Effects of Increasing Agricultural Productivity in a Multisectoral Model for the Philippines

This paper investigates empirically the economy‐wide effects of agricultural productivity increases in the Philippines, reporting the results of a quantitative analysis based on a general equilibrium framework. A multisectoral, price endogenous model of the Philippine economy is employed, emphasizing not only agriculture but also other production sectors with which it closely interacts, as well as the distinction between rural and urban households in their income generation and consumption patterns. Among other findings, the differential effects on the real income of rural households vis‐a‐vis urban households arising from increased productivity in the various components of the agricultural production sector are striking. The resulting improvements in the trade balance and national income, among other macroeconomic variables, are also relatively significant. Moreover, there are significant differences in the economy‐wide effects among the four sectors of food and agriculture distinguished in the study. Particularly interesting is the highly favorable impact of rising productivity in the food processing sector on agricultural crop production and rural income, a linkage effect that has not received much attention in the development literature.