A. Statement of the Research Question
Does increasing remittances reduce poverty rates in the Philippines?
B. Significance of the Research Question
The growth in the number of Filipino migrants and overseas workers directly increase the amount of remittances injected into the Philippine economy hence a study on whether or not remittances alleviate poverty would be a topic of great importance to a developing country like the Philippines.
The SWS survey report of 2010 indicated that in the year of 2010, 48% of the population is in state of poverty. That is, 48% of the population felt that they were poorer in the year of 2010 as compared to the year of 2009. This is only a testament to how many Filipinos feel they are entitled to a better standard of life, compared to their current one.
The number of Filipinos working overseas increased by 53% since 2005. According to the most recent Survey on Overseas Filipinos conducted by the National Statistics Office in 2010, there was a total of 2,043,000 Filipinos working abroad. This consisted of Overseas Contract Workers, other Filipinos with valid working visa or work permits, and those with no working visa nor permits but is working full time abroad. Their remittances summed up to $ 21,423,000,000 in the same year. With this amount of money injected in the Philippine economy, it is only natural to wonder if it contributes to the development of a developing economy like the Philippines through alleviating poverty.
C. Scope and Limitation
This research paper will study the trends in annual remittances and its contribution to the consumption per capita and self-rated poverty rates of the Philippines. Using a thirty-year historical data, the objective is to determine whether the amount of remittances contribute to economic development through alleviating poverty. In representing poverty, self-rated poverty data would be used. While in representing remittances, data from obtained formal channels would be used. It is important to note that transfer of remittances can be categorized into three (3) different channels: formal, informal and unregulated. The formal channel usually involves money transfer through registered or regulated banks or non-bank money transfer agencies. The informal channel, on the other hand, involves money transfer through unlicensed agencies. Lastly, the unregulated channel of money transfer goes through friends or through personal carrying by the ‘balik-bayan’ (ADB, 2004). In this study, the only source of data is the formal channel through which the government and some organizations were able to regulate the transfer of remittances. Therefore, the annual amount of remittances is understated.
D. Methodology
In analyzing the contributions of remittances to development, three (3) sets of data were used. The group obtained the following historical data from the databank of the World Bank: remittances (1981-2010); consumption per capita from total consumption and GDP per capita. While the historical data of self-rated Poverty (1985-2010) from the Social Weather Stations. To analyze the effect of remittances on poverty, the group compared the percentage change in remittances as compared to the change in self-rated poverty per year. The relationship between remittances and self-rated poverty were observed and analyzed based on the theory proposed by Ang et. al. To reiterate the contribution of remittances to development, the group used consumption per capita as a basis for development and compared the data with remittances. Since there are no existing data on total consumption per capita, it was derived by multiplying the total consumption (as a percentage of GDP) to GDP per capita. Percentage change in consumption per capita was then compared to the percentage change in remittances to determine their relationship.
E. Definition of Terms
1. OFW – Overseas Filipino Worker; a Filipino citizen working abroad.
2. Migrant – a former Filipino citizen residing and working abroad.
3. Remittances – transfers, in cash or in kind, from a migrant/OFW to a household resident in the country of origin.
4. Self-Rated Poverty – survey conducted upon poor families regarding how poor they feel as compared to the previous period.
II. Review of Literature
A. Policy Issues
Policies on Foreign Remittances
New Central Bank Act
According to Republic Act No. 7653 or the New Central Bank Act which established on the 10th of June, 1993, the Bangko Sentral ng Pilipinas (BSP) is the one responsible for regulating the remittance fund transfers coming from the Overseas Filipino Workers (OFW). Moreover, it also acts as the primary financial regulating firm for formal channels and other remittance agents. This law also empowers the BSP to oversee the financial activities of the different entities which engage in remittance operations (Gonzaga, 2009).
Tax Reform Act of 1997
According to Section 23 of the Tax Reform Act of 1997, “a non-resident citizen will be taxed only on income derived from sources within the Philippines.” This means that OFWs will be exempted from paying income taxes to the Philippine government. This is also one way for the government to reward the millions of Filipinos who are working outside the Philippines by bringing billions of dollars into the country (Gonzaga, 2009).
