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Composition of ODA and Informal Economy in the Philippines

Author

Listed:
  • Yeo Joon Yoon

    (Pusan National University)

  • Wongi Kim

    (SUNGSHIN WOMEN'S UNIVERSITY)

Abstract

We analyze how the size and composition of official development assistance (ODA) shape aggregate performance and informality in the Philippines using a small open-economy dynamic general equilibrium model with a formal and informal sector. Two main scenarios are considered: (i) an increase in total ODA and (ii) a higher share of tied aid, given a fixed amount of ODA. Both scenarios raise capital, output, and consumption in steady state, but through distinct mechanisms. The first scenario primarily increases demand and appreciates the relative price of informal goods, expanding informality. By contrast, the second scenario expands public capital, crowds in formal investment, lowers the relative price of informal good, and shifts resources toward the formal sector, despite short-run reallocation costs.

Suggested Citation

  • Yeo Joon Yoon & Wongi Kim, 2025. "Composition of ODA and Informal Economy in the Philippines," APEC Study Series 25-1, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepas:022540
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    Keywords

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    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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