Regional growth and sustainable development in asia

Now, an analysis of economic growth and sustainable development in every conceivable region would clearly be beyond the scope of this book.Therefore, to fix ideas and to keep the scope o

New Frontiers in Regional Science: Asian Perspectives 7

Amitrajeet A Batabyal

Peter Nijkamp Editors

Regional Growth and Sustainable Development in Asia

Makoto Tawada (General Managing Editor), Aichi Gakuin University

Kiyoko Hagihara, Bukkyo University

Lily Kiminami, Niigata University

Editorial Board

Sakai Yasuhiro (Advisor Chief Japan), Shiga University

Yasuhide Okuyama, University of Kitakyushu

Zheng Wang, Chinese Academy of Sciences

Yuzuru Miyata, Toyohashi University of Technology

Hiroyuki Shibusawa, Toyohashi University of Technology

Saburo Saito, Fukuoka University

Makoto Okamura, Hiroshima University

Moriki Hosoe, Kumamoto Gakuen University

Budy Prasetyo Resosudarmo, Crawford School of Public Policy, ANU

Shin-Kun Peng, Academia Sinica

Geoffrey John Dennis Hewings, University of Illinois

Euijune Kim, Seoul National University

Srijit Mishra, Indira Gandhi Institute of Development Research

Amitrajeet A Batabyal, Rochester Institute of Technology

Yizhi Wang, Shanghai Academy of Social Sciences

Daniel Shefer, Technion - Israel Institute of Technology

Akira Kiminami, The University of Tokyo

Advisory Board

Peter Nijkamp (Chair, Ex Officio Member of Editorial Board), Free UniversityAmsterdam

Rachel S Franklin, Brown University

Mark D Partridge, Ohio State University

Jacques Poot, University of Waikato

Aura Reggiani, University of Bologna

This series is a constellation of works by scholars in the field of regional science and inrelated disciplines specifically focusing on dynamism in Asia.

Asia is the most dynamic part of the world Japan, Korea, Taiwan, and Singaporeexperienced rapid and miracle economic growth in the 1970s Malaysia, Indonesia, andThailand followed in the 1980s China, India, and Vietnam are now rising countries inAsia and are even leading the world economy Due to their rapid economic developmentand growth, Asian countries continue to face a variety of urgent issues including regionaland institutional unbalanced growth, environmental problems, poverty amidst prosperity,

an ageing society, the collapse of the bubble economy, and deflation, among others.Asian countries are diversified as they have their own cultural, historical, and geograph-ical as well as political conditions Due to this fact, scholars specializing in regionalscience as an inter- and multidiscipline have taken leading roles in providing mitigatingpolicy proposals based on robust interdisciplinary analysis of multifaceted regionalissues and subjects in Asia This series not only will present unique research resultsfrom Asia that are unfamiliar in other parts of the world because of language barriers,but also will publish advanced research results from those regions that have focused onregional and urban issues in Asia from different perspectives

The series aims to expand the frontiers of regional science through diffusion of sically developed and advanced modern regional science methodologies in Asia andother areas of the world Readers will be inspired to realize that regional and urbanissues in the world are so vast that their established methodologies still have space fordevelopment and refinement, and to understand the importance of the interdisciplinaryand multidisciplinary approach that is inherent in regional science for analyzing andresolving urgent regional and urban issues in Asia

intrin-Topics under consideration in this series include the theory of social cost and benefitanalysis and criteria of public investments, socioeconomic vulnerability against disas-ters, food security and policy, agro-food systems in China, industrial clustering in Asia,comprehensive management of water environment and resources in a river basin, theinternational trade bloc and food security, migration and labor market in Asia, landpolicy and local property tax, information and communication technology planning,consumer “shop-around” movements, and regeneration of downtowns, among others.More information about this series athttp://www.springer.com/series/13039

Regional Growth and

Sustainable Development

in Asia

Amitrajeet A Batabyal

Department of Economics

Rochester Institute of Technology

Rochester, NY, USA

Peter NijkampDepartment of Spatial EconomicsTinbergen Institute

Amsterdam, The Netherlands

New Frontiers in Regional Science: Asian Perspectives

DOI 10.1007/978-3-319-27589-5

Library of Congress Control Number: 2016959989

© Springer International Publishing Switzerland 2017

This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission

or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.

Printed on acid-free paper

This Springer imprint is published by Springer Nature

The registered company is Springer International Publishing AG

The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

of another ’s errors on one’s shoulders Each man lived his own life and paid his own price for living it The only pity was one had to pay

so often for a single fault One had to pay over and over again, indeed In her dealings with man, destiny never closed her accounts The Picture of Dorian Gray, Oscar Wilde

This book would not have been possible without the assistance of several scholarsdispersed throughout the world Hence, we would like to thank the contributors ofthe individual chapters of this book for their enthusiastic participation in this time-consuming project The enthusiasm of the contributors is richly on display in thehigh quality chapters they have written on various aspects of regional growth andsustainable development in Asia, the subject matter of this book.

Batabyal would like to acknowledge the support he received from Swapna

B Batabyal and Sanjana S Batabyal during the long gestation period of thisbook In addition, he would like to recognize the financial support he receivedfrom the Gosnell endowment at the Rochester Institute of Technology Finally, hewould like to dedicate this book to the memory of Balarka A Batabyal(1966–2010) Nijkamp thanks the Tinbergen Institute in Amsterdam and

A Mickiewicz University in Poznan, Poland, for providing an intellectually ulating environment during the preparation of this book

August 2016

vii

Part I Introduction

1 Introduction to Regional Growth and Sustainable

Development in Asia 3Amitrajeet A Batabyal and Peter Nijkamp

Part II Poverty

2 Spatial Disparities and Poverty: The Case of Three Provinces

in the Philippines 23Ronald U Mendoza, Rosechin Olfindo, and Camille Regina Maala

3 Decomposing Poverty Change in India:

Within-and Between-Group Effects Across Regions, 2004–2005

and 2009–2010 41Srijit Mishra

4 Pathways Out of Rural Poverty and the Role of Agriculture

in Four Rice Ecosystems in the Rural Philippines 63Nobuhiko Fuwa and Esther B Marciano

Part III Energy and Climate Change

5 Reducing Petroleum Subsidy in Indonesia: An Interregional

General Equilibrium Analysis 91Arief A Yusuf, Arianto A Patunru, and Budy P Resosudarmo

6 An Evaluation of Energy-Environment-Economic Efficiency

for Asian Countries: A Proposal for a Time-Series

Target-Oriented DFM Model in Data Envelopment

Analysis 113Soushi Suzuki and Peter Nijkamp

ix

7 Climate Change and Threats to Sustainability in South

East Asia: Dynamic Modelling Approach for Malaysia 133Gamini Herath and Akram Hasanov

Part IV Money and Macroeconomics

8 Learning About the Role of Market Micro-Structure from Frequency Data on Asian Banks 151Biplob Chowdhury, Mardi Dungey, Nagaratnam Jeyasreedharan,

High-and Mohammad Abu Sayeed

9 Dynamic Macroeconomic Performance of Indian States:

Some Post-Reform Evidence 181Debashis Acharya and Biresh K Sahoo

Part V Ageing, Education, Production, and the Internet

10 Dynamic Impact of Population Aging on Regional Economies

in Korea Using a Recursive-Dynamic Interregional

CGE-Population Model 201Euijune Kim, Geoffrey J.D Hewings, and Changkeun Lee

11 Educational Attainment and Learning in India, 2004–2012 221Farzana Afridi and Bidisha Barooah

12 SME Participation in Global Production Networks:

Analytical Issues and Evidence from Penang, Malaysia 237Prema-Chandra Athukorala

13 The Internet in Nepal: WiMAX Broadband Service 263Jitendra Parajuli and Kingsley E Haynes

Index 283

Debashis Acharya School of Economics, University of Hyderabad, Hyderabad,India

Farzana Afridi Economics and Planning Unit, Indian Statistical Institute, NewDelhi, India

Prema-chandra Athukorala Arndt-Corden Department of Economics, CrawfordSchool of Economics and Government, College of Asia and the Pacific, AustralianNational University, Canberra, ACT, Australia

Bidisha Barooah International Initiative for Impact Evaluation, New Delhi, IndiaAmitrajeet A Batabyal Department of Economics, Rochester Institute of Tech-nology, Rochester, NY, USA

Biplob Chowdhury Tasmanian School of Business and Economics, University ofTasmania, Hobart, TAS, Australia

Mardi Dungey Tasmanian School of Business and Economics, University ofTasmania, Hobart, TAS, Australia

