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The views expressed in this paper are those of the author and do not necessarily reflect the views

or policies of the Asian Development Bank. The Asian Development Bank does not guarantee the accuracy of the data presented.

Pathways of Poverty Reduction Rural Development and Transmission Mechanisms in the Philippines

Arsenio M. Balisacan is an economics professor in the University of the Philippines. This paper is to be delivered at the Asia and Pacific Forum on Poverty: Reforming Policies and Institutions for Poverty Reduction, to be held at the Asian Development Bank, Manila, 5-9 February 2001. The contributions of Nobu Fuwa and Margarita Debuque to this paper are acknowledged. Sections of this paper have drawn largely from a recent collaborative work between them and this author (Balisacan, Debuque and Fuwa, 2000). The research assistance of Magdalena Casuga, Gemma Estrada, Mary Ann Majadillas, and Sharon Faye Piza is also gratefully acknowledged. Any errors in this paper are, however, the sole responsibility of this author.

Asia and Pacific Forum on Poverty

A. BALISACAN … Pathways of Poverty Reduction




The Philippines has lagged behind its major East Asian neighbors in achieving economic development, particularly in improving the socioeconomic well-being of its people. While real per capita gross domestic product (GDP) was higher in the Philippines than in any of these countries in the mid-1960s, it was the lowest among them at the turn of the new century. The Philippines also had the best human development indicators in the early 1960s – longest life expectancy, lowest infant mortality rate, highest primary school enrollment ratio, and lowest illiteracy rate. During the subsequent decades, however, major countries not only caught up with, but also surpassed, the Philippines in many aspects of human development. Its neighbors had higher income growth, more dynamic structural transformation, and much more impressive poverty reduction by the 1990s. Development experience of emerging Asian market economies suggests a strong link between agricultural growth and overall economic performance. This is not surprising, given that agriculture and agriculture-dependent manufacturing and service sectors are a relatively large fraction of the economy at the early stages of development. Even more importantly, the experience shows that rapid growth in agriculture induces rural non-farm growth and, hence, substantial poverty reduction in rural areas. This has apparently not been the case for the Philippines. At the height of the “green revolution” (1960s and 1970s), agricultural growth in the Philippines was high by Asian standards. However, rural supply response was weak, resulting in rather poor rural welfare outcomes. The post-World War II experience of Philippine rural development illustrates how misguided policies and institutional factors could constrain the responses of rural areas to the stimulus provided by agricultural growth, thereby stifling economic development. This paper reviews this experience, specifically examining the influence of government policies and institutional arrangements on rural welfare outcomes. The next section presents a simple organizing framework for understanding the transmission of agricultural growth to rural welfare outcomes. The paper then discusses economic and rural performance, especially focusing on the link between agricultural growth and rural poverty outcomes, as well as the nature of government policies which could have influenced these outcomes. The paper moves on to examine the determinants of poverty reduction in rural areas during the 1980s and 1990s, using comparable provincial data. The last section provides concluding remarks.

Asia and Pacific Forum on Poverty

A. BALISACAN … Pathways of Poverty Reduction



An Organizing Framework

For virtually all the developing Asian economies, the main source of poverty is the rural sector (FAO, 1999; Lipton and Ravallion, 1995; Quibria, 1993). Nearly three-fourths of the poor in these countries have their origin from the rural sector. The large majority depend on agriculture for employment and income. For this reason, agricultural growth and rural development are seen as central to a strategy towards sustained poverty alleviation in these countries. In developing economies, where there is a high share of population in rural areas and where urban-rural links are nascent, the rural non-farm economy is very much linked to agriculture. Increases in agricultural productivity and farm incomes stimulate the growth of non-farm activities and, hence, employment opportunities. Put differently, while agricultural growth reduces rural

poverty and food insecurity directly by increasing agricultural incomes, the indirect effects of this growth on the rural non-farm economy through demand and supply linkages could represent even more important sources of food security and rural poverty reduction in the long-term. The response of the rural non-farm sector to the stimulus provided by agricultural growth hinges on certain “initial conditions” of rural areas – distribution of assets and incomes, quality of human capital, rural infrastructure, and macroeconomic and political environment (Figure 1). Drawing from the Asian experience, strong response of rural non-farm areas (as well as urban areas) and, hence, of rural poverty to the stimulus provided by agricultural growth, as well as to export and/or urban demand growth, requires investment in rural infrastructure to lower transaction costs, removal of public-spending biases favoring large farmers and agri-business enterprises, adoption of small-scale enterprises, improvement in access to land and technology, and macroeconomic and political stability.

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apparently Asia and Pacific Forum on Poverty . Rural Growth and Rural Welfare Agricultural Growth (Technological change. In Asia and elsewhere. such as those of the Philippines. 1996a. Lipton and Ravallion. such as those of Indonesia and India’s Punjab. 1999). 1995.. the experience in rural Asia is quite varied. BALISACAN … Pathways of Poverty Reduction 4 Figure 1. have responded strongly to agricultural growth. Not surprisingly. Reardon et al. improvements in the living standards of the rural population have been commonly associated with robust rural growth linkages (Ranis and Stewart. while others. Some rural areas. 1993. Rosegrant and Hazell. household food security) Non-farm supply response (Rural industrialization) Urban/export demand growth Distribution of assets and incomes Public investment in infrastructure and human capital Macroeconomic and political environment In East Asia. 1998). even agricultural households became increasingly dependent on non-farm incomes in the course of agricultural modernization (Balisacan.A. area expansion) Improvement in rural welfare (Poverty reduction. given large differences in initial conditions across countries. where conditions were generally favorable to the emergence of rural non-farm activities.

