Economic Growth in the Philippines: A Spatial Econometrics Analysis at the Provincial Level, 1991 – 2000.

Investigating the determinants of economic growth remains a long research tradition in the economic growth literature. Most studies in this literature have tried to link economic growth and different economic factors using either neoclassical growth theories or endogenous growth approaches. These studies apply these growth theories to identify the factors responsible for the observed differences/disparities between regions or countries. While early studies focused on cross-country analyses, the recent most studies consider regions or sub-national entities as unit of analysis. This has raised the question of whether theories developed for cross-country analysis could be automatically applied for regional or sub-national analysis. Given the profound difference between nations and regions in terms of degree of openness, theories developed in cross-country analysis may not be automatically applied in regional analysis (see Mangrini, 2004). However, properly accounting for the spatial interaction effects may provide a way to use these theories in regional analysis. Regional analysis of economic growth has therefore spurned the development of specialized quantitative methods designed to account for the spatial dimensions of higher resolution, spatially referenced data. The goal of this research is to investigate the process of regional economic growth in the Philippines focusing on provincial data. Previous studies on regional growth within the Philippines have analyzed the regional growth process following neoclassical growth models or endogenous growth models without explicitly modeling spatial dependence between regions and the role of spillover effects. Traditional growth regressions with ordinary least squares may yield biased or inconsistent estimates if spatial autocorrelation is present but have been accounted for. This paper uses spatial econometrics techniques to estimate three theoretical growth models: the unconditional growth model, the Solow model and the Mankiw Romer and Weil model. Investment and human capital were found to be the main drivers of economic growth.