Policies on Poverty
| Table 2.1 Development Programs Marcos-Arroyo Administration |
| Plan | Poverty Targets |
| Marcos Administration; Four-Year Development Plan, 1971-1974 | No specific target for poverty reduction |
| Marcos Administration; Five –Year Philippine Development Plan 1978-1982 (Including the Ten-Year Development Plan 1978-1987) | The Plan did not mention of any poverty target, however, it did mention that overcoming poverty, underemployment and unemployment was one of the national goals and policies. The Plan also targeted to cover in an outreach program of the Department of Social Services and Development (DSSD) approximately 15 million individuals (31.2 percent of the 1980 population) belonging to the bottom 30 percent of the income classes by 1982. The target groups include disadvantaged groups (family heads, preschoolers, youth, disabled and distressed), cultural minorities, industrial and agricultural workers and social security workers. Communities such as distressed barangays, municipalities and cities were also included as target areas. |
| Five Year Philippine Development Plan, 1978-1982 (Updated for 1981 and 1982) (Marcos Administration) | The Plan did not mention of a target on poverty itself but on social development. The Plan targeted for lower population growth, improved health and nutrition status, higher educational performance, better housing and other social services and community development. |
| Five Year Philippine Development Plan, 19831987(Marcos Administration) | The Plan did not mention specific poverty reduction targets but it stated that human development was a major national goal and one of the priorities was to set programs that directly attack poverty. The Plan did mention its target for the delivery of social services. It was expected that the social sector will have reached out to 9.6 million needy individuals (or 13.3 percent of the population) by 1987. The self-employment assistance program was designed to benefit these economically and socially needy individuals in the working age group. |
| Philippine Development Plan, 1987-1992 (Aquino Administration) | The poverty incidence is targeted to fall from 59 percent in 1985 to 45.4 percent in 1992. Geographically, poverty incidence in the rural sector is targeted to decline from 63% in 1985 to 48% in 1992. NCR’s poverty is also targeted to fall from 44% to 40% within the same period while that of the urban areas outside NCR is expected to decline from 56 to 49 percent. |
| Updates of the Philippine Development Plan, 19901992(Aquino Administration) | From a poverty incidence of 58.9 in 1985, the government’s target for 1992 ranged at 46.1% to 49.3% |
| Medium-Term Philippine Development Plan, 1993-1998 (Ramos Administration) | Poverty shall be reduced from 39.2% in 1991 to about 30% by 1998. |
| Medium-Term Philippine Development Plan, 1999-2004 (Estrada Administration) | Poverty incidence shall be reduced from 32 percent in 1997 to 2528% by 2004. Regional targets were also included. |
| Medium-Term Philippine Development Plan, 2001-2004 (Arroyo Administration) | In the “Healing the Nation: The First 100 Days of the Macapagal Arroyo Administration,” it was mentioned that the MTPDP incorporated the goal of reducing poverty incidence to 28% by 2004. However, the final version of the 2001-2004 MTPDP failed to mention any target for reducing poverty incidence. |
(Source: Reyes, 2002)
The government has attempted to implement several policies to reduce the poverty incidence in our country. However, the problem does not lie with the lack of policies available but in the implementation of these policies themselves. Starting from the Marcos Regime until the Arroyo Administration, it is obvious that the government emphasizes the need to create policies that would alleviate poverty in the country.
It is good that each administration would focus a part of its resources in creating policies to help alleviate poverty. But it is necessary to understand that properly implementing these policies will take time, sometimes to the point that it may exceed the term of the president. The bad thing is that once the new administration is in place, the new president would again create new policies and discontinue the old one. Thus, this may be one of the reasons why government policies in the Philippines are not able to meet its intended benefits. (Reyes and Valencia, 2004)”
It can be noted that the Philippines is not able to cope well with poverty especially when there have been unexpected calamities. According to the National Anti-Poverty Commission, 45% of Filipinos will fall below the poverty line if they are hit with unexpected problems such as sudden deaths, sickness, natural calamities, etc. within their families (Senate Paper, 2011).
Another program to help fight poverty is the Improvement of the PPP ( Pantawid Pamilyang Pilipino Program). The four components of the program include: Supplemental Feeding Program; Food for Work Program for internally displaced persons; Rice Subsidy Program and Conditional Cash Transfer (CCT) Program. Although subsidy programs have shown to be costly in the past years, the Aquino Administration wants to improve on these subsidy programs particularly the 4Ps-CCT because this has helped other developing countries such as Latin America in decreasing poverty levels. According to the Aquino Administration, the CCT can be an instrument for the alleviation of poverty through the improvement of human capital and the increase in household income. This is because the government will be providing additional funds to the poor families so that they can use these extra funds to educate their children as well as improve the overall health of their families (Senate Paper, 2011). Moreover, it has been proven that cash transfers tend to generate a positive income effect as compared to subsidies in kind because it is able to provide the recipients not only additional funds but also the flexibility to allocate these resources depending on their needs.