9 56.1 100 1975 131 1985 128 1995 143 1999 146 * Three-year averages centered on the year shown Sources: Philippine Statistical Yearbook (various issues).8 43. Table 1. suggests that the large increments to the labor force over the last three decades were nominally employed in agriculture and in the informal services sector where self-employment is more common and wages more flexible. the growth of per capita income.8 26.5 58. Even within a country. and an increasing share of non-farm income in total income (Oshima.4 35. Foreign Trade Statistics (various issues). an increasing dependence on food imports (at least for countries with relatively low land endowment per worker). In recent development experiences. however. Rosegrant and Hazell. Agriculture in the national economy* 1965 Per capita GDP (1965=100) Share of agriculture ( percent) in: GDP Employment Imports Exports Ratio of agricultural imports to agricultural exports ( percent) 31. the rather slow drop of agriculture’s share in total employment.6 26. 1987). was accompanied by a sharp fall in Asia and Pacific Forum on Poverty . However. In accord with the well-known stylized fact of development. (Table 1). This process. its share in total employment dropped from 59 percent in the mid-1960s to 40 percent in the late 1990s. BALISACAN … Pathways of Poverty Reduction 5 have not. In the Philippines. Agricultural Growth The agriculture sector continues to account for a sizeable proportion of total employment and. limited the growth of labor productivity and real income in these sectors. 1992. national income.8 38.2 85.7 13. III. 1999).6 28.8 9.0 17.3 7.9 39. the development process is also shown to be accompanied by a declining share of agriculture in total exports.2 27. together with the sluggish absorption of labor in the industrial sector.8 13. to a lesser extent.3 142.9 12. while its share in GDP declined from about 32 percent to 18 percent.6 66.6 22. albeit small in relation to those of neighboring countries.0 21.6 48.5 9. especially in the celebrated newly-industrialized economies of East Asia. large disparities in rural performance are evident (Datt and Ravallion. The development process could also bring about absolute declines in the number of farm workers (Chenery and Syrquin. 1975).6 114.A.

3 4. averaging at 4. Agricultural growth in Asian developing countries Average growth rate ( percent per year) Economy Agriculture 1965-80 Malaysia Thailand Indonesia Philippines Sri Lanka Pakistan India Bangladesh Nepal People’s Republic of China Viet Nam – Not available.4 1. Food and Agriculture Organization (FAO) of the UN.4 1. e. These gains were brought about mainly by the expansion of irrigation systems.1 2. increased application of fertilizers.4 0. GDP 1965-80 7.0 3.6 4. At the height of the green revolution.3 3. World Bank (various issues). was then substantially higher than the norm for most Asian developing countries (Table 2). agriculture’s share plummeted from 86 percent in the mid-1960s to only 7 percent in the late 1990s.5 5.7 – 4.2 1.9 4.3 4. the fall was from 22 percent to 9 percent. adoption of high-yielding varieties.5 1.9 6.5 5. Asian Development Outlook.8 3.3 5. BALISACAN … Pathways of Poverty Reduction 6 agriculture’s share in total foreign trade.5 1. Table 2.8 0.6 7. in output per unit of land) increasingly became the major source of growth in food production beginning the mid-1960s.8 1980-97 6.8 10.3 2. Sources: World Development Report. Asian Development Bank (various issues).9 6. and investments in rural infrastructure and education. In the case of imports.8 Asia and Pacific Forum on Poverty .2 Share of agriculture in GDP ( percent) 1960 37 40 54 26 32 46 50 58 – – – 1997 13 11 16 20 22 26 27 30 43 20 1980-97 3. The agricultural sector performed quite well during the 1960s and the 1970s. The sector’s annual growth..0 5.9 4.8 4.4 4.0 5. yield increases accounted for much of the growth in agriculture.6 2.1 2.7 3.6 6.1 3.2 8.6 2.A. For exports.6 percent. Increments to land productivity (i.7 1.1 3.9 4.3 7.

banana. The growth was particularly high in corn. The growth of crop GVA.2 -5.7 3.7 2.7) (19.1) (8. Table 3. Figures in parentheses are contributions to total GVA in agriculture.2 percent a year.3 percent a year) and the middle-income developing countries (3.5 6. during the 1965-80 period. BALISACAN … Pathways of Poverty Reduction 7 In recent decades.5 -18. poultry.9) 1980-90 1.1 3.0 4. of course.8) (14.5 -4.5 (100. fishery and agricultural services.8) (4. The agricultural sector comprises crops.2) 1990-99 1.5 2.6 2.0 4.0) (2.0) (18. not surprising given that agriculture and agriculture-dependent manufacturing in a typical LDC is a large fraction of the economy.8) * Growth rates pertain to gross value added (GVA). The correlation is clear for the Asian developing countries in Table 2.0) (8. however. the dismal growth of agriculture in the 1980s and 1990s paralleled the poor performance of the overall economy.5 1.9) (2. averaging 3 percent a year during the period. Average growth rates of agriculture by sub-sector Sector Agriculture All crops Rice Corn Coconut Sugarcane Banana Other crops Poultry and livestock Agricultural activities Fishery Forestry 1965-80 3.0 5.6) (8.1) (20.7) (1.8) (6. This subsector contributed about four-fifths of the observed growth of agriculture’s output.6) (4. In the Philippine case.8) (6.6 0. the remarkably robust agricultural growth for the period 1965-80 was accompanied by a GDP growth that closely matched the averages for the Asian developing countries (2.3 ** 5. less-developed countries (LDCs) with relatively high growth rates of agricultural output tended to have also comparatively high GDP growth rates (World Bank.8) (4.4) (1.7) (14. and “other crops”.6 1.6) (20.6 -1.2) (6. ** Included in "other crops" category Asia and Pacific Forum on Poverty .2 0.5 1. Consequently. livestock. also emerged as outstanding by historical standards.0) (54.7 3.8 0.3 -2.A. the share of fishery in the sector’s gross valued added (GVA) rose from 12 percent in the mid-1960s to roughly 20 percent in the early 1980s.7) (23.6 percent a year).5 3.0) (53.9) (40.0)* (80.7) (14.8 4. was far from uniform (Table 3).4) (15. averaging 5.2) (4. Fishery registered the highest annual growth rate.2) (4.3) (7. Similarly. This observation is.0 1.0 4.3) (21.8 7.9 -7.6 3.8) (8.9) (2.0 4. Growth among the major sub-sectors.8 (100.1986: 7980).2 11.6 -3.2 (100.

continues to account for over 70 percent of all the poor nationwide (Table 4). The poultry and livestock sub-sector has emerged as the only consistent performer through the years. there were policy related factors such as the policy uncertainty regarding the Comprehensive Agrarian Reform Program (CARP) and the sharp decline in public investments in agriculture. The overwhelming majority of the rural poor are in agriculture. While agricultural land increased at a rate of 3. In addition. The macroeconomic difficulties of the 1980s and early 1990s apparently failed to prevent the poultry and livestock sub-sector from achieving respectable growth rates. It managed to record the highest rate of expansion among all the sub-sectors of agriculture. Rural Welfare Outcomes The rural sector.A. 1999b).g. which could be partially explained by the relatively high nominal protection rate induced by domestic policy.8 percent a year in the 1980s and early 1990s. The share of poultry and livestock output in agricultural GVA has steadily climbed from 14 percent in the mid-1960s to 21 percent by the late 1990s. BALISACAN … Pathways of Poverty Reduction 8 Production growth rates for virtually all crops decelerated. a series of natural calamities and droughts. which contributed to the slow growth of the sub-sectors. Asia and Pacific Forum on Poverty . The robust performance of the industry may explain the similarly robust performance of corn (also used as animal feed) – growth of corn production normally exceeded that of rice up until the 1980s. Growth in poultry production (mainly chicken) accounted for much of the progress. Moreover. Additional exogenous factors also contributed to the deceleration in the 1980s including the drops in world commodity prices affecting the country’s traditional export crops (e. in the 1980s and 1990s. sugar and coconut). however. the rate decelerated to only 0. One reason for this is the slowdown in new lands brought into cultivation..6 percent a year in the 1970s (brought about primarily by deforestation). however. Its strong showing contrasts with the declining performance of the fishery sub-sector and the diminished role of the forestry sub-sector. growing at an average of 6 percent annually in the 1980s and about 5 percent for the most part of the succeeding decade. poverty incidence in agriculture (60 percent in 1997) is substantially higher than in either industry or services sector (Balisacan. contributing about 70 percent of the observed growth of agriculture’s GVA in the 1980s and over 50 percent in the 1990s. and the virtual completion of the green revolution by the early 1980s. A. which comprises half of the total population (52 percent).

