Why Does Poverty Persist in the Philippines? - CORE · Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies Arsenio M. Balisacan SEARCA Agriculture & Development

Why Does Poverty Persistin the Philippines?

Facts, Fancies, and Policies

Arsenio M. Balisacan

SEARCAAgriculture & DevelopmentDiscussion Paper Series

No. 2007-1March 2007

SOUTHEAST ASIAN REGIONAL CENTER FOR GRADUATESTUDY AND RESEARCH IN AGRICULTURE

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Director, SEARCA

DIDIDIDIDISSSSSCLCLCLCLCLAIMERAIMERAIMERAIMERAIMERThe SEARCA Discussion Paper Series aims to disseminate information oncurrent trends or researches and to inspire discussion between the author andother stakeholders in the same field of interest. SEARCA encourages readersto directly contact the author through the address provided.

The point of view taken by this paper is entirely that of the author’s and doesnot reflect in any way, SEARCA’s position. Editing has been limited to typo-graphical accuracy only and the papers are not subjected to a peer reviewprocess.

Introduction

ddresing the widespread poverty problem is the single most important policy challenge facing the Philippines. Not only is poverty high compared with

other countries in East Asia, but also its reduction is so slowthat the country has become the basket case in the region.

Proposals peddled to address the poverty problem areplenty - and keep growing. At one end of the spectrum areproposals contending that the root of the problem is simplythe lack of a respectable economic growth. Putting the economyon a high-growth path is prescribed as all that is needed to lickthe poverty problem. At the other end are proposals assertingthat the poverty problem is nothing but a concrete manifesta-tion of gross economic and social inequities.

Redistributing wealth and opportunities is viewed as thekey to winning the war on poverty. A variant of such proposalsholds that economic growth does not at all benefit the poor.Focusing on growth rather than on redistributive reforms isseen to exacerbate inequities, which could lead to furthererosion of peace and social stability. Between these extremesare views that consider economic growth as a necessary

This paper was presented at the Whither the Philippines in the 21st Century?Conference on the Philippines, organized by the Institute of Southeast AsianStudies, Singapore on 13-14 July 2006.

A

condition for poverty reduction and recognize that reform mea-sures have to be put in place to enhance the participation of thepoor in growth processes. Most advocates of poverty- reduc-tion ideas, including proponents of the so-called “pro-poor growth,” belong to this mold, although not necessarilysharing common grounds on what, conceptually and operation-ally, constitutes pro-poor growth processes.

How do these proposals/views stand in relation to evidenceand policy research? What are facts and what are fancies? Giventhe country’s fiscal bind, what policy levers can be expected togenerate high returns in terms of poverty reduction?

This paper attempts to answer these questions. It does thisby examining the Philippine experience in poverty reductionfrom an “international” perspective. The next two sectionscharacterize the nature, pattern, and proximate determinantsof poverty reduction during the past 20 years. The fourthsection examines the economy-population-poverty nexus,specifically the quantitative significance of the country’scontinued rapid population growth to long-term income growthand poverty reduction. Some concluding remarks are given inthe final section of the paper.

2 Why Does Poverty Persist in the Philippines: Facts, Fancies, and Policies

The Growth-Poverty Nexus

ustained increases in national income - that is, economic growth - are required for poverty reduction. Claims to the contrary are, however, periodically heard from civilsociety groups and nongovernment organizations (NGOs).Recent development experience presents a clear evidence: everycountry that has chalked up significant achievements inpoverty reduction and human development has also done quitewell in securing long-term economic growth (see Deininger andSquire 1998; Sachs 2005; Deaton 2005; Kraay 2006).

Indeed, viewed from a medium- to long-term perspective,there is an almost one-for-one correspondence between growthin the incomes of the poor and the country’s average incomegrowth. This correlation is not unexpected: economic growthis an essential condition for the generation of resources neededto sustain investments in health, education, infrastructure, andgood governance (law enforcement, regulation), amongothers.

While economic growth in most East and Southeast Asiancountries has been remarkably rapid during the past 25 years,the same cannot be said for the Philippines (Table 1). Thecountry’s economic growth has been quite anemic, barelyexceeding the population growth rate, which has continued toexpand rapidly at 2.3 percent a year for most of the past twodecades. Economic growth has quickened in the first half of

S

the present decade, but questions on the sustainability of thisgrowth linger. Even at the present pace, it can hardly be arguedthat the Philippines has come close to the growth trajectoriesof its neighbors. It is thus not surprising that serious studentsof Philippine development contend that shifting the economyto a higher growth path – and keeping it there for the longterm – should be first and foremost on the development agenda.

