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SUMMARIES OF COMPLETED RESEARCH PROJECTS

January 1982

PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES 4th Floor, NEDA Sa Makati Building 106 Amorsolo Street, Legaspi Vi/lage Makafi, Metro Manila

.


INTRODUCTION This volume summarizes the objectives, major f'mdings and policy recommendations of the completed research projects of the PIDS. By disseminating information on these projects, PIDS hopes to contribute to the promotion of and cooperation in policy-oriented development research. Starting operations about three years and a half ago, PIDS has gradually evolved a research program which is addressed to the needs of development policy formulation and planning in the Philippines. More specifically, the objectives of this program are: (1) to provide a framework for planning and policy setting; (2) to assess the effects of policies, programs and projects on the country's development goals, and thus assist in the conduct of policy reform as well as program and project development and evaluation; and (3)to help in identifying strategies designed to cope with anticipated bottlenecks in the longer-run future. Towards these ends, the following areas have been identified as PIDS research priorities for the next two years: (1) employment, human resource developmet and technology; (2) resource mobilization; (3) trade expansion, industrial development and energy; (4) poverty, income and wealth distribution; and (5) planning methods and approaches. PIDS is grateful to the NEDA for its annual financial contribution and to other agencies which have extended financial assistance to certain research projects, namely, the World Bank, for the Industrial Promotion Policies in the Philippines (IPPP) project, and the UNFPA, for the Population and Development Research in the Philippines (PDRP) and Urbanization and Spatial Development in the Philippines (USDP) projects. Any inquiry regarding a particular research project may be addressed to PIDS.

II


BOARD OF TRUSTEES CHAI RMAN Dr. Placido L. Mapa, Jr. NEDA Director-General

MEMBERS Dr. Manuel S. Alba Minister of the Budget Mr. Armand Fabella Chairman PresidentialCommission on Reorganization Dr. Jaime C. Laya Governor of the Central Bank Dr. Romeo M. Bautiste Acting Presidentof the Institute

III


TABLE OF CONTENTS Title

Page No.

Philippine Monetary Policy and Aspects of the Financial Market: A Review of the Literature

1

Industrial Promotion Project

6

Policies in the Philippines

The Distribution of Income and Wealth: A Survey of Philippine Research

18

An Analysis and Synthesis of Poverty Research in the Philippines

24

Urbanization and Spatial Development Philippines: A Survey

27

Population and Development Philippines: A Survey

in the

Research in the 31

Integration, Participation and Effectiveness: An Analysis of Five Rural Health Delivery Mechanisms and their Effects

37

Public Finance in the Philippines: the Literature

43

A Review of

Survey and Review of Forecasting Models on Internal Government Revenues

47

Research on Forest Policies for Philippine Development Planning: A Survey

49

Research on Minerals for Philippine Development Planning: A Survey,

56

The Structure and Growth of the Philippine Financial Market and the Behavior of Its Major Components

63

IV


Policy-Oriented Analysis of Specific Industries An Econometric Model for Forecasting Taxes: A National Level Approach

71 Internal

The Spatial and Urban Aspects of Philippine Development

.V

78

92


PHILIPPINEMONETARYPOLICYAND ASPECTSOF THE FINANCIAL MARKET: A REVIEWOF THE LITERATURE I.

PRINCIPAL INVESTIGATOR: Dr. Edita A. Tan Professor of Economics School of Economics University of the Philippines

H.

DATE OF COMPLETION:MAY 1979

IH. OBJECTIVEOF THE STUDY: The objective of this study is to survey the literature dealing with Phifippine monetary policy and some aspects of the financial market. IV. HIGHLIGHTSOF THE REVIEW: Mission-type studies dominated the literature up to the early 1960's. The f'trst few studies dealt with the very basic question of what type of monetary system suits the Philippines and what type of central bank it needs to establish.Two specific issues stood out, namely: the degree of independence of the Central Bank fiscal authority and the degree of reliance on a non-inflationary f'mance source for government expenditures. The success of Cuaderno'shandling of the said issues may be evidenced by the fast pace of reconstruction and fairly rapid growth rate of income and industrialization of about six per cent. Moreover, inflation was practically nil in the first 10 years of development. The thrust of development policy was to subsidize specialized institutions such as rural and private development banks. While generous credit incentives were granted to these public or semi-public institutions, they were more effectively covered by the legal ceiling on loans and deposits. Other financial institutions in contrast were innovative in issuing instruments not legally restricted by law or Central Bank rules. A number of studies criticized that the credit and interest rate policy on commercial and rural banks has virtually given them opportunities for earning monopoly profits. In response to these policies, banks relied on discounting rather than on borrow1


ing of larger amounts from a bigger number of depositors. This is especially true of rural banks. Studies employing the flow of funds analysis also showed that commercial banks' plowed-in profits composed an extraordinarily large part of their total sources of funds. These banks readily discounted at the Central Bank. Obviously, the social policy created negative effects on intermediation. It seems that the combination of development finance strategies adopted including those on interest rate and credit incentives to priority industries and specialized fmancial institutions tended to have mixed results. Studies on government securities are mostly criticisms of policies related to deficit fmancing and the marketing of securities. Until 1966, only long-term securities to finance specific public works projects were issued. Recently, both short-and long-term securities having fairy competitive rates became available. Despite their attractiveness, they do not form an important part of the stock of securities transacted. Moreover, the f'mancial system failed to develop a secondary market for government bonds. It is noteworthy that among the advices of the first three Missions to the Philippines, it was the one on the development of the securities market that was ignored. Activities in the money market attracted much attention in the early 1970's. Unfortunately, the state of knowledge in the Philippines about this market seems to be quite poor. The literature is very sparse and little has been written, explaining: (1)the implications of money market transactions on the saving-investment process and on the intermediary portfolio, and (2) the behaviour of its borrowers and lenders. It is likely that this market developed as a way of diverslfying lending and borrowing terms. It is also possible that their rapid growth in the early 1970's was in response to the increasingly restrictive interest rate ceiling in the face of higher rates of inflation. The Philippine literature on interest rates may be considered as rudimentary as some of the markets it analyzes. It is concerned with estimating rates in certain segments of the market. Some studies are mainly offshots of the debate on the G_ntral Bank's policy on credit and the complex regulations on interest rates. When put together, the studies give us a partial and quite peculiar structure of interest rate in the regulated and unregulated parts of the market. Rates among substitute instruments whether for borrowing or lending varied widely. The regulated rates were changed at long intervals and were not adjusted to price movements so that 2


when inflation rates rose in the 1970's, the real rate declined to negative figures. On the other hand, the rate in the unregulated market fluctuated widely above the legal rates. This segment was relatively small, making it more vulnerable to general movements in money supply and reserve positions of banks. The literature on Philippine money supply applies some of the basic elements of the money supply functions developed in the West. The studies, however, suffer from inadequate model specification, particularly as regards the role of interest rate. Part of the reason for this is that it has not been accurately measured. Because of legal ceiling on loan and deposit rates, no accurate reporting of these variables has been done. A number of studies focusing on price movements brings to us a fair way toward understanding the causes of post-war inflation in the Philippines and, to some extent, the process of inflation. Depending on the period covered and the theoretical framework used, some factors were seen to have exerted a stronger influence than others on the rate of inflation. A study attempted to reconcile in a way the seemingly conflicting conclusions yielded by other studies about the impact of monetary expansion on prices. The conflict arose because short-run adjustment to changes in exogenous variables and their long-run impact were not distinguished. Both in the long-run and short-run, external factors, such as changes in export and import prices, were found to exert the strongest effect on domestic prices. In contrast, the effect of money supply was felt in the longer run mainly, and only weakly in the short run. It is to be noted that it has no long-run impact on output. An equally important conclusion from the studies is the very heavy inflationary pressure exerted by the domestic food supply, especially in the high inflation periods. It seems that the pressure of domestic food supply had been increasing in this decade. Future works on inflation should, therefore, not neglect the supply side. The literature on savings in the Philippines spans only a little over a decade. It evolved from works aimed at estimating and testing the saving functions. Accordingly, the saving rate accelerated from eleven percent (11%) in 1958 to seventeen per cent (17%) in 1962, and households contributed about two-thirds to total savings. The saving rate stabilized at the 1962 level. For 1974-76, the estimated saving rate ranged between 15 and 18 per cent. The share of households went down, however, to the 45 and 51 range. 3