B. Theoretical Issues
For developing countries, one important source of income for households with migrant/OFW members comes from remittance transfers. Of all the flows of money, this is least affected by economic downturns, therefore, remains a stable source of income (Alfieri et.al, 2005). Actual studies show that it contributes to poverty reduction in most developing countries. In this study, there are two main theoretical issues that will be used to associate the relationship between the remittances and the poverty level of the country. First, the remittance transfers that are directly received by households with migrant/OFW members indirectly benefit families that do not receive remittances, thus promoting local development through spill-overs (Ang et.al, 2009). In terms of poverty, remittances could indirectly reduce it by increasing the income of recipient households. Such increase in income increases the disposable income as well as the savings of recipient households. The increase in disposable income would mean an increase in the consumption of which can generate multiplier effects such that if there is an increase in their household consumption of local goods and services, there would be a resulting increase in demand which, in turn, would stimulate the local production thereby promoting a higher need for labor as well as development.
Remittance inflows provide larger savings rate that would allow households to set up micro-businesses to locally sustain their needs. Over and above physical investments, remittance transfers would also help in funding education and health care, which are key variables in promoting long-term economic growth by means of increasing both physical and human capital. Thus, it raises poor households’ standard of living and also alleviates poverty.
Kuznets hypothesized that the distribution of income tends to worsen in the early phases of development then would improve later on. The development involves a shift of population from a slow growing agricultural sector to a higher-income, more rapidly growing modern sector. In this process, inequality is first accentuated by a rapid population growth in rural areas and then, is ultimately reduced with the rising wages resulting from a rapid absorption of labor in the modern sector. The more capital intensive type of development strategy follows the absorption of less labor and produces greater concentration of income. While the more labor intensive forms distribute the benefits of modernization more widely.
Second, although labor migration and remittances provide households with considerable benefits, there are also substantial economic and social costs associated with it. On the economic side, one curious issue is the extent to which family members in remittance-recipient households reduce their work effort—a moral hazard effect on labor supply. (Ang et. al, 2009)
The impacts of remittances on poverty show that both international migration and remittances significantly reduce the level, depth and severity of poverty in developing countries. However, there are concerns that remittances would not benefit the poor. In particular it was argued that because the international migration can be an expensive venture, it is going to be the better-off households who will be more capable of producing migration and sending remittances (Stahl, 1982). While poor households would not get the benefit from such remittance flows, they tend to generate inequality so that poverty tends to eventually increase.
In order to give support to the factor of development in the study, the Five Stages of Growth Theory of W.W. Rostow would be used. According to this model, in order for a society to become a fully developed society, it has to have the pre-conditions for take-off which are an adequate transportation system and an education system. These pre-conditions are needed to be able to accommodate growth.
An adequate transportation system is needed to provide channels for goods to be able to reach the consumers efficiently. The goods will be of good quality due to the better quality inputs brought about by an efficient transport of materials this would foster competition among firms and lower the cost of goods. Having an adequate transport system doesn’t only make the goods within reach by the market, labor also becomes within reach of the firms. An education system, on the other hand, is needed to provide the economy with skilled laborers to be able to foster productivity. These pre-conditions will allow the economy to take-off. In order to reach that take-off stage, rapid growth must be generated from at least a 10% rate of savings. The labor productivity and the emergence of competition will allow for the production of more real output per capita or surplus which will foster more savings. These savings are needed to increase investment and capital accumulation in order for firms to expand and specialize in production. This will allow the economy to focus on productive labor, having a more and more manufacturing and industrialization dominated economy. This will lead to the stage of high mass consumption or a developed economy. With greater income demand will continue to grow and with higher productivity, supply will continue to flourish.