1. the FIES provides the only nationally representative surveys for poverty comparison in the Philippines.7 61. food and nonfood menus).591 40.7 17.e.7 62. estimates of poverty incidence remained largely between 46 percent and 53 percent.118 49.3 56.988 1997 52.2 18.3 62. the level of rural poverty remained relatively stable during the 1960s through the mid-1980s (Table 5).1 65. The Family Income and Expenditures Surveys (FIES) data show that.3 64.7 17. poverty incidence in rural areas stayed at the level between 55 percent and 60 percent up to 1985. Balisacan.4 51. of poor persons (in ‘000) 47.4 70.1 60.5 61. BALISACAN … Pathways of Poverty Reduction 9 Table 4.0 60. Based on estimates using official approach to poverty estimation. Source: Author’s estimates based on the Family Income and Expenditures Survey (various issues).7 61. poverty reduction in rural areas was also quite insensitive to the aggregate growth in agriculture during most of the 1960s (with a possible exception of the early 1960s when a significant reduction in poverty is observed) through the mid-1980s (Ranis and Stewart.744 62. these are beset by serious technical problems (see Balisacan 1995).A. This means that there was relatively little reduction in rural poverty incidence in the 1960s and 1970s despite a respectable performance in national income growth.3 71. Earlier surveys covering 1961.5 63..344 45.552 44. Poverty incidence is defined as the proportion of the population deemed poor.2 53.346 50. Rural poverty estimates – official methodology 1985 1988 1991 1994 Rural Population share Poverty incidence Share in total poverty No.561 Note: The official approach to poverty measurement uses region-specific poverty lines (i.4 72.3 16. and current income as a broad measure of household standard of living. Conducted every three years since 1985.910 43.103 61. A person in a given region is deemed poor if his income is below the poverty line for that region. Unit record data are available for these surveys.1 While the poverty estimates show somewhat larger fluctuations with a sharp increase in poverty incidence during the period of economic crisis in the 1980s. Asia and Pacific Forum on Poverty . While surveys covering 1975 and 1979 are also available.2 18.4 63.4 18.7 17. Furthermore.8 17.7 15.2 19. differentiated by urban and rural areas.0 66. although there were some notable fluctuations.9 55. 1993). 1993.0 52. and 1971 are available only in published forms. of poor persons (in ‘000) Agriculture (urban and rural) Population share Poverty incidence Share in total poverty No. 1965.

within region.5 12.8 45. Based on the FIES data.0 5. Asia and Pacific Forum on Poverty .9 48. The official approach to poverty measurement does not capture well the changes in standard of living of the poor.0 45. Hayami and Kikuchi (2000) argue that the increase in the income of the landless poor during the 1990s came mainly from increased employment opportunities in nonfarm economic activities. 1961-1997 1961 Official Approach Incidence Depth Severity Author's Approach Incidence Depth Severity – – – – – – – – – 53.4 18. differentiated by urban and rural areas. BALISACAN … Pathways of Poverty Reduction 10 Table 5.1 18. The increase in non-farm income earning opportunities for the rural poor.2 18. This author’s approach uses spatially fixed poverty norm and per capita consumption expenditures.4 18. This is so since the official poverty lines applied for various regions.e. 2.1 30.8 3.2 16. Source: Author’s estimates based on the Family Income and Expenditures Surveys (various issues). resulted from both the greater integration of the rural into the urban labor markets and the increase in non-farm income opportunities within rural areas (such as petty trading and local transportation services).6 6. there were large fluctuations in aggregate economic growth during the mid1980s through the mid-1990s. tending to systematically underestimate (overestimate) the reduction (increase) in absolute poverty in economically more progressive (backward) regions or sectors.1 17.4 59.2 36.0 5.3 27.4 13.4 19.. areas. The problem arises because of the use of region-specific (and. Rural poverty estimates.4 23.0 8.A.0 53. or during periods when the overall economy is expanding (contracting). In contrast with the relatively stable rural poverty incidence during the 1960s through the early 1980s.1 57.2 8.6 15.0 1965 1971 1985 1988 1991 1994 1997 .6 64.2 50. and years imply different levels of living standards. as a broad measure of standard of living.6 9. area-specific) poverty line based on the prevailing consumption pattern of that region (area). See Balisacan (1999b).9 9. poverty incidence during the latter half of the 1980s and through the 1990s appears to follow a declining trend.0 55.7 14.1 16.0 52. food and nonfood menus). adjusted for provincial cost-of-living differences. See Balisacan (1999b) for details. in contrast with the steady aggregate growth during the 1960s and the 1970s (when the poverty incidence remained stable at a high level).2 26.0 9.not available Note: Official approach uses region-specific poverty lines (i. poverty incidence declined from 53 percent in 1985 to 37 percent in 1997 (Table 5). in turn.2 The decline is quite impressive given the fact that.3 51.8 8. and current income as a broad measure of household standard of living.

