Has growth been pro-poor in the

Philippines?
Cielito C. Goño
Intersect Vol. 22, No. 4
December 2007

Good news, bad news

President Gloria Macapagal Arroyo was beaming when she made

the announcement last August 30 before reporters in Malacañang
Palace. The Philippines’ second quarter real gross domestic
product (GDP) grew by 7.5 percent, pushing average real growth
to 7.3 percent for the first half of this year. These figures are the
highest measured for any quarter in around 20 years. In the
region, it trailed only Singapore’s 8.6 percent and China’s 11.9
percent growth rates, besting those of Hong Kong, Malaysia and
Indonesia.

Two months later, the Social Weather Stations (S.W.S.) announced

September 2007 data on self-rated poverty that did not
complement the rosy picture of a supposedly bullish economy.
The S.W.S. survey results suggest that 52 percent of Filipino
families (about nine million families) rated themselves poor for the
third quarter. These figures are indicative of deterioration from
the reported range of 47 percent to 53 percent for the same
period last year.

Moreover, 43 percent (around 7.5 million families) considered

themselves “food poor” as of September 2007. For the first two
quarters of the same year, self-reported food poverty ranged from
only 37 percent to 39 percent. The rise in self-assessed food
poverty seems even more distinctive than the increase in self-
reported poverty.

Is the Philippines’ growth pro-poor?

Economic growth is generally acknowledged as an accompanying

condition of poverty reduction. That is, the overwhelming
evidence has been that periods of significant decline in poverty
have coincided with periods of economic growth. Thus, when
there is a good upshot in economic growth (taking only GDP as the
indicator of this growth), people tend to ask whether poverty
reduction was also less sluggish.
Indeed, for many non-government organizations and development
agencies in the Philippines, the whole point of examining and
pursuing economic growth, is the more important quest for
poverty reduction.

While it is to be expected that poverty reduction is accompanied

by economic growth, the Philippines could be among several cases
showing that economic growth per se does not guarantee poverty
reduction. That the GDP rises does not mean that all, especially
the poorest households, will benefit.

At best, depending on which poverty indicators are considered,

and if shorter time periods are examined, the Philippines can be
said to experience pro-poor growth only erratically. That is,
sometimes it does, sometimes it does not (Kakwani and Son,
2006). There is no strong evidence of a sustained, long-term trend
of pro-poor growth.

On the contrary, the S.W.S. survey results add credibility to the

current stock of research showing that the Philippines’ economic
growth occurs with levels of poverty reduction that are quite
disappointing, especially compared to those of other developing
countries (Balisacan, 2006; Balisacan and Fuwa, 2004; Cline, 2004;
Ravallion 2001).

Levels of economic growth and poverty reduction cannot be

understood without considering the role of a third variable:
inequality. The distribution can be so skewed that any increase in
the size of the economic pie will only be cornered by the few who
are already well off, while the increasing number living in poverty
will realize only a disproportionately small share.

Thus, when economic growth occurs, poverty incidence will

decrease if and only if inequality remains stagnant or becomes
less severe. Similarly, when the economy does grow but
inequality worsens, then of course the impact of growth on
poverty incidence will be muted (Ravallion, 1997, 2007; World
Bank, 2005a).

While there are developing countries where economic growth has

occurred with decreasing or stagnant inequality, there are just as
many cases where economic growth has been accompanied by a
tendency towards rising inequality (Ravallion and Chen, 1997). It
is to this latter group that the Philippines has belonged since the
late 1980s (Ravallion, 2001; Pernia, 2003).

When the 2006 World Development Report entitled “Equity and

Development” was released, the World Bank could not be clearer
on the implications for the Philippines of the linkages among
growth, inequality and poverty. Citing cross-country data (Table
1), the Bank’s Philippines Country Office argued,
“The richest 5% of households in the Philippines
account for nearly a third of national income, while
the poorest 25% account for only 6%. Compared to
its neighboring countries, like Indonesia, Vietnam and

2
 Thailand, inequality measures are high in the
Philippines… High inequality and modest economic
growth have translated into slow progress on poverty
reduction in the Philippines.”