C. Empirical Issues
Remittances
The term “remittances” refers to the transfers, in cash or in kind, from a migrant to a household resident in the country of origin. It comprises of three categories: (i) transfers, in cash or in kind, from migrants to resident households in the country of origin; (ii) compensation to employees or the wages, salaries, and other remuneration, in cash or in kind, paid to individuals who work in a country other than where they legally reside; and (iii) migrant transfers that involve capital transfers of financial assets as they move from one country to another and stay for more than 1 year (International Monetary Fund). This is the definition that the Bangko Sentral ng Pilipinas follows. The following data in Table 2.2 and Figure 2.1 are in current US dollars:
| Table 2.2 Remittances |
| 1981 | 800,000,000 | 1996 | 4,875,000,000 |
| 1982 | 1,049,000,000 | 1997 | 6,799,000,000 |
| 1983 | 1,124,000,000 | 1998 | 5,130,000,000 |
| 1984 | 718,000,000 | 1999 | 6,717,000,000 |
| 1985 | 806,000,000 | 2000 | 6,961,000,000 |
| 1986 | 861,000,000 | 2001 | 8,769,000,000 |
| 1987 | 1,020,000,000 | 2002 | 9,735,000,000 |
| 1988 | 1,262,000,000 | 2003 | 10,243,000,000 |
| 1989 | 1,362,000,000 | 2004 | 11,471,000,000 |
| 1990 | 1,465,000,000 | 2005 | 13,566,000,000 |
| 1991 | 1,850,000,000 | 2006 | 15,251,000,000 |
| 1992 | 2,538,000,000 | 2007 | 16,302,000,000 |
| 1993 | 2,587,000,000 | 2008 | 18,642,000,000 |
| 1994 | 3,452,000,000 | 2009 | 19,765,000,000 |
| 1995 | 5,360,000,000 | 2010 | 21,423,000,000 |
(Source: World Bank Development Indicators)
Remittances as Percentage of GNP
The group computed for the percentage contribution of Remittances to the GNP through dividing the Remittances by GNP. This will show how much of the country’s total output and expenditures can be attributed to the remittances generated by Overseas Filipino Workers.
| Table 2.3 Remittance to GNP Ratio |
| 1981 | 0.011300414 | 1991 | 0.015918578 | 2001 | 0.045117268 |
| 1982 | 0.013663674 | 1992 | 0.020986338 | 2002 | 0.047769928 |
| 1983 | 0.013792481 | 1993 | 0.020379171 | 2003 | 0.046784762 |
| 1984 | 0.009365459 | 1994 | 0.025235826 | 2004 | 0.047626867 |
| 1985 | 0.01095865 | 1995 | 0.036490763 | 2005 | 0.052130263 |
| 1986 | 0.011088053 | 1996 | 0.030567906 | 2006 | 0.054336244 |
| 1987 | 0.012139692 | 1997 | 0.039115483 | 2007 | 0.052690935 |
| 1988 | 0.013529064 | 1998 | 0.028511464 | 2008 | 0.056243739 |
| 1989 | 0.013289534 | 1999 | 0.039265016 | 2009 | 0.05800074 |
| 1990 | 0.013119737 | 2000 | 0.037672686 | 2010 | 0.057783252 |
(Source: Computed from data obtained from the World Bank)
GDP per capita
GDP per capita is gross domestic product divided by midyear population. It is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products (World Bank). The following data in Table 2.4 are in current U.S. dollars:
| Table 2.4 GDP per Capita |
| 1981 | 1,484.66 | 1996 | 2,165.76 |
| 1982 | 1,587.26 | 1997 | 2,270.82 |
| 1983 | 1,634.99 | 1998 | 2,237.64 |
| 1984 | 1,529.43 | 1999 | 2,290.03 |
| 1985 | 1,421.61 | 2000 | 2,390.95 |
| 1986 | 1,462.88 | 2001 | 2,463.21 |
| 1987 | 1,529.11 | 2002 | 2,540.88 |
| 1988 | 1,645.21 | 2003 | 2,669.58 |
| 1989 | 1,766.92 | 2004 | 2,871.77 |
| 1990 | 1,842.82 | 2005 | 3,050.83 |
| 1991 | 1,848.88 | 2006 | 3,255.47 |
| 1992 | 1,849.89 | 2007 | 3,511.04 |
| 1993 | 1,886.27 | 2008 | 3,673.49 |
| 1994 | 1,963.75 | 2009 | 3,720.30 |
| 1995 | 2,056.30 | 2010 | 3,969.26 |
(Source: World Bank Development Indicators)
Final Consumption and Expenditure
The set of data below shows the Final Consumption and Expenditure in the Philippines for thirty (30) years, starting from 1981 until 2010. It will be used to measure the consumption per capita, as a means to measure the standard of living in the Philippines. The following data in Table 2.5 are in current US dollars:
| Table 2.5 Final Consumption and Expenditure |
| 1981 | 27,046,894,151.22 | 1996 | 70,231,090,338.57 |
| 1982 | 28,941,920,503.29 | 1997 | 70,455,159,556.69 |
| 1983 | 25,621,997,601.19 | 1998 | 61,915,660,683.93 |
| 1984 | 25,347,111,324.44 | 1999 | 70,523,155,042.94 |
| 1985 | 25,672,662,222.60 | 2000 | 67,757,164,291.65 |
| 1986 | 24,136,350,915.87 | 2001 | 64,604,442,968.34 |
| 1987 | 27,247,368,011.29 | 2002 | 68,723,305,277.52 |
| 1988 | 30,262,186,930.54 | 2003 | 70,948,360,234.46 |
| 1989 | 34,296,907,386.97 | 2004 | 76,647,335,789.91 |
| 1990 | 36,165,649,793.13 | 2005 | 86,631,251,401.27 |
| 1991 | 37,593,026,077.29 | 2006 | 102,382,836,455.77 |
| 1992 | 44,267,060,791.03 | 2007 | 123,610,968,457.86 |
| 1993 | 45,922,561,989.60 | 2008 | 144,385,447,771.57 |
| 1994 | 52,706,562,575.96 | 2009 | 142,299,273,073.47 |
| 1995 | 63,278,683,794.22 | 2010 | 162,210,697,166.92 |
(Source: World Bank Development Indicators)
Final Consumption and Expenditure (as percentage of the GDP)
The final consumption and expenditure, formerly indicated as the total consumption, consists of the final consumption and expenditure of both households and the government (World Bank). “This includes any statistical discrepancy in the use of resources relative to the supply of resources” (World Bank Development Indicators).
