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Economic Groowth, Povery and Inequalities in the Philippines

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    Background of the study

    For the past four decades, the proportion of households living below the official poverty line has declined very slowly and unevenly. Poverty and inequality have been occurring again to challenge the Philippines since poverty reduction has been much slower than in neighboring countries such as the People’s Republic of China (PRC), Indonesia, Thailand, and Vietnam. However, the Philippines has been working toward poverty reduction for decades. It has even included targets on human development and poverty reduction in its medium-term development plans.

    But, some of the key factors constraining poverty reduction efforts are great inequality across income brackets, regions, and sectors, as well as unmanaged population growth. With poverty reduction as the main goal of the government, the demand for poverty statistics has become more important. Several poverty monitoring systems are being conducted both at the national and community level providing income and non-income-based measures of poverty. These have become the basis for social and economic development plans and programs of national and local governments.

    But before we continue, let us define first what poverty is. From a business dictionary, poverty means a condition where people’s basic needs for food, clothing, and shelter are not being met. While from a Webster dictionary, it is the state of being poor. And according to the World Bank, poverty is defined as whether households or individuals have enough resources or abilities today to meet their needs. There are varying ways to define poverty but still, its main explanation lies in how an entity or a country perceives poverty.

    A country has different poverty lines depending on its standing and status. On the other hand, a person can view poverty depending on his current situation as an individual. We chose this topic for our country is bombarded with a lot of problems rooted in poverty. Numerous economic problems, from increasing unemployment rates to high government debts, could be discussed but these predicaments cannot be easily traced in the daily lives of our countrymen, unlike hunger and poverty. Thus, this paper aims to give a wider range of thoughts and ideas regarding poverty.

    Its causes and effects will be explained as well the actions done by our government to somehow eradicate it. Specifically, the main objectives of this study are to examine the poverty situation in the Philippines and to assess the country’s a poverty reduction strategy and policy as well as the monitoring procedures done by our government units from the national to local levels.

     Causes of Poverty

    According to the Asian Development Bank, as of 2012, the main causes of poverty in the Philippines include the following:

    • low to moderate economic growth for the past 40 years;
    • low growth elasticity of poverty reduction;
    • weakness in employment generation and the quality of jobs generated;
    • failure to fully develop the agriculture sector;
    • high inflation during crisis periods;
    • high levels of population growth;
    • high and persistent levels of inequality (incomes and assets), which dampen the positive impacts of economic expansion; and recurrent shocks and exposure to risks such as economic crisis, conflicts, natural disasters, and “environmental poverty. ”

    Descriptive Analysis of the Country

    The Republic of the Philippines or the Philippines is an archipelago of 7, 107 islands and islets located in the Southeast of Asia. It has a total land area of 300, 000 square kilometers and 115, 831 square miles divided by the three main islands called Luzon, Visayas, and Mindanao. It is considered as the 73rd largest independent nation and a country of rich natural resources attracting large-scale foreign investments from big countries such as Japan, the United States, and Europe. The main products that the country offers are (Agriculture) Rice, banana, cassava, coconut, corn, pineapple, sugarcane, sweet potato, (Forestry) ebony, kapok, mahogany, (marine) milkfish, scad, tuna, stones, pearls, (Mining) chromite, copper, gold, nickel, (Manufacturing) cement, garments, chemicals, foods, electronic equipment, petroleum products, wood products, and textiles. However, the Philippines is the seventh most populated Asian country and twelfth in the whole world with a total of 92,337,852 people as of the year 2012. 54% of this population is from the rural areas and 46% is from the urban. The Philippines is also considered one of the poorest countries in the world and is currently in fifteenth place in Asia.

    The Philippines’ economic growth had moderate economic expansion which has a limited impact on the poor, due to the inequality of income and unmanaged population growth. The poverty situation in the Philippines recently hasn’t been improving. According to the National Statistics Coordination Board, 27. 9% of the Filipino population is currently living below the poverty line. Even though the poverty situation has improved since 2005, still the proportion of living is in extreme poverty, especially in the developing regions.