Nobuhiko Fuwa Graduate School of Public Policy, University of Tokyo, Tokyo,Japan

Akram Hasanov School of Business, Monash University Malaysia, Jalan LagoonSelatan, Bandar Sunway 46150, Selangor, Malaysia

Kingsley E Haynes Schar School of Policy and Government, George MasonUniversity, Arlington, VA 22201, USA

Melbourne Sustainable Society Institute, University of Melbourne, AustraliaGamini Herath School of Business, Monash University Malaysia, Jalan LagoonSelatan, Bandar Sunway 46150, Selangor, Malaysia

Geoffrey J.D Hewings Regional Economics Applications Laboratory, University

of Illinois, Urbana-Champaign, IL, USA

xi

Nagaratnam Jeyasreedharan Tasmanian School of Business and Economics,University of Tasmania, Hobart, TAS, Australia

Euijune Kim Department of Agricultural Economics and Rural Development,Seoul National University, Seoul, South Korea

Changkeun Lee Research Institute of Advanced Materials, Seoul National versity, Seoul, Korea

Uni-Camille Regina Maala Asian Institute of Management, Makati City, PhilippinesEsther B Marciano Independent Consultant, Graduate School of Public Policy,The University of Tokyo, Tokyo

Ronald U Mendoza Ateneo School of Government, Ateneo de Manila sity, Quezon City, Philippines

Univer-Srijit Mishra Nabakrushna Choudhury Center for Development Studies, neswar, Odisha, India

Bhuba-Peter Nijkamp Tinbergen Institute, Amsterdam, The Netherlands

A Mickiewicz University, Poznan, Poland

KTH Royal Institute of Technology, Stockholm, Sweden

Rosechin Olfindo Ateneo School of Government, Ateneo de Manila University,Quezon City, Philippines

Jitendra Parajuli School of Policy, Government, and International Affairs,George Mason University, Arlington, VA, USA

Arianto A Patunru Arndt-Corden Department of Economics, AustralianNational University, Canberra, ACT, Australia

Budy P Resosudarmo Arndt-Corden Department of Economics, AustralianNational University, Canberra, ACT, Australia

Biresh K Sahoo Xavier Institute of Management, Xavier University, war, Odisha, India

Bhubanes-Mohammad Abu Sayeed Tasmanian School of Business and Economics, versity of Tasmania, Hobart, TAS, Australia

Uni-Soushi Suzuki Department of Life Science and Technology, Hokkai-GakuenUniversity, Sapporo, Japan

Arief A Yusuf Department of Economics, Padjadjaran University, Jawa Barat,Indonesia

Introduction

and Sustainable Development in Asia

Amitrajeet A Batabyal and Peter Nijkamp

A.A Batabyal ( * )

Department of Economics, Rochester Institute of Technology, Rochester, NY, USA

e-mail: aabgsh@rit.edu

P Nijkamp

Tinbergen Institute, Amsterdam, The Netherlands

A Mickiewicz University, Poznan, Poland

KTH Royal Institute of Technology, Stockholm, Sweden

1 The word “region” frequently refers to a geographical entity that is smaller than a nation Even so,

it is important to understand that this is not the only way in which this word has been used in the literature Researchers have sometimes used the word region to refer to a nation and, on occasion, this word has also been used to refer to supranational geographic entities such as the European Union or North America Given the broad subject matter of and the wide interpretation of sustainable development employed in this book, the present and the following chapters utilize all three meanings of the word region The context ought to make clear to the reader the sense in which this word is being utilized in each of the individual chapters that follow.

© Springer International Publishing Switzerland 2017

A.A Batabyal, P Nijkamp (eds.), Regional Growth and Sustainable Development

in Asia, New Frontiers in Regional Science: Asian Perspectives 7,

DOI 10.1007/978-3-319-27589-5_1

3

the West The contemporary confluence of these three themes means that when itcomes to comprehending and formulating solutions to pressing economic problems,researchers, and policymakers simply cannot pursue business as usual anymore.Instead, they need to come to terms with a new global reality and structure bothresearch and policymaking in light of this reality To better understand this lastpoint and to frame the successive contributions in the individual chapters of thisbook, we now discuss each of the above three themes in greater detail.

First, consider the subject of economic growth Economists and regionalscientists agree that irrespective of what region in the world one looks at, if one

is interested in lifting large numbers of people out of poverty then it is essential

to implement management strategies and policies that promote harmoniouseconomic growth This line of thinking is now so much a part of orthodoxthinking that it features standardly in the literature on economic growth Forinstance, in a prominent textbook, Ray (1998, p 47) points out that of “all theissues facing development economists, none is quite so compelling as thequestion of economic growth.”

The Nobel laureate Robert E Lucas has pointed to the salience of economicgrowth in a different but telling manner Looking at the vast differences in the rates

of growth of per capita income in the nations of the developing world, he (1988,

p 5) has posed challenging and pertinent questions for both researchers andpolicymakers Specifically, he has asked: “Is there some action a government ofIndia could take that would lead the Indian economy to grow like Indonesia’s orEgypt’s? If so, what, exactly? If not, what is it about the ‘nature of India’ that makes

it so? The consequences for human welfare involved in questions like these aresimply staggering: Once one starts to think about them, it is hard to think aboutanything else.”

More than two decades after the above statement of questions by Lucas (1988),Bhagwati and Panagariya (2013) have written a tome that can reasonably beconsidered to contain an amplification of some of Lucas’s ideas These researchersmake two points that are worth highlighting First, they point out that the question

of what strategy to pursue to lift the greatest number of people out of extremepoverty is the “central moral challenge” facing the world today Second, theycontend that economic growth—led by markets and overseen by liberal poli-cies—is the only strategy that will effectively deal with this central moral chal-lenge In sum, economic growth promoting policies are essential to advance thedesirable goal of economic development in the world

However, what should be the defining feature of this much sought after goal ofeconomic development? This brings us to the second theme mentioned above Putsuccinctly, the modern environmental movement would say that the hoped foreconomic development needs to besustainable But what does the much discussedbut frequently nebulous concept of sustainable development actually mean?

As a prelude to answering this question, we note that there is no single definition

of sustainable development (or of sustainability) that is generally accepted in the

literature.2Even so, the best known definition of sustainable development is the oneproposed by the Commission led by the former Norwegian Prime Minister GroHarlem Brundtland (1987, chapter 2, paragraph 1) According to this Commission,

“sustainable development is development that satisfies the needs of the presentwithout compromising the needs of the future.” Note that this best known definition

of sustainable development views the notion as an expansive one In addition,because this definition has a distinct present versus future aspect to it, inter alia,the definition also tells us that it is not possible to divorce the element of time fromthe concept of sustainable development Put differently, the notion of sustainabledevelopment is fundamentally an intertemporal concept

In addition to being a dynamic concept, Batabyal and Nijkamp (2004,2009)have shed light on the expansive notion of sustainable development by crediblycontending that this notion also has aspatial dimension to it In other words, onecan meaningfully examine whether economic growth in a particular region—inevery sense of the word region—is or is not leading to development that issustainable Now, an analysis of economic growth and sustainable development

in every conceivable region would clearly be beyond the scope of this book.Therefore, to fix ideas and to keep the scope of the book manageable, we havechosen to focus on a particular region in the world, namely, Asia

Why Asia? The answer to this question brings us to the third theme mentioned inthe first paragraph of this section Several observers such as Mahbubani (2008) andMacDonald and Lemco (2011) have noted that in the last two centuries, as the West(North America and Western Europe) was holding sway on the world stage, Asiannations were largely bystanders, reacting to progressive surges of Western com-merce, thought, and power However, there is now an ongoing shift in the globalcenter of gravity Specifically, geopolitical and economic power are graduallyshifting from the West to Asia and hence Asia is returning, according to Mahbubani(2008), to the global center stage it occupied for eighteen centuries before theemergence of the West

As pointed out by Valasek (2012) and Zakaria (2015), this state of affairs has led

to a considerable amount of hand-wringing and soul-searching in the West cifically, the rise of Asia has led to a rebalancing of American foreign policy and toPresident Obama’s much discussed pivot to Asia The geopolitical and economicrise of Asia raises significant questions about economic growth and sustainabledevelopment in this vast region In addition, given the contemporary salience ofAsia, Sen (2001) has rightly noted that lessons learned about regional growth andsustainable development in Asia are likely to prove useful for the design andimplementation of apposite policies in other regions of the world These pointscollectively provide the basic rationale for this book

Spe-Following this introductory chapter which comprises Part I of the book, there are