| Table 2.6 Final Consumption and Expenditure As Percentage of GDP |
| 1981 | 75.8750124 | 1991 | 82.772107 | 2001 | 84.7138078 |
| 1982 | 77.9262052 | 1992 | 83.5600222 | 2002 | 84.4706044 |
| 1983 | 77.1465033 | 1993 | 84.4658746 | 2003 | 84.5547341 |
| 1984 | 80.7014935 | 1994 | 82.2453589 | 2004 | 83.8856279 |
| 1985 | 83.5310719 | 1995 | 85.3734435 | 2005 | 84.0541736 |
| 1986 | 80.8090828 | 1996 | 84.7708159 | 2006 | 83.7756599 |
| 1987 | 82.0803382 | 1997 | 85.5615943 | 2007 | 82.7604678 |
| 1988 | 79.8780503 | 1998 | 85.7474226 | 2008 | 83.1701272 |
| 1989 | 80.5560358 | 1999 | 84.9726265 | 2009 | 84.5341177 |
| 1990 | 81.616673 | 2000 | 83.6236737 | 2010 | 81.2721811 |
(Source: World Bank Development Indicators)
Consumption per Capita
Consumption per capita is the share of each person in the final consumption and expenditures of the country. Since the data for consumption per capita is not readily available, the group used the GDP per capita and multiplied it to the Final Consumption and Expenditure (as a percentage of GDP) data obtained from the World Bank.
| Table 2.7 Consumption per Capita |
| 1981 | 1,126.485314 | 1991 | 1,504.050431 | 2001 | 2,086.675552 |
| 1982 | 1,236.888582 | 1992 | 1,530.358259 | 2002 | 2,146.295587 |
| 1983 | 1,261.336492 | 1993 | 1,545.771905 | 2003 | 2,257.254703 |
| 1984 | 1,234.273849 | 1994 | 1,593.256574 | 2004 | 2,409.000062 |
| 1985 | 1,187.484591 | 1995 | 1,615.089866 | 2005 | 2,564.347166 |
| 1986 | 1,182.143418 | 1996 | 1,755.532948 | 2006 | 2,727.292383 |
| 1987 | 1,255.097931 | 1997 | 1,835.933607 | 2007 | 2,905.74982 |
| 1988 | 1,314.162771 | 1998 | 1,942.951527 | 2008 | 3,055.244019 |
| 1989 | 1,423.361063 | 1999 | 1,918.717991 | 2009 | 3,144.91966 |
| 1990 | 1,126.485314 | 2000 | 1,945.899064 | 2010 | 3,225.903869 |
(Source: World Bank Development Indicators)
Self-Rated Poverty
Self-rated poverty refers to the surveyed proportion of families who thinks they are poor, with nothing to eat, at least once in the previous three months (Social Weather Stations). These surveys are conducted at least twice a year. The group obtained the average for each year in order to come up with the data in Table 2.8 and Figure 2.5.
| Table 2.8 Self-Rated Poverty (%) |
| 1981 | n/a | 1991 | 67 | 2001 | 62 |
| 1982 | n/a | 1992 | 68 | 2002 | 63 |
| 1983 | n/a | 1993 | 65 | 2003 | 60 |
| 1984 | n/a | 1994 | 68 | 2004 | 51 |
| 1985 | 74 | 1995 | 63 | 2005 | 53 |
| 1986 | 67 | 1996 | 59 | 2006 | 54 |
| 1987 | 47 | 1997 | 59 | 2007 | 50 |
| 1988 | 66 | 1998 | 61 | 2008 | 53 |
| 1989 | 62 | 1999 | 61 | 2009 | 49 |
| 1990 | 68 | 2000 | 57 | 2010 | 48 |
(Source: Social Weather Stations)
III. Theoretical Framework
A. Hypothesis
The increase in Remittances transferred to the Philippine economy decreases the rate of poverty.