The same is true with regard to access to sanitation services although the progress has not been as distinct. BALISACAN … Pathways of Poverty Reduction 11 Thus. a relatively large percentage of the rural population in the Philippines has access to basic services. however. while the opposite was true for sanitation services. but this situation substantially improved by the next decade (Balisacan et al. Access to safe water used to be available to a greater proportion of the rural population than it was for the urban population. rural households still have much weaker access to sanitation service. Using the internationally comparable “$1 a day” poverty line used by the World Bank. there has clearly been a consistent trend in poverty reduction in rural areas after the mid-1980s. only about 60 percent of Asia and Pacific Forum on Poverty . literacy and child health occurred between the early 1960s and the 1980s. Changes in the welfare level of the rural population cannot be captured solely by the changes in income and consumption expenditure profiles. Despite such developments.. for example. Overall. The average annual changes in these indicators for the latter group of countries outpaced those for the Philippines although some improvement occurred in the 1990s. Viewed from an international perspective. poverty incidence at the national aggregate fell by ten percentage points from 36 percent to 26 percent between 1975 and 1995 in the Philippines. Rural-urban disparities in access to services have also somewhat narrowed over time. poverty reduction was far more impressive. During the same period.A. e. Considerable improvement in life expectancy. Equally important are access to resources needed for the opportunity to lead a long and healthy life and the ability to acquire and use knowledge. A little over half of the entire rural population in the Philippines had access to safe water and sanitation services in the 1980s. the pace of the poverty reduction during the past four decades in the Philippines is nothing but a disappointment compared to the poverty reduction performance in the neighboring Asian countries. however. in Indonesia where poverty incidence dropped from 64 percent to 11 percent and in Thailand where poverty incidence fell from 8 percent to near zero. but as with income growth. On average..g. 2000). despite some fluctuations in the poverty level over relatively short horizons. these achievements paled in comparison with those of neighboring countries (Table 6).

e.0 11. 1995. 1979. Power and Associates. made socially undesirable investments attractive to private investors and desirable ones (i. Government Policies Affecting Rural Development4 A. in not a few cases..677 1975 8.736 1995 6. Standard of living and human development in the Philippines. This section has drawn largely from Balisacan. however. (1997). including the Philippines. past governments introduced distortions in economic policies. Asia and Pacific Forum on Poverty . Bautista and Tecson. Table 6.3 35.7 Poverty incidence 1985 10. 1993. 4.4 25. promising and efficient activities) relatively unprofitable (Power and Sicat. BALISACAN … Pathways of Poverty Reduction 12 rural populations in developing Asia have access to safe water. 3. Medalla et al. Fabella. and Thailand Real GDP per capita (1995 PPP dollar) 1965 Thailand Indonesia Philippines 1. which.4 1995 <1. These figures must be taken with extreme caution.A.838 0.3 IV.1 64.570 817 1. given the low quality of available data in many developing countries.723 3. de Dios and Associates.. 2000).0 32. the corresponding figure is even lower at slightly less than 40 percent. human development index. Such policies not only hampered economic growth at the national level but also produced side effects deleterious to rural development. UNDP (199_).5 Sources: Real GDP per capita and poverty incidence.475 Human Development Index 1995 0. Development Strategies and Economy-wide Policies There has emerged a consensus among economic researchers that the failure of the Philippines to grow robustly on a sustainable basis and to induce substantial poverty reduction during the last half century stems mainly from the absence of an “effective allocation mechanism” that allows the true comparative advantage of various industries to emerge (Bautista.2 32. Instead. Ahuja et al.679 0. Indonesia.346 2. Debuque and Fuwa (2000). 2000). 1971. For sanitation services.

3 61.4 17. Indicators of human development in the Philippines.1 1970 21.0 32.7 16. (years) 1962 Thailand Indonesia Philippines 54 43 55 1970 58 48 57 1980 64 55 61 1998 72 65 69 Infant mortality rate (per 1000 live births) 1960 95 133 76 1970 73 118 66 1980 49 90 52 1998 29 43 32 Gross primary school enrolment ( percent) 1960 83 71 95 1970 83 80 108 1980 99 107 112 1997 89 113 117 Adult illiteracy rate ( percent) 1960 32.2 16.4 Source: World Development Indicators. BALISACAN … Pathways of Poverty Reduction 13 Table 7.4 43. Indonesia and Thailand Life expectancy at birth. Asia and Pacific Forum on Poverty . World Bank.7 1996 6.0 28.4 1980 12.A.2 5.

A. Bautista (1990) showed that these rates are much higher than those derived for Thailand (16-24 percent) and Malaysia (less than 3 percent). quantitative trade restrictions. up until the late 1980s and mid-1990s. It was rather the indirect effect of the overall development strategy that accounted for a substantial part of the policy bias in the past (e. which in turn had its roots in the industrial protection system and in fiscal. import prohibitions. custom duties. Since agricultural production is more labor-intensive. BALISACAN … Pathways of Poverty Reduction 14 From the 1950s to the 1980s. Trade and exchange rate policies then distorted the relative prices of agricultural inputs and outputs. Estimates of the overvaluation of the domestic currency in the 1970s and 1980s are in the order of 20-30 percent. monetary. 1987. These policies also created an incentive structure that was significantly biased against agriculture. 1995. and exchange rate policies. preventing an efficient allocation of resources. specifically those adopted to promote import substitution and accommodate current account imbalances. affected agricultural incentives. In the long run. 2000). Many authors point out that the bias did not come largely from measures aimed directly at agricultural commodities. and import-competing over export products. Bautista.g. the economic backbone of the rural sector. 1993). an array of policies meant to push the country towards an importsubstituting industrialization track inadvertently stunted the development of the rural sector by creating a bias towards large-scale. resources move away from agriculture and export sectors. Ranis and Stewart. Intal and Power. hire more labor and make greater use of local materials (Medalla et al. Bautista and Tecson. and more efficient in earning (or saving) foreign exchange than industrial production (especially of import-competing industrial consumer goods). price controls and monopoly control in international trade had. less import-dependent.. Asia and Pacific Forum on Poverty . new investments into these sectors are discouraged. The primary channel had been the overvaluation of the domestic currency.. although government interventions in the form of taxes. non-tradable over tradable goods. Making use of the same methodology. capital-intensive manufacturing industries located in urban areas (especially Metro Manila) to the detriment of rural enterprises which are inherently smaller in size. and tended to heavily favor the manufacturing sector over agriculture. subsidies. the premature shift of resources away from agriculture dampens the growth of employment opportunities and output in rural areas. 1990.

