Investigating the Presence of Regional Economic Growth Convergence in the Philippines using Kalman Filter

Mapa, Dennis S and Sandoval, Monica Flerida B and Yap, David Joseph Emmanuel B (2009): Investigating the Presence of Regional Economic Growth Convergence in the Philippines using Kalman Filter.

Abstract

This paper investigates the presence of stochastic and dynamic convergence of the 14 regional economies in the Philippines in terms of per capita Gross Regional Domestic Product (GRDP) using regional panel data from 1988 to 2007. Stochastic convergence, which indicates convergence of regions in the long-run, is tested using Levin, Lin & Chu (LLC) and Im, Pesaran & Shin (IPS) panel unit root tests. The presence of convergence, on one hand, indicates that the economically laggard regions are gaining on the economically better-performing regions with respect to per capita GRDP. On the other hand, the lack of convergence indicates a need to reevaluate existing regional and national economic policies on development. Dynamic convergence reveals several convergence characteristics of individual regions over time. Dynamic convergence is determined by the time-varying parameter (TVP) model derived using the Kalman Filter. The paper proceeds to examine the individual convergence behavior of each region based on the value of the estimate of the parameter of the TVP. The results show that out of the 14 regions studied, seven regions are found to converge towards the average of the national per capita GDP growth rate over 1988 to 2007 while six regions lag behind the average of the national per capita GDP growth rate over the same period. No region converges towards the economic growth rate of National Capital Region, the lead region used in the study.

• Item Type: MPRA Paper
• Language: English
• Keywords: Panel Unit Root Test, Time-varying Parameter (TVP) Model, Kalman Filter, Stochastic Convergence, Dynamic Convergence
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis ; Housing ; Infrastructure; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

References

Austria, Myrna S. (2000), “Assessing the Competitiveness of the Philippine IT Industry”

Beenstock, M. and Felsenstein, D. (2006), “Regional Heterogeneity, Conditional Convergence and Regional Inequality”

Hill, Hal, Arsenio M. Balisacan and Sharon Faye A. Piza (2007). “The Philippine and Regional Development.” In Arsenio M. Balisacan and Hal Hill, eds. The Dynamics of Regional Development: The Philippines in East Asia. Ateneo De Manila University Press

Balisacan, Arsenio. and Hill, Hal. 2003. The Philippine Economy: Development, Policies, and Challenges, Quezon City: Ateneo De Manila University Press

Canales, Waldomar E. (2007), “Stochastic and Dynamic Convergence of Selected Commercial Banks with respect to Tax Collection in the Philippines”

Chou, Win Lin (2006), “Convergence of Service Sector Employment in China: Panel Data Evidence”, Discussion Paper in the 10th International Convention of the East Asian Economic Association, 18-19 November 2006, Beijing

Ferreira, J.M. (2002), “Technical Assistance to the Republic of the Philippines for Capacity Building of the Mindanao Economic Development Council to Enhance Private Sector Activity in the Philippine EAGA”, Asian Development Bank

Im, K. S., Pesaran, M. H. and Shin Y. (2003), “Testing for Unit Roots in Heterogeneous Panels”, Journal of Econometrics 115: 53-74

Krugman, Paul (1991), Geography and Trade, MIT Press, Cambridge, MA.

Levin, A., C. F. Lin and C. S. J. Chu (2002), “Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties”, Journal of Econometrics 108: 1-24

Magrini, Stefano (2003), “Regional (Di) Convergence”, University “Ca’ Foscari” of Venice

Manasan, R. G. and Mercado, R. G. (1999), “Regional Economic Growth and Convergence in the Philippines:1975-1997”

Mercado, Ruben G. (2002), “Regional Development in the Philippines:A Review of Experience, State of the Art and Agenda for Research and Action”

Pernia, E. M. and Quising P. F. (2003), “Economic Openness and Regional Development in the Philippines”, ERD Working Paper Series No. 34, ADB, Paper for the Conference on the Impacts of Globalizationon Urban Development, 19-23 August 2002, Bellagio, Lake Como, Italy

Reyes, C. M., Manasan, R. G., Orbeta, A. C., and de Guzman, G. G. (1999), “Social Impact of the Regional Financial Crisis in the Philippines”