The country’s dismal economic record shows up even morevividly in the poverty front. Poverty reduction in thePhilippines lagged far behind those of its East Asianneighbors, particularly Indonesia, Thailand, Vietnam, and China(Figure 1). Both China and Vietnam started with higher levelsof poverty incidence than did the Philippines during the early1980s, but their absolute poverty soon dwindled and becamemuch lower than the Philippines’ during the early 2000s. BothMalaysia and Thailand also had virtually eliminated absolutepoverty in the past 20 years. Interestingly, while the averageincome in the Philippines in the mid-2000s (PPP $4,381) wasmuch higher than in Vietnam (PPP $2,683) and Indonesia

* Data start in 1985 Sources: World Development Indicators 2006; ADB Outlook 2006

Table 1. Levels and growth rates of GDP per capita, 1980-2005.


Countries

1980 2005 1980-2005 2000-2005

Philippines 4,160 4,381 0.63 2.5

Indonesia 1,462 3,402 3.7 3.25

Malaysia 4,047 9,687 3.65 3

Thailand 2,488 7,862 4.59 4.13

Korea, Rep. 4,557 18,316 5.53 4.56

Vietnam* na 2,683 4.87 6.1

China 762 5,643 8.49 8.56

Annual growth rate (%)GDP per capita

(PPP $, in 2000 prices)

2 PPP is the preferred measure when comparing incomes of different countries.It takes into account differences in the prices of goods and services and isused by multilateral institutions such as the World Bank.

(PPP $3,402), its absolute poverty was actually much higherthan in either of the latter countries.2

Clearly, the unenviable performance of the Philippines inpoverty reduction has to do largely with its inability to achieve- and sustain - an income growth substantially higher than itspopulation growth. But is this all that can be said about thepoverty problem in the Philippines?

The poor performance of the Philippines in economicgrowth and poverty reduction has often been attributed in part

Figure 1. Poverty reduction in East Asia

0

5

10

15

20

25

30

35

Early 1990s Late 1990s Early 2000s

%

China Viet Nam Indonesia Philippines

Note: Figures pertain to proportion of population with income per capita below US$1 a day (in PPP). Sources of data: World Bank and ESCAP.

Figure 1. Poverty reduction in East Asia.Note: Figures pertain to proportion of population with income per capitabelow US$ 1 a day (in PPP).Sources of data: World Bank and ESCAP.

The Growth-Poverty Nexus 5

to the relatively large variation in access to infrastructure andsocial services across regions and island groups. A widely heldview, for example, is that development efforts have favoredLuzon and discriminated against the Visayas and (especially)Mindanao. Proponents of this view say that this developmentpattern has led to substantial regional differences in access toeconomic opportunities, in rates of poverty reduction, and inthe incidence of armed conflict. For instance, the PhilippineHuman Development Report 2005 shows that measures ofdeprivation – such as disparities in access to reliable watersupply, electricity, and especially education – predict well theoccurrence of armed encounters (HDN 2005).

Table 2 shows the patterns of poverty across regions ofthe Philippines from 1988 to 2003, as well as the contributionof each region to national poverty. As one would expect giventhe regions’ very diverse growth records (see the last column),considerable variations occured across regions. However, MetroManila consistently had the lowest poverty while Bicol,Western Mindanao, and the Visayas, the highest.

In 2003, poverty incidence was roughly 10 times higher inBicol and Western Mindanao than in Metro Manila. Somesignificant re-rankings also occurred, such as the AutonomousRegion of Muslim Mindanao (ARMM) becoming the poorestregion in 2003 when it was the third least poor region (out of16 regions) in 1988. Even more significant is the differentialevolution of poverty over time. In two regions, WesternMindanao and ARMM, poverty - both in incidence and depth -was higher in 2003 than in 1988. This decline also shows up inmeasures reflecting human development deprivation, particu-larly in the areas of health and education (HDN 2005).Towards the close of the 1990s, these two regions, particularlyARMM, were at the center of violent confrontations betweenthe military and armed dissidents.


Reg

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19

88

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3.2

42

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East

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53

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4.4

51

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5.6

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7.6

47

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74

8.9

7.6

2

Nor

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44

.95

5.7

34

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62

7.3

30

.34

.21

.7

Sout

hern

Min

dana

o4

6.9

56

.83

0.4

26

.72

5.4

27

.27

.43

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Cen

tral

Min

dana

o3

5.8

46

.94

5.2

33

.13

83

44

.32

.8

ARM

M2

3.4

34

48

.75

0.5

60

.76

0.5

6.1

-0.5

Car

aga

30

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5.7

41

37

33

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8.4

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Tabl

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Pov

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inci

denc

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d in

com

e gr

owth

, Ph

ilipp

ine

regi

ons,

198

8 –

2003

.

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the

regi

ons

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ly a

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2000

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iona

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ith

offi

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fig

ures

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: A

utho

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esti

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es b

ased

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data

fro

m t

he N

SO F

amil

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(va

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. D

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d em

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re s

how

n in

Bal

isac

an (

2003

b).