Asia and Pacific Forum on Poverty . the government’s objective of reducing marketing margins could have been achieved with non-price policy interventions such as investment in transport and communication infrastructure. Marketing controls included all food commodities by the early 1980s when the NGA was transformed into the National Food Authority (NFA) as the government’s food price stabilization arm. irrigation. The government intervened intensively in agricultural production. collecting minor export taxes and undertaking research and extension in tandem with the private sector. for example.A. the interventions were either ineffective or yielded results contrary to avowed intentions. BALISACAN … Pathways of Poverty Reduction 15 B. In most cases. while increased government intervention during the 1970s reduced seasonal fluctuations in palay (paddy) prices. This meant that the opportunities to sell at the official price had to be rationed. government interventions in Philippine agriculture started to rise in unprecedented proportions. The NFA financed its expanded operations partly from price margins on its duty-free imports. Sectoral Policies In the early 1970s. extension services and fertilizer subsidy. pest infestation and the great flood in Central Luzon) and international (a sharp price hike in the world market) shocks. often to the disadvantage of small farmers. the intervention prevented the development of private trading and storage. to one of monopolizing domestic and export marketing. because the difference between official ceiling and floor prices was insufficient to cover normal marketing margins. The intervention in the rice sector was precipitated by a rice crisis in 1971-72 resulting from both local (poor weather. Arguably. the program called for government assistance in the form of credit. In the case of rice. the National Grains Authority (NGA). In the case of the export crop sector. The economic consequences and cost of government interventions in the 1970s and 1980s have been well documented in the literature. In addition. the government’s rice and corn agency. The government responded to the crisis by imposing price controls on rice and embarking on a massive program aimed at achieving rice self-sufficiency. the intervention was inadequate to maintain producer prices at the official floor price. the government’s intervention shifted from its traditional role of allocating domestic sugar quotas. Dubbed Masagana 99 and launched in 1974. Furthermore. expanded its control of the food sector to include the effective monopolization of wheat (beginning 1975) and soybean (beginning 1978) imports. marketing and international trade.

• Removal of price controls on rice.5 times the value of average annual production and that all the rice and corn lands of 7 hectares or less under share tenancy be converted to fixed-rent leasehold with the official rental ceiling of 25 percent of average output for the three ‘normal’ years prior to land reform. 27 (PD 27) was issued stipulating that all rice and corn fields of over 7 hectares be transferred to the tenants who tilled them at a price 2. and • Consolidation of commodity-specific funds into the Comprehensive Agricultural Loan Fund (CALF) to unify various agricultural lending programs and minimize government participation in these programs. relieved of the burden of explicit as well as implicit taxation of agriculture. Despite these reform measures. • Opening up of import trade in wheat. Compared to the earlier land reform legislations. poultry products and pork. • Abolition of monopsonistic agencies and arrangements in sugar and coconut trading and the dismantling of government monopoly control over international trade in coconut oil. Presidential Decree No. • Divestment of the National Food Authority (NFA) from non-grain activities and the reorientation of its primary function to price stabilization of rice and corn. Asia and Pacific Forum on Poverty . The deregulation that commenced starting 1986 took the following forms: • Lifting of the export ban on copra and export taxes on copra (10 percent) and coconut oil (5 percent). soybean meal and the marketing of sugar. • Liberalization of fertilizer distribution and importation.A. corn. the deregulation of agriculture was left substantially incomplete. among other things. flour and animal feeds to the private sector. levies and taxes as well as entry into activities for which the public good argument was unjustified. PD27 expanded the potential coverage of the lands under the reform program by lowering the retention limit. While the 1970s saw an unprecedented rise of government interventions in agriculture in the form of price and quantitative controls. BALISACAN … Pathways of Poverty Reduction 16 One other major piece of policy measure that was high on agenda during the early 1970s was agrarian reform (land reform). however. soybeans. Reforms undertaken did not include the abolition of the remaining restrictions such as: • NFA monopoly of international trade and domestic market operations in rice and corn. the late 1980s saw an undoing of these policies towards a market-oriented agricultural economy.

Another major government program initiated in the late 1980s with a profound effect on the agriculture sector was the Comprehensive Agrarian Reform Program (CARP). • Hectarage controls on banana production. a trend exacerbated by weak monitoring of the government and absence of a comprehensive land use policy (e.A. The huge budgetary requirement of the program. the amount of loans (at constant prices) Asia and Pacific Forum on Poverty . the program covered. 1991). coffee and seeds. Launched in 1988 under Republic Act 6675. 1995). • Bans on buntal and ramie planting materials. garlic. Aside from dampening the flow of agricultural investments. and • Licensing and/or registration of production and domestic trade for some agricultural goods. CARP intends to redistribute about 580. all agricultural lands. cabbage.000 hectares of rice and corn lands (which was also covered under PD27) and over 2 million hectares of privately-owned nonrice/corn lands (which was newly covered under CARP) over a period of ten years. • Centralized importation of ruminants (for breeding and/or slaughter) and beef. Indeed. This feature of the program has caused the demise of private markets for agricultural lands. BALISACAN … Pathways of Poverty Reduction 17 • Import controls on sugar. g. which could have had a positive impact on the welfare of rural population (see Balisacan. Medalla and Centeno. Congress. Rather than expanding the scope of deregulation. the government moved instead to strengthen the regulation of agriculture. regardless of commodity produced and type of tenurial arrangement and included the provision of support services for farmers.. with the endorsement of the executive branch. The uncertainty surrounding the program implementation served to discourage the flow of private investments into agriculture as well as encouraged non-planting and premature conversion of agricultural lands into nonagricultural uses. together with the limited capacity of the agencies tasked to implement it. In 1992. • Import prohibitions on onions. potatoes. the CARP also diminished the collateral value of agricultural lands by constraining private land sales. especially over the international trade of agricultural products. stood in the way of swift implementation. passed the Magna Carta of Small Farmers (Republic Act 7607). unlike its predecessor PD27. which barred importation of agricultural products produced locally in sufficient quantity. • Export restrictions on animal and animal products.

has been exempted from the trade commitments for a period of ten years. Rice. These binding (tariff) rates are slated to go down to a range of about 40 to 50% for the various crops in 2004 in accordance with the WTO agreement. in turn. severely weakened the drive towards greater openness in the farm sector. the ceiling or binding tariff rates).e. As we saw in the previous section. Congress passed a law (Republic Act 8178) lifting all quantitative restrictions on agricultural imports (save for rice) but replacing non-tariff barriers with the highest possible tariff protection of 100 percent (i. for example. the tariffication of which has been deferred for 10 years). conversion of all existing quantitative restrictions to tariff measures (except for rice. was estimated to be only 60 percent. including private commercial banks. irrigation and research – in the 1980s and early 1990s.20 in 1985-87 and 0. The tariff rate equivalent of quantitative restrictions on corn.42 in 1980-82 to 0. The negative policy impact includes the unintended negative side effects of CARP as mentioned above as well as the sharp fall in public investment in agriculture – especially rural roads. 1998). The deceleration can be attributed to the combination of some exogenous factors (such as price changes in world market. Commitments of the Philippines with regard to agriculture include a prohibition on the use of (additional) non-tariff measures. stagnated in the 1970s and then dropped in absolute value in the 1980s. for instance. investments in agricultural research and development (R&D). 6. tariff reductions (average cut of 30%) and harmonization of sanitary and phytosanitary measures.16 in 1991-92 (Balisacan. A change in the policy environment had been anticipated with the country’s accession to the World Trade Organization (WTO) in 1995 since this required opening up local agricultural markets to competition as well as enacting laws prescribed by the trade treaty. the single most important source of long-term output growth.6 Clarete (1999) pointed out that the manner of “tariffication” resulted in tariff levels that exceeded the corresponding equivalent rates of most products.5 Political negotiations to win public support for this policy direction. Loans by private institutions. In 1996. dropped by much more than loans by public institutions. but government “tariffied” the commodity at the 5.A. production growth rates decelerated during the 1980s and the early 1990s for most crops. Loans per peso of agricultural value added fell from about 0. natural calamities and droughts) and government policies. BALISACAN … Pathways of Poverty Reduction 18 granted by private and government banks in the early 1990s was only half of that in the early 1980s.. In particular. Asia and Pacific Forum on Poverty . the total spent on R&D in the early 1990s comprised merely 60 percent of that in the early 1970s. binding tariffs at ceiling rates.