The most recent works include an investigation of the savings behavior and portfolio choice in the agricultural sector. Surprisingly, land and its improvements did not constitute a large proportion of total assets. Livestocks and equipment predominated while financial assets were relatively small. Dissaving of farm families occurred for income groups below P1,500 per year. IV.

SUGGESTED DIRECTIONS FOR FUTURE RESEARCH:

The following important research problems have emerged from the review: 1.

2.

3.

4.

Some of the more recent papers have been empirical in approach - a few on money supply function and inflation and several on saving. Their results sometimes supported and sometimes contradicted each other. More rigor seems needed in model building, paying particular attention to specifications of the hypotheses and taking into account the institutional setting. Future econometric work should attempt at obtaining a more accurate measure of intvrest rates. Models of money supply have to consider the conduct of quantitative as well as selective monetary control tools to be able to identify relevant explanatory variables and specify the model correctly. Appropriate lags in the relationship have not been worked out in past works. There is need to correct this. There is no literature addressed directly to the structure of interest rate. Any such information can be had only from rather disparate sources. Another researchable question is how the regulated and unregulated rates interact with each other. There were few attempts to develop the demand for asset funclJons. But there can be no conclusive results unless reliable information on interest rate is available. It would be important to find the interest elasticity of porfolio demand by savers of different characteristics. No work has been done yet on credit allocation and the finance cost borne by different types of borrowers in the financial market. Any such work should be integrated with the cost of finance and means of financing of spending units that have no access to the institutionalized market. These studies would help us in understanding the extent of 4


5.

6.

segmentation and its implicati(ms on efficiency and equity. There is the related question of the relative costs of borrowing thro'ugh equity and bond issue. Are the transaction costs of borrowing through these issues higher than they would be through the financing of intermediary loans? There has been no work either on the portfolio behavior of financial intermediaries. Reserve and other portfolio selection may be researched by itself or as part of money supply model. It should explain in a rigorous fashion the composition of theassets and liabilities of banks and nonbank institutions. A lotmore work can be done on savingand portfolio choice.The paperson flow of funds providedus with importantinsights intothisjointdecisionof household and business but some questions havebeen leftforfuture work.We know verylittle of thesavingand porfolio behaviorof low income families, and families with uncertain agricultural income;we need to know whether(andhow) families differ in this behavior from their urban counterparts. There is, moreover, no clear evidence as to the effect of interest rate and intermediation on the said behavior.


INDUSTRIAL PROMOTION POLICIES IN THE PHILIPPINES PROJECT I.

PRINCIPAL INVESTIGATORS: Dr. Romeo M. Bautista Professor, School of Economics University of the Philippines Dr. John H. Power Visiting Professor School of Economics University of the Philippines

I1.

DATE OF COMPLETION: JUNE 1979

III. OBJECTIVES OF THE STUDY: The main objectives of the study are to describe quantitatively the recent econauic policy climate affecting the performance of Philippine manufacturing industries and to recommend modifications in the country's industrial promotion policies with a view of making them more supportive of national development objectives. IV.

HIGHLIGHTS OF THE STUDY.

A.

Economic Policies and Industrial Development and 1960's

in the 1950's

Postwar policy efforts to promote industrialization in the Philippines had benefited mainly a limited segment of the manufacturing sector comprised of industries producing import-substituting consumer goods and, to a lesser extent, intermediate goods. There was effective discrinination, therefore, against export-oriented industries and those producing capital goods and some intermediate products. The policy reforms in the early sixties did not alter very much the incentive structure favoring import-substituting industries that produced consumer goods at the finishing stages. The import restrictions and peso overvaluation of the 1950's were merely replaced by a 6


highlyprotective tariff systeminstituted in 1957 but made redundantby theexchangeand importcontrols. One unfavorable consequenceof the postwarindustrial incentivestructure isthatmost of thenew productionactivities consisted of assemblyand packingoperations heavilydependenton imported materials and capital equipment.The expansionofexportindustries with lowerlaborcontentand the structure of economicincentives biasedtoward the use of capital had been theinhibiting factors in industrial laborabsorption. Two otherrelated consequencesarethe regionalconcentration of industries and the underdevelopmentof smalland medium- scaleindustries. A wide variation inscctoral domesticresourcecosts(DRCs) is in evidence, reflecting a high degree of allocative inefficiency in domestic resource use within the manufacturing sector in 1969. It would appear therefore that the import substitution policies in the 1950's and 1960's permitted the establishment of high cost firms which were inefficient foreign exchange savers or earners. Moreover, it has also been observed that some high-cost industries were receiving heavy protection and others efficient in the use of domestic resources were effectively penalized. One could infer from this that, in ignoring opportunity costs in domestic resource use, the existing protection system had not provided an allocation mechanism that gives rewards to efficient irtdustries and penalties to the inefficient. B.

Recent Industrial Promotion Policies and Manufacturing Performance

The sluggish growth of manufacturing in the 1960's increasingly made dear the need to intensify industrial promotion efforts in order to accelerate the pace of Philippine industri_ation. This found initial expression in the enactment of the Industrial Incentives Act of 1967. Five items in the package of BOI incentives are readily seen to have capital-cheapening effect. Export production was conferred additional benefits by the Export Incentives Act of 1970. The floating of the domestic currency in February 1970 was another policy measure favorable to exporters. Several measures were adopted in line with export infrastructure development, such as the creation of export processing zones, the Philippine Trading Corporation, etc. In the area of import policies, it is worth noting that the 1970 devaluation had not been accompanied by significant trade liberaliza-


tion. A new tariff code took effect on 1 January 1973 which simplified the previously complicated tariff rates to only six. The performance of the Philippine foreign trade in the early seventies showed significant improvement over the preceding decade. The growth of non-traditional manufactured exports was even more impressive. This could be attributed to the increased profitability of export production due to the de facto peso devaluation of February 1970, the Export Incentives Act and other policy measures aimed directly at stimulating industrial exports. However, findings have indicated that, while the profitability of exporting relative to domestic sale had increased sharply after the substantial shifts in the early 1970's, there has been a substantial erosion in the most recent years. Unless offsetting policy measures are adopted, this might serve to break the momentum of the generally impressive growth of the country's new industrial exports achieved in the 1970's. C.