12 chapters and each of these chapters—written by an expert or by a team of

2 Pezzey ( 1997 , p 448) notes that there were more than 50 definitions of sustainability in 1989 and that it would be possible to find more than “five thousand definitions” in 1997.

experts—discusses a particular research question or questions about regionalgrowth and sustainable development in Asia For ease of comprehension, wehave divided the present volume containing 12 chapters into four parts Part II ofthis book focuses on the subject of poverty, and this part consists of three chaptersthat provide a detailed discussion of spatial disparities and poverty in three prov-inces in the Philippines (Chapter “Spatial Disparities and Poverty: The Case ofThree Provinces in the Philippines”), the decomposition of poverty across regions

in India (Chapter “Decomposing Poverty Change in India: Within- and Group Effects Across Regions, 2004–2005 and 2009–2010”), and the pathways out

Between-of poverty and the role Between-of agriculture in the rural Philippines (Chapter “PathwaysOut of Rural Poverty and the Role of Agriculture in Four Rice-Ecosystems in theRural Philippines”), respectively

Part III is concerned with energy and climate change, and this part of the bookconsists of three chapters The chapter “Reducing Petroleum Subsidy in Indonesia:

An Inter-Regional General Equilibrium Analysis” uses an interregional generalequilibrium model to analyze the effects of a reduction in the petroleum subsidy inIndonesia The chapter “An Evaluation of Energy-Environment-Economic Effi-ciency for Asian Countries: A Proposal for a Time-Series Target-Oriented DFMModel in Data Envelopment Analysis” first discusses certain theoretical advances

in data envelopment analysis, and then develops a new model to come up with what

it calls “target efficiency scores” for inefficient decision making units (DMUs) indifferent parts of Asia Next, the chapter “Climate Change and Threats to Sustain-ability in South-East Asia: Dynamic Modeling Process for Malaysia” utilizes adynamic modeling process to shed light on the climate change induced threats tosustainability in south-east Asia in general and in Malaysia in particular

Part IV focuses on the expansive aspect of sustainable development byaddressing research questions concerning money and macroeconomics Specifi-cally, the chapter “Learning About the Role of Market Microstructure from HighFrequency Data on Asian Banks” utilizes high frequency data from the financialsystems in India, Indonesia, and Japan to shed light on the role that banking andfinancial markets can play in promoting regional growth and development Thechapter “Dynamic Macroeconomic Performance of Indian States: Some PostReform Evidence” first constructs a macroeconomic performance index, and thenuses this index to explain the macroeconomic performance of 15 major Indian statesduring the 1993–1994 to 2014–2015 time period

The four chapters that comprise Part V of this book are devoted to a discussion ofageing, education, production, and the internet In particular, the chapter “DynamicImpact of Population Ageing on Regional Economies in Korea Using a Recursive-Dynamic Interregional CGE-Population Model” utilizes a recursive and dynamiccomputable general equilibrium model to study the regional impacts of populationageing in South Korea The chapter “Educational Attainment and Learning in India,2004–2012” analyzes the educational attainment of the school age population inIndia and then sheds light on whether the so-called demographic dividend—seeBloom (2011)—is likely to yield economic growth-related benefits in this nation.The chapter “SME Participation in Global Production Networks: Analytical Issues

and Evidence from Penang, Malaysia” discusses the participation of small andmedium enterprises (SMEs) in global production networks by focusing on theinteresting case of Penang in Malaysia Finally, the chapter “The Internet inNepal: WiMAX Broadband Service” studies the Worldwide Interoperability forMicrowave Access (WiMAX) broadband internet service in Nepal and the likeli-hood that the provision of this service will promote economic growth and devel-opment in this little studied nation With this preliminary discussion out of the way,

we now proceed to comment on the intellectual contributions of the individualchapters in this book

2.1 Regional Disparities and Poverty in the Philippines

Even though the economy of the Philippines has been growing at an average rateexceeding 6 % since 2011, this impressive growth rate hasnot made much of a dent

on the number of people living below the poverty line The chapter “SpatialDisparities and Poverty: The Case of Three Provinces in the Philippines” pointsout that this unsavory state of affairs has arisen because of the presence ofsignificant differences in economic opportunities across the different regions ofthis nation In this regard, it is helpful to understand that the Philippines is made up

of over 7000 islands, 110 ethnic groups, and 170 spoken languages

This chapter seeks to better understand why impoverished families have such adifficult time escaping poverty in the Philippines To do this, the chapter studiesthree dissimilar provinces and these provinces are Pangasinan, Eastern Samar, andMaguindanao The chapter’s analysis is based on the results of national householdsurveys on family income and on labor market status, on the results of what thechapter calls “scoping missions” to these three provinces, and on focus groupdiscussions

The analysis conducted in this chapter demonstrates that even though the threeprovinces under study are heterogeneous, poor households in these provinces havecertain common characteristics In particular, they all possess low skills andeducation, have high vulnerability to natural and human induced shocks, andhave limited nexuses with markets Because of the existence of this trinity ofattributes, poor households have been unable to access economic opportunitiesand therefore have remained poor

To ameliorate this state of affairs, the chapter “Spatial Disparities and Poverty:The Case of Three Provinces in the Philippines” contends that policymakers in thePhilippines will need to pay a lot of attention to thespatial aspects of economicdevelopment The chapter goes on to point out that in addition to recognizing thisgeneral point, policy will also need to target programs so as to improve the humancapital of the poor, exploit the potential for creating jobs in rural areas, promote

connectivity across the different provinces, and engage local communities inpolicymaking.

One issue raised by the chapter “Spatial Disparities and Poverty: The Case ofThree Provinces in the Philippines” analysis of regional disparities and poverty inthe Philippines is the rigorous measurement of poverty in one or more regions Inparticular, we would like to quantitatively compare changes in poverty acrossregions and over time This matter is taken up in the chapter “Decomposing PovertyChange in India: Within- and Between-Group Effects Across Regions, 2004–2005and 2009–2010”

It is now well known that with rising economic growth in India, there has been adecline in the absolute number of people who live in poverty This laudable pointnotwithstanding, it is still interesting to ascertain how the change in poverty in thisnation can be split up or decomposed into its constituent components The twoconstituent components of poverty change in India that are studied in the chapter

“Decomposing Poverty Change in India: Within- and Between-Group EffectsAcross Regions, 2004–2005 and 2009–2010” are a “within group effect” and a

“between group effect.”

The discussion in this chapter points out that the within group effect of povertychange can be attributed to the trinity of economic growth, the existence ofinequality, and population components In contrast, the between group effect ofpoverty change arises due to changes in population shares This chapter explains themethodology involved in these two decompositions and then proceeds to apply theunderlying methodology to comprehend actual poverty change in various Indianregions between 2004–2005 and 2009–2010

The data used to conduct the analysis are from the household level NationalSample Survey (NSS) in India for the two time periods mentioned in the precedingparagraph The monthly per capita expenditures metric is used to denote anindividual’s well-being and the fraction of the poor in the data are estimatedusing poverty lines provided by the Indian Planning Commission The availabledata cover both rural and urban areas in 74 NSS regions, and the regions themselvesare made up of different parts of the states comprising India

The chapter “Decomposing Poverty Change in India: Within- and Group Effects Across Regions, 2004–2005 and 2009–2010” study leads to twouseful conclusions First and as expected, many of the regions with high poverty lie

Between-in the poorer states Between-in India such as Chattisgarh and Odisha However, what issurprising is that even some of the wealthy states such as Gujarat and Maharashtrahave regions with high poverty Second, ongoing economic growth notwithstand-ing, there are regions in India where poverty has increased, and this phenomenonhas led to out-migration and hence to areduction in regional population shares

A basic policy prescription emanating from the analysis in the chapter

“Decomposing Poverty Change in India: Within- and Between-Group EffectsAcross Regions, 2004–2005 and 2009–2010” is that if India is to take advantage

of the so-called demographic dividend,3then it is imperative that policymakerscreate substantially greater economic opportunities for its citizens and that thecapabilities of these same citizens are attuned to take advantage of theseopportunities

2.3 Rural Poverty and Agriculture in the Philippines

Like the chapter “Spatial Disparities and Poverty: The Case of Three Provinces inthe Philippines”, the chapter “Pathways Out of Rural Poverty and the Role ofAgriculture in Four Rice-Ecosystems in the Rural Philippines” also focuses onthe Philippines, but the issues it analyzes are a little different Specifically, thischapter looks at the motif of economic growth by examining the patterns ofeconomic mobility in the rural parts of this country Interestingly, this chapterdoes not conceptualize the word “regional” in either geographic or spatial terms.Instead, this chapter uses the word regional to refer to a particular rice ecosystem.Since rice is both the staple of the majority of the Filipino people and one of themost salient crops in this nation, it makes sense to assign this otherwise uncommonmeaning to the word regional