Implementation had been particularly slow for public alienable and disposable (A & D) lands and private agricultural lands (other than rice and corn lands). and provision of post-harvest facilities. As noted in the previous section.A. While there have been efforts to liberalize the agriculture sector. representing about 45 percent and 25 percent. phase-out of directed credit programs. could not be completed as scheduled (i. reducing the competitiveness of allied industries. In addition. Corn is the main input of the livestock sector. while sugar is an essential ingredient in the food processing industry. The land reform program. Asia and Pacific Forum on Poverty . crucial restrictions remained.. Only a little over half the total coverage was achieved. The Agriculture and Fisheries Modernization Act (AFMA) was enacted in 1997 partly in response to the farm lobbies’ opposition to the country’s entry to the WTO. which is used as feed in the livestock industry. of the total coverage of the program. Binding rates on corn are scheduled to go down to 50% after a 10-year period. High tariff protection of corn. and meat products as a compensatory measure. poultry. For public A&D lands. devolution of communal irrigation systems to local government units.7 David (2000) similarly expounded that binding tariffs were higher than either the nominal protection rates from quantitative trade restrictions or the book tariff rates under EO 470. BALISACAN … Pathways of Poverty Reduction 19 maximum rate of 100 percent. production growth in the agricultural sector recovered in the 1990s. and thus may partially explain the upturn in agricultural growth in the 1990s. the poor performance could be traced mainly to 7. The combination of the sweeping reforms in nonagricultural sectors and the increasing government protection on agriculture apparently led to a rise in relative prices of agricultural products in domestic market. such as the continued monopoly of the NFA over rice trade and hectarage controls on banana production.e. meanwhile. profitability levels of the sugar and corn sectors were becoming artificially high due to increased protection afforded by the new tariff regime as well as regulatory barriers. The AFMA prescribes a coordinated set of measures aimed at enhancing the competitiveness of domestic agriculture in the global marketplace. after a decade of stagnation in the 1980s. in turn spurred high tariff protection of hogs. by 1997) although relevant local agencies performed relatively well compared to their predecessors in terms of land distribution. budgetary allocation for R&D in agriculture. These include infrastructure development. respectively.

Clarete’s (1991) and Medalla’s (1992) assessment of EO 470 indicates that the tariff reform program moved the country towards a lower.. landowners’ resistance. slow reconstitution of land records and sluggish resolution of land conflicts among competing claimants. Through the 1990s. BALISACAN … Pathways of Poverty Reduction 20 delays in undertaking land surveys. With the steady progression of the tariff reform program during the period. A convenient summary measure of the direct impact of trade and industrial policies is the effective rate of protection (ERP). taxes) the activity of the sector. disincentives for private investment. sector-neutral and trade-neutral effective protection policy. The agricultural sector as a whole was thus penalized vis-à-vis the manufacturing sector in terms of relative prices up to the early 1990s (Table 8). the ERPs for agriculture became roughly equivalent to the ERPs for manufacturing. insufficient technical capacity of implementing agencies. an unstable peace and order condition and budget constraints (Balisacan. legal disputes relating to coverage and land valuation. harassment. the negative indirect effects of the slow and incomplete implementation and the uncertainty created as a result (i.e. e. defined as the percentage excess of protected value-added over non-protected value-added of a particular economic activity.A. Falling input prices (with the obvious exception of yellow corn for the livestock industry) imply that Asia and Pacific Forum on Poverty . incentives for non-planting or premature land conversion and negative effects on land market transactions) continue to be a serious problem for stimulating agricultural development. The primary and agricultural sectors typically had lower ERPs than manufacturing during the period between 1965 and the early 1990s—most of the period under our review.. Such result can largely be attributed to the substantial changes in the country’s tariff structure over the last ten years. the main problems included the time-consuming process involved in land acquisition and distribution. 1996c). This measure takes into account the changes in the domestic prices of both inputs and outputs arising from tariffs and import controls. A positive ERP implies that the sector is accorded protection by the system of tariffs and import controls while a negative ERP indicates that the system penalizes (i. As noted earlier. however. For private agricultural lands. the 1990s saw both declining protection rates of manufactured inputs (including agricultural inputs) and increased (tariff) protection of major agricultural commodities for which quantitative restrictions have been removed. such bias against agriculture (at least on aggregate) appears to have finally disappeared.

