Schooling in Vietnam For a given extent of schooling the younger children are when they start school, the sooner they reap post-schooling returns and the longer they have to reap such returns. A few recent studies have emphasized the possible importance of the age when students start school (for example, Alderman, Behrman, Lavy, and Menon 1997; Glewwe and Jacoby 1995a; and Glewwe,Jacoby, and King 1998). In Viet- nam this age is inversely associated with income: children from households in the Behrman and Knowles 213 Table 1. Means of Individual School Progress Indicators by Predicted Income per Household Member for Children Ages 6-17 in Vietnam, 1996 Income quintile Indicator I (poorest) 2 3 4 5 Age when started school 6.7 6.6 6.4 6.3 6.2 (1.3) (1.1) (1.1) (0.7) (0.6) [2.8]' [2.31* [1.3] [6.11* Grades passed per year of school 0.81 0.85 0.87 0.90 0.95 (0.20) (0.20) (0.19) (0.19) (0.12) [5.0]* [1.71** [2.01* [8.8]* Last completed grade 4.1 4.2 4.3 4.7 6.0 (2.8) (2.7) (2.7) (2.9) (3.2) 14.11* [1.5] [3.61* [11.51* Exam score in last completed grade 5.9 6.0 6.2 6.4 6.7 (1.2) (1.3) (1.2) (1.3) (1.4) [2.61* [2.61* [2.21* [6.81* * Significant at the 5 percent level.