    According to the World Bank, “The progress is so drastic that the world has met the United Nations’ Millennium Development Goals to cut extreme poverty in half five years before its 2015 deadline. ” In the year 2012, the estimation of poverty in the Philippines per province has a national average is 22. 3% from 2006’s 23. 4%. Poverty remains a social problem that needs to be resolved here in the Philippines. Its poverty line marks a per capita income of 16,841 pesos a year. According to the data from the National Statistical Coordination Board, more than one quarter (27.9%) of the population fell below the poverty line the first semester of 2012. The Philippines Development Plan 2011-2016 (PDP), for those six years, is an annual economic growth of 7%-8%. Under the Millennium Development Goals (MDG), the Philippines committed itself to halve extreme poverty from 33. 1% in 1991 to 16. 6% by 2015. Inclined with the first MDG which is Eradicating Poverty and Hunger, the Philippines has been slowly responding to it. However, there is still a medium probability that the target of halving the incidence of poverty will be achieved in our country according to the National Economic Development Authority (NEDA).

    We can observe that the Philippines reported that 32. 9% of our population is still living below the poverty threshold. This is still far from the target of 22. 7% in 2015. However, there is still a positive indication that poverty rates can still be lessened because there is a decreasing trend in terms of the proportion of the population living below the poverty threshold. Based on the Family Income and Expenditure Survey (FIES) and National Statistics Office, the CARAGA Region and Region V are the two regions with the highest poverty incidence in the year 2006.

    On the other hand, NCR is reported to have the lowest poverty incidence in 2006. In terms of magnitude, we can observe in Figure 3, that there are only a few regions that are reported to have more than a hundred thousand poverty population. Therefore, even though the targets are still quite far from being achieved, we can still see improvements and positive results because of the actions done by our government and other non-government organizations in eradicating poverty and hunger in the Philippines.

    Theoretical Framework Poverty

    Poverty is a multi-dimensional concept involving not only material deprivation, but also deprivation in terms of capability, vulnerability, and influence over institutions that affect one’s life.

    A distinction can be made between absolute and relative poverty. Absolute poverty refers to the inability to meet what are thought to represent the absolute minimum requirements for human survival. The poverty status of any individual or household is considered completely independent of the conditions of other individuals or households. Those considered to be poor are often identified concerning poverty lines – those households or individuals that fall below the poverty line.

    While the P40 per day is perhaps the most well-known poverty line, absolute poverty can also be measured against non-income aspects of deprivation examples are food insecurity, malnutrition, lack of access to health care, etc. While Relative poverty considers the status of each individual or household to the status of other individuals, households in the community, or other social groupings, taking into account the context in which it occurs including their position within the distribution of that population.

    Relative poverty typically changes spatially and temporally, and measures of relative poverty are therefore not necessarily comparable between locations or over time. The relative approach examines poverty in the context of inequality within a society, though they should not be conflated. Relative income poverty is measured by the poverty rate and the poverty gap. The poverty rate is the ratio of the number of people who fall below the poverty line and the total population; the poverty line is here taken as half the median household income.

    However, two countries with the same poverty rates may differ in terms of the income level of the poor. Income is defined as household disposable income in a particular year. It consists of earnings, self-employment, and capital income, and public cash transfers; income taxes and social security contributions paid by households are deducted. The income of the household is attributed to each of its members, with an adjustment to reflect differences in needs for households of different sizes.

    Inequality is the difference between individuals or populations in the distribution of their assets, wealth, or income. The comparison is usually based on specific characteristics which can be measured using adequate indexes or indicators. Inequality seems to be a straightforward concept which, as Cowell (1995) states, “obviously” suggests a departure from the simple idea of equality, this is, the fact that two or more quantities are the same size. However, difficulties arise when the concept is framed into the social context and in connection with economic problems.

    The concept is generally related to differences in income, consumption, or wealth and is associated with social welfare. In this common usage, it embodies some sort of value judgment about fairness which will differ according to different ethical viewpoints. Debates on subjects such as the relationship between inequality among individuals and social welfare, fairness in the distribution of wealth, levels of inequality allowed without offensive to society. Naturally, these arguments are also present when regarding the measurement issue.

    According to Sen (1973), there are broadly two categories of inequality measures. On the one hand, those which try to catch the extent of inequality from an objective point of view, using a statistical measure of relative variation of income, and on the other those that try to measure inequality in terms of some normative notion of social welfare which introduces the complication of ethical valuations. The problem is that there is not a clear line drawn delimiting the two approaches.

    Even if we take inequality as an objective notion, our interest in its measurement must relate to our normative concern with it, and in judging the relative merits of different objective measures of inequality, it would in need be relevant to introduce normative considerations. At the same time, even if we take a normative view of the measures of income inequality, this is not necessarily meant to catch the totality of our ethical evaluation”. Economic growth can be defined as a rise in per capita income and national product.