during which comparable nationwide household survey data disaggregated by province are available. rural welfare outcomes vary substantially not only across regions but also across sectors of the economy. Manasan and Querubin (1997) 8. 1995-2000. Cebu.8 Table 8. The choice of province instead of region as unit of analysis permits the use of a much larger number of observations (73 as opposed to 13) for econometric work. Effective rates of protection by major sector 1965 Effective rate of protection Overall average Agriculture and Primary sectors Agriculture Fishery Forestry Mining Manufacturing Relative protection b/ (Agriculture=100) Agriculture and Primary sectors Agriculture Fishery Forestry Mining Manufacturing a/ b/ 74 85 a/ 88 a/ 91 93 95 96 97 98 99 2000 36 9 17 -26 -17 51 15 116 -10 -2 44 49 9 21 8 -22 0 73 37 5 15 5 -22 -2 56 28 23 27 18 12 1 31 29 24 26 21 12 1 33 22 22 26 16 11 1 23 25 22 29 11 5 0 28 23 21 26 11 5 0 26 20 19 26 6 3 0 22 19 18 24 6 3 0 20 18 18 24 6 3 0 19 95 100 63 71 129 100 188 78 85 125 90 100 89 64 83 143 91 100 91 68 85 136 97 100 93 88 80 103 98 100 96 89 80 106 97 100 92 88 80 98 95 100 86 81 78 99 96 100 88 83 79 100 94 100 84 82 79 97 95 100 85 83 81 97 95 100 85 83 81 96 Estimates were based on price comparisons. Medalla (1990) 1991. such as policy regime. and institutions – in accounting for the performance of the various provinces of the Philippines in poverty reduction. The wide variation also exists across provinces (Figure 2). Toward an Empirical Examination of the Determinants of Poverty Reduction in Rural Areas As noted above. “rural areas” pertain to all provinces outside of major cities (Metro Manila. 1993. BALISACAN … Pathways of Poverty Reduction 21 the effective protection level of agriculture afforded by domestic policy has outstripped the nominal protection level of the sector. income. Asia and Pacific Forum on Poverty . V. In this section. This section assesses the influence of certain time-varying factors.A. Tan (1979) 1985 and 1988. and initial conditions – related to infrastructure. The analysis focuses on the period covering the late 1980s and late 1990s. (1+ERPj)/(1+ERPa). and Davao). Sources: 1965. distribution of physical and human assets. where ERPj is the effective rate of protection of sector j and ERPa is the effective rate of protection of agriculture. Power and Sicat (1971) 1974.

namely: dynasty. we have included the following initial-condition variables: poverty level at the start of the period. for brevity. defined as the proportion of local officials related to each 9. we have included variables representing the political environment. The household data employed are the 1988 and 1997 FIES rounds. in this paper) are qualitatively similar to those reported in Table 9. In each function. expressed as the ratio of irrigated to total farm area. In addition. 1988-97: Incidence 60 40 Change (in percentage point) 20 0 0 -20 -40 -60 -80 -100 1988 per capita expenditure 2000 4000 6000 8000 10000 12000 Province How important are these factors in explaining provincial differences in poverty reduction? In systematically addressing this issue. BALISACAN … Pathways of Poverty Reduction 22 Figure 2 Poverty Reduction. irrigation. average farm size. dummy variable indicating provinces devastated by the Mount Pinatubo eruption in the early 1990s. and Pinatubo. we have estimated reduced-form functions relating to changes in the proportion of the rural population deemed poor. Results for two other regressions involving the depth and severity of poverty (not reported. These data are supplemented by provincial indicators obtained from various sources. Asia and Pacific Forum on Poverty . land inequality.A. road wealth.9 The poverty data are estimates based on the comparable provincial poverty lines reported in Balisacan (1999b). defined as quality-adjusted road length per square kilometer of land. given by the landholding Gini ratio which has extreme values of one (perfect inequality) and zero (perfect equality).

10. and RGDP. The politicaldummy variables reflect the quality of local governance and access to fiscal resources. and execute simple messages. Asia and Pacific Forum on Poverty . The terms-of-trade variable reflects the relative price incentives for agriculture. The regression results are given in Table 9. High income inequality. dummy variable indicating whether the province had problems with Muslim insurgency. restricting competition in local markets to create rents for the political clan) and. RGDP is proxy for overall economic climate in the region. as suggested by recent development literature. serves to proxy for household ability to smooth consumption during shocks. given imperfections in credit market. may inhibit subsequent growth in the local economy..10 The political-party-affiliation variable reflects access to the national coffer for local economic development. defined as the proportion of adult population who can read. defined as the ratio of the price of agriculture to non-agriculture.A. Road wealth is proxy for access to markets and off-farm employment. write. defined as regional per capita Gross Domestic Product. proportion of cumulative Comprehensive Agrarian Reform Program accomplishment to total potential land reform area. defined as the proportion of households with access to electricity. The functional-literacy variable reflects the quality of human capital. thereby leading to (perpetuating) high income inequality. in turn. on performance in poverty reduction.g. Investment in human capital is expected to improve returns to labor (among other channels) and hence reduce poverty. The models explain roughly three-fourths of the observed differences in poverty reduction across 73 provinces between 1988 and 1997. The land-inequality variable reflects access to land and. The irrigation variable is a proxy for land quality. One may expect that political dynasty inhibits economic growth through its negative effect on efficient operation of markets (e. and CARP. The dynasty variable captures the extent of participation (competition) in local politics. BALISACAN … Pathways of Poverty Reduction 23 other by blood or affinity. functional literacy. differently. It is expected to positively influence poverty reduction. we have added the change in the values of the following regressors: agricultural terms of trade. To capture the effects of time-varying factors on the evolution of poverty. and MILF. political party. hence. with respect to the total number of elective positions. This variable is expected to be negatively related with performance in poverty reduction. electricity. local governance by political dynasty may make feasible the concentration of economic controls to a few hands. dummy variable indicating whether the provincial governor belonged to the political party of the president.

demonstrating that CARP beneficiaries achieved higher household incomes than comparable households not covered by the program. Thus. especially in areas where poverty continues to be a rural phenomenon. but the CARP variable is. provinces with initially high level of poverty tend to be also the ones with relatively rapid rate of poverty reduction. all else remaining the same. suggesting that in provinces where the implementation of the agrarian reform program was relatively rapid. poverty reduction would be higher for provinces with initially lower mean income (and hence higher poverty). all other things remaining the same.A. This result supports the finding of Deininger et al. Asia and Pacific Forum on Poverty . as expected. This has to do partly with the fact that the distribution of living standards is invariably skewed to the left. poverty reduction tended to be likewise relatively fast. The positive and significant coefficient of the irrigation variable suggests that improvements in land quality offer an important avenue for speeding up poverty reduction. Put differently. BALISACAN … Pathways of Poverty Reduction 24 As expected. the initial level of poverty influences the speed of poverty reduction. Initial landholding inequality is not significant in all three equations. Farm size and irrigation are also important determinants of poverty reduction. the marginal return (in terms of poverty reduction) to an investment raising mean income is higher the higher is the initial poverty. (2000). all other factors remaining constant. for a given growth rate and income distribution. That is.

