Towards Inclusive Regional Development in the Philippines:

Lessons, Challenges and Policy Suggestions

20 August 2014, 8:30am-12:00nn

Malcolm Hall, University of the Philippines

Diliman, Quezon City

The Andrew Tan Lecture Series

present

a Forum and Roundtable Discussion

in cooperation with:

PRISME Strategies

About the Forum and Roundtable Discussion

The World Bank, in cooperation with the Angara Center for Law and Economics, is undertaking a joint set of studies to identify the areas of persistent underperformance and inequality in the Philippines. By reviewing the differences in regional performance and their proximate causes, we hope to pinpoint regions and areas where focused structural reforms can do the most good for the nation.

The goal is to encourage balanced and inclusive growth that will come from reforms that remedy long-standing problems that impede progress. These include understanding what are the sources of uneven performance in different areas in the Philippines, how labor markets respond to existing constraints, why catch up is difficult, and what possible areas of improvement in the capital and land markets might aid in promoting both equity and efficiency.

We want to see how much or how little progress has been made in closing the rural urban income gaps and also the gaps between the leading central areas and other regions of the Philippines. In addition, we pay close attention to the political economy of institutions at the regional level to see how local politics limits equilibrating market forces and makes local people indebted to their political patrons. Teams of economists combining leading researchers from the Philippines and abroad will present the first set of technical estimates which will then allow us to formulate actionable policy initiatives that draw upon their findings.

2

To that end, the following three studies seek to:1) establish the extent of disparities between regions 2) examine the response of labor markets to existing institutions and

identify lack of convergence, and3) discuss how political institutions, such as political dynasties limit the

scope of reform or distort the outcomes of economic policies and slow progress

Skoufias and Vinha examine Welfare Disparities in the Philippines. They identify the regions of welfare inequality and ask how much of this is due to underlying characteristics of individuals and how much due to other factors. They try to see whether fiscal transfers are properly targeted to appropriate regions and recipients.

Chua, Limkin, Nye, and Williamson in Urban-Rural Income and Wage Gaps in the Philippines: Measurement Error, Unequal Endowments, or Market Failure review where changes in regional wage gaps have occurred over the last 20 years and try to see how much of a role the labor market played in promoting those gaps.

Querubin and Robinson in Why Regions Fail: The Case of the Philippines, look at the nature of institutional differences between different regions of the country to identify which factors impede growth and development beyond simple poverty or infrastructure. They particularly point to the importance of regional power blocs and political dynasties as distorting incentives for growth.

Overall, by thinking of the Philippine reform within the framework of these three papers, we can consider how reform choices can best be structured to promote greater productivity and wider inclusiveness, while pulling back or retargeting ineffective efforts.

3

4The World Bank Groups new country assistance strategy for the Philippines from 2015 to 2018 revolves around the theme Making Growth Work for the Poor.This means making sure no one, especially the poor, is left behind. Households and communities most at risk for poverty should have better income opportunities and less vulnerability to sudden economic difficulties and natural disasters. They should have better education, good health care, as well as access to infrastructure and information to improve their lives and to participate in growing the economy.

The new strategy is in line with the World Bank Groups new twin goals of eradicating extreme poverty and promoting shared prosperity. It also supports the countrys goal of promoting and sustaining inclusive growth that reduces poverty and creates more and better jobsjobs that raise real wages or bring people out of poverty.

Formally launched in 2012, the Angara Centre for Law and Economics is the first and only Philippine policy and academic think tank dedicated to the scientific analysis and international assessment of Philippine and regional legislation, policies and public sector programs.

The Centre seeks to professionalize the science of government legislation and policy-making, by drawing from the best of the growing ranks of internationally-trained Philippine scholars, and enabling them to continue academic and policy research according to the rigors of international standards.

It serves as a forum for continuing analysis, recommendations and information dissemination between and among public and private sector economists, lawyers, academics, and policy-makers from the Philippines and abroad.

About

The challenge remains to create these new opportunities for some 10 million unemployed and underemployed Filipinos as of 2012, including 1.1 million individuals who expect to enter the labor force every year.