Policy Implications and Recommendations

The reasons why industrial promotion policies are needed can he roughly classified under three headings. First are the genuine market failures. An example is the well-known "infant industry." A second category of reasons could be called institutionalized distortions in market failures. A clear example of this is that of dualism in wage structure. The third category of reasons for industrial promotion could be labeled "policy originating distortions." It is ironic but true that the government has reason to adopt policies to favor certain industrial investments simply because other government policies are biased against them. Considering the three categories of reasons for industrial promotion, the first suggests a need for more or less permanent promotion policies. The second and third require offsetting promotion policies so long as the distortions persist. But this is clearly a second-best interim solution. A fwst-best solution would aim at the eventual elimination of the distortions where it is possible. Some principles are involved in industrial policy formation. First, it must be clear in our minds as to what it is we wish to promote. Conflict and unfortunate side effects can often be minimized if the target is clearly identified. Second, policy instrument should be brought to bear on the target in the most direct manner that is possible; for, the more elliptical is the path by which the incentive reach-


es the target, the more likely will unfortunate side effects occur. Third, it is often important to avoid trying to reach multiple targets with a single incentive measure. With these general principles of industrial policy in mind, policy implications of specific empirical f'mdings of the project can now be discussed. 1.

Structure of Protection (DRC)

and Domestic

Resource

Cost

The structure of protection in 1974 did not differ much from that observed in 1965. From the estimated effects of the actual avallment of fiscal incentives of BOI-registered f'n-ms on sectoral effective protection rates (EPRs) and implicit tariff rates, it has been found that the BOI subsidies on balance are only a minor source of protection to domestic industries. It seems clear then that the efforts to counter the biases of the existing incentive structure have not been effective. A great variation of the DRCs among industries was observed in 1974, implying a high degree of resource misallocation. There was also a strong correlation between domestic resource costs of foreign exchange and effective rates of protection, indicating that the system systematically rewards inefficiency and penalizes efficiency. This obviously suggests a policy favoring the reduction of protection where it protects either inefficiency or monopoly rents. The promising areas of industrial expansion are those where import substitution is far from complete and, of course, exports. These are the areas that are also heavily penalized by the protection system. Accordingly, the latter represents a serious obstacle to rapid industrial growth. To attempt to offset these penalties against industrial exports and import substitution by expanding BOI coverage would require a truly massive program - many times the size of the present one. It would be far better to promote industrial growth by eliminating these policy-originating distortions through a gradual reform of the tariff system. The BOI incentivesshould eventually be restricted to cases of market failures (e.g. infant industries), as well as to some institutionalized distortions that may be difficult to correct (e.g., wage dualism). It was also observed that the degree of dispersion of DRCs lessened somewhat between 1969 and 1974. Apparently, policy climate in the 1970's have made some headway. The fact that great variation remained in 1974, however, can be attributed to the 9


powerful and pervasive influence of the tariff structure. No real success in creating a system that rewards efficiency and that opens the way to more rapid growth of industrial exports and economic# al import substitution can be expected until tariff reform is undertaken. 2.

Fiscal Incentives

A full complement of BOI incentives available to an individual firm could represent a very substantial subsidy that may offset the bias against exports and unprotected import substitutes that the protection system imposes. In practice, however, relatively few firms receive such assistance. In the aggregate, BOI incentives have a negligible countervailing effect.To counter them fully would require a subsidy program of such magnitude as to strain the nation's finances. Two other wealmesses in the present system of fiscal incentives are their strong capital-cheapening and their indirect and more elliptical manner of reaching the targets. What is needed is a set of more direct and more factor-neutral subsidies. Aside from subsidies, there are other means of maintaining a favorable climate that are not biased against employment. An exchange rate policy and reform of monetary and interest rate policy could also help to improve the investment climate, while reducing the bias against employment. 3.

Financial Policies

The present financial system provides credit to favored sectors including non-traditional exports, at artificially low rates. The implicit subsidy from loan interest rates is, in general, modest. The cheapening of credit considerably reduces the user cost of capital. It is found that this policy promotes capital intensity more than it promotes exports, and also adversely affects employment. Interest rates are also kept artificially low on saving deposits. One might expect this to have an adverse effect on saving. The implications of these fmdings seem to be, first, that it would be desirable to eliminate the more favorable credit terms to certain sectors and substitute fiscal incentives that are not tied to the use of capital. Second, the ceiling on deposit rates should be raised so as to encourage saving. Finally, monetary policy should combine with fiscal and exchange rate policies to maintain a favorable climate for investment. 10


4.

Small Enterprise and Regional Poficies

Small and regionally dispersed manufacturing enterprises stagnated in the 1950's and flourished in the 1960's. This may be attributed primarily to the influence of import controls in the 1950's which were phased out in the early 1960's. Controls favored large enterprises located in and around Manila. The implication of this finding is that it would be wise to dismantle the import control system as early as possible, even if tariff reform is getting underway to accelerate the growth and development of small- and mediumsized enterprises in the less industrialized regions of the country. A striking finding is that many of the firms surveyed are unaware of government policies directed toward small enterprises and regional dispersal. Moreover, those receiving assistance had relatively poor performance in terms of efficiency and growth as compared to the whole group. On the positive side, many industries are found to be labor intensive and efficient in the use of capital at small and medium scale. This suggests that government promotion should be directed to those promising industries, rather than to weak firms across the whole spectrum. One conclusion from these studies might, however, be that it is not easy for the government to reach very small and regionally dispersed enterprises through special programs for credit, technical assistance, etc. In contrast, policy reforms such as the elimination of import controls, tariff reform and abandonment of the subsidies to the use of capital would reach broadly across the economy to provide the small and remote finns a better opportunity vis-a-vis their large metropolitan rivals. 5.

Industry Studies

At least three policy implications may be drawn from a number of individual industry studies. The first one is where there is a conflict of interest over protection measures between supplying and using industries within an industrial complex. An outstanding example in the Philippines is the fertilizer industry. DRC calculations indicate that production of urea is advantageous, but that one of its major inputs, ammonia, is not. Again, leather footwear and other leather products are clearly advantageous, while leather tanning is 11


not. The disadvantageous productions ate heavily protected, of course, ammonia by subsidies and Ieather by tariffs and import controls. It seems that the government must take a long, cold, hard look at ammonia and leather production to judge whether these industries have long-run potential to warrant subsidy as "infants." If, however, they fail to pass the test, subsidies are not warranted and their production should be phased out or reduced to the point where only the efficient producers remain. A second finding from the industry studies is the variation in DRCs among firms within the industries. This suggests that protec•tion is providing an umbrella over relatively inefficient firms, while others are enjoying rents. This implies that reduction of protection would be far from disastrous to the industry. Finally, a related finding is the apparent loss of comparative advantage between 1969 and 1974 in the automotive and the paper products industries. A possible explanation for the paper products industries is the extension of production into many new lines under the attraction of higher levels of protection. For the automotive industry, something similar might have occurred as domestic content increased. The policy implication is that we should not expect expansion of an industry to proceed without limit either horizontally or vertically. It would be a serious mistake to set either of these as a target and then provide an efficient protection to make it privately profitable. 6.