The long-term relationship between Philippine poverty andincome growth is even more evident for data on the country’s77 provinces. This is shown in Figure 2, which plots the changein poverty incidence between 1985 and 2003 and thecorresponding percent change in real family income per capita,adjusted for provincial cost-of-living differences.3 Clearly, asnoted in the cross-country data above, the pace of povertyreduction at the provincial level is closely linked to localeconomic performance. However, there are significant depar-tures from the fitted line (i.e., provinces not conforming to the“average pattern”), suggesting that factors other than the rateof local economic growth are influencing the evolution ofpoverty.

In another paper, using provincial data covering thecountry’s 77 provinces between the years 1988 and 2003,Balisacan (2006) traced the quantitative significance of thechannels by which income growth, together with a host of otherfactors, influenced poverty reduction. In his model, these otherfactors affect the speed of poverty reduction directly bychanging the distribution of a given economic pie, or indirectlyby expanding the economic pie for each person in society (i.e.,by way of economic growth). These factors can be groupedinto two types:

a. Initial economic and institutional conditions (in or around 1988) - initialmean provincial per capita income; initial distribution of percapita income; initial human capital stock; political ‘dynasty’

3 Poverty estimates are those used in Balisacan (2006) and Balisacan and Fuwa(2004). These are not comparable with official data released by the NationalStatistical Coordination Board. As shown in Balisacan (2003b), the officialestimates are not quite an accurate guide to ascertaining changes in absolutepoverty over time or across regions—or provinces, or between rural andurban areas—of the country


Figure 2. Income growth and poverty reduction, Philippine provinces, 1985-2003

-80

-60

-40

-20

0

20

40

60

-0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

Percent increase in per capita income between 1985 and 2003

Cha

nge

in p

over

ty in

cide

nce

(per

cent

age

poin

ts)

Figure 2. Income growth and poverty reduction, Philippine provinces, 1985- 2003.

(as proxy for political competitiveness); and ethno-linguisticfragmentation; and

b. Time-varying policy variables (difference during 1988 - 2003) - simpleadult literacy rate; agricultural terms of trade (as proxy foreconomic incentives); access to infrastructure (represented byelectricity and good-quality road); and Comprehensive AgrarianReform Program (CARP) implementation.

The regression results reveal cracks in poverty reductionefforts. The policy variables and the variables representinginitial conditions, except those pertaining to human capital andinfrastructure, are found to mainly exert an indirect effect onpoverty reduction through their effect on overall incomegrowth.


For infrastructure, particularly transport, and initial humancapital, both direct and indirect effects are operative and, takentogether, have positive impact on the pace of poverty reduc-tion. Particularly remarkable is the lack of direct response ofpoverty to CARP. Considering that the agrarian reformprogram is touted as an equity tool, this result is not onlysurprising but also inconsistent with earlier findings.4 This isnot to say that CARP has no effect on the poor. It has, but itseffect is mainly through the income growth channel. Takentogether, the regression results show very limited direct effectsof recent policies and institutions on the speed of povertyreduction; their effects get transmitted to poverty reductionindirectly, mainly through overall income growth.

Another interesting observation from the above study, aswell as other studies using the same provincial data (e.g.,Balisacan and Fuwa 2004), concerns the extent by whichpoverty responds to overall income, after taking into accountthe influences of other factors noted above. This response canbe aptly summarized by what is referred to as “growthelasticity” of poverty reduction. This elasticity clusters around1.3 to 1.65: a 1 percent increase in the income growth rateincreases the poverty reduction rate by roughly 1.3 to 1.6percent. Significantly, these estimates are much lower thanthose reported for other developing countries. For example,using parameter estimates of inequality distribution for eachcountry, Cline (2004) obtained growth elasticities of 2.9 for

4 See Balisacan (2003) and Deininger and Squire (1998). Balisacan and Fuwa(2004) also found that CARP had a positive direct effect on poverty reductionrate, although the estimate was marginally significant only. It is probablythe case that the implementation of the program evolved quite differentlyin recent years. There is evidence, for example, that CARP is implementedmore vigorously in areas with high growth potentials (Edillon and Velarde2004).


China, 3.0 for Indonesia and 3.5 for Thailand.5 Ravallion (2001)obtained a growth elasticity of 2.5 for 47 developing countries,based on a bivariate regression of the proportionate changes intheir poverty rates and mean incomes. A similar bivariateregression of the data employed by Balisacan (2006) gives anelasticity of 1.5. Hence, by all these indications, the growthelasticity in the Philippines is quite low by internationalstandards.

Clearly, the very low income growth achieved in recent yearsis a key factor in the country’s sluggish rate of povertyreduction. Still, even this modest level of income growth couldhave delivered more poverty reduction than what had been ac-tually realized if the growth elasticity in the Philippines hadcome close to those in neighboring countries. Why is this so?What conditions need to change, and what policy responsesneed to evolve, to make poverty reduction more responsive toeconomic growth? Put differently, what does it take to improvethe quality of growth?

5 Cline’s estimate for the Philippines was 2.2. While higher than the otherestimates quoted here, it is still low by Asian standards.