The empirical analysis conducted in this chapter is based on a household levelpanel dataset that was collected in four village communities in the Philippines Two

of the four villages are in Luzon island and the remaining two are located in Panayisland Each village represents a distinct rice ecosystem and the dataset covers thetime period from 1993 to 2004 The key issue studied in this chapter is thenature ofthe non-agricultural pathways out of poverty in the above mentioned four villageswith distinct rice ecosystems

When poor households with agricultural income as their primary source ofincome are compared across the two islands, one sees that the Luzon villagershave had a much harder time escaping poverty by 2004 Therefore, in the context ofpoor villages in the Philippines, this chapter is unable to substantiate the claims ofEswaran and Kotwal (1993) and Dercon (2009) who have argued that the growth ofthe agricultural economy contributes to both faster poverty reduction and to fasterstructural transformation

A key point made by this chapter is that when considering the salience ofnon-agricultural pathways out of rural poverty, it is important to keep in mindthat the service sector and remittances provided by overseas Filipino workers aremore important than manufacturing in the four sample villages Even so, it is also

3 See Bloom ( 2011 ) for more on this idea This idea is also discussed in greater detail in the chapter

“Educational Attainment and Learning in India, 2004–2012” of this book.

important to recognize that the relevance of the alternate pathways out of povertydepends on local conditions about, for instance, the relative salience of the agri-cultural versus the non-agricultural sectors as income sources With this discussion

of the three chapters about poverty that comprise Part II of this book out of the way,

we now turn to the three chapters that together make up Part III of this book

Several studies have shown that there is no convincing economic rationale forproviding fuel subsidies in Indonesia Even though the well-established practice ofgranting a fuel subsidy to Indonesians was removed by President Joko Widodo in

2015, the chapter “Reducing Petroleum Subsidy in Indonesia: An Inter-RegionalGeneral Equilibrium Analysis” begins by pointing out that a systematic reform ofthe “fuel subsidy regime” needs to be based on the understanding that the savingsgenerated by either cutting or removing this subsidy can be put to more productiveuses In addition, it is reasonable to hypothesize that because Indonesia is a large,archipelagic nation, the impacts of a fuel subsidy reform program are likely to bedissimilar across the different regions of Indonesia The primary objective of thechapter “Reducing Petroleum Subsidy in Indonesia: An Inter-Regional GeneralEquilibrium Analysis” is to determine the veracity of this hypothesis

The chapter undertakes the necessary analysis by utilizing the so-calledIndoTERM model which is a multi-sector, multi-region, general equilibriummodel of the Indonesian economy Twelve regions within Indonesia are included

in the model and for each commodity in the model, there are different marketclearing equations for each region This model is attractive because, inter alia, itpermits the formulation and study of region-specific shocks

This chapter reports the results of two simulations In the first simulation, thegovernment removes the fuel subsidy without adjusting any other pertinent taxes,but in the second simulation there is a reduction in an indirect tax and this gives rise

to what the chapter calls “revenue recycling.” The results of the second simulationshow that an energy subsidy isnot needed for industrial development in Indonesia.Even so, both simulation results reveal the dissimilar regional effects of theunderlying subsidy removal experiment Unsurprisingly, we see that the regionsthat are worst hit by the removal of the subsidy are the ones that either producecrude oil and refine petroleum or depend on these sectors In contrast, a region likeBali whose economy relies primarily on agriculture and on services is little affected

by the removal of the fuel subsidy

In the final analysis, in turns out that in Indonesia, political support for theremoval of the (economically questionable) fuel subsidy depends on the properties

of the government’s revenue recycling mechanism Having said this, it is important

to point out that even with the necessary political support, the removal of thesubsidy with revenue recycling may turn out to bemalign for the environment

Nations

A standard technique that is used by researchers to analyze the productive ciency of DMUs is what is known as data envelopment analysis (DEA) The chapter

effi-“An Evaluation of Energy-Environment-Economic Efficiency for Asian Countries:

A Proposal for a Time-Series Target-Oriented DFM Model in Data EnvelopmentAnalysis” begins by pointing out that in the context of sustainability studies if wethink of either regions or nations as DMUs then it makes sense to apply DEA tocomprehend what the chapter calls the “energy-environment-economic efficiency”

of alternate DMUs

Now, as noted in Sect.1, both sustainable development and sustainability areintertemporal concepts The chapter “An Evaluation of Energy-Environment-Eco-nomic Efficiency for Asian Countries: A Proposal for a Time-Series Target-Ori-ented DFM Model in Data Envelopment Analysis” embraces this idea byincorporating a time series notion into a model that can be viewed as a hybridand generalized version of existing DEA models and that can also be used tosuggest feasible, efficiency improvements in Asian nations viewed as DMUs.Looked at a little differently, this new model is useful because it can be used tocompute an optimal input reduction value (on the cost side) and an output increasevalue (on the benefit side) in order to reach a certain desired efficiency score.After formulating the new model, this chapter utilizes input and output data from

2003 through 2012 for a set of 42 Asian nations to empirically gauge their environment-economic efficiency The results show that a small set of Asian DMUs(nations) including, but not limited to, Brunei, Cambodia, and Japan are “super-efficient” DMUs In addition, the average efficiency scores of East Asian DMUs arehigher than the corresponding scores of other Asian DMUs Finally, the worstperforming DMUs are all located in South Asia This last finding has significantimplications for policymaking about sustainable development To take one exam-ple, the obtained results demonstrate that Nepal—as an extreme case—will have toreduce both its population and its current energy consumption by over 50 % in order

energy-to become an efficient DMU

3.3 Climate Change and Malaysia

There is no gainsaying the fact that climate change—also known as globalwarming—is one of the most salient problems confronting humankind today.Given that the climate change phenomenon is global, much has now been writtenabout why it is so difficult to tackle this problem collectively and effectively.4Even

so, it is also clear that the underlying problem has and will continue to haveheterogeneous impacts in the different regions of the world Therefore, as thechapter “Climate Change and Threats to Sustainability in South-East Asia:Dynamic Modeling Process for Malaysia” points out, it makes sense to talk aboutthe regional dimensions of this admittedly global problem

In terms of regional emphasis, this chapter focuses on South East Asia and itpoints to deforestation and to rapid economic growth accompanying globalization

as the two key causes of climate change The chapter then proceeds to explain thatthe two most noteworthy effects of climate change in this part of the world will be

on food security and on the increased occurrence of natural disasters

This explanation is followed by a case study of Malaysia Here, the chapterutilizes annual data on rice output, yield, temperature, and rainfall to estimate theimpact of climate change on what the chapter calls the “rice economy of Malaysia”

in the time period from 1961 to 2015 The underlying estimation is based on adynamic model with an autoregressive distributed lag process The chapter per-forms several diagnostic tests and these tests support the use of the dynamicmodeling approach

The empirical results obtained show unambiguously that rice output growth hasbeen directly impacted by, inter alia, price changes, lagged price changes, laggedrainfall, and lagged temperature Collectively, this and other similar results showthat climate change has had a clear anddetrimental impact on the growth of riceoutput Given these findings, this chapter sees a clear need for concerted actions tominimize the adverse impacts of climate change in South East Asia in general and

in Malaysia in particular

The possible general actions include investments to mitigate the vulnerability tonatural disasters and improvements in national meteorological and hydrologicalservices With regard to Sabah, Sarawak and Johor in Malaysia, this chapterrecommends the use of topographical, land use, and flood depth maps to designand implement early warning systems that can be used to minimize the damagesfrom natural disasters This completes our discussion of the three chapters thatcomprise Part III of this book We now shift gears and proceed to discuss thedifferent topics that are covered in the two chapters that make up Part IV of thebook

4 See Nordhaus ( 2013 ), Wagner and Weitzman ( 2015 ), and Batabyal ( 2016 ) for contemporary accounts of the wicked problem that is climate change.