Shadow Prices

The shadow prices discussed in this study are: the implicit tariffs for the tradable sectors of the 1974 input-output table, the shadow eXchange rate (SER), the shadow wage rate (SWR), and the shadow of price of capital (SPK). The implicit tariffs have policy implications as revealed through their use in estimating effective rates of domestic resource costs, and through their use in estimating SER. The SER is used in connection with DRCs to judge whether an industry is or is not comparatively advantageous. The policy implication is that only those with DRCs below the SER are worthy of promotion. The SER also provides us an estimate of the general penalty on exports. The excess of the present penalties on exports over the 12


desirable penalties has been estimated to be 16 per cent. This premium then serves as a measure of the subsidy needed to overcome the disadvantage to exports of the excessive undervaluation of foreign exchange that the present protection system defends. The SWR has been estimated to be about 19 per cent less than the minimum wage. This indicates the extent of the subsidy to employment that would erase the bias that wage dualism implies. Of course, the value of the SWR would vary regionally and this should be taken into account in project evaluation, as well as in regional planning. Moreover, it will change over time and should be re-estimated annually. The SPK indicates the premium place on savings and investment over consumption in project evaluation. The estimates of SPK range from 1.84 to 2.82. Conservatively, perhaps this suggests that in project evaluation, investment should be valued twice as much as consumption. The implications for policy planning are profound. An SPK of two suggests that we should tax the use of capital at the rate of I00 per cent, i.e, double its private cost, rather than subsidize its use as we are now doing. This would represent a startling policy recommendation and we are not prepared to be bold as to suggest it on the basis of present knowledge. The f'mding rather implies the need for careful additional study of the shadow price of capital. D.

Toward Reform of the Industrial Promotion System

The principal change from the present system would be the substitutic,n of subsidies for tariffs as the principal instrument of protection. Tariffs give protection to sales in the domestic market while penalizing sales in all other markets, whereas subsidies protect domestic industries in all markets. What is being proposed then is to substitute real protection for market discrimination. Economists have long recognized the superiority of subsidies over tariffs as a protective instrument. What has appeared as a serious obstacle to their use, however, is the presumed difficulty of financing the subsidies. Tariffs, on the other hand, tax the consumer to subsidize the producer. Moreover, to the extent that imports continue, the government receives revenue. A possible explanation of the reason that governments have opted for tariff protection is the reluctance to impose an "open" tax on consumers to subsidize produ13


cers in place of the "hidden" tax that tariffs impose, despite the fact that under tariff, the consumer pays more for what is inferior protection to producers. In any case, a key question is the means of financing subsidies in a reformed system. This is provided by a combination of a uniform tariff and a destination-principle value added tax system. That is, the value added tax applies to domestic production and imports, but not to exports. The rate of the values should vary-higher for luxuries, lower for necessities. The value added tax should be set higher than the present percentage tax rates, because it would replace not only the latter, but also much of the "hidden" taxes from tariff protection. The reduction in hidden taxes means, however, that prices to consumers need not be higher. Indeed, there should be a favorable effect on prices as economic efficiency improves with the gradual move to the new system. The uniform level of tariffs has the purpose of meeting the terms of trade market failure. If we could ignore administrative costs, each export would ideally be taxed separately, in accordance with an estimate of its individual demand elasticity. In practice, this is hardly feasible. Moreover, since most export demand elasticities will be relatively high, as Philippine supply is small in relation to its world markets, the optimal ad valorem tax rate (which is the reciprocal of the elasticity in absolute value), will not differ greatly among them. Accordingly, a uniform tax on exports from a uniform tariff on imports represents a reasonable practical solution. For a few exports, however, the world elasticity may be considerably lower than that for the majority, especially where the Philippines is a major supplier. In these cases, attempts should be made to estimate the elasticities and impose export taxes in accordance with the formula given in the working paper. Export taxes could also play a role, as at present, in capturing rents in natural resources based industries. We would then have a uniform tariff, set in accordance with an estimate of the average demand elasticity for all of the exports other than the few subject to export tax. We would also have a value added tax, set in accordance with revenue needs and varying between luxuries and necessities. These, together with the export taxes, would represent a very efficient and administratively convenient system for raising revenue, while at the same time correcting, in virtually first1Lt


best fashion, the terms of trade market failure. Moreover, the element of equity would be present in the different value added tax rates. In order to avoid additional unwarranted penalties on exports, the present system of full drawback of duties on imported inputs should be continued. In addition, exports sales should be free of value added tax. There remains a problem, however. While exporters would receive a credit for value added tax paid on domestically produced inputs, they would receive that plus drawback of tariff duties on imported inputs. If the tariff protection is to be effective in raising domestic prices above border prices, exporters must also receive a credit equal to the uniform tariff rate multiplied by the value of their purchases of domestic tradable inputs. Otherwise, they will prefer to buy imported inputs; and the purpose of the uniform tariff (which is to correct the terms of trade market failure) is defeated. It should be noted that this problem is present in the existing system in even greater degree. Moreover, it may be difficult to gain world acceptance of the correction suggested here. Up to this point, the only element of "protection" is that of the domestic market via uniform tariffs for terms of trade reasons. Real protection, however, is protection of domestic industries in all markets; and this must come from subsidies. Subsidies could take the form of tax credits (to be applied to any tax liability) or exemption from a part or all of the value added tax. In the case of export sales, it would have to be a tax credit equivalent, since they are already exempt from value added tax. These would represent relatively neutral ways of promoting industries that promise long-run social profitability. What is really difficult, however, is to identify those industries whose response to promotion will be most rewarding to the economy. Careful evaluation with the use of shadow prices, taking into account the projected reform of the promotion system, may go a long way toward helping the government make this identification. But the future is always uncertain and risks must be undertaken. It seems better to let as much of the risk fall on private investors, as is possible. Thus, something like the present system of defining preferred areas and pioneer industries, coupled with subsidies that are neutral and not excessively liberal may represent the best practical approach. Most important, however, is the principle that subsidies be awarded for a specified, limited duration, so that the risk ultimately is borne by the private sector.


There are two categories of industries that require subsidies during the transition, however, that may not fall within the preferred and pioneer categories. They are the export industries and the unprotected import substitute industries. By the latter, we mean those with negative net effective protection rates. When reform is completed, there will be no need for subsidies to such industries, of course, but in the meantime, their growth is retarded by the undervaluation of foreign exchange and other elements of bias in the system. In a sense, they parallel the infant industries, since their viability will be greater in the future under the reformed system than it is at present. The transition to such system should be gradual. High tariff rates should come down hopefully in the context of bargaining for concession from other countries. There is a strong case for adjustment assistance, as noted above. The exchange rate should be allowed to adjust in accordance with the requirements of balance of payments equilibrium and the maintenance of a good investment climate. Monetary policy should aim at these goals in coordination with exchange rate policy. At the same time, we think that the changes in the interest rate policy suggested in the previous section are desirable - namely, substituting neutral fiscal incentives for the lower interest rates made available to favored sectors and raising ceilings on interest rates. We have not yet, however, addressed ourselves to the question of a subsidy to employment. So long as the shadow price of labor remains significantly below the minimum wage rate in Manila and other urban areas, there would appear to be a case for considering such a subsidy. It could take the form Of a tax credit related to the number of employees (not the wage bill). There are, however, several problems, Ideally, it would apply only to unskilled, and, perhaps, semi-skilled workers;but this might be difficult to administer. More seriously, it should apply only where the minimum wage applies and to the extent that the latter is above the shadow wage rate. This means that its greatest incidence would probably be on relatively large establishments in Manila and other industrial concentrations. This would conflict, then, with the aims of policies toward regional industrialization and small enterprises. To avoid this bias, the subsidy would apply only to the small and regionally dispersed. In either case, however, this might, again, be difficult to administer because of the great number of establishments 16


involved. In view of this, it might be better to hold off such a subsidy in the hope that the elimination of the various capital-cheapening aspects of industrial policy will provide a sufficient spur to the growth of industrial employment. If, however, employment growth continues to be disappointing, serious study should be given to the means of implementing an employment subsidy.

