Abstract
The Philippines has undergone gradual, but substantial, changes in industrial structure over the past few decades, and these have been associated with changes in the geographical distribution of economic activity. This study analyzes changes in the determinants of regional income inequality in the Philippines associated with these structural changes from 1975 to 2009. This is accomplished by using the bidimensional decomposition method. The reduction of the disparity between the National Capital Region (NCR) and the rest of Luzon is essential to decreasing Luzon's high within‐region inequality and overall interregional inequality. However, this is not easy to accomplish, as service sectors have enjoyed agglomeration economies that the NCR has nurtured under economic liberalization and globalization. Decentralization has been one way to ameliorate the disparity, but its effects are ambiguous. Another option would be to relocate some manufacturing activities to areas outside the NCR where they could enjoy localization economies.
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