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BSP WPS 2006-02: Modeling the Impact of Modeling the Impact of Modeling the Impact of Philippine Economy: An Inter-Regional and Economy-Wide Approach

Remittance inflows to the Philippines have increased substantially as the stock of overseas workers has grown and shifted towards more skilled jobs. Thus, second to exports of goods and services, remittances have become the largest foreign exchange source for the Philippines. Past studies of the impact of remittances on the economy have relied either on econometric estimations, which yield partial equilibrium estimates, or survey approaches. This paper uses an economy-wide (general equilibrium) approach that allows for interactions between all major sectors in the economy, while ensuring consistency of results. A major feature of the paper is its inter-regional approach, which gives a spatial dimension to the analysis. The basis of the approach is the social accounting matrix (SAM). A three-level production function, is specified - Cobb-Douglas between labor and capital to produce value added, then Leontief between non-transport inputs and value added to produce output net of transport, which is then combined with transport inputs finally using a Cobb-Douglas production function. Capital and labor incomes accrue to households, which then goes to consumption and saving, with a constant marginal propensity to consume. Overseas remittances enter as transfer payments to households. Consumption is divided among different commodities using a Cobb-Douglas utility function. Final demand is then built up in a standard way. Empirical results indicate that, in absolute terms, the main beneficiaries of remittance increases are the middle-income classes across all regions. The second major beneficiaries are the low income households, again for all regions, with the notable exception of the National Capital Region, where the high-income households are the second highest beneficiary of remittances. The paper highlights the data requirements for the modeling approach, which is instructive for emerging economies in similar situations.

Bangko Sentral ng Pilipinas
Authors Keywords
Goce-Dakila, Cristela; Dakila, Francisco G., Jr.; remittances; social accounting framework;
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Published in 2006 and available in the BSP Library or Downloaded 512 times since November 25, 2011
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