17


THE DISTRIBUTION OF INCOME AND WEALTH: A SURVEY OF PHILIPPINE RESEARCH I.

PRINCIPAL INVESTIGATOR: Dr. Mahar Mangahas SchoolofEconomics University ofthePhilippines

II. DATE OF COMPLETION:

JULY 1979

HI. OBJECTIVES OF THE STUDY: Thisstudyaimstocompilea comprehensive bibliography of the Philippine material inthesubjectofincomeand wealthdistribution, presenta synthesis thereof, and suggestdirections forfuturepolicyoriented research. IV. HIGHLIGHTS

OF THE REVIEW:

Most studieshave been concernedwithinequalities in general insteadof inequities inparticular. Inequalities persearenotnecessarilyharmful.However,thelarger theinequalities, thegreater thelikelihoodthattheyincludeinequities. The extentof income inequality inthePhilippines iscaptured by the Giniratio. Thishas been placedat a highlevelby various studies which were usingdifferent datasets. The problemofexplaining theextentofincome inequality isapproachedintwo ways:decompositionanalysis and functional analysis. Ingeneral, theresearch on income inequalities has only been slightly productivein two senses:(a)the empirical models typically explainonly about onefifthof aggregate inequality, and (b)the determinants whichhave been examined are,by andlarge, thosewhich aresocially acceptable, or unlikely to createtheresentments which fostersocial instability. Such factors aseducation, occupation, hoursof work,sectorofemployment,urbanization, age,sex,civil status, familysizeand region of residencecan be shown to have some statistical significance in determining income;althoughtheyaccountforonlya minorportion ofincome differentials, theyindicate a policymix witha redistributionalpotential. Futhermore,attitudinal surveysstronglyconfirm 18


the casual impression that Filipino society is rather tolerant of such differentiating factors. Unfortunately, however, the data system used i_ distributional study has concentrated on relatively tolerable income_correlates. Some prime explanatory variables, like incomeearning assets, both natural and reproducible, are obviously missing from the data sets, hence excluded by most studies. The distributional data system may be appraised in terms of four attributes: coverage, accuracy, frequency, and promptness. Lack of coverage in the data was seen as a serious constraint to macro research. In particular, the consistent exclusion of information on ownership of land, physical capital, and other sources of income streams has widened forward-looking research into aspects of land reform and other "wealth-democratization" policies. Being purely productivity-oriented, the agricultural censuses and surveys emphasized farm size, never hacienda size; they estimated the number of farmers and farm workers, but not the number of landlords. Similar complaint can be extended to other areas. For example, the assertion that "the rich get richer while the poor get poorer" needs to be validated on the basis of longitudinal data which are not provided by a series of ordinary income survey. The same data set is required in studying class mobility, an area which is so far left unattended by researchers. The second major consideration regarding the data is accuracy. This, of course, depends on the cooperation of the respondents and the skill of the interviewers. Accuracy depends also on the sampling procedure and on the sample size. Although income surveys have been of adequate size,sampling procedures still seem to be deficient. If the data are to be valid for intergroup comparisons, then obviously group representativeness is vital. This suggests that sampling stratifications should be group-related, e._, poor/lower class/middle class/ upper class/rich, Muslim/non-Muslim, tenant/landlord. The combination of infrequency and tardiness in reporting severely diminishes the usefulness of the distributional data for the up-to-date guidance of all sectors. Frequency and promptness are key elements by which a reporting system maximizes its impact on the social, economic, and political consciousness. There is a proliferation of studies focusing on poverty. Much attention is given to the definition of poverty line and incidence of poverty. All the critical-minimum lines constructed are heavily foodoriented. The obtained estimates vary according to the methods and 19


data base used. Consequently, the estimated incidence of poverty also varies. One common factor, however, among studies using the FIES income-expenditure series is that they show that poverty has been worsening over time. In contrast, very few studies focus on the higher income groups. Interesting results have emerged from these studies. For instance, it has been observed that the growth pattern has been redistributing income away from labor and towards capital, and that the Philippine development pattern exhibits the desired increase in output without the accompanying goal of greater equality. Another study pointed out that about 40% of elite families had received some inheritance, compared to only 25% among Filipino households as a whole. Still another study revealed that dividend recipients are a wealthy class. Another area that has been the subject of some studies is the government fiscal activity. The starting point is a so-called "prefiscal" income distribution, to which distribution of taxes (losses) and of expenditures (gains) are to be applied, resulting in a so-called "post-fiscal" income distribution. Most of liaese studies suffer from a number of deficiencies. First, one should take note of deficiencies in the basic income data which cannot be compensated for by sophistication in the incidence analysis. For instance, effective rates of taxes and benefits cannot be expressed in per capita terms unless the joint distribution of household size and household income is tabulated. Second, the typical expenditure incidence study excludes the coverage of the substantial public subsidies (e.g., Masagana 99) which are effected through government financial institutions but are not reflected in the regular government budget. Another serious omission is the incidence of implicit subsidies found in fiscal incentives for industrialization, i.e., tax exemptions, tax deductions, and tax credits in the Investment Incentives Act and the Export Incentives Act. Most researchers have so far limited their focus to effects of such legislation on factor intensities, factor prices, employment, etc. Third, the distributional implications of an imbalanced government budget have not been analyzed. If the incidence of public deficit is not considered, then estimates of the effective rates of taxesminus-benefits are biased downwards, in absolute size. But which income classes bear the burden of government deficits? Finally, a much neglected issue in government-expenditure incidence research is the appropriate treatment of public overhead 20


expenditures, mainly outlays for _eneral administration and for defense, which typically constitute one-third or more of all government expenditures. All previous studies fail to consider the question of whether such expenditures should be imputed as supplements to private income at all. A number of studies have addressed themselves to selected equity-relevant policy areas. One such area is land reform. Incongruously enough, however, the government and much of the research establishments have shown greater interest in productivity, as contrasted to the equity aspect of land reform. Most studies seem to miss the heart of the matter, namely the social injustices which land reform is intended to ameliorate. Even with the current thrust of those studies, there is an apparent lack of rigorous testing of the hypothesis that land reform leads to faster productivity growth over time. Education is one area in which there appears to have been deftnite progress towards equalization over the last generation. The relatively unresearched area, however, is educational quality: at primary, secondary and tertiary levels, schools vary widely as to quality, and the distribution of access to formal productive training, properly adjusted for quality, is probably very unequal. The factors affecting access to education include family income, family wealth, and educational attainment of parents. A number of studies attempted to answer the question "who benefits from the health system?" There seems to be an apparent upper income bias in access to health care. The poor are discriminated against not only with regard to the quantity of health facilities but also with regard to its quality. A study also attempted to examine the redistributive effects of the operations of the Social Security System (SSS) in 1967 by imputing SSS contributions and benefits to the wage/salary income classes to which SSS members belong. SSS contributions were found to be progressively distributed. The distribution of benefits, on the other hand, was somewhat ambiguous. Retirement, sickness, and death benefits were quite progressive but loan services were highly regre_ssive.