Table 1. Inequality and poverty

incidence in the Philippines,
Thailand, Indonesia and Vietnam
Gini 1990-2000 Poverty
Index Incidence Decline
a
(percentage points)
Philippin
es 0.47 5
Thailand 0.43 9
Vietnam 0.37 --
Indonesi 0.34 11
a
a
The Philippines’ Gini Index is for the
year 2003. Those of Vietnam and
Indonesia are for 2002. That of
Thailand is for the year 2000.
Source: World Bank, 2005c.

The possible explanations

The latest S.W.S. figures seem to show that the disappointing

levels of growth elasticity of poverty seem to be a pattern that
continues to hold. Why is poverty incidence not very responsive to
economic growth in the Philippines?

Of the contributing factors, among the most striking seems to be

the sectoral composition of the economy, and the geographic
variations of its growth and of poverty incidence.

1. The sector composition of the economy

When a reporter pressed for explanations at the Malacañang press

conference, the President pointed to mining as the source of
extraordinary economic growth in 2007. She even asked Chamber
of Mines head Mr. Benjamin Romualdez, who accompanied her to
the event, to explain the contribution of mining to this GDP
growth.

The current administration is correct in its claim that mining’s

contribution to GNP and GDP has improved. What was left out of
the discussion, however, was that, historically, mining remains the
smallest contributor to GDP, second only to forestry (Figure 1). It
has also never been an area of major employment generation for
the Philippines (Figure 2).

3
 100,000 Agri. &
Fishery
Figure 1. GNP by sector Forestry
(at constant 1985 prices)

80,000 Mining and

Quarrying

Manufacturing

Construction
60,000
PhP 1,000,000

Electricity,
Gas & Water

Transport,
40,000 Comm.
&Storage
Trade

Finance
20,000

Ownership of
Dwellings &
Real Estate
Private
0 Services
1990 1995 Year 2000 2005 Govt.Services

Figure 2. Employment by industry,

2006
Fishing Mining &
Public
4% Quarrying
Admin… Other
13% 0.43%
Private
Households Agri., Hunting
& Forestry
Construction 32%

Transport…

Manufacturing Wholesale &

9% Retail…
19%

The mining industry keeps trying to point out that it has spill-over
employment effects in other sectors, for instance in the areas of
transport, construction, and equipment maintenance and repairs.
These are, however, temporary activities that will not outlast the
life of a mine.

4
Also, the value added and employment contributions of the mining
sector are kept to a minimum as companies are not required to
undertake manufacturing activities locally, and generally export
mined minerals in their unprocessed state. The high value-added
and employment-generating stages of production and processing
remain overseas, and are not major areas of mining companies’
exposure in the Philippines.

Moreover, the negative environmental impact of mining has a

downward impact on the productivity of farms and fishing
grounds, which are larger contributors to livelihoods for poor
households. Tourism is wagered as well, as many potential sites
for eco-tourism development are in watershed areas that are
compromised by open-pit mining activities.

Thus, despite the much celebrated re-energizing of the mining

industry, it cannot be regarded as the engine of economic growth
that is coupled with poverty reduction. It does not generate
employment on a scale that could alter the present picture. Most
of the poor remain in the farm sector, increasingly crowding farms,
and depressing per capita GDP in agriculture as population
increases. Preliminary estimates of the National Statistics
Coordination Board indicate that the per capita GDP contribution
of agriculture for the first half of 2007 has shrunk to just above
five percent.

2. Geographic variation in economic growth and poverty

Persistent inequality is evident in regional variations as well. In

Figure 3, a narrow white band representing urban poverty
headcount is stacked on top of a dark colored and much wider
area indicating rural poverty headcount. It shows that the vast
majority of poor families in the Philippines are found in rural areas.
They are engaged mainly in agriculture.

In this light, any major movement towards poverty reduction in

this country requires a massive decrease in poverty among rural
farm households in particular. Economic growth will occur with
more appreciable poverty reduction, if its main drivers can
generate income and employment for these families.