B. Theoretical Framework
Contribution of Remittances to Domestic Economic Development
According to Ang, Sugiyarto, and Jha, remittances help alleviate poverty in the Philippines through increasing the income of the recipient households allowing them to increase their consumption expenditures as well as their savings. This contributes to the overall consumption expenditure of the country, increasing the GDP and allowing the households to invest their savings in micro-businesses.
W.W. Rostow’s Five Stages of Growth
According to W.W. Rostow’s Five Stages of Growth model, in order for an economy to become fully developed, it must go through 5 stages: the traditional society stage, the preconditions to take-off stage, take-off stage, drive to maturity, and the stage of high mass consumption. In order for the Philippines to be able to reach the level of take-off, it must be equipped with adequate infrastructure for transportation and education system. The economy is currently equipped with a 27% rate of savings, meaning, the country is pass the stage of take-off but it has yet to reach the drive to maturity. The Remittances, as discussed in the Working Paper Series of the ADB (Ang et. al, 2009) contribute to the rate of savings of recipient households. With the increase in remittances, the rate of savings will increase as well. With enough savings and capital accumulation, the Philippines can fully go in transition to the drive to maturity stage, one step closer to becoming a fully developed economy.
C. Methodology and Data Sources
The focus of this study is to compare the growth in remittances to its effects on the overall economic development in the Philippines and on the decrease in poverty rates. In order to compare remittances with development and poverty, the group used the data on the following: remittances which were obtained from the World Bank Indicators; consumption per capita derived from data on consumption and GDP per capita which were also obtained from the World Bank Indicators; and self-rated poverty which was obtained from the Social Weather Stations.
Basing the methodology on the theory of Ang, Sugiyarto and Jha, the group compared the data on remittances with the data on self-rated poverty to be able to see the effect of remittances on poverty rates. To be able to do this, the percentage change in remittances was compared to the corresponding percentage change in poverty rates from year to year. This method allowed for the comparison of the relationship between the two variables.
In order to measure the corresponding economic development caused by the growth in remittances, the group compared the data on remittances to the data on consumption per capita. Afterwards, to be able to compare the relationship between the two, the group measured the percentage change in remittances and compared it to the corresponding percentage change in consumption per capita.
IV. Analysis
A. Discussion of Data and Results
The group used data of the following variables: GDP per capita, GNP, Remittances, Consumption per Capita, and Self-Rated poverty. The first three (3) variables were obtained from the World Bank Development Indicators, the fourth variable was computed from the available data, while the last variable was obtained from the Social Weather Stations.
In attempting to study the relationship between Remittances and Self-Rated poverty, the group compared the percentage change in remittances per year to the corresponding percentage change in Self-Rated poverty. Table 4.1 and Table 4.2 show the percentage change in remittances and Self-Rated poverty per year starting from 1986 until 2010.
| Table 4.1 Percentage Change in Remittances (%) |
| 1981 | n/a | 1991 | 26.27986348 | 2001 | 25.9732797 |
| 1982 | n/a | 1992 | 37.18918919 | 2002 | 11.01607937 |
| 1983 | n/a | 1993 | 1.930654058 | 2003 | 5.21828454 |
| 1984 | n/a | 1994 | 33.43641283 | 2004 | 11.98867519 |
| 1985 | n/a | 1995 | 55.27230591 | 2005 | 18.26344695 |
| 1986 | 6.82382134 | 1996 | -9.048507463 | 2006 | 12.42075778 |
| 1987 | 18.46689895 | 1997 | 39.46666667 | 2007 | 6.891351387 |
| 1988 | 23.7254902 | 1998 | -24.54772761 | 2008 | 14.35406699 |
| 1989 | 7.923930269 | 1999 | 30.93567251 | 2009 | 6.024031756 |
| 1990 | 7.562408223 | 2000 | 3.632574066 | 2010 | 8.388565646 |
(Derived from Remittances data obtained from the World Bank)
| Table 4.2 Percentage Change in Self-Rated Poverty (%) |
| 1981 | n/a | 1991 | -1 | 2001 | 5 |
| 1982 | n/a | 1992 | 1 | 2002 | 1 |
| 1983 | n/a | 1993 | -3 | 2003 | -3 |
| 1984 | n/a | 1994 | 3 | 2004 | -9 |
| 1985 | n/a | 1995 | -5 | 2005 | 2 |
| 1986 | -7 | 1996 | -4 | 2006 | 1 |
| 1987 | -20 | 1997 | 0 | 2007 | -4 |
| 1988 | 19 | 1998 | 2 | 2008 | 3 |
| 1989 | -4 | 1999 | 0 | 2009 | -4 |
| 1990 | 6 | 2000 | -4 | 2010 | -1 |
(Derived from Self-rated Poverty data obtained from the Social Weather Stations)
The computed percentage change in remittances and percentage change in self-rated poverty are inversely related. That is, every time remittances increase, there is a corresponding decrease in the self-rated poverty and every time remittances decrease, self-rated poverty increase. Table 4.3 shows the percentage change in poverty per 1% change in remittances.
