Development strategy and trade liberalization: implications for poverty and environment in the Philippines

Abstract

Poverty and environmental degradation or deforestation in developing countries have common determinants in underlying economic and institutional conditions that determine factor and product prices and incentives for migration and resource-depleting activities. These determinants include property rights failures (open access to forest lands) but also ‘government failures’ in the form of policies that indirectly promote resource use and retard poverty alleviation. A general equilibrium analysis identifies influences that such distortions have on poverty and environment. Using a numerical GE model, we consider likely effects of Philippine trade policy reforms of the 1990s on determinants of poverty, deforestation, and agricultural land expansion. These reforms marked a significant shift away from the import substitution industrialization strategy that characterized post-independence Philippine development. The results suggest that though reforms would increase poverty in the short term, in the longer run trade liberalization is poverty reducing. The environmental impact can also be positive, provided liberalized trade is combined with appropriate government action to address market failures.