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oth theory and evidence suggest a strong connection running between agricultural and rural development and poverty reduction. Investments in social services,

especially in basic health and education, particularly in ruralareas, have also high payoffs in terms of poverty reduction.Serious students of Philippine economic development also callattention to the need to address the country’s rapid populationgrowth, since there is a strong link between economicperformance, on the one hand, and economic growth andpoverty reduction, on the other. These channels to povertyreduction are elaborated below.

As in most of Asia’s developing countries, poverty in thePhilippines is a largely rural phenomenon. Two of every threepoor persons in the country are located in rural areas and aredependent predominantly on agricultural employment andincomes (Balisacan 2003a). Even poverty in urban areas islargely a consequence of low productivity and slow expansionof employment opportunities in rural areas; that is, extremedeprivation in rural areas induces rural-urban migration.

Recent development experience demonstrates that ruraldevelopment fueled by rapid productivity growth in theagricultural sector holds the key to sustained poverty reduction(Rosegrant and Hazell 1999; Timmer 2005). In developingcountries where agricultural growth was rapid, sustained, and

Sharpening the response ofpoverty to local economic growth

B

broadly based, growth of farm incomes was sustained despitefarm price declines in world markets, domestic food pricesremained low, rural employment diversification was enhanced,and, consequently, poverty reduction was robust.

Prior to the country’s accession to the WTO in 1995, theperformance of the agriculture sector was quite poorcompared with those in other Asian countries. During theperiod 1980-94, Philippine agriculture grew at a measly 1.5percent a year, the lowest among the major developing Asiancountries (Table 3). The growth was even less than the rate ofpopulation growth then (averaging about 2.4 percent a year).The mediocre growth mirrored the poor performance of theoverall economy.

Table 3. Average agriculture growth (%), 1965-2002.

Note: Data for Malaysia start only in 1971, Nepal in1966, Vietnam in 1986.Source: World Bank, World Development Indicators2005.


1980-1994 1995-2003

Pre-WTO Post-WTO

Accession Accession

Malaysia 2.44 0.64

Sri Lanka 2.71 1.19

Indonesia 3.51 1.74

India 4.12 1.75

Philippines 1.49 2.4

Thailand 2.87 2.78

Nepal 3.36 2.94

Bangladesh 2.29 3.41

China 5.16 3.5

Pakistan 4.12 3.52

Vietnam 3.24 4.25

In the period following the country’s accession to the WTO,the country’s agricultural growth improved to 2.4 percent a year,though this still paled in comparison with the averages for China(3.5%) and Vietnam (4.2%), two of the most aggressiveglobalizers in the Asian region. The figure though issurprisingly higher than the averages for Malaysia andIndonesia and comparable with Thailand’s. Note, however, thatin both Malaysia and Thailand, the relative importance ofagriculture in national income had declined substantiallyduring the past two decades of rapid economic growth, whilein Indonesia, the Asian financial crisis of 1997-98 left a deeppuncture on the economy and the agriculture sector.

What Table 3 suggests is that, contrary to popular claims,especially by many nongovernment organizations (NGOs) andinfluence peddlers in government, the country’s accession tothe WTO could not be a compelling reason for the compara-tively poor performance of agriculture in recent years. All theother major developing countries in the Asian region operatedin a similar global trading environment as the Philippines buthad significantly higher agriculture and overall economic growthrates than those achieved by the Philippines.

Production growth could come from either expansion ofthe cultivated area or from increases in output per unit area.The former is no longer a practical option for the Philippinesmainly due to conversion of land to non-agricultural purposes.Hence, output growth would have to come from productivitygrowth through sustained technological improvements.

A comprehensive measure of productivity growth is totalfactor productivity (TFP) growth. This measure representsoutput growth net of the growth in all production inputs. It isthus an appropriate indicator of efficiency (and competitive-ness) improvement. The available TFP data for the 1970s

Sharpening the Response of Poverty 15to Local Economic Growth

suggest that the Philippines at that time fared comparably withThailand and Indonesia (Table 4). However, the succeeding twodecades saw productivity stagnating in the Philippines (0.2% ayear) but continuing to grow in Thailand (1.0% a year) andIndonesia (1.5% a year). China, on the other hand, enjoyed avery high TFP growth rate of 4.7 percent per year during thisperiod, though the figures pertain to grains only. At this rate, itis not surprising that China increasingly has become a majorproducer of cheap agricultural commodities in the world com-modity markets. Also, at this rate, China could well afford toreduce tariff protection for its farmers even before it accededto the WTO, without reducing farmers’ net incomes (FAO2006a).

Table 4. Growth of total factor productivity (TFP) in agriculture (% per year).

*1979-95 for China (covering rice, wheat, and corn only), 1981-95 for Thailand, 1981-98 for Indonesia, 1980-98 for the Philippines, and 1985-2000 for Vietnam (rice only). Source: Mundlak et al. (2004) for Indonesia, Thailand, and Philippines; Jin et al. (2002) for China; ICARD (2004), cited in FAO (2006b), for Vietnam.