The new strategy continues to support the countrys development programs in five key engagement areas:

Transparent and accountable governance: strengthening public financial management, improving fiscal transparency and financial accountability, and supporting greater demand from citizens for government accountability.

Empowerment of the poor and vulnerable: improving health and education outcomes, strengthening social protection and ensuring the availability of more timely and improved measurements of poverty.

Rapid, inclusive and sustained economic growth: promoting economic policy reform for inclusive growth, boosting private sector development by improving the investment climate for firms of all sizes, including greater access to finance, and increasing productivity and job creation, especially in rural areas.

Climate change, environment, and disaster risk management: increasing physical, financial and institutional resilience to natural disaster and climate change impacts, and improving natural resource management and sustainable development.

Peace, institution building, and social and economic opportunity: supporting social and economic development in conflict-affected regions in Mindanao, including the Bangsamoro.

The indicative new financial commitment from IBRD may average $800 million a year, along with non-lending support in the form of analytical and advisory assistance.

IFC has committed $250-$300 million in investments in the next couple of years.

As of January 2014, the Philippines portfolio comprises 18 active projects with a total net commitment of $2.9 billion. This includes 13 investment loan operations and five trust funds that are part of the lending portfolio.

5

About

6 Messages

Senator Edgardo J. Angara recently concluded over two decades of distinguished service as a Philippine legislator.

Angara led the enactment of landmark legislation on agriculture, education, health, arts and culture, science and technology, good governance, financial reforms, and social welfare. These include the Free High School Act, creation of CHED and TESDA, Government Assistance to Students and Teachers in Private Education (GASTPE), PhilHealth Act, Senior Citizens Act, the National Cultural Heritage Law, creation of the National Museum, the National Commission on Culture and the Arts (NCCA), and many others.

He also pushed for the creation of the Congressional Commission on Science, Techonology and Engineering (COMSTE) to study the root of the countrys waning competitiveness and lay down the grounds for improvement and innovation.

A former President of the University of the Philippines, Angara was the driving force, along with Justice Antonio Carpio, behind the creation of the UP Institute for Maritime Affairs and Law of the Sea (UP-IMLOS), a highly specialized academic research institution devoted to maritime affairs.

He has also been active in the international relations front, having been responsible for successfully rekindling the Philippiness relations with Spain through the Philippine-Spanish Friendship Day Act.

Apart from being a legislator, Angara also served government in various functions as chairman of the Congressional Commission on Education (CHED), Secretary of the Department of Agriculture, Chairman of the Philippine National Bank, and Executive Secretary.

7Roger van den Brink is the Lead Economist and Program Leader of the Macroeconomics and Fiscal Management Global Practice of the World Bank Group in the Philippines. He has been with the World Bank since 1992. Prior to this assignment, he also served as Lead Economist for Mongolia. Before joining the East Asia Region, he held various positions in the Africa Region, including Senior Country Economist in South Africa, Deputy Resident Representative in Zimbabwe, and Special Assistant to the Vice Presidents.

He holds a Ph.D. in Agricultural Economics from the University of Wisconsin-Madison in the US, and a Masters degree in Sociology from Wageningen University in the Netherlands. Before joining the World Bank, he was a Research Associate at Cornell University and an Associate Expert with the Ministry of Foreign Affairs of the Netherlands in Burkina Faso.

His academic publications include Economic Policy and Household Welfare During Crisis and Adjustment in Tanzania (New York University Press, 1993); and The Economics of Cain and Abel in The Journal of Development Studies, Vol. 31, No. 3, February 1995, which was awarded the Dudley Seers Memorial Prize for the best written article in The Journal of Development Studies in 1995.

On land reform, his publications include: Agricultural Land Redistribution: Toward Greater Consensus (International Bank for Reconstruction and Development: Washington DC, 2009); In Search of Land and Housing in the New South Africa: the Case of Ethembalethu (World Bank, Washington DC: 2008), and Consensus, Confusion and Controversy: Selected Land Reform Issues in Sub-Saharan Africa (World Bank, Washington D.C., 2005).

