Drivers of household income distribution dynamics in the Philippines

Using counterfactual simulations, we investigate the various factors that could explain the changes observed in poverty and inequality in the Philippines over the past decade. To do this, we decomposed per capita household income as a stochastic function of various forms of socio-economic capital and the socio-economic returns to capital. The results indicate that the higher levels of ownership of assets and higher economic returns to formal and non-agricultural employment have contributed to lower poverty while human capital and access to basic services remain stagnant and thus, had no impact on poverty and inequality. In general, we find that the impact of changes in socio-economic capital and changes in economic returns to capital as offsetting forces that contribute to slow poverty and inequality reduction despite the rapid economic growth that the Philippines has experienced over the past ten years.