Low productivity growth in agriculture, where the bulk ofthe poor are located and on which they depend for incomesand livelihood, mirrors what would be expected on the evolu-tion of farm incomes, household incomes in general, andpoverty. As recent experiences in Asia and elsewhere suggest,productivity growth in agriculture exerts a strong direct andindirect influence on poverty and food insecurity (Rosegrantand Hazell 2000; Timmer 2005; Balisacan and Fuwa 2006b).


Period China Thailand Indonesia Vietnam Philippines

1970-1980 na 1.3 1.6 na 1

1980-2000* 4.7 1 1.5 2 0.1

All Period 1.2 1.5 0.2

More importantly, increases in agricultural productivity andfarm incomes stimulate the growth of non-farm activities and,hence, employment opportunities. Put differently, whileagricultural growth directly reduces rural poverty and foodinsecurity, the indirect effects on the rural non-farm economy,as well as urban economy, through demand and supplylinkages can be even more important sources of food securityand rural poverty reduction in the long run.

Drawing on the Asian experience, the response of ruralnon-farm areas (as well as urban areas) and, hence, of ruralpoverty to agricultural growth, including export or urbandemand expansion, requires a number of things. These includeinvestments in rural infrastructure and human capital, removalof public-spending biases favoring large farmers and agri-business enterprises, promotion of small-scale enterprises,improved access to land and technology, and macroeconomicand political stability. The Philippine record in virtually all thesethings is far inferior to those of its East Asian neighbors.Specifically, the country has neglected to invest in what recenteconomic history has shown as “deep determinants” of ruralgrowth and poverty reduction: market-friendly institutions,rural infrastructure, and health and education.6

Beside fostering agricultural and rural development, whatelse can government do to maximize returns - in terms ofpoverty reduction - to government expenditures? Given thefiscal bind, what menu of government spending would yieldhigh returns for the poor? Put differently, what programs wouldhave comparatively high chances of benefiting the poor andtherefore should receive comparatively more support in termsof government outlay? Table 5 provides such a guide to

6 See David (2003) for an analysis of the factors influencing the performanceof Philippine agriculture.

Sharpening the Response of Poverty 17to Local Economic Growth

national government spending. The list is by no meansexhaustive, but it includes areas that have been extensivelydemonstrated - both in the country and elsewhere - as effectivevehicles for directly influencing the welfare of the poor, whilekeeping the fiscal burden of poverty reduction programs tomanageable levels by reducing leakages of the benefits of suchprograms to the unintended (non-poor) groups.


ne particular feature of the Philippine society is its failure to achieve a demographic transition similar to what its Southeast and East Asian neighbors

went through during the past three decades.7 In all thesecountries, including the Philippines, mortality rates declinedalmost at broadly similar rates, but fertility rates declined muchmore slowly in the Philippines than in its neighbors.

Consequently, while population growth rates declinedsubstantially to below 2 percent a year in such countries asThailand, Indonesia, and Vietnam, the rate hardly changed at ahigh level of 2.3 a year in the Philippines. The working-agepopulation of East Asian countries was 57 percent in 1965and 65 percent in 1990, increasing four times compared withthe number of dependents. In contrast, the Philippines had aworking-age population of below 60 percent, with 52 percentin 1980, 55 percent in 1990, 56 percent in 1995 and 58 percentin 2000.

The other big but neglectedproblem - rapid population growth

O

7 Demographic transition is a change from a situation of high fertility and highmortality to one of low fertility and low mortality. This change results insizable changes in the age distribution of the population. The change cancreate the “demographic dividend,” i.e., the increases in per capita incomeas the bulge in the age pyramid moves, over time, from young people (infantsand children) to prime age for productive work and savings.

Compelling evidence demonstrates that demographicdividend has contributed immensely to the rapid economicgrowth in the so-called “East Asian miracle” countries duringthe past three decades (World Bank 1993; Bloom et al. 1999;McNicoll 2006). Bloom et al., in particular, estimated thiscontribution to be roughly one-third of the observed growthrates of per capita GDP.

Table 5. Indicative areas for national government spending on a poverty program.

Are as to spe nd more Are as to spe nd le ss

1. Basic education, especially teaching

materials; technical education and skills

development esp. in rural areas.