There has towards equity which may be objective is the

been a clear trend in Philippine development planning as a social objective. The chief criticism, however, made of the 1978-82 Plan with respect to equity failure to make specific targets with regards to reduc21


tion in poverty and the concentration of income and wealth, as well as to increases in real wages. There is no official poverty line. In general, the lack of such broad targets, which presumably are meant to be the ultimate goals of the various programs on education, nutrition, etc., suggests a basic lack of integration in the equity policies and programs of government. V.

SOMESUGGESTEDDIRECTIONSFOR POLICY ORIENTED RESEARCH:

The focus of future researchers should be on equity. A number of unresearched areas mentioned above may be given sufficient attention. This will likely encounter some practical research problems since most of the present distributional data system areheavily concentrated on relatively tolerable income-correlates, and that these variables explain only a small part of income inequality. The solutions to the research problems are likely to be found in actions to remove certain serous deficiencies in the distributional data. 1. The data system should take a comprehensive approach in the selection of variables to measure. In principle, income, apart from transfers, is determined by (a) access to production assets, (b) the rate of employment or use of these assets, and (c)the rate of return to the assets. Assets include physical capital, human capital, and natural resources. The present data system, in general, is overly concentrated on the human assets and very skimpy on the nonhuman assets or property. The issue of access to or ownership of property has obvious relevance to equity. For the various types of property, there is a need to measure, study, and regularly monitor for size distribution, the rate of utilization in production activities, and the rate of earnings. 2. The distributional data system should be oriented towards comparisons of social groups. Inequity and inequality are concepts definable only in terms of acomparison between individuals orbetween groups. Intergroup analysis, such as tenant vs. landlord, labor vs. capital, or Muslim vs. Christian, is essential to research on inequity and inequality, and does not presuppose adherence to a theory of class conflict. Obviously, such analysis will require group-comparative data such as: the size of the landed estate to which a tenant farm belongs, the rate of profit in the industry which pays a certain real 22


wage, or the disposition of public land to Christian migrants in traditionally Muslim territories. 3. The distributional data system should include a limited set of variables for frequent and prompt monitoring. The success or failure of equity-oriented policies should no longer be indicated simply by the absence or presence of dramatic civil disturbances, but by a reliable, scientific system of continuously detecting small changes positive or negative, in conditions of equity, thus allowing early-warning signals of policies growing antiproductive and dangerous or of being non-productive and wasteful, as well as of early signals of improvements which deserve to be more vigorously pursued. The range of possible policies for improving equity is wide. Examples mentioned above are land reform, regional development, and fiscal incidence. The overall results indicate that the policies and programs on this issue have not been wide enough in scope and/or not intense enough in degree. One reason may be that the many equity-relevant policies (price controls, wage fining, land reform, education and social services, natural resource access, social insurance, and taxation) have not been formulated and evolved on an integrated basis. The annual per capita GNP report, for instance, provides an integrating factor for the complex set of sectoral production and employment programs, the inves_nent program, etc. But there seems to be no equivalent actually in operation in the case of income distribution. From the program implementation standpoint, there should ideally be some central agency or body addressing itself to such issues, and hence providing the impetus for the needed technical research. The first order of business might be an integrated analysis and appraisal of past equity-relevant polities. This would in turn become the basis for recommendations for a revised, integrated program for the deliberate attainment of a distribution of income and wealth characterized by a reasonable, socially stabilizing degree ofequity.

23


AN ANALYSIS AND SYNTHESIS OF POVERTY RESEARCH IN THE PHILIPPINES

I.

PRINCIPAL INVESTIGATORS: Dr. Florian A. Album Associate Professor School of Economics University of the Philippines Dr. Eduardo L. Roberto Professor of Management Asian Institute of Management Makati, Metro Manila

H.

DATE OF COMPLETION: JULY 1979

HI. OBJECTIVE OF THE STUDY: The general objective of this study is to review poverty research in the Philippines and to suggest some research directions which would be useful to follow and which would yield further knowledge. IV.

HIGHLIGHTS OF THE REVIEW:

Poverty standards have thus far been reckoned in money terms, the rationale being that possession of a certain amount by a household indicates its capability to bail itself out of poverty through purchases of necessary items, the absence of which reflects poverty. It is found that standards vary by location and by the manner of arriving at a figure, and depend on the number of the poor. At least three general observations can be made after reviewing poverty measures and analyses. The f'trst is thatthere are more studies on indicators of poverty or descriptions of presumed poverty conditions than on its determinants. The second is that there axe more systematic studies on material and economic deprivation employing structural analytical techniques rather than non-economic poverty analysis. Finally, little is known about the contribution of development programs to poverty. 24


V.

SUGGESTED DIRECTIONS FOR FUTURE RESEARCH:

The following research areas are suggested on the basis of the synthesis of poverty research: A.

Poverty measures The work on thresholds may be extended along the following: (1) The measurement of a household size threshold which would determine the poverty line according to family or household size. One way of starting this work may be to measure, say, caloric intake over several household sizes in a given income or socioeconomic class. (2) The measurement of a poverty line on the basis of actual consumption expenditures since the thresholds constructed are measures from a prior specification. The two measures may be tested for differences in order to arrive at a more realistic figure that recognizes the problem of choice inefficiency. (3) The determination of a rural poverty line that uses less of economic measures since rural market exposure is limited. This may be a more attractive study since for rural poverty lines measured along objective standards of thresholds, some way needs to be formulated to take account of nonmonetary aspects of consumption.

B.

Poverty Analyses

In spite of the large body of poverty research, not much can be seen in the way of quantitative analysis of poverty determinants. Part of the problem is the difficulty of discriminating dependent and independent variables. What might be appropriate to follow in a pure poverty understanding would be to take several poverty dimensions (uni- or multi-) and determine each one's explanatory variables over smaller socio-economic strata. C.

Poverty Policy

There is a need for some poverty index which captures sectoral elements and a scheme to cfetermine the relative importance of the 25


sectoral elements on poverty. Once these are specified in a model, it will then be possible to subject a series of data set to a quantitative analysis and to extract policy implications. A second form of research could evaluate the impact of various types of development projects on several areas of concern. Such a quantitative impact analysis plus the model suggested will allow an understanding of how projects have affected poverty. D.

Poverty Perception

The work on poverty perception must continue at least along two related lines: methodological and theoretical. The theory contribution of poverty perception research rests on its insight into poverty behavior. The effectiveness of poverty redressal programs must ultimately come from and be translated into behavioral changes among the poor. Methodologically, poverty perception research should proceed in support of its theoretical thrust, and for this, the more urgent needs are in the following directions: (1) Scale item generation and construction for a more valid and reliable poverty perception instrument. (2) Alternative calibrations of poverty behavior as poverty perception and poverty behavior relationships should be implemented to check on the influence of a different time, place, setting, and group of poor people on the degree, shape, and direction of that relationship. (3) The use of poverty perception scales to yield contrasts between groups of poor people who are the subject of a poverty amelioration program.