444 -85.32 4.01 -0.001 0.31 2. The result confirms the common assertion that public investment in rural infrastructure.057 -61.174 4.09 0.002 0.945 0.790 0. World Bank 2000a).713 11.308 -0. all else remaining the same. especially rural transport.277 3.721 22. as indicated by the regional-GDP-growth variable.33 1. This result appears to contradict the popular story emanating from East Asia’s development experience which suggests that substantial improvements in human capital formed part of the building blocks for sustained Asia and Pacific Forum on Poverty .87 0.41 0.26 8.21 0.74 3.97 2. generates economic linkages and externalities critical to sustained growth and development of the local economy (ILO 1974. functional literacy is insignificant in all regressions. Data pertain to 73 provinces.55 0.206 6.820 10.265 1.348 12.700 -7. Determinants of poverty reduction Explanatory variable Full Model Regression t-ratio coefficient Final Model Regression t-ratio coefficient Initial Conditions: Late 1980s Incidence Land inequality Farm size Irrigation Road wealth Dynasty Political party Pinatubo MILF Change between 1988 & 1997 Terms of trade (Pa/Pna) RGDP Electricity Functional literacy CARP Constant Adjusted R squared F-ratio 0.48 1. This is consistent with the observation made in Balisacan (2000) that overall growth represents the main source of national poverty reduction in recent years.375 9.186 1.922 41.19 -5.250 1. This result suggests that provinces with initially favorable access to markets and off-farm employment tend to have faster poverty reduction.301 12.72 -1.01 2.15 2.521 -0. Surprisingly.843 0. likewise proves to be a significant factor influencing the speed of local poverty reduction.46 -1. BALISACAN … Pathways of Poverty Reduction 25 Table 9.59 0.31 -2. Road wealth is highly significant and positive in all equations. The overall climate for local growth.A.90 45.85 2.160 0.02 2.148 Note: Dependent variable is change in poverty incidence between 1988 and 1997.77 2.55 15.

Additional reason could be found in policy measures that were “anti-small farmer” and thus “antipoor. increased use of fertilizers. is not significant in all regressions. despite this rather impressive growth. Thailand or Indonesia. While the incidence of rural poverty declined. that these variables do not adequately reflect the quality of – and constraints to – local governance.” It has been well documented that economy-wide policies comprising the import-substituting industrialization strategy (e. the response of rural poverty was quite weak. Conclusion This paper has examined the character of rural development and the policy environment influencing the performance of the rural economy during the postwar period. This is interesting considering the usual claim that dynasty in local politics inhibits economic performance – through its effects on economic efficiency – and hence poverty reduction. that the result may have been unduly biased by the rather short interval (five years) chosen for this variable owing to the limitation of available data. However. Note. industrial protection) during the 1960s and 1970s depressed the relative price of agricultural products and encouraged capital intensive patterns of industrialization. Growth of agricultural production in the Philippines during the 1960s and 1970s was quite substantial. overvalued domestic currency.g. World Bank 2000b). For example. BALISACAN … Pathways of Poverty Reduction 26 economic growth and poverty reduction (Ranis. as well as the variable representing political party affiliation of local government executives. 1996. specifically from the adoption of high-yielding varieties. with some short term fluctuations. thereby hampering the labor absorptive capacity of economic growth and industrialization. It is possible. policy interventions targeted to the agricultural sector appear to have had anti-small farmer biases. It has attempted to explain why the pace of poverty reduction in the Philippines has been quite disappointing compared to its neighbors. Much of this growth resulted from increases in productivity. however. The dynasty variable. small farmers were rationed out of credit access Asia and Pacific Forum on Poverty . VI. For instance. say. the pace of poverty reduction paled in comparison to that in. Furthermore. however.A. One of the main reasons for such weak response could be the historical processes leading to the social structure of rural Philippines and the growing incidence of landlessness during the period. and expansion of public investment (especially irrigation). the dynasty variable falls short of capturing all the possible networks of blood/marriage relationships running from the provincial governor to municipal officials.

the policy reforms of the 1980s and the 1990s may have made the impact of aggregate growth more “pro-poor” compared to the earlier period (Balisacan.A. as a result. Asia and Pacific Forum on Poverty . the overvaluation of the domestic currency persisted throughout the 1980s. albeit largely incomplete. rural poverty continued to decline. and public investment in research and infrastructure tended to disproportionately benefit larger farmers. economic reforms in recent years. despite the substantial slowdown of agricultural growth in the 1980s and 1990s. even more so than to the nonpoor. privatization in the service sector) and increased protection on the agricultural sector (e. Meanwhile.. Hayami and Kikuchi. g. albeit very slowly. These have made recent episodes of economic growth to be beneficial to the poor. Overall. trade liberalization. exhaustion of the potentials of high-yielding varieties. Consequently. g. At the policy front. including the decline of world commodity prices. however. the magnitude of the negative (indirect) protection on the agricultural sector remained relatively high. 2000). and. BALISACAN … Pathways of Poverty Reduction 27 due to the subsidized credit program that reached few small farmers. In the 1990s. liberalization of foreign exchange markets. have favorably changed the economic environment of the poor. and uncertainty created by the unduly slow implementation of the land reform program. a major policy shift from the previous several decades when the effective protection of agriculture was substantially less than that of manufacturing. In addition. irrigation and research).. The details of the transmission actually involved from policy reforms to improvement in economic well-being of the poor is an interesting area for future research. While incomplete. g. high tariffs overcompensating the import quotas being removed). policy measures with anti-small farmer biases introduced in the 1970s were reformed in the 1980s. stagnation in public investments (especially in rural roads. The poor performance of agriculture in the 1980s and early 1990s resulted from a combination of factors. 2000). fertilizer subsidies were ineffective. the effective rate of protection of the agricultural sector became roughly equal to that of the manufacturing sector in the 1990s. there have been both accelerated policy reforms (e. A main factor that contributed to the increased responsiveness of poverty reduction to economic growth during this period appears to be the expansion in the non-farm income earning opportunities in rural areas (e..

(Successful land reform programs elsewhere.e. Moreover. investment in land quality and in access to infrastructure. especially in East Asia. thereby diminishing the collateral value of agricultural lands and hence discouraging lending to agriculture. together with sound "fundamentals" (i.) As noted earlier. Priority should also be given to rural infrastructure development. As the East Asian experience demonstrates. Yet. results so far have not been encouraging. fiscal and monetary restraint).and medium-scale industrial development in rural areas. efforts aimed at reforming agrarian relations have not been lacking. were implemented invariably swiftly. Indeed.A. the uncertainty surrounding the program has discouraged the flow of investments into agriculture as well as encouraged premature conversion of agricultural lands into non-agricultural uses. Throughout the postwar period.. and small. Asia and Pacific Forum on Poverty . especially by private financial institutions. are critical to the building of initial conditions for broad-based growth and development. agricultural research and technology transfer. the unduly long period of land reform implementation has bred unintended effects harmful to agriculture and rural areas. BALISACAN … Pathways of Poverty Reduction 28 Land reform aimed at reducing inequality in the distribution of landholding is a crucial aspect of rural development and poverty reduction. the program has effectively caused the private market for agricultural lands to cease.

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