Tertiary education: cost-recovery (but

with scholarship for the poor)

2. Basic health and family planning

services

Tertiary health care: Impost cost-recovery

3. Rural infrastructure, especially

transport & power (but w/ coordination)

Public works equipment program (except

for short-term disaster relief)

4. Targeted supplementary feeding

programs and food stamps

General food price subsidies

5. R&D and small-scale irrigation systems Post-harvest facilities (private goods)

6. Capacity building for LGUs &

microfinance providers

Livelihood programs (except for short-

term disaster relief)

7. Impact monitoring & evaluation

In the Philippines, the population issue remains highlycontentious. At the center of the debate is whether populationgrowth has any bearing on economic development and povertyreduction. At one extreme is the Catholic Church’s strongopposition to any reference to population growth as acontributory factor to the country’s transformation to a basketcase. Philippine administrations, particularly that of PresidentArroyo, have been very sensitive to the Church’s stand on theissue, especially concerning population policy and population


programs. Surprisingly, despite its obvious importance in thisdebate, empirical work examining the quantitative significanceof the economy-population-poverty dynamics in the Philippinesis quite scarce.Until lately, what exactly the country has missedin terms of economic growth and poverty reduction by way ofdemographic dividend has not been known.

In a recent study, Balisacan et al. (2006) attempted to fillthis gap by using a combination of estimation techniques anddata to “discover” the relationship between population growthand the demographic transition on economic growth andpoverty reduction. They used data consisting of 80 developingand developed countries and covering 25 years. Their focus wason long-run effects, thus the reason for their using a relativelylarge time series data. To the extent allowed by available data,their estimation has controlled for the influences of factors otherthan population growth, including institutions, trade regimes,and income inequality. Some highlights of their findings are:

• Total population growth rate has a negative andsignificant impact on economic growth.

• Workers’ population growth has a positive andsignificant impact on economic growth.

• Heath status of the population has a positive andsignificant impact on economic growth.

• Openness to trade has a positive and significant impacton economic growth.

• Quality of public institutions has a positive andsignificant impact on economic growth.

Of particular interest here is the result of the comparisonbetween Thailand and the Philippines. These two countries areinteresting cases because they have a lot of things in common:land area, economic structure, natural resources, and goods

The Other Big But Neglected Problem - 21Rapid Population Growth

traded in the international market. In the mid-1970s, the twocountries had roughly the same population: 43 million in thePhilippines growing at about 2.6 percent that year and 41million in Thailand growing at about 2.7 percent.

The Philippines was ahead in terms of average income: percapita GDP in the Philippines was US$ 1,502 (in PPP), abouttwice the per capita GDP of Thailand at US $805 (in PPP).8During the period 1975–2000, the Philippines’ GDP grew atan average of 4.1 percent only, doubling income after 17 years.Thailand’s GDP, on the other hand, grew at an amazingaverage rate of 8.8 percent for the same period (more thantwice the growth rate of the Philippines), doubling income afteronly 8 years. In 2000, per capita GDP in the Philippines wasUS$ 3,971 (in PPP) – about 2.6 times the initial GDP per capitain 1975. Thailand’s 2000 per capita GDP was US$ 6,402 - 8times its 1975 per capita GDP.

While Thailand and the Philippines had also roughly similarpopulation growth rates in 1975, as Figure 3 shows, the formerwas able to manage its population growth during the 25-yearperiod, growing annually at an average of 1.6 percent only. ThePhilippines, however, maintained its relatively high populationgrowth rate throughout the period, growing at an average of2.4 percent per year in the 1990s. Hence the total populationof the Philippines ballooned to about 76 million in year 2000while Thailand’s was about 61 million only.

To what extent does the difference in population dynamicsbetween the two countries account for the stark difference intheir economic performance? Table 6 provides the results of a“growth accounting” required to identify this contribution. Thefirst column in the table identifies the relevant variable. The


8 Data are drawn from the World Bank’s World Development Indicators.

9 The population factor comes out as the second most important component-after initial income - accounting for the income growth difference betweenthe two countries.

Figure 3. Population Growth: Philippines vs Thailand (% per year)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1970 1975 1980 1985 1990 1995 2000

Thailand

Philippines

Sources: National Statistics Office census for various years (Philippines); International Data Base (Thailand). Figure 3. Population growth: Philippines vs. Thailand (% per year).

Sources: National Statistics Office census for various years (Philippines); InternationalData Base (Thailand).

second column corresponds to the actual values of thevariables for the Philippines, and the third column reports thevalues for Thailand. The last column gives the additional growthrate that the Philippines would have enjoyed if it had Thailand’svalues (column 3) rather than its own values (column 2). Thus,the last column provides the estimate of the foregone economicgrowth. Thus, the last column provides the estimate of theforegone economic growth. The results show that differences inthe population growth rates between the two countries accountfor about 0.77 percentage point of foregone growth for thePhilippines.9 This figure (Figure 4) implies that had thePhilippines followed Thailand population growth path duringthe period 1975 to 2000, the country’s growth in the averageincome per person would have been 0.77 percentage pointhigher every year.

The Other Big But Neglected Problem - 23Rapid Population Growth

Table 6. Why the Philippines grew so slow.

Figure 4. Per capita income in the Philippines had the country followed Thailand's population dynamics

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1975 1980 1985 1990 1995 2000

$ ppp

PHIL - Actual PHIL - Simulated THAI

Source: Balisacan et al. (2006c)

Source: Balisacan et al. (2006c)

Figure 4. Per capita income in the Philippines had the country followed Thailand’s population dynamics.