26


URBANIZATION AND SPATIAL DEVELOPMENT IN THE PHILIPPINES: A SURVEY I.

PRINCIPAL INVESTIGATORS: Dr. Emesto M. Pernia Associate Professor School of Economics University of the Philippines Dr. Cayetano W. Paderanga, Jr. Assistant Professor School of Economics University of the Philippines

II.

DATE OF COMPLETION: July 1979

HI.

OBJECTIVE OF THE STUDY:

This study provides a survey of literature on urbanization and spatial concentration of population and economic activity in the Philippines. The objective is to put spatial and urban issues in perspective so that an understanding of them may cumulate through research. IV.

HIGHLIGHTS OF THE REVIEW:

Research on urbanization and spatial development in the Philippines has been useful but largely fragmented. Studies on the subject may be classified into the following categories: A.

Urban Development and Primacy

Urbanization in the Philippines has been dominated by Manila's development as the primate city. Its growth has not been the product primarily of the domestic economy, but of external economic and political forces impinging upon it B.

Rural-to-Urban Migration The

sheer magnitudes

of rural-to-urban

migration have been considerable,

and rural-to-metro

but, on balance, perhaps not as 27


overwhelming as is popularly thought of. In particular, internal migration has been characterized not just by rural-to-urban streams but by other intersectoral flows as well. This implies that the phenomenon of rural-to-urban migration can be better understood if it is viewed in the overall internal migraticn context and not simply in relation to the growth of cities. On the basis of theory, micro studies and other census-based research, therefore, it is now strongly felt that rural-to-urban migration is irreversible. Rather than turning migrants back, what may be needed is a well-designed migration policy that would modify population movements into a pattern that is more socially desirable and efficient. While knowledge about the determinants of migration has quickly grown in recent years, understanding of its consequences on the origin and destination areas has remained embryonic. C.

Urban Problems

While studies on urban problems are largely impressionistic descriptions of such matters as water, health, sanitation, congestion, un- and underemployment, criminality, and anomie, most urban scholars, however, agree that the solution to urban problems is better planning and a coordinated development of regional urban centers. D.

National and Regional Urbanization

Researches have indicated that the issue that needs to be confronted in the Philippines is not rapid urbanization but unbalanced urbanization. The phenomenon of primacy - whereby urbanization is concentrated in the metropolismust be understood as the cumulative consequence of historical, demographic, and economic trends, reinforced by the long tradition of interest in the premier city and neglect elsewhere. Concentrated urbanization and development may have resulted from the indirect or implicit biases of macroeconomic and growth policies in favor of Metro Manila and against other regions. E.

Comparative Economic Performance of the Different Regions

Growth differentials among the various regions may be attributed in part to macroeconomic policies of the government. In parti28


cular, the import-substitution policy had helped the rapid growth of Greater Manila relative to other regions during the period 1948-61. The export promotion program of natural resource-based products had made Mindanao, Cagayan, and Western Visayas the fastest growing regions during the period 1960-66. The industry dispersal program recently provided by the government to correct the differential growth rates among regions has received cool response from the private sector. It is found to be ineffective in influencing plant location. On balance, public policies in the Philippines may be regarded as a strong factor for spatial concentration. This may be largely an unintended result, as shown by the later efforts to promote regional dispersal of industries. It is still unclear, however, whether the government should push for regional dispersal of industries, and, if it should, to what extent. The answer requires a consideration of whether: (1) there is an optimal size of the primate city, Metro Manila, as well as optimal sizes of the other urban centers in the country; (2) optimal city sizes are uniform for specific types of industries; (3) there is a minimum city size for the efficient operation of industries. An important part of the answer is an assessment of exactly how strong the biases are for agglomeration introduced by government macro policies. A resolution of these issues will be essential in the formation of a national urbanization policy that will be useful for the long-term development of the country. V.

SUGGESTED DIRECTIONS FOR FUTURE RESEARCH:

The trend and pattern of urbanization and spatial development have been the consequence of historical inertia and a constellation of economic, social and demographic forces. But they are also determined in no small measure by macroeconomic policies that are purportedly neutral but which have in fact exerted potent spatial biases. Research should, therefore, adopt an approach that takes into account all these important considerations. Specifically, research should include the following: 1. Historical, economic, social and demographic forces that have shaped the country's urbanization and spatial development. 2. Maeroeconomic and growth policies that have introduced unintended effects or biases toward the concentration of economic resources, activities, and population in certain areas of the country. 29


3. Recent regional and rural policies and programs explicitly designed to counteract the forces of concentration and to disperse population and economic activities. 4. Various urban policies and projects intended to solve current problems, as well as schemes to manage the big city, On the basis of such investigation, it should be possible to identify alternative urbanization scenarios under the following regimes: (a) one where there is no change in current policies, or a perpetuation of the current trend; (b) one where there is a set of "ideal" conditions for urban and industrial growth; (c) one where there are feasible policies consideringhistorical antecedents and the current trend.

3O


POPULATIONAND DEVELOPMENT RESEARCH IN THE PHILIPPINES: A SURVEY I.

PRINCIPAL INVESTIGATOR: Dr. Alejandro N. Herrin Associate Professor School of Economics University of the Philippines

II.

DATE OF COMPLETION: OCTOBER 1980

HI.

OBJECTIVES OF THE STUDY:

This study attempts to review the state of social science research on population and development relationships in the Philippines with the aim of taking stock of what is known about such relationships as a guide to development planning, and of providing a basis for formulating recommendations to guide future research on the topic. IV.

HIGHLIGHTS OF THE REVIEW:

The review is organized around the examination of empirical studies focusing primarily on the major demographic variables, namely: (a) mortality, (b) fertility, and (c) internal and international migration. A.

Mortality

The sets of estimates provided by various studies reveal a pattern of gradually declining mortality from the earlier part of the century up to the beginning of the Second World War, a rapid decline during the postwar period up to the end of the 1960's, and a slight slackening of the decline thereafter up to the 1970's. Mortality levels by region, and by province within regions are far from uniform, suggesting that a single national mortality estimate hides more than it reveals in terms of mortality conditions in the country. Childhood mortality is higher in the rural than in the urban area. With regards to the determinants of mortality, it appears that mortality declines associated broadly with general economic deve_ 31


lopment have been more important than mortality declines associated with the introduction of inexpensive public health measures, especially in the more recent period. This would tend to be contrary to international opinion regarding mortality declines in the post-war era in LDCs. This result requires further systematic study. Just exactty what type of program and what type of development will have the greatest impact on mortality is still to be determined by more systematic research. Quantitative studies on the impact on mortality of public interventions, even specific health interventions, are practically nonexistent. This may be due partly to the paucity of the data and partly to the commonly held view that public health programs would naturally have an impact on mortality. Nevertheless, evaluations of the mortality impact of public health programs are necessary in order to determine what specific types of programs will tend to have the larger impact on mortality per unit of resource used. B.

