El Niño or El Peso? Crisis, Poverty, and Income Distribution in the Philippines

Abstract

In terms of its impact on poverty, the recent economic crisis in the Philippines was more of an El Nino phenomenon than a financial crisis. Using household survey data for 1998, Datt and Hoogeveen assess the distributional impact of the recent economic crisis in the Philippines. The results suggest that the impact of the crisis was modest, leading to a 5 percent reduction in average living standards and a 9 percent increase in the incidence of poverty-with larger increases indicated for the depth and severity of poverty. The greater shock came from El Nino rather than through the labor market. The labor market shock was progressive (reducing inequality) while the El Nino shock was regressive (increasing inequality). Not all households were equally vulnerable to the crisis - induced shocks. Household and community characteristics affected the impact of the shocks. Ownership of land made households more susceptible to the El Nino shocks; higher levels of education made households more vulnerable to wage and employment shocks. The impact of the crisis was greater in more commercially developed communities. Occupational diversity within a household helped mitigate the adverse impact. There is some evidence of consumption smoothing by the households affected by the crisis, but the poor were less able to protect their consumption, which is a matter of policy concern. This paper - a product of the Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region - is part of a larger effort in the region to better understand the social impact of the crisis.