4 Money and Macroeconomics

Even though it is not common to study growth and development in a region in terms

of the vibrancy of the banking and financial markets in this region, the chapter

“Learning About the Role of Market Microstructure from High Frequency Data onAsian Banks” contends that banking and financial markets play a significant role indetermining the economic health of a region To substantiate this contention, thechapter utilizes ultra high frequency trading data for banks listed on the domesticstock markets in India, Indonesia, and Japan to shed light on the growth anddevelopment prospects of these three nations

As the chapter points out, its study sheds new light on the high frequencyfinancial attributes of banking firms that are listed on the Indian, Indonesian, andJapanese stock markets, and this light helps explain the differences and the simi-larities in these three nations More generally, the chapter’s exploration of theattributes of high frequency data in the banking sectors of the different markets isgermane because this exploration leads to policy recommendations about thestructuring of financial institutions, the creation of credit, and regulations

The sophisticated empirical analysis in this chapter is based on three key insights.First, asset and derivative pricing models that are based on continuous time diffusionprocesses donot account for abrupt disruptions in actual price data and hence are oflimited use Second, to adequately account for these abrupt disruptions in the actualdata, it is necessary to work withjump events in addition to continuous processes.Finally, the availability of high frequency data allows one to estimate an asset’ssystematic risk or, put differently, the sensitivity towards the aggregate stock marketreturn The key metric that is relevant here is the so-calledbeta

The analysis undertaken shows that of the three nations under study, bankingmarkets in Japan are the most developed because they have the greatest liquidity,the lowest volatility, and the smallest number of price disruptions In contrast, theIndian and the Indonesian banking markets are less developed This notwithstand-ing, two findings about the Indian and the Indonesian markets are worth emphasiz-ing First, in the aftermath of the introduction of specific reforms in India (theintroduction of high frequency and colocation trading), markets in this nation havebecome more liquid, less volatile, and less disposed to jumps Second, relative toIndian and Japanese markets, the Indonesian market has a smaller volume, it ismore volatile, and it displays a higher incidence of jumps

The focus of the chapter “Dynamic Macroeconomic Performance of Indian States:Some Post Reform Evidence” is on the various states in India This chapter begins

the proceedings by pointing out that even though the rate of growth of the Indianeconomy has increased from 3.8 % in 2002–2003 to 7.2 % in 2014–2015, thisoverall growth ratemasks significant regional differences across the different states

in India In particular, even though some states have grown faster than others, thedegree of dispersion in these growth rates has increased greatly in the 1990s.Departing from the extant literature that has studied disparities in regionalgrowth in India, the chapter “Dynamic Macroeconomic Performance of IndianStates: Some Post Reform Evidence” analyzes the macroeconomic performance

of 15 Indian states In order to do so, the chapter first constructs a Malmquist typeproductivity index that it calls DMEP and that is based on gross state domesticproduct growth (GSDP), price stability, and the fiscal deficit as a percentage of theGSDP This DMEP is based on only three and not on more indicators because ofdata limitations and because of the chapter’s avowed focus on economic activity atthe subnational (state) level A key goal of the chapter is to track the temporalbehavior of the DMEP index

The chapter uses an input–output model to measure the macroeconomic mance of each of the 15 states under study The analysis conducted in this chapterdemonstrates that in 2013–2014, of the 15 states being studied, the DMEP of only

perfor-5 states worsened over time whereas the remaining 11 states showed an ment in their DMEP

improve-Looked at in more detail, The chapter “Dynamic Macroeconomic Performance

of Indian States: Some Post Reform Evidence” points out that there are three keyreasons that explain the salience of a state’s DMEP First, there exists a close nexusbetween a state’s DMEP and the occurrence of poverty in this state Specifically,this chapter shows that relative to states with lower DMEP scores, those with higherDMEP scores have alower incidence of poverty Second, states with higher DMEPscores also experience lower levels of inequality Finally, a state’s DMEP ispositively correlated with inflows of foreign direct investment (FDI) into thisstate This concludes our discussion of the two chapters about money and macro-economics that comprise Part IV of this book We now turn to the four chapters thattogether make up the final Part V of this book

Two demographic facts about South Korea are now well known First, the tion is ageing and available statistics show that in 2026, the proportion of thepopulation that is over 65 will be 20 % Second, at 1.24, the fertility rate of thisnation is among the lowest in the world What are the region-specific intertemporaleffects of this ageing in South Korea’s population? This is the central question that

popula-is studied in the chapter “Dynamic Impact of Population Ageing on Regional

Economies in Korea Using a Recursive-Dynamic Interregional CGE-PopulationModel” of this book.

The chapter geographically divides the nation into two regions—the SeoulMetropolitan Area (SMA) and the rest of South Korea (ROK) In addition, there

is a third rest of the world (ROW) region It then utilizes what it calls aninterregional computable general equilibrium population (ICGEP) model to ana-lyze the economic effects of this country’s population structure on regional incomedisparity and national growth For reasons of computational tractability, each of theabove three regions has only three industrial sectors in the ICGEP model Even so,since the primary objective of this chapter is to study the impacts of South Korea’spopulation structure, the ICGEP model does contain a detailed disaggregation ofthe population into eight age cohorts There are two regional governments and onenational government in the ICGEP model

The ICGEP model recursively estimates the intertemporal impacts of populationageing on the economies of the two regions of interest, i.e., the SMA and the ROKregions The simulations performed yield a number of interesting results Inter alia,

we learn that if the share of the 20–49 age cohort declines in both the regions ofinterest then the ageing of the population over the next 15 years will surely lead to adownturn in the underlying regional economies being studied There are steps thatcan be taken to countermand this saturnine outcome For instance, the powers thatcan take steps to increase the labor productivity of those in the 20–29 age cohort bymeans of educational and other training programs For instance, if the relevantauthorities increase their educational investment expenditures by 12 % every yearfor at least 11 years then they will be able to generate net growth in the grossdomestic product (GDP) Put differently, the negative effects of population ageing

on economic growth in South Korea can be offset by adjusting the behavior ofapposite population cohorts using what the chapter “Dynamic Impact of PopulationAgeing on Regional Economies in Korea Using a Recursive-Dynamic InterregionalCGE-Population Model” calls “full optimization over the life cycle.”

The work of Aiyar and Mody (2011) tells us that India is likely to be the singlelargest contributor to the global working age population of 15–64 year olds in thenext three decades This state of affairsmay positively influence economic growth

in India and, at the same time, it may give India an advantage over China whosepopulation has now begun to age However, whether this positive effect willmaterialize depends significantly on whether the growth in the working age popu-lation is matched by a corresponding increase in employment creation Unfortu-nately, there is evidence to suggest that the growth in employment opportunities isnot keeping pace with the growth in the working age population In addition, there

is concern about thelow quality of skills possessed by the youth in India and that

this undesirable trait will prevent many joining the workforce from being gainfullyemployed.

The chapter “Educational Attainment and Learning in India, 2004–2012” lizes data from a nationally representative survey of households in 1503 villagesand 971 urban neighborhoods across India to analyze the veracity of the “lowquality of skills” concern mentioned in the preceding paragraph Put differently,this chapter uses household level panel data to econometrically analyze the educa-tional attainment of the school age population of India

uti-On the positive side, this chapter finds that the proportion of 15–21 year oldscurrently and ever enrolled in school has increased significantly during the studyperiod and that existing socioeconomic gaps in school participation rates havediminished This notwithstanding, the analysis undertaken in the chapter “Educa-tional Attainment and Learning in India, 2004–2012” has several disquietingaspects to it First, for some socioeconomic groups, the gap in reading abilitybetween 2004–2005 and 2011–2012increased Math skills are low in the overallpopulation being studied and, in addition, there is a non-trivialdecline in the mathscores of the children being studied during the 2004–2005 to 2011–2012 studyperiod

Clearly, India can benefit from the impending “demographic dividend” only ifits young population is adequately schooled and skilled so that it can be profitablyemployed However, the findings in the chapter “Educational Attainment andLearning in India, 2004–2012” cast serious doubt about whether this benefit will,

in fact, be realized The key concern here is that the low quality of the human capital

in India’s school age children is very likely to inhibit the economic growthprospects of this nation

The chapter “SME Participation in Global Production Networks: Analytical Issuesand Evidence from Penang, Malaysia” begins the proceedings by discussing theongoing nature of global production sharing and the role that small and mediumenterprises (SMEs) can profitably play in this sharing As this chapter points out,modern processes of global production are characterized by two noteworthy fea-tures First, the range of products covered has been expanding over time Second,the processes themselves have spread from the industrial to the developing nations

of the world

Next, this chapter points out that generally speaking, the two policy options forlinking SMEs to global production networks are either economy wide or SMEspecific We are told that even though measures designed to promote SMEs haveoften failed in many nations, it is important to recognize that the risk of failure isunlikely to be high when it comes to assisting SMEs to participate in globalproduction sharing activities With this background in place, this chapter focuses

on the export production hub in the state of Penang in Malaysia

Why Penang? This is because for over four decades, Penang has been a majorhub in global production networks, and hence it provides a “valuable laboratory”for the study of the interplay between government policies and the worldwidesourcing strategies of multinational enterprises (MNEs) in determining the gainsfrom global production sharing We learn that through a variety of missions, thePenang Development Corporation (PDC) successfully delivered the message toexternal constituencies that the skills and the adaptability of the people of Penangcould usefully complement the needs of parts and component assembly in high-techindustries.