Figure 3. Philippine urban and rural poverty incidence,

Regions I-XII, the Autonomous Region of Muslim Mindanao
(ARMM) and the National Capital Region (NCR)

5
 4,000,000
Urban
2000 Rural
Population below the poverty line 3,000,000

2,000,000

1,000,000

0
NCR I III V VII IX XI ARMM
Region

Figure 4 shows intense regional disparities in income and infant

mortality, a health indicator of poverty, and perhaps even a
predictor of the quality of the future labor force of each region. In
this picture, each bubble represents one region, and its size
depicts the population size of that region. The National Capital
Region, the largest and most progressive urban center in the
Philippines, floats alone on the high-income, low-mortality corner,
while all other regions appear as a clump of grapes in the low-
income, high-mortality end of the graph.

Figure 4. Infant mortality and GDP per capita, Regions I-

XII, the Autonomous Region of Muslim Mindanao (ARMM)
and the National Capital Region (NCR)
70

VIII
60
ARMM
Caraga

2000
50
Infant deaths per 1,000 live

XII
IX
XI CAR
I X
40
II
births

III
V
30
VI VII
NCR
20

10

0
0 20 40 60 80 100 120
GDP per capita (thousands of Philippine pesos)

6
The experiences of Cuba and Bangladesh teach us that it is not
how much income one has that causes low infant mortality rates,
but how that income is spent. Figure 4 is shown here, not to imply
causality, but merely to illustrate where the direst need seems to
be.

Plotting income levels and poverty in health, the NCR does not
even seem to be in the same country as the rest of the Philippines.
Moreover, the regions that exhibit the greatest deprivation are all
in Mindanao, with the exception of Region VIII and the Cordilleras.

Such basic welfare inequities suggest that the grounds for pro-
poor growth are hardly in place. Therefore the Philippines’ record-
breaking 2007 GDP growth is not at all incongruous with worse
poverty figures found by the S.W.S. in the same year.

References
Balisacan, Arsenio M. March 2007. “Why Does Poverty Persist in
the Philippines? Facts, Fancies and Policies.” SEARCA
Agriculture and Development Discussion Paper Series No.
2007-1.
Balisacan, Arsenio M. 2006. “Local Growth and Poverty
Reduction.” Dynamics of Regional Development: The
Philippines in East Asia. Edward Elgar, United Kingdom.
Balisacan, Arsenio M. and N. Fuwa. 2004. “Going beyond
Crosscountry Averages: Growth, Inequality and Poverty
Reduction in the Philippines.” World Development 32: 11,
pp. 1,891–907.
Cline, W.R. 2004. “Technical Correction.” Trade Policy and Global
Poverty. Institute of International Economics, Washington
DC.
Kakwani, Nanak and Hyun H. Son. October 2006. “Global
Estimates of Pro-Poor Growth.” Working Paper No. 11.
International Poverty Center, United Nations Development
Programme.
Pernia, Ernesto M. June 2003. “Pro-Poor Growth: What is It and
How is It Important?” Economics and Research Department,
Asian Development Bank, Manila.
Ravallion, Martin. 2007 “Inequality is Bad for the Poor.”
Inequality and Poverty Re- Examined. Edited by John
Micklewright and Steven Jenkins. Oxford: Oxford University
Press.
Ravallion, Martin. February 2001. “Growth, Inequality, and
Poverty: Looking beyond Averages.” Policy Research
Working Paper 2558. The World Bank Development
Research Group, Poverty and Human Resources.
Ravallion, Martin. 1997. “Can High Inequality Developing
Countries Escape Absolute Poverty?” Economics Letters 56,
51-57.
Ravallion, Martin and Shaohua Chen, 1997, "What Can New Survey
Data Tell Us about Recent Changes in Distribution and
Poverty?," World Bank Economic Review, 11(2): 357-82.
World Bank. 2005s “Equity and Development.” World
Development Report 2006.

7
World Bank. September 21, 2005b “New World Development
Report: Equity is Key to Poverty Reduction and Growth”.
World Bank Philippines Country Office.
World Bank. April 15, 2005c. “Philippines: From Short-Term
Growth to Sustained Development.” Report No. 32055-PH.
Manila.