    To increase national product the volume of investment must be greater than the amount necessary to replace depreciated capital. Therefore, the amount of savings and investment plays a significant role in the process of economic growth. The classical models of economic growth are Harrod (1939), Domar (1946), Solow (1962). Holding constant variables, an increase in the rate of savings would accelerate the rate of economic growth. The Harrod-Domar model stated that other variables on the economic growth are not constant and are changing.

    Changes in the rate at which capital produces output can counteract or add to the effects of the rate of savings on economic growth, as well as the rate at which total population is growing, affects the rate of growth per capita income. If the population is growing at the same rate or faster than that of total output, then the rate of per capita income may be zero or even negative. Another model is Lewis’ model. Lewis (1954) put forward an approach of economic development based on the process of transformation of a traditional economy into a modern one.

    This model is based on the existence of a dual economy in which a “traditional” sector coexists with a “modern” sector. Fig. 3 Lewis Model The fundamental assumption of Lewis’ model is the existence of a large surplus of labor in the traditional sector of the economy which can be transferred to the modern sector without affecting the amount of output in the traditional sector. There are too many workers relative to other factors of production so that removing the surplus does not affect the level of output. This means that the marginal product of labor is zero or very close to zero.

    Economic Policies

    The Philippine economy expanded by 6. 6 percent in 2012, exceeding most expectations, including the government’s target of 5 to 6 percent. Higher growth was driven by strong private consumption and construction, and the recovery of public spending and net exports. Philippine growth in 2012 was the highest among the ASEAN-5 countries. With higher public and private construction spending, the ratio of fixed capital to GDP (net of intellectual property products) increased from 18. 7 percent of GDP in 2011 to 19. 3 percent of GDP in 2012.

    The pace and efficiency of national government spending improved remarkably in 2012. Total disbursements grew by 14. 1 percent to reach PHP 1. 78 trillion, equivalent to 16. 8 percent of GDP. The highest increases were seen in infrastructure spending, and maintenance, and other operating expenditures. With more efficient bidding, implementation, and payment system, infrastructure spending increased by 58 percent. Maintenance and other operating expenditures grew by 28 percent and reflected higher allotments to social services, such as the conditional cash transfer program, and economic services, such as irrigation.

    Higher government spending was matched by a significant increase in revenue collection, with a strong contribution from the improved tax administration. Total tax revenues grew by 13. 2 percent and tax effort increased from 12. 3 to 12. 9 percent of GDP—the highest increase in decades attributable to improved tax administration. The medium-term growth prospects for the Philippines are good. The country has weathered the impact of the financial crisis and global slowdown quite well in the last four years, given its strong macroeconomic fundamentals—the result of past and ongoing reforms in the financial and public sectors.

    The country’s strong growth prospects, robust external accounts, and improving fiscal condition earned it its first-ever investment-grade credit rating in March 2013, followed by another upgrade in May 2013. With stronger economic reforms, the Philippines can see sustained growth of above 6 percent in the medium term. Risks to growth will primarily come from a slower global recovery, domestic reform lags caused by increased resistance to reforms, and possible asset price bubbles in the real estate sector and the stock market. GDP growth is projected at 6.2 percent in 2013, driven by domestic demand. As in previous years, private consumption would provide the basis for growth. A sustained increase in investment, particularly in construction, and higher public spending, would provide an extra boost. Growth in exports would hinge on the recovery of electronics exports and the higher growth of non-electronics. The economic growth projection of 6. 4 percent in 2014 would depend on the ability of the government to further increase infrastructure spending and the private sector to increase investment spending.

    Moving forward, the government needs to focus its attention on generating higher, sustained, and more inclusive growth—the type that creates jobs and reduces poverty. With almost 10 million unemployed or underemployed Filipinos as of end-2012, around 1. 1 million potential entrants to the labor market each year, and poverty incidence that hardly declined between 2009 and 2012, the country faces the enormous challenge of providing good jobs to 14. 4 million Filipinos through 2016. Sustaining high GDP growth of above 5 percent will be able to provide good jobs to around 2.2 million Filipinos between 2013 and 2016. However, by 2016, that still leaves 12. 4 million Filipinos who will have no other option but to work abroad, work in the informal sector, or create jobs for themselves. There is no silver bullet for creating more and better jobs, as it is linked to resolving deep-seated, structural issues in the economy. Only a comprehensive reform agenda implemented across sectors can foster a business environment conducive to private-sector job creation by firms of all sizes.