Messages

8Emmanuel Skuofias is a Lead Economist at the Poverty Reduction Group of the World Bank. He specializes in impact evaluation, targeting, poverty measurement, urban and rural labor markets, land tenancy issues, and the role of risk mitigation and insurance in poverty alleviation. Other experience at the Bank includes a senior appointment at the Poverty and Gender Group in the Latin American and Carribean Region. Prior to joining the Bank, Emmanuel worked at the Research Department of the Inter-American Development Bank (IDB) and at the International Food Policy Research Institute (IFPRI). He earned his Ph.D. in Economics from the University of Minnesota (1988) and his B.A. degree in Economics from the University of California at Berkeley (1981).

Sharon Faye Piza is a Consultant for the World Banks East Asia and the Pacific Poverty Reduction and Economic Management Department, and the South East Asia Regional Department of the Asian Development Bank. She concurrently holds a position as Treasurer of the Board of Directors, and Research Fellow, of the Asia-Pacific Policy Center. Her research interests are regional development, poverty, migration, and agriculture.

WELFARE DISPARITIES IN THE PHILIPPINES Authors:Emmanuel Skuofias, Sharon Faye Piza, Nobuhiko Fuwa, and Katja VinhaPresenter:Emmanuel Skuofias

Skoufias, Piza, Fuwa and Vinha identify the regions of welfare inequality and ask how much of this is due to underlying characteristics of individuals and how much due to other factors. They try to see whether fiscal transfers are properly targeted to appropriate regions and recipients.

Abstract of Presentation

Prior to this, she has had extensive experience in both policy and research work, holding various positions at the Food and Agriculture Organization of the United Nations (FAO), the Department of Agriculture of the Philippines, and the UPecon Foundation.

Ms. Piza received her B.S. Statistics and her M.A. Economics from the University of the Philippines in Diliman.

Nobuhiko Fuwa is a Professor of Development Economics at Graduate School of Asia-Pacific Studies, Waseda University, Tokyo.

He received his Ph.D. in Agricultural and Resource Economics (1995) from the University of California at Berkeley.

His research interests include rural and agricultural development, poverty, and gender. Earlier he has worked at the World Bank in Washington DC and International Rice Research Institute in Los Banos.

Katja Vinha holds a doctorate in agricultural and resource economics from the University of Maryland, College Park. Her dissertation examined the effects of the Washington Metro on development patterns. Her recent studies have looked at the impacts of weather shocks on welfare in rural Mexico, and her past research spans from the effects of transportation networks on location decisions to land reform. She has worked as an assistant professor of economics at the Universidad de los Andes in Bogot, Colombia, and as a consultant for the World Bank.

9

Dr. Karl Kendrick Chua is country economist of the World Bank for the Philippines. His work focuses on tax policy and administration, public expenditure management, macroeconomic management, and statistical development. Chua completed his MA in economics in 2003 and PhD in economics in 2011 at the University of the Philippines School of Economics. Prior to joining the World Bank, he was lecturer of mathematics and economics at the Ateneo de Manila University and was consultant for several local and donor-funded projects. He also trained as a systems analyst in Andersen Consulting. His current research interests include the political economy of tax reform and local government fiscal capacity.

10

URBAN INCOME AND WAGE GAPS IN THE PHILIPPINES: Measurement Error, Unequal Endowments, or Market Failure Authors:Karl Kendrick Chua, Joseph Louie Limkin, John Nye, and Jeffrey WilliamsonPresenter:John Nye

Abstract of PresentationIncome inequality is higher in the Philippines than in most of its Asian neighbors, and spatial inequality accounts for a fairly large share of it. Individual attributes of workers and households explain the majority of the urban-rural gaps, and schooling, skill, and experience are the three individual characteristics that matter most. Provincial variables like typhoon incidence, government corruption, school crowding, and access to health facilities matter far less. Workers born in the cities and immigrants to the cities invest more in human capital than do rural workers, but this paper cannot tell us how much of that is due to better human-capital-building infrastructure supply in the cities and how much is due to higher urban demand for that infrastructure, and if the latter how much is due to market incentive. There is little evidence of labor market failure in the Philippines since, when properly measured, wage gaps by skill level are modest. Unequal endowments account for most of the urban-rural income gaps.