| Table 4.3 Percentage Change in Poverty Per one percent Change in Remittances (%) |
| 1981 | n/a | 1991 | -0.038051948 | 2001 | 0.192505531 |
| 1982 | n/a | 1992 | 0.026889535 | 2002 | 0.090776398 |
| 1983 | n/a | 1993 | -1.553877551 | 2003 | -0.574901575 |
| 1984 | n/a | 1994 | 0.089722543 | 2004 | -0.750708469 |
| 1985 | n/a | 1995 | -0.090461216 | 2005 | 0.109508353 |
| 1986 | -1.025818182 | 1996 | 0.442061856 | 2006 | 0.080510386 |
| 1987 | -1.083018868 | 1997 | 0 | 2007 | -0.580437678 |
| 1988 | 0.800826446 | 1998 | -0.081473936 | 2008 | 0.209 |
| 1989 | -0.5048 | 1999 | 0 | 2009 | -0.664007124 |
| 1990 | 0.793398058 | 2000 | -1.101147541 | 2010 | -0.119209891 |
(Derived from data Remittances and Self-rated Poverty obtained from the World Bank and Social Weather Systems, respectively.)
In measuring economic development contributed by remittances, the group used the data on remittances and compared it with the data on consumption per capita. The group compared the percentage change in remittances with the corresponding percentage change in consumption per capita. The values can be found in Table 4.4.
| Table 4.4 Percentage Change in Consumption per Capita (%) |
| 1981 | n/a | 1991 | 1.74913206 | 2001 | 4.365098291 |
| 1982 | 9.800684119 | 1992 | 1.007191946 | 2002 | 2.85717802 |
| 1983 | 1.976565329 | 1993 | 3.071906601 | 2003 | 5.169796559 |
| 1984 | -2.14555303 | 1994 | 1.370356315 | 2004 | 6.722562536 |
| 1985 | -3.790832809 | 1995 | 8.695682202 | 2005 | 6.448613563 |
| 1986 | -0.449788827 | 1996 | 4.579843375 | 2006 | 6.354257282 |
| 1987 | 6.171375844 | 1997 | 5.829073531 | 2007 | 6.543392197 |
| 1988 | 4.705994534 | 1998 | -1.247253767 | 2008 | 5.144771864 |
| 1989 | 8.309342949 | 1999 | 1.416626785 | 2009 | 2.935138422 |
| 1990 | 5.668931813 | 2000 | 2.749408895 | 2010 | 2.575080361 |
(Derived from data obtained from the World Bank)
With some exception, remittance is directly related to consumption per capita. The exceptions may be explained by some dampening effects.
B. 
Analysis of Results
Figure 4.3 reveals that remittances, with some exceptions, have a negative relationship with self-rated poverty. This means that remittances help in alleviating poverty within households. This could be due to the direct transfer of remittances to households with migrant/OFW members that allows them to have a higher budget for consumption purposes. This, then, causes an indirect flow of income to other Filipino households such that as a result of higher demands for goods and services, there will be higher production, thereby lowering the cost per unit of goods and increasing the demand for employees. Hence, as remittances increase, so do the disposable income of recipient households uplifting those previously in poverty, out of poverty.
Figure 4.4 reveals a direct relationship between remittances and consumption per capita. This can be seen in the graph above as the consumption per capita increase with the growth in remittances. With greater income, households increase their spending together with their savings. The increase in consumption spending in an economy is testament to its development. As consumption per capita increases, the standard of living in the society increase with it as well.