Combining this result with those of previous studiesestimating the effects of growth in the income per person onpoverty reduction, Balisacan et al. also showed that povertyincidence in 2000, had the Philippines followed Thailand’s popu-lation growth, would have been lower by 5.3 percentage points.Put differently, given that the population in 2000 was 76.5million, about 4.05 million would have escaped poverty, if onlythe Philippines followed the population growth dynamics ofThailand during the period 1976-2000.


Variable Philippines Thailand Foregone Growth

Population growth (%) 0.77Total 2.36 1.58Workers 2.85 2.53

Other included variables* (%) 2.07Total growth differential accounted by model ( %) 2.84Actual GDP per capita growth rate, average of 1975-2000 ( %) 4.1 8.84 4.74

Concluding Remarks

he persistence of poverty in the the Philippines has to do largely with its inability to achieve - and sustain - income growth substantially higher than its population

growth. Contrary to popular claims, economic growth has beenbeneficial to the poor - as well as the nonpoor.

However, while economic growth is good for the poor, it isnot good enough. The response of poverty reduction toincome growth in the Philippines has been quite muted byinternational standards, especially in comparison with thecountry’s neighbors. Hence, the Philippines’s unenviable recordin poverty reduction in recent years is the outcome not only ofits comparatively low per capita GDP growth rate but also ofits weakness in transforming any rate of income growth intopoverty reduction. The quality of economic growth has to beimproved to enhance the benefits of growth to the poor.

Even given the fiscal bind, there are wide avenues forimproving the response of poverty to overall income growth.Evidence suggests, for example, a strong connection runningbetween agricultural and rural development and povertyreduction. Investments in social services, such as in basic healthand education especially in rural areas, have also high payoffsin terms of poverty reduction. Serious students of Philippineeconomic development also call attention to the need toaddress the country’s rapid population growth, since there is a

T

strong link between economic performance, on the one hand,and economic growth and poverty reduction, on the other.

The very high spatial diversity in the Philippines is quiteremarkable. Some pockets of the country have humandevelopment outcomes comparable with those found in moreeconomically advanced countries; for example, Metro Manila’sHuman Development Index (HDI) for 2003 is comparable withthat of Thailand, and the province of Rizal’s with Ukraine’s.However, many other areas have outcomes comparable withthose found in the poorest countries of the world; for example,the ARMM provinces have HDI scores comparable with thoseof Sudan, Ghana, and Myanmar. In recent years some regionshave done quite well in attaining high per capita income growthand reducing poverty, but others - disturbingly - haveexperienced falls in their average per capita income and anincrease in poverty. Viewed from an international perspective,such disparities could breed regional unrest, armed conflicts,and political upheavals, thereby undermining the progress insecuring sustained economic growth and national development.

The good news is that the growth processes in recent yearshave allowed the lagging regions to catch up with the leadingones. Balisacan (2006) shows that there is a tendency forconvergence of provincial mean incomes over the long term.Infrastructure, human capital, economic climate, trade regime,and agricultural relations are the key drivers of provincialincome growth. Improvements in access to roads, electricity,and health and schooling have positive effects on provincialincome growth rates. Policy regimes that do not unduly reducethe profitability of agriculture relative to non-agriculture alsohelp boost provincial income growth. Likewise, improvedaccess to productive assets and technology by way of CARP isan important source of provincial income growth.


What is disturbing, however, is the finding that certain policylevers that have often been identified as tools for achievingequity objectives – human capital and asset reform throughCARP – have no discernible direct effects on poverty reduc-tion; their effects are felt mostly indirectly through the incomegrowth process. In other words, even programs supposedlytargeted at poverty such as CARP have actually been neutralfrom an income distribution viewpoint! One interpretationof this result is that the implementation of such programs hasactually been poorly targeted. There is evidence to support thisproposition as regards many of the country’s direct anti-poverty programs such as food subsidies, credit subsidies,irrigation and seed subsidies, and housing and schoolingsubsidies.

Even more disturbing is the government’s posture withrespect to the rapidly growing population. Policies andprograms concerning population have remained captive to theCatholic Church’s stand on the issue. The consequence of suchposture on economic growth and poverty reduction has beenstaggering: it has contributed to the country’s transformationto being Southeast Asia’s basket case. This stance has to change,if only to improve the country’s chances of moving the economyto a higher growth path and winning the war against poverty.

Concluding Remarks 27


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Balisacan, A.M. (2003a), “Poverty and Inequality,” in A.M.Balisacan and H. Hill (eds.), The Philippine Economy:Development, Policies, and Challenges, Oxford UniversityPress, New York.

Balisacan, A.M. (2003b), “Poverty Comparison in thePhilippines: Is What We Know about the Poor Robust?”in C. Edmonds (ed.), Reducing Poverty in Asia: EmergingIssues in Growth, Targeting, and Measurement, Edward Elgar,Cheltenham, UK.