The successful delivery of this message and the process of export-led alization—begun in the early 1970s—have transformed Penang into one ofMalaysia’s leading manufacturing export hubs This notwithstanding, the chapter

industri-“SME Participation in Global Production Networks: Analytical Issues and dence from Penang, Malaysia” clearly notes that thereis a definite role for publicpolicy in enhancing the links between SMEs and MNEs In addition, this chapterproceeds to point out that the experience of Penang offers lessons for policymakers

Evi-in other parts of the world The key lesson is to recognize that the selection of apriority sector by the powers that be needs to match the pertinent location’s naturalendowment and the opportunities for international specialization that presentthemselves

Several researchers—see Choi and Yi (2009) and Czernich et al (2011)—havenoted that the internet is a general purpose technology that typically promotes botheconomic growth and development However, the extant literature on the use andthe impacts of the internet in Asian nations has paid no attention to the WorldwideInteroperability for Microwave Access (WiMAX) broadband internet service inNepal

Therefore, the chapter “The Internet in Nepal: WiMAX Broadband Service”provides the first analysis of the WiMAX subscriber base and the determinants ofthe provision of WiMAX infrastructure in Nepal With regard to the subscriber baseissue, the basic research question asked is whether the number of WiMAX sub-scribers will increase or decrease in the short run As far as the provision ofWiMAX infrastructure is concerned, the chapter “The Internet in Nepal: WiMAXBroadband Service” analyzes the relationships between per capita income, popu-lation density, and WiMAX infrastructure

The empirical analysis in the chapter “The Internet in Nepal: WiMAX band Service” demonstrates that, ceteris paribus, the number of WiMAX sub-scribers in Nepal ought to increase steadily over time Similarly, a 1 % increase

Broad-in population density is expected to lead to a 0.36 % Broad-increase Broad-in the number ofWiMAX base stations Commenting on the regional variation in the availability ofWiMAX infrastructure, the chapter “The Internet in Nepal: WiMAX Broadband

Service” points out that, ceteris paribus, Nepalese districts in the eastern ment region are expected to have, on average, about 47 % less WiMAX basestations than the districts in the far-western development region Similarly andonce again on average, the districts in the central development region are estimated

develop-to have 39 %less WiMAX base stations compared to the districts in the far-westerndevelopment region

This chapter notes that the shortage of alternate infrastructure such as electricpower retards the use of the internet in Nepal As such, it is important to understandthat in developing countries like Nepal, the demand for the internet and alternateinfrastructure are likely to be complements These and other such findings in thischapter suggest that, unfortunately, digital inequality in Nepal is likely topersistand large segments of the population are unlikely to be able to reap the rewards ofthe internet revolution Therefore, to ameliorate this unsavory state of affairs, thepublic sector will need to take actions toexpand access to the internet

The pursuit of economic growth, the increasing demand that this economic growth

be sustainable, and the rise of Asia have emerged as three dominant themes in thepost-World War II era After centuries of uneven economic development, Asia nowhas great prospects for both regional growth and sustainable development As noted

in Sect.1, the geopolitical and economic rise of Asia raises significant questionsabout the nature and the effects of economic growth and sustainable development inthis region In addition, given the present-day salience of Asia, lessons learnedabout regional growth and sustainable development in Asia are likely to proveuseful for the design and the implementation of apposite policies in other regions ofthe world

Given this state of affairs, our objective in this book is to interpret the twinnotions of economic growth and sustainable development broadly and to thenprovide analytic accounts of many of the salient research questions that are written

by experts These experts have tremendous credibility because of two importantreasons First, they are active researchers themselves Second, they are also some ofthe leading contemporary voices on public policy concerning regional growth andsustainable development in Asia

In this introductory chapter, we have attempted to provide a holistic and ent context within which one may view the emergence and the study of the variousresearch questions that are addressed here In addition, a perusal of the independentchapters clearly demonstrates the salience and the policy relevance of the researchquestions that are analytically studied in this book Therefore, in the coming years,one may look forward to many interesting and policy relevant developmentsconcerning regional growth and sustainable development in Asia that are directly

coher-or indirectly related to the questions examined in this book

Acknowledgments The first author acknowledges financial support from the Gosnell endowment

at RIT The usual absolution applies.

References

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and Development Theories, ed R Capello, and P Nijkamp, 282–301 Cheltenham: Edward Elgar.

Bhagwati, J., and A Panagariya 2013 Why Growth Matters New York, NY: Public Affairs Bloom, D 2011 7 Billion and counting Science 333: 562–569.

Brundtland, G.H 1987 Our Common Future Oxford: Oxford University Press.

Choi, C., and M.H Yi 2009 The effect of the internet on economic growth: Evidence from country panel data Economics Letters 105: 39–41.

cross-Czernich, N., O Falck, T Kretschmer, and L Woessmann 2011 Broadband infrastructure and

Dercon, S 2009 Rural poverty: Old challenges in new contexts World Bank Research Observer 24: 1–28.

Eswaran, M., and A Kotwal 1993 A theory of real wage growth in LDCs Journal of ment Economics 42: 243–269.

22: 3–42.

MacDonald, S.B., and J Lemco 2011 Asia ’s Rise in the 21st Century Santa Barbara, CA: Praeger.

Nordhaus, W.D 2013 The Climate Casino New Haven, CT: Yale University Press.

Pezzey, J.C.V 1997 Sustainability constraints versus ‘optimality’ versus intertemporal concern, and axioms versus data Land Economics 73: 448–466.

Ray, D 1998 Development Economics Princeton, NJ: Princeton University Press.

Sen, A 2001 Beyond the crisis: Development strategies in Asia In Beyond the Asian Crisis,

ed A Chowdhury, and I Islam, 30–49 Cheltenham: Edward Elgar.

Valasek, T 2012 Europe and the ‘Asia pivot’ New York Times, October 25.

Wagner, G., and M.L Weitzman 2015 Climate Shock Princeton, NJ: Princeton University Press Zakaria, F 2015 Whatever happened to Obama ’s pivot to Asia? Washington Post, April 16.

Part II

Poverty

of Three Provinces in the Philippines

Ronald U Mendoza, Rosechin Olfindo, and Camille Regina Maala

“All happy families are alike; each unhappy family is unhappy in its own way.”

—Leo Tolstoy

The Philippines is home to about four million Filipino families who live below thepoverty line, and to about 17 million families who live above it Nearly, half of allpoor families do not meet their food needs Despite the Philippines’ fast economicgrowth in recent years—growing over 6 % on average since 2011—the growth hasnot translated into significant social impact as the country’s poverty situation hasremained virtually unchanged While there are the so-called highly urbanized areas

in the Philippines that drive this growth, creating massive employment and liftingthe quality of lives of many families, many parts of the country have lagged behind,barely generating jobs that could provide enough income for the workers and theirfamilies

The lack of inclusiveness in the Philippines’ economic growth has to do, to alarge extent, with the wide spatial disparities in economic opportunities across areas

in the country Scale economies and factor mobility lead to concentration of

Ronald U Mendoza is dean of Ateneo School of Government (ASoG); Rosechin Olfindo is nonresident research fellow at ASoG; and Camille Regina Maala is research associate at Asian Institute of Management (AIM) This paper draws extensively from the “Towards Zero Poverty Project” undertaken by AIM Rizalino S Navarro Policy Center for Competitiveness with support from United Nations Development Programme and the National Economic and Development Authority For correspondence, please contact the authors at: ronmendoza@post.harvard.edu, rosechin@post.harvard.edu, and cmaala@aim.edu.

R.U Mendoza ( * ) • R Olfindo

Ateneo School of Government, Ateneo de Manila University, Quezon City, Philippines e-mail: ronmendoza@post.harvard.edu ; rosechin@post.harvard.edu

C.R Maala

Asian Institute of Management, Makati, City, Philippines

© Springer International Publishing Switzerland 2017

A.A Batabyal, P Nijkamp (eds.), Regional Growth and Sustainable Development

in Asia, New Frontiers in Regional Science: Asian Perspectives 7,

DOI 10.1007/978-3-319-27589-5_2

23

economic activities in selected areas, giving rise to differential patterns of growth.This process is inevitable as economic activities are more efficient to undertake inareas where goods and labor markets already exist than in areas that are isolated.However, spatial economic disparities could also lead to spatial disparities inwelfare, as the areas in the Philippines that are “spatially” disconnected tend tohave worse human development outcomes.