11

Dr. John Nye holds the Frederic Bastiat Chair in Political Economy at the Mercatus Center at George Mason University and is Research Director at the Higher School of Economics, Moscow. His primary research interests include European economic history and new institutional economics.

He is a founding member of the International Society for the New Institutional Economics and has been on the editorial board of the Journal of Economic History. He was co-editor of Frontiers in the New Institutional Economics. His articles have been published in a variety of journals.

Joseph Louie Limkin is a Research Analyst at the Poverty Reduction and Economic Management (PREM) unit, World Bank Office Manila (WBOM). He completed his degree in Management Economics from Ateneo de Manila in 2008, and received his M.A. in Economics from the UP School of Economics in 2010. Prior to his engagement with WBOM, he worked for the ADB and a USAID funded health project.

12

WHY REGIONS FAIL: The Case of the Philippines Authors:Pablo Querubin and James RobinsonPresenter: James Robinson

In this paper we investigate the institutional determinants of regional inequality in the Philippines. We emphasize how political institutions shape regional inequality through various channels: the dominance of political dynasties which leads to a lack of accountability and a non-pluralistic society; the weakness and absence of the national state which mani- fests itself in violence and warlordism. This weakness creates and is sustained by problems of illegitimacy in parts of the country, such as Mindanao, which are distinct culturally and historically have only been incorporated relatively recently into the polity. We also show that land inequality plays a relatively separate role in determining poverty and public policy with higher land inequality be strongly associated with better development and public goods out- comes. We argue however, that this likely captures the indirect impact of land inequality working via the political system in a situation with political institutions which are extractive in many ways.

Abstract of Presentation

Jeffrey Williamson is Laird Bell Professor of Economics, emeritus, Harvard University, Honorary Fellow, Department of Economics, University of Wisconsin-Madison, and Adjunct Professor, University of the Philippines, School of Economics. President of the Economic History Association (1994-1995), Chairman of the Harvard Economics Department (1997-2000), and Master of Harvards Mather House (1986-1993), his most recent books are: Cambridge Economic History of Capitalism (2014), Trade and Poverty: When the Third World Fell Behind (2011); Globalization and the Poor Periphery before 1950 (2006); and Global Migration and the World Economy (2005).

13

Dr. Pablo Querubin is Assistant Professor of Politics and Economics at New York University. He received his Ph.D. in Economics (2010) from the Massachusetts Institute of Technology. His areas of research include political economy, development economics, elites, economic and political institutions, as well as economic history. He received the Outstanding Teaching Award from the Sloan School of Management of MIT in 2008. He also had a brief stint from 2011-2012 as Visiting Professor at the Universidad de los Andes in his native country Colombia.

Dr. James Robinson is David Florence Professor of Government at Harvard University and a faculty associate at the Institute for Quantitative Social Science and the Weatherhead Center for International Affairs. He studied economics at the London School of Economics, the University of Warwick and Yale University. He previously taught in the Department of Economics at the University of Melbourne, the University of Southern California and before moving to Harvard was a Professor in the Departments of Economics and Political Science at the University of California at Berkeley. His main research interests are in comparative economic and political development with a focus on the long-run with a particular interest in Latin America and Sub-Saharan Africa. He is currently conducting research in the Democratic Republic of the Congo, Sierra Leone, Haiti and in Colombia where he has taught for many years during the summer at the University of the Andes in Bogot. Professor Robinson is a member of the Canadian Institute for Advanced Researchs program on Institutions, Organizations and Growth.