    Meeting the challenge of the job requires expanding formal sector employment even faster, while rapidly raising the incomes of those informally employed. The following thematic reform areas deserve the highest priority: i) simplifying business rules and regulations to encourage the growth of firms of all sizes, ii) enhancing competition in the economy, giving priority to sectors with the greatest potential in creating jobs, such as agriculture, and iii) securing property rights on land for both rural and urban dwellers and businesses.

    To better sustain these reform efforts and to increase their chances of success, the government will need to continue to invest more, and more efficiently, in health, education, and infrastructure. Higher investments can be sustained by institutionalizing reforms in public finance. In this regard, a comprehensive program of tax policy and administrative measures should be pursued to raise tax revenues by up to 8 percent of GDP. The government’s medium-term target of an additional 3 percentage points of GDP by 2016 is on the right track.

    Higher revenues need not be equated with higher tax rates as tax administration can be improved substantially. For instance, in the first quarter of 2013, the Bureau of Internal Revenue announced a campaign to boost tax collection from self-employed and professionals (SEPs) such as doctors, lawyers, and traders. The government estimates that only about 403,000 out of 1. 8 million SEPs paid taxes and the average income declared by SEPs is not far from the income of a minimum wage worker. Successful implementation of this campaign can generate up to 2 percent of GDP in tax revenues without raising tax rates.

    A unique window of opportunity exists today to accelerate reforms that will help create more and better jobs. The country is benefiting from strong macroeconomic fundamentals, political stability, and a popular government that is committed to improving the lives of the people. It also stands to benefit from the global economic rebalancing and strong growth prospects of the East Asia region. Several reforms have successfully started, notably in public financial management, anti-corruption, and social service delivery.

    With stronger economic reforms, especially in areas that will have more impact on the lives and jobs of the poor, the government can put the country on an irreversible path of inclusive growth and meet the challenge of the job.


    The devotion of poverty in the Philippines has to do largely with its inability to achieve and sustain income growth substantially higher than its population growth. Economic growth has been beneficial to the poor, as well as the nonpoor. However, while economic growth is good for the poor, it is not good enough.

    The response of poverty reduction to income growth in the Philippines has been quite muted by international standards, especially in comparison with the country’s neighbors. Hence, the Philippines’s unenviable record in poverty reduction in recent years is the outcome not only of its comparatively low per capita GDP growth rate but also of its weakness in transforming any rate of income growth into poverty reduction. The quality of economic growth has to be improved to enhance the benefits of growth to the poor.

    Even given the fiscal bind, there are wide avenues for improving the response of poverty to overall income growth. Reducing poverty, however, should be accompanied by good poverty monitoring systems. Poverty monitoring provides government planners, policymakers, and local leaders with data on which to base their social and economic development plans and programs. In addition, it is also used in guiding the implementation and continuing analysis of policies and programs, so that timely action can be taken to address the weaknesses/problems detected.

    The existing poverty monitoring systems in the Philippines do provide essential information needed by both national and local governments as a basis for their poverty reduction plans, strategies, and policies. There are weaknesses such as frequency of data collection and levels of disaggregation. There have been some initiatives to address these data gaps. One such initiative is the development of a monitoring system at the community level. This is to strengthen the capacity of local governments in diagnosing poverty at their localities since the national statistical offices cannot provide for all the data requirements due to resource constraints.

    The information has helped identify unmet needs at the local level and this has been the basis for action in some of the barangays.


    1. The World Bank Group (2011) Poverty Reduction and Equity. Poverty Analysis-Measuring Poverty. Retrieved from http://go. Rakesh Belliappa (2012)
    2. Top 20 Poorest Countries in Asia. World List Mania. Retrieved from http://www. worldlistmania. com Mounir Chaouche (September 23, 2011)
    3. Brief Description of the Philippines. Camperspoint Philippines. Retrieved from
    4. Asian Development Bank (December 2009) Poverty in the Philippines: Causes, Constraints, and Opportunities. Publications. Retrieved from Geoff Riley (September 23, 2013)
    5. Sources of Economic Growth-Overview. Economic. Retrieved from OECD (2010)
    6. Poverty rates and gaps. Economic, Environmental and Social Statistics. Retrieved from
    7. Michael P. Todaro and Stephen S. Smith (1995) Theories of Economic Development: A comparative analysis. Economic development. Retrieved from

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