Balisacan, A.M. (2006), “Local Growth and PovertyReduction,” in Dynamics of Regional Development: ThePhilippines in East Asia, Edward Elgar, United Kingdom,forthcoming.

Balisacan, A.M. and E. Pernia (2002), “The Rural Road toPoverty Reduction: Some Lessons from the PhilippineExperience,” Journal of Asian and African Studies, 37(2):147-167.

Balisacan, A.M. and N. Fuwa (2004), “Going beyond Cross-country Averages: Growth, Inequality and PovertyReduction in the Philippines”, World Development, 32(11):1,891–907.

References:

Balisacan, A. and N. Fuwa (2006a), “Changes in SpatialIncome Inequality in the Philippines: An ExploratoryAnalysis,” in R. Kanbur, T. Venables, and G. Wan (eds.),Spatial Disparities in Human Development: Perspectives fromAsia, United Nations University Press, Tokyo.

Balisacan, A.M. and N. Fuwa (2006b), “Poverty andVulnerability,” in Balisacan, A.M. and N. Fuwa (eds.),Agricultural and Rural Development in Asia: Ideas, Paradigms,and Policies since the 1970s, Institute of Southeast AsianStudies, Singapore, and SEARCA, Philippines, forthcoming.

Balisacan, A.M., D. Mapa, C. Tubianosa, and Associates(2006c), The Population-Economy-Poverty Links in thePhilippines: A Quantitative Assessment, University of thePhilippines Press, Quezon City, forthcoming.

Bloom, D.E., D. Canning and P.N. Malaney (1999),“Demographic Change and Economic Growth in Asia.”CID Working Paper.

Cline, W.R. (2004), “Technical Correction,” in Trade Policy andGlobal Poverty, Institute of International Economics,Washington DC.

David, C.C. (2003), “Agriculture,” in A.M. Balisacan and H.Hill (eds.), The Philippine Economy: Development, Policies, andChallenges, Oxford University Press, New York.

Deaton, A. (2005), “Measuring Poverty in a Growing World(or Measuring Growth in a Poor World),” Review ofEconomics and Statistics, 87: 1–19.


Deininger, K. and L. Squire (1998), “New ways of looking atold issues: Inequality and growth,’ Journal of DevelopmentEconomics, 57: 259–87.

Dollar, D. and A. Kraay (2002), “Growth is Good for thePoor,” Journal of Economic Growth, 7: 195–225.

Edillon, R. and R. Velarde (2004), “ARC Strategy—Pavingthe Way from Agrarian Reform to Poverty Reduction:Assessing the Impact of the ARC Strategy on PovertyUsing Census, National Housing Surveys, and ALDA,”Asia Pacific Policy Center, Quezon City.

FAO [Food and Agriculture Organization] (2006a), RapidGrowth of Selected Asian Countries—Lessons and Implicationsfor Agriculture and Food Security: China and India, PolicyAssistance Series 1/2, FAO Regional Office for Asia andthe Pacific, Bangkok.

FAO [Food and Agriculture Organization] (2006b), RapidGrowth of Selected Asian Countries—Lessons and Implicationsfor Agriculture and Food Security: Republic of Korea, Thailandand Viet Nam, Policy Assistance Series 1/3, FAORegional Office for Asia and the Pacific, Bangkok.

HDN [Human Development Network] (2005), PhilippineHuman Development Report 2005, Quezon City.

Kraay, A (2006), “When is growth pro-poor? Evidence froma panel of countries,” Journal of Development Economics, 80:198-227.

References 31

McNicoll, G. (2006), “Policy Lessons of the East AsianDemographic Transition,” Population and Development Review,32: 1-25.

Mundlak, Y., D.F. Larson, and R. Butzer (2004), “Determinantsof Agricultural Growth in Thailand, Indonesia, and thePhilippines,” T. Akiyama and D.F. Larson (eds.), RuralDevelopment and Agricultural Growth in Indonesia, the Philippines,and Thailand, Asia Pacific Press, Canberra.

Ravallion, M. (2001), “Growth, Inequality, and Poverty:Looking beyond Averages,” World Development, 29: 1803-15.

Rosegrant, M. and P.B.R. Hazell (1999), Transforming the RuralAsian Economy: The Unfinished Revolution, Oxford UniversityPress, Hong Kong.

Sachs, J. (2005), The End of Poverty: How We Can Make It Happenin Our Lifetime, Penguin Books, London.

Timmer, C.P. (2005), “Agriculture and Pro-Poor Growth: AnAsian Perspective”, Working Paper Number 62, Center forGlobal Development, Washington, DC.

World Bank (1993), The East Asian Miracle: Economic Growth andPublic Policy, Oxford University Press for the World Bank,New York.


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Why Does Poverty Persist in the Philippines? - CORE · Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies Arsenio M. Balisacan SEARCA Agriculture & Development