Figure 4.3 show that the increasing trend in remittances yields an increasing trend in consumption per capita. According to Ang, Sugiyarto and Jha, this is because recipient households tend to increase consumption when their income increases. Correspondingly, GNP increases with the trend as well. This is testament to the theory of Ang, Sugiyarto, and Jha that recipient household tend to invest their savings on human capital and physical investments. The increase in GDP can be attributed, partly, to the increase in remittances due to the productivity contributions of the investments made by recipient households. Their investments, even in micro-businesses, generate employment and income to non-recipient households causing a spill over of income.
Based on these data, according to Rostow’s Stages of Growth model, since the savings rate of the Philippines as computed by the World Bank is currently at 27%, the Philippines is slowly reaching the drive to maturity stage where the economy is dominated by manufacturing industries. With recipient households continuing to invest in new businesses and continuously increasing their rate of savings, the economy will eventually reach the high mass consumption stage. Theoretically, the increase in remittances can aid in fuelling development in the Philippines however, the contribution of remittance to growth is dampened by several factors.
C. Appraisal of the Theoretical Framework
The current savings rate of the Philippines is at 27% (World Bank Development Indicators). This leads us to conclude that based on Rostow’s five stages of growth, it has gone pass the stage of take-off. However, it is still considered to be in transition to the drive to maturity stage because the service sector which is labor intensive still takes up majority of the industry (Principal U.S. Embassy Officials). It can be assumed that the country was able to reach the current savings rate due to the huge amounts of remittances being received by recipient households. The theory proposed by Ang, Sugiyarto, and Jha supports this assumption by saying that remittance transfers pave the way for higher consumption expenditure and savings. This higher savings allow recipient households to invest in entrepreneurial activities. As a result, not only do their savings further increase, the country’s GDP and labor demand increases as well, thus triggering an economic growth by decreasing the poverty rates.
The data gathered regarding remittances and poverty showed trends that back up the theory proposed by Ang, Sugiyarto, and Jha. It was observed that as the percentage change in remittances increased, the corresponding decrease in the poverty rates grow bigger. Indeed, the remittance transfers help alleviate poverty
V. Conclusions
A. Summary and Conclusions
According to the National Statistics Office, there are currently 2,043,000 OFW’s contributing a total of $ 141,232,000,000 in remittances to the Philippine economy as of 2010. The SWS survey report of 2010 reveals that 48% of Filipinos are in a state of poverty. This number decreased significantly since 1985 when the poverty rate reported by the SWS was 74% and total remittances amounted to only $ 806,000,000. The question of whether or not remittances contribute to development in the long run can be answered by the data presented above.
The flow of income transferred from host countries to Filipino recipient households increases their level of consumption expenditures and savings. This branches out in two (2) ways. First is the resulting increase in consumption per capita, therefore, increasing the production demand which further leads to the reduction of price per unit of good as well as to the increasing demand for labor to accommodate the bigger production, thereby creating more jobs, income and further increasing the GDP. The second is the resulting capital accumulation as a result of the reinvestment of savings which increases GDP as well. Along with this is the human capital that develops from an investment in education and health care. With this, it is evident that remittances can contribute to development through decreasing poverty and increasing consumption per capita; however, the effects may not be as huge as expected due to several dampening factors.
According Ang et. al, recipient households decrease their work efforts and depend on the income generated by OFW’s. This decreases productivity that could have been generated if these household members were employed. Productivity is further dampened through the migration of skilled and professional laborers to foreign countries. This further dampens the overall contribution of remittances to Philippine economic development.
B. Recommendations for further Research
Due to the limited time and resources available, the group failed to conduct an extensive study on the effects of remittances to poverty. What we have achieved, though, is a general conclusion regarding the indirectly proportional relationship of the two variables such that remittances indeed decrease poverty. However, it would be better to make a more comprehensive study that would involve statistical analysis in order to accurately determine the degree of correlation between these two variables.
Furthermore, more complicated methods and models might be needed in order to come up with a general formula to compute for the percentage decrease in poverty rates for every percentage increase in remittances. After concluding that remittances can bring about economic growth, the next step is to find out how much of an amount is needed in order to trigger a certain amount of growth.
Along with this, it would be good to determine situation and exceptions that would make the hypothesis false. This would entail further study of the direct effects of remittances to the economy and the direct translation of these to alleviating poverty. That is, a further focus on the contributions of remittances to recipient households as mentioned in the study: increase in consumption spending, increase in savings, engagement in entrepreneurial activities. This will allow the study to further analyze the real effects of remittances to the micro-level economy for the researcher to be able to come to a macro-level conclusion.