14

Dr. Gerardo P. Sicat is the countrys first Director-General of the National Economic Development Authority, serving as its head from 1972 to 1980. Remaining as the countrys foremost economist, he also later worked for the creation of the Philippine Institute for Development Studies (PIDS) and Philippine Center for Economic Development (PCED). Dr. Sicat is currently Professor Emeritus of the University of the Philippines School of Economics and is a renowned scholar and author of many economic books and textbooks. He is a graduate of the UP School of Economics and the Massachusetts Institute of Technology. He is also a recipient of a grant from the Rockefeller Foundation and the UP President Edgardo J. Angara (PEJA) Fellowship.

ROUNDTABLE DISCUSSION PanelDiscussant:Gerardo Sicat

15

This event is the second of a series of roundtable discussions organized by the Angara Centre under the AndrewTanLectureSeries, named after the Centres first patron.

Dr. Andrew Tan is the founder, chairman of the board, and president of Megaworld Corporation since 1989. He has achieved remarkable success in the real estate, food and beverage industry, and hotel industries. He currently sits in the board of numerous corporations that have made their mark locally and internationally.

Both government and civil society have recognized Dr. Tans contribution. The City of Taguig in April 2005 conferred on him the Forward Taguig Award in the Field of Business and Entrepreneurship. The Quezon City government named Mr. Tan Businessman of the Year in 2004, in recognition of

his effort in transforming Eastwood City into a magnet for investments and one of the most dynamic growth centers in the city.

Apart from being a brilliant entrepreneur, Dr. Tan is a philanthropist whose contribution provided the seed fund for the successful launch of the Angara Center for Law and Economics in 2012.

About the Sponsor

The Andrew Tan Lecture Series

P R O G R A M M E

Messages from:EdgardoAngaraFormer Senator and Founder, Angara Centre for Law and Economics

RogiervandenBrinkLead Economist and Program Leader, Macroeconomics and Fiscal Management GlobalPractice,WorldBankGroup

Registration

Health Break

Roundtable DiscussionPanel Discussant: Dr.GerardoSicatOpen Forum

Presentations:Welfare Disparities in the PhilippinesAuthors:EmmanuelSkoufias,SharonFayePiza,NobuhikoFuwa,andKatjaVinhaPresenter: EmmanuelSkoufias

Discussion Points: Identifying the regions of welfare inequality: to what extent is inequality due to the

underlying characteristics of individuals, and how much is accounted for by other factors?

Are fiscal transfers properly targeted to appropriate regions and recipients?

Urban-Rural Income and Wage Gaps in the Philippines: Measurement Error, Unequal Endowments, or Market FailureAuthors:KarlKendrickChua,JosephLouieLimkin,JohnNye,andJeffreyWilliamsonPresenter: JohnNye

Discussion points: Changes in urban-regional wage gaps over the last 20 years: how much of a role

does the labor market play in promoting these gaps? The labor markets adjustment to existing rigidities while preserving regional

inequality: which failures of endowment (such as health and human capital) or structural rigidities (such as in the capital or labor markets) need more attention and analysis?

Why Regions Fail: The Case of the PhilippinesAuthors:PabloQuerubinandJamesRobinsonPresenter: JamesRobinson

Discussion points: The nature of institutional differences across regions of the Philippines: which

factors impede growth and development beyond simple poverty or infrastructure? The importance of regional power blocs and political dynasties as distorting

incentives for growth; The lack of strong central state presence in much of the country as a source of

continuing violence and lawlessness; and The poor provision of most basic functions of the government, limiting the impact of

policies that could promote economic growth.

09:00 - 09:05 am

09:05 - 09:10 am

08:30 - 09:00 am

10:55 - 11:20 am

11:20 - 12:00 pm

09:10 - 09:40 am

09:40 - 10:10 am

10:10 - 10:55 am

ANGARA CENTRE FOR LAW AND ECONOMICSTowards Inclusive Regional Development in the Philippines: Lessons, Challenges and Policy SuggestionsAugust 20, 2014, 8:30 am - 12:00 nn, Malcolm Hall, UP Diliman, Quezon City

Moderator: Ms. Betsy Enriquez