The Philippines’ possesses unique archipelagic and cultural features, consisting

of over 7,000 islands (i.e., in number of islands, it is second only to Indonesia),

110 ethnic groups, and 170 spoken languages The differences in the geographicprofile of Philippine regions largely explain the spatial economic disparities acrossthese regions Geography is expected to determine the initial conditions of theregion, including climatic conditions and natural resources, and as such, alsodetermines migration patterns, wealth accumulation, and formation of informaland formal institutions In the Philippines, the National Capital Region (NCR orMetro Manila) remains the wealthiest region, accounting for 36 % of GDP with

13 % of the country’s population; while the Autonomous Region of MuslimMindanao (ARMM) is the poorest, accounting for only 1.3 % of GDP but with apopulation of one-third of that of Metro Manila

This chapter attempts to better understand the constraints that poor families face

to get themselves out of poverty by looking more closely at three of the provinces inthe Philippines that have unique spatial characteristics These provinces arePangasinan, Eastern Samar, and Maguindanao They are characterized by largemagnitude (Pangasinan) and high incidences (Easter Samar and Maguindanao) ofpoverty The analysis was based on the results of national household surveys onfamily income and on labor market status, as well as on the findings from scopingmissions and focused group discussions

This chapter confirms the notion that many of the poor have remained poorbecause of their inability to access economic opportunities While each of theprovinces under study has distinct features, the poor in these areas face similarconstraints to improving their well-being These include low skills and education,exposure to idiosyncratic shocks, limited connectivity with markets, and the lack ofsupporting policy environment

These findings underscore the need to improve the delivery of public goods andservices that will level the playing field across provinces in the Philippines so thatthose that face more challenging geographical structure are less disadvantaged.The remainder of the chapter is organized as follows: Sect.2provides a briefoverview of spatial economic disparities across the Philippines; Sect.3looks moreclosely into the spatial characteristics of the poor in the provinces of Pangasinan,Eastern Samar, and Maguindanao; and Sect.4 concludes and presents the policyimplications

2 Spatial Economic Disparities across the Philippines

Drawing on existing literature, this section provides an overview of the spatialeconomic disparities across regions and provinces in the Philippines.1The diversegeography, ecology, natural resource endowments, economy, ethnicity, and cultureacross the Philippines make the country well suited for studies on regional growthdynamics Most of the studies have pointed out that such diversity has given rise todisparities in the levels of economic development of the 18 regions and 81 provinces

in the Philippines (Box1)

Spatial economic disparities in the Philippines appear to go hand in hand withdisparities in welfare (Balisacan et al.2008,2009) Differences in human develop-ment outcomes are evident across island groups, regions, provinces, as well asurban and rural areas Out of the 1,490 municipalities and 144 cities in thePhilippines, only one-fifth and one-third of them are considered “first class,”respectively.2 Higher economic growth generally happens in provinces wherethese first class cities and municipalities are located, and because of factors thatconstrain factor mobility, municipalities beyond these geographical divisions donot benefit from spillovers of these first class locations

Box 1 Administrative Divisions in the Philippines

The Philippines consists of three island groups, namely, Luzon, Visayas, andMindanao Luzon is located in the northern part of the Philippines and iscomposed of eight regions: National Capital Region (Metro Manila), Cordil-lera Administrative Region, and Regions I–V, with Region IV divided intoRegion IV-A and IV-B Visayas is located in the middle part of the country,consisting of four regions: Regions VI–VIII and Region XVIII Mindanao islocated in the southern part and is composed of five regions: Regions IX–XII,Caraga, and Autonomous Region of Muslim Mindanao Each region hasabout six provinces (the least is two in Region XVIII), totaling 81 provinces

in the country The provinces consist of cities and municipalities, and withinthem are barangays As of 2014, the Philippines has 144 cities, 1,490 munic-ipalities, and 42,028 barangays Cities are classified into highly urbanizedindependent cities (population of 200,000 people and income of 50 millionpesos), component cities, and independent component cities There are

35 highly urbanized cities, 16 of them are located in Metro Manila

Source: Department of the Interior and Local and Government

1 See Balisacan et al ( 2009 ) for a more comprehensive discussion on spatial development dynamics in the Philippines; and Mercado ( 2002 ) for a review of theoretical underpinnings of spatial economic disparities.

2 First class cities or municipalities have average annual income of 400 million pesos or more.

At the national level, about a quarter of Filipinos live below the poverty line But

at the regional level, poverty incidence ranges from a low of 4 % to a high of 56 %(Table1) There is generally low poverty incidence in regions that have more firstclass locations, such as Metro Manila, Region III, and Region IV-A; and highpoverty incidence in regions that have less of them, such as ARMM On average,poverty incidence between 2006 and 2012 barely changed However, at the regionallevel, some regions have actually experienced decline in poverty incidence, notablyRegion IV-B, Caraga, and Region I; while other regions have experienced wors-ening poverty situation, such as ARMM

In all of the regions, Metro Manila continues to be better off in terms of socialindicators Being the wealthiest region in the Philippines, it has the lowest povertyincidence and no other region in the Philippines is converging towards MetroManila’s economic growth rate, which somewhat contributes to regional imbalance

in the country Meanwhile, Region V, Region VIII, Region IX, Region XII, Caraga,

Visayas

Mindanao

and the ARMM have relatively high poverty incidence, which is mainly attributed

to vulnerability of the population to multiple hazards (natural disasters, typhoons,drought) while the political and social structure in these regions discourage moreprivate investments.3

Spatial disparities can be attributed to differences in access to supportinginfrastructure and basic social services (Balisacan 2009).The geographic profile

of the Philippines demands a different approach to connectivity, but the country hasunderinvested in infrastructure that allows more efficient movement of goods andpeople This has significant implication on regional (and provincial) developmentpatterns and, eventually, in the investment climate of the province Likewise,expenditures on education and health have declined, which contributed to theerosion of human capital (Balisacan et al.2009)

The regional allocation of the scarce public funds also poses as a challenge.Funding tends to be directed towards the internationally oriented infrastructures,such as ports and harbors, to further reinforce cities and municipalities with globalconnections However, improving domestic connectivity is compromised by lim-ited funds towards constructing domestic road networks and farm-to-market roads(Balisacan et al.2009) Although economic openness has been beneficial to eco-nomic growth of selected regions, it may not sustain a more balanced regionaldevelopment across the Philippines (Pernia and Quising2003)

Recognizing the need to make the economic growth more inclusive, the ernment has taken positive steps to address the above issues The economicdevelopment plan for 2011–2016, for instance, recognized the need for targetedinterventions that consider spatial disparities among the provinces The nationalgovernment allows programs to be sensitive and responsive to the local needs One

gov-of these initiatives is the bottom-up budgeting, which is a participatory approach topublic financial management that empowers civil society and the local communi-ties It does so by providing an avenue for civil society and local communities toengage in the local planning and budgeting of projects

The government is also pushing for a new industrial policy that aims tostrengthen the links across industries in the Philippines, which can potentiallyexpand the domestic market base and exports (Aldaba 2014) The governmenthas also been aggressive in improving the human capital among the poor (e.g.,conditional cash transfer program and universal health insurance coverage) More-over, public investments in infrastructure have increased While most of theseinitiatives have had significant impact on the country’s economic growth, the factthat they have not had significant impact on poverty indicates that there is more to

be done to help those who are left behind

3 It was pointed that splitting of regions (i.e., Region IV into Region IV-A and Region IV-B), creating new provinces or regions (i.e., Region XVIII or Negros Island Region, which formerly consisted of Negros Oriental and Negros Occidental), and legislating more congressional districts, hinder sustainable growth by further enlarging government budgets, expanding bureaucracy, and fragmenting of markets (Alburo 2015 ).

