As we started the new administration, there had been some glee when the president mentioned in his first State of the Nation Address that he would continue the macroeconomic economic policies of the previous administration. To recall, the Philippine economy grew by 6.1 percent annually in the last six years following the same economic policies which allowed our poverty incidence to fall from 26.3 percent percent in 2009 to 25.2 percent in 2012, and, finally, to 21.6 percent in 2015.
Official government data on poverty is estimated using the result of the Family Income and Expenditures Survey conducted by the government every three years and the cost of living also being estimated from the consumer price index. The next survey will be in 2018, thus, it will be after sometime yet or in 2019 that we will know if the country’s poverty incidence will have gone down under the new administration.
To recall also, the average growth rate of the Arroyo administration average around 4.8 percent annually in her ten years which, although better than the previous addministrations since Marcos, did not do much to bring down the country’s poverty incidence.
It has been observed that based on the experience of our more successful neighbors, much of poverty can be wiped out only if a country grew by at least 7 percent a year on a sustained basis for a number of years. The reason is that for many poor countries, growth in the initial years may not be beneficial at all to everyone as the benefits of growth in the early years of development may just accrue to a few sectors in a society. This is surely true, more particularly, if growth comes from capital deepening or the use of expensive modern technology that do not require as much labor as before per unit of capital invested in new business ventures.
Studies made in 1950s and 1960s by Simon Kuznets shows that as an economy develops, market forces first increase then decrease the overall economic inequality of the society. This is illustrated by the inverted U-shape of the now so-called Kuznets curve. New investments usually comes from those who already have capital. New investment opportunities mean that those who already hold the wealth have the opportunity to increase that wealth at first. Such a situation would increase the level of inequality of the country. Later as the economy develops further, however, the rest of the population will finally experience an increase in their share of the benefits of development and thus reducing the level of inequality.
The level of inequality of the country is usually shown by its Gini coefficient which range from zero to one, with zero representing perfect equality and one representing perfect inequality. Named after Italian Corrado Gini, the Gini coefficient, sometimes expressed as a Gini ratio or a normalized Gini index, is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents.
Gini developed his coefficient in 1912 by building on the work of American economist Max Lorenz, who published in 1905 a hypothetical way to depict total equality – a straight diagonal line on a graph. From this hypothetical straight line and the actual line produced by plotting the income of the people, Gini produces the Gini ratio or Gini coefficient.
In 2009, the Philippine Gini coefficient was placed at 0.4641. This went down to 0.4605 in 2012, and to 0.4439 in 2013. This indicates a movement towards less inequality and, hence, lower poverty incidence. If the trends continues under the new administration, we should be moving further towards more equality and lower poverty incidence.
Again, lower Gini coefficient means more equality. More equality is also reflected by the lowering of the unemployment rate, which would eventually lead to higher wages, and, therefore, higher income. The country’s unemployment was 7.6 percent in July 2009 and 6.9 percent in July 2010. It went down to 6.5 percent in July 2015, and finally to 5.4 percent in July this year.
From 6.8 percent in the first quarter and 7.0 percent in the second quarter, the Philippine Gross Domestic Product (GDP) grew year-on-year by 7.1 percent in the third quarter of 2016. Just one more month and the year would close. What will it be for the whole year? So far, there is nothing that is stopping the economy to post a 7.0 percent annual growth rate this year unless somethng dractic this month happens to bring down the GDP growth rate below 7.0 percent in the last quarter. The growth momentum is with us now, so, again, unless something drastic happens next year and beyond, there is much hope that we can finally continue to grow by 7.0 percent or higher in the medium term or until the end of the present administration.
What made growth faster in the last six years and hopefully in the next six years? In the last six years, the industry sector from the production side and investment from the demand side finally surpasses that of services and consumption which were the leading the country’s growth in the first ten years of the new millenium. This is what we need. More industries and more investments.
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