Arsenio Balisacan and Rosemarie Edillon INTRODUCTION Economic growth has been the traditional prescription for poverty reduction in developing countries. Indeed, one regularity in cross-country studies is that the incomes of the poor move almost one-for-one with overall economic growth (Dollar and Kraay, 2001; Bhalla, 2002). Yet a closer examination of recent individual country experiences suggests that while growth is good for the poor (as well as the non-poor), it is often not good enough, suggesting that other factors apart from growth matter as well. That is, an effective program for poverty reduction has also to include mechanisms for directly improving the institutional and economic environment facing the poor so that they are able to participate more actively in the growth process and its consequent beneﬁts.1 Indeed, addressing current poverty has the added beneﬁt of raising subsequent growth rates, that is moving the country to a higher growth path. For the Philippines, the absence of a comparatively high and enduring economic growth has been the single biggest constraint to the pace of poverty reduction (Balisacan, 2003). But even during periods when growth was considerable, the incremental response of the incomes of the poor to overall income changes was quite muted compared with the country’s neighbors, especially Indonesia and Vietnam. For instance, the elasticity of the income of the poor – deﬁned to be those in the bottom 20 per cent of the population – with respect to overall average income is 0.54 for the Philippines (Balisacan and Pernia, 2003), while...
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