3 A Closer Look at Pangasinan, Eastern Samar,

and Maguindanao

This section examines more closely the spatial characteristics of the poor in theprovinces of Pangasinan, Eastern Samar, and Maguindanao to better understand theunderlying factors that limit their access to economic opportunities First, it pro-vides an overview of the distinct characteristics of each of the provinces andidentifies the factors that could potentially contribute to the slow poverty reduction

in these areas Next, it identifies the common characteristics of the poor in the threeprovinces, which are low skills and education; high exposure to shocks; limitedconnectivity; and lack of supporting policy environment

3.1 Distinct Characteristics of the Three Provinces

The provinces of Pangasinan, Eastern Samar, and Maguindanao each represents thethree categories of provinces as mentioned in the Philippines’ medium-term devel-opment plan for 2010–2016 The three categories are the following: (1) provinceswith the highest number of poor people (e.g., Pangasinan); (2) provinces with thehighest poverty incidences (e.g., Eastern Samar and Maguindanao); and (3) prov-inces that are vulnerable to natural disasters (e.g., Eastern Samar) The categoriza-tion of the provinces in the medium-term plan is an attempt to take into account thedistinct features of these provinces, with a view to aid in crafting a more targeted set

of poverty-reduction interventions

Pangasinan is characterized by having large mass of land and high populationdensity It is the third most populous provinces in the Philippines with 2.8 millionresidents (Table2) But compared with the two other most populous provinces inthe Philippines (namely, Cavite, 3.1 million people; and Bulacan, 2.9 millionpeople), Pangasinan is less economically developed In its land area of over

5000 km2, about 90 % are rural, of which about 50 % are agricultural; 40 % aregrasslands, shrublands; 5 % are wetlands; 5 % are woodlands; and the remaining

10 % are used for other purposes Although the poverty incidence in Pangasinan islower than average, the large population in this province drives the high magnitude

of poor

Eastern Samar is the third poorest province in the Philippines It is one of theprovinces in the Philippines that are prone to natural calamities such as earthquakes,which cause landslides, ground rupture, ground shaking liquefaction, and tsunami;heavy rainfall, which causes flooding and landslides; and tropical cyclones thatbring strong winds and cause storm surges The occurrence of multiple naturaldisasters causes massive destruction of assets in Eastern Samar, where most of theworkers rely on agriculture for their livelihood, while others have small establish-ments that can be easily wiped out by strong typhoons Eastern Samar virtually has

no dry season, and the northern parts of the province are prone to flooding due to theriver systems flowing through these areas.

Maguindanao is the fourth poorest province in the Philippines It is part of theAutonomous Region of Muslim Mindanao, which is known to experience armedconflict, emanating from insurgent and communist groups; intercommunal, ethnic,and elite conflicts; and criminal elements and private armed groups The armedconflict in Mindanao, in general, has been recognized as the second oldest inmodern history, next to Sudan In recent years, crime and violence in Mindanaohave increased, and they occur more frequently in Maguindanao.4Children are themost affected by conflict as the disruption of income sources and instability hinderparents from sending their children to school and from properly attending to theirfood and nutritional needs

Even within these provinces, disparities in the quality of lives are evident Themunicipalities within Pangasinan, Eastern Samar, and Maguindanao vary in terms

of poverty-reduction outcomes and average income per capita income InPangasinan, all municipalities decreased their poverty incidence from 2003 to

2012 (Fig 1, Panel A) Conversely, municipalities in Eastern Samar (Fig 1,Panel B) and majority of those in Maguindanao (Fig 1, Panel C) increased interms of poverty incidence from 2003 to 2012

Table 2 Poverty profile of selected provinces

(Region I)

Eastern Visayas region (Region VIII)

Autonomous region of lim Mindanao (ARMM)

Persistently high poverty incidence

Source: Philippine Statistics Authority

4 Of the 173 armed encounters between the Armed Forces of the Philippines (AFP) and tionary groups such as the Moro National Liberation Front (MNLF) and Moro Islamic Liberation Front (MILF) that occurred in Mindanao over the period of 1987–2004, 38.73 % (67 encounters) occurred in Maguindanao alone.

revolu-3.2 Common Characteristics Among the Poor Households

The three provinces, while distinctly different in terms of the issues that they face,commonly share the same set of characteristics that make them spatially isolated Thissection highlights the common characteristics of the poor households in Pangasinan,Eastern Samar, and Maguindanao These common characteristics are the following:low skills and education, high vulnerability to shocks, limited connectivitywith markets, and the lack of supporting policy environment at the local level

3.2.1 Low Skills and Education

Majority of the working-age poor in the three provinces barely completed basiceducation The proportion of the working-age poor who completed some units insecondary education (incomplete secondary) or lower education levels was 82 % inMaguindanao, 67 % in Eastern Samar, and 58 % in Pangasinan (Table3) The lowlevels of education among the working-age poor in Maguindanao can be attributed

to the persistent occurrence of war and conflict in this province Interviews withinternally displaced families in Maguindanao revealed having difficulty to sendtheir children to school when they are forced to flee their homes In Pangasinan, thefocused group discussion highlighted that access to secondary education among thepoor is difficult due to lack of schools in their areas In fact, one-third of childrenaged 13–16 in Pangasinan do not attend school In the case of Eastern Samar, thefrequency of natural disasters causes disruption in the schooling in this province.Typhoons and other natural disasters cause severe damages to houses, roads, andschool buildings

Largely because of low education, access to productive employment ties is limited among the poor Majority of the workers from poor households inthe three provinces are employed as unskilled workers or farmers (Table 4)

Poverty Incidence, 2003

Poverty Incidence, 2012 Poverty Incidence, 2012 Poverty Incidence, 2012

Fig 1 Changes in poverty incidences of selected provinces, 2003 and 2012 Note: Every dot represents a municipality within the province A dot above the 45  line means the povertyincidence in the municipality increased from 2003 to 2012 Source: Family Income and Expen- ditures Survey; Authors ’ calculations

In Pangasinan, the focused group discussions highlighted that having low tional attainment is among the main reasons why the poor are not able to takeadvantage of productive employment opportunities Poor workers often do notqualify for secured and well-paying jobs, which usually require higher levels ofeducation At best, they can undertake activities primarily for their own sustenance(self-employed) or if they are employed as wage and salary workers, they holdlow-productive jobs While the lack of productive employment opportunitiesamong the poor can be attributed to low education, other factors are also at playthat limit the creation of productive employment in these areas For instance, inMaguindanao, armed conflict and violence greatly affects the livelihood of farmersand fishers that often result in less opportunities for business expansion.

educa-Even if employed, the poor have low earning capacity The jobs that they holdare the kinds that do not provide enough earnings to support themselves and theirfamilies The average wages of employed workers from poor households in thethree provinces accounts for only about 60 % of the average wage of the non-poor(Table 5) The significantly lower average wage among the poor indicates theirlower levels of productivity Majority of the respondents in the focused groupdiscussion in Pangasinan stated that, despite having at least one working householdmember, the earnings are not enough to sustain their families To augment their lowearnings, the poor in Pangasinan tend to take on multiple jobs in order to reach asufficient level of income for their families For instance, farmers and fishers arealso engaged in non-agricultural activities when earnings from farming and fishingare low

Table 3 Distribution of working-age poor, by highest educational attainment (%)

calculations.

Table 4 Distribution of poor employed workers, by primary occupation (%)

calculations.

While the poor in the three provinces have low skills and education, it is not thecase among the non-poor in these provinces, indicating inequality in access toeducation In fact, education inequality is worse in provinces with higher incomeinequality (Mesa2007) This implies that access to education is mainly determined

by the household’s income level But because education largely determines labormarket outcomes, the poor who are not able to access education are likely to betrapped in a vicious cycle of poverty

3.2.2 High Vulnerability to Shocks

Shocks happen to poor and non-poor households alike, but the poor are morevulnerable to shocks primarily because of their relatively high exposure and theirlow capacity to deal with shocks People in the Pangasinan, Eastern Samar, andMaguindanao are highly exposed to many types of shocks In Eastern Samar, theyneed to contend with natural disasters and, in Maguindanao, they have to face theshocks emanating from armed conflict Natural disasters and man-made conflicts, ingeneral, disrupt economic activities; it disrupts the production and value chain inmultiple levels Disasters, and even armed encounters, can cause destruction ofassets and transport infrastructure The high exposure to risks among the poorfamilies in these provinces, combined with the limited capacity to deal with suchrisks, make them highly vulnerable to falling into destitution

The poor are more vulnerable to shocks because they are mostly engaged inagriculture, which is highly sensitive to such disturbances Agricultural products, inparticular, can be easily destroyed by floods, typhoons, earthquakes, and landslides.Farming and fishing account for 55 % of income of poor agricultural households.The poor in Maguindanao who are mostly farmers and fisher folk also face similardisruption whenever armed incidents erupt Raiding and forcibly stealing of cropsand livestock are main concerns for the local farmers in these areas, particularlyMaguindanao While most of the poor in the Philippines are also engaged infarming and fishing, the constant disruptions in economic activities of the poor in

Table 5 Average wages of wage and salary workers (Pesos)

Profile

calculations.