Fertility

The evidence indicates a declining total fertility rate. In addition, evidence of declining total fertility rate is observed in almost all regions with the consequence of slightly narrowing regional fertility differentials, especially in the recent past. In most general terms, fertility differentials have been more commonly noted in social groups, differing in education of the wife, occupation of the husband, income of the family or the husband, work status of the woman, religion, type of households and place of residence. In a more rigorous manner, studies have found that there is a threshold level of education of the wife and family income such that the effect of each respective variable on fertility is positive below some threshold level and negative above it. Among the proximate determinants of fertility, nuptiality patterns and contraception have received attention in the recent past. Between 1960 and 1970, 15 percent of the decline in fertility in the Philippines can be attributed to nuptiality, while for the earlier period, 1903 to 1960, 63 per cent of the decline in overall fertility is due to nuptiality. The sources of nuptiality change over the course of the seven decades can be traced, on one hand, to environmental pressure on the traditional systems of land holding in the rural sectors, and on the other, to several interrelated processes of 32


modernization, educational expansion, and shifting composition of the labor force. Within marriage, fertility is approximately determined by several intermediate variables including contraception, involuntary fecundiW, voluntary and involuntary abstinence, and inducedandspontaneous abortions. A study has shown that, except for age at marriage and use of contraception, the length of breastfeeding, because of its suppressing effect on ovulation, is the factor that exerts the greatest influence on the length of the birth interval. Studies that examined the impact of rapid population growth at the national level point to the adverse effects of such growth on per capita income, employment, and on provision of basic services such as education and health. However, these did not study the actual consequences of demographic trends; rather these consequences were inferred from the results of simulation exercises using economicdemographic models of different specifications. C.

Migration

The cumulation of migration studies since the 1960's has provided a broad picture of the size and pattern of population movements over the century. Studies on the areal and micro-leveldeterminants of voluntary migration suggests that public policy and programs that directly and indirectly affect the spatial distribution of employment opportunities and of social services such as education, could have a significant influence on the migration patterns. These would include (a) the import-substitution industrialization program in the 1950's and 1960's; (b) the shift in public policy thrust in the 1970's towards rural/agricultural development, export promotion, regional dispersal of industry, and infrastructural development in both urban and rural areas. Another set of policies and programs might be categorized as that which attempts to cope with the problems brought about by internal migration. Most of these programs deal with problems of urban growth especially in the MetroManila. However, very little social science research has been done to evaluate such programs on internal migration. In view of the general lack of knowledge of the magnitude of the manpower outflow and its impact, it is not surprising that there is no def'mitive policy on the out-migration of such manpower. Seve33


ral attempts, however, have been made to minimize the problem of manpower outflow, especially among doctors, scientists, and exchange scholars. Still a comprehensive public policy on international emigration of skilled manpower has to be made. V.

SUGGESTED DIRECTIONS FOR FUTURE RESEARCH:

A.

Mortality

There is a need for more studies dealing with determinants and consequences of, and the impact of public policy on, mortality and perhaps on two of its closest correlates: morbidity and nutrition. In this regard, the earlier attempts to describe and analyze mortality differentials by geographical areas and by social groups need to be continued in the first place. Second, multivariate analysis of known or suspected determinants of mortality trend and differentials needs to be made. Third, cause of death statistics should regularly be compiled and analyzed for possible trends and differentials. Fourth, there is a need to evaluate the mortality effects of a wide range of public interventions, not only the more narrowly defined public health measures but also such programs as food and nutrition, water supply, housing, and environmental sanitation. B.

Fertility

While determining the levels and trends at the national context will be a continuing task, there is now a greater need to emphasize the estimation of regional areal differentials in fertility levels and trends, as well as of fertility differentials by social groups, to pinpoint which area or sub-groups are lagging behind in the overall trend in fertility decline. It will be extremely helpful in understanding the current fertility declines observed in many regions, to relate such demographic information with corresponding area-level information on socioeconomic factors likely to have affected such observed fertility trends, including the role of family planning inputs. One viable research approach might be to relate fertility trends with an analytical description of the socio-economic changes that have occurred in the area combined with the knowledge of the timing of the availability and use of family planning inputs. 34


At a more disaggregated level than regions, there seems to be a greater need for understanding fertility changes as they occur at the community or village level. At this level, there seems to be a greater potential for combining institutional analysis with the usual microlevel statistical studies characteristic of past approaches in the Philippines. The often neglected area is the distributional impact of alternative fertility trends. Studies that shed light on this issue could provide indicators as to where (among what groups) efforts to implement fertility policy would be to the greatest national advantage (taking distributional goals into consideration). Studies dealing on demographic impact of public interventions are just beginning. As such, theoretically and methodologically sound research designs have yet to be developed. Cumulative experience in this area, however, could not only advance the state of the art, but also begin to provide some guidelines for possible restructuring of development strategies and programs to maximize the attainment of traditional development goals and of the demographic objectives as well. C.

Migration

As suggested by the studies on the determinants and consequences of internal migration, there is a need to make a comprehensive descriptive inventory of public policies and programs that influence internal migration. From such an inventory one can proceed to evaluate the impact of efficiency of such programs which could be divided into (a) direct policies, e.g., resettlement or relocation schemes, or (b) indirect policies, e.g., regional development and industrial location. Another major area of research is the study of the determinants of internal migration by building on the already available studies. These new sets of studies should look into the factors that influence various population sub-groups to migrate or not to migrate, and with respect to the former where they migrate. On the consequences of internal migration, there is a need to identify the economies and diseconomies of internal migration from the point of the sending areas as well as of the receiving areas, both at the macro level, and from the point of view of the migrant and the non-migrant at the micro level. 35


To properly assess the magnitUde of international migration, one needs to have a reliable and up-to-date information of such migration in terms of its volume, reasons for migration, average length of stay, the amount of remittance and returned savings, cost of migration and the characteristics of migrants. In addition to the traditional sources of data, specialized surveys could be conducted to generate such information on systematic basis. A study on the consequences of emigration that would focus on the economic and social effects of the recently initiated flows of skilled and semi-skilled workers is called for. Them is a need to evaluate current policies or measures to induce highly trained nationals to remain at home or for those abroad to return home, as well as policies regarding the organized export of semi-skilled and skilled labor. Finally, one could re-examine the educational and training programs in an effort to redesign such programs in a way that will prepare people to perform the jobs that are available and that need to be done in the country.

36


INTEGRATION, PARTICIPATION AND EFFECTIVENESS: AN ANALYSIS OF FIVE RURAL HEALTH DELIVERY MECHANISMS AND THEIR EFFECTS I.

PRINCIPAL INVESTIGATOR: Dr. Ledivina V. Carifio College of Public Administration University of the Philippines

II.

DATE OF COMPLETION: October 1980

III. OBJECTIVE OF THE STUDY: The general objective of the study is to identify and evaluate existing mechanisms for delivery of health and related services to the very poor with the end in view of recommending policy and administrative measures to bring such services more effectively to their intended poor recipients. IV.

THE FIVE PROGRAMS:

Five programs were included in this study. Separate case studies were prepared on them by different researchers under the supervision of the principal investigator. Their varying characteristics are summarized in Table I. It is important to point out that the five programs differ in terms of degree of integration and participation. 1 V.

SUMMARY OF MAJOR FINDINGS:

The study shows that in general, the various program have been able to improve community health conditions, make the people aware of their existence, deliver services to a large proportion of the population including the poor, and manage to satisfy their intended beneficiaries. The results also suggest that all the areas covered in this study have been able to enjoy medical attention in cases of illness and death to a greater degree than is shown by national studies and the consideration of statistics such as physician-population ratios obtaining throughout the country. 1The five programs variable of integration.

were actually

chosen on the basis of their differences

37

along the



Summaries of Completed Research Projects, Volume I