why regions fail: the case of the philippines

Why Regions Fail: The Case of the PhilippinesAngara Center Lecture Series, University of the Philippines

Pablo Querubın James Robinson

NYU and Harvard

August 20, 2014

Querubın Robinson (NYU and Harvard) Why Regions Fail August 20, 2014 1 / 20

Why Nations Fail

Poor economic outcomes are the result of extractive economicinstitutions that fail to create incentives and opportunities for thevast mass of people.

Extractive economic institutions are a consequence of extractivepolitical institutions which have two dimensions

1 Narrow distribution of political power (lack of ‘pluralism’).2 Weak and ineffective state (lack of ‘political centralization’).


Why Regions Fail

Though the focus in our book is very much on national outcomesthere is a lot of discussion of regional variation

US South versus the rest of the US:

South historically had more extractive economic institutions

Slavery, far less public good provision, with the obvious results: 50% ofnational GDP per-capita in 1860, 40% in 1940, higher inequality, lessmanufacturing industry, urbanization, less innovative even in theeconomic activities in which it specialized.

A consequence of more extractive political institutions

White males got the vote far later in the South in 19th century, afterCivil War the ‘solid south’ absence of political competition, blackdisenfranchisement until the 1960s.

Breakdown of extractive political and economic institutions in theSouth coincided with it converging to the US mean.


Spatial Distribution of Extractive and Inclusive

The US South example makes the point that even within a countrywith basically inclusive institutions there can be extractive institutionsas well and they may be regionally concentrated creatingspatial/regional inequality.

In this case where the extractive institutions are all bad things gotogether creating underdevelopment.

Is the Philippines like this?


Regional Development Patterns in the Philippines

Large regional variation in levels of income per-capita and poverty.

But one basic fact is that Mindanao is substantially poorer than therest of the country. The poverty rate is significantly lower in Luzonthan in Mindanao.

The poverty rate goes from 70% in Lanao del Sur (in Mindanao) to4% in Metro Manilla.

Income per-capita in 2006 dollars ranges from US$942 Tawi-Tawi (inMindanao) to US$5,101.

Poverty and low income clustered in Mindanao, lack of poverty andhigh income in Luzon.


LUZON MINDANAO VISAYASPoverty4Incidence,42009 23.58 44.90 37.83Income4per4Capita4(US$),42006 2430.82 1710.57 1964.50Dynasty4Herfindahl,41988Q2010 0.46 0.53 0.47Share4Biggest4Dynasty,41988Q2010 0.56 0.62 0.57Conflict4Episodes,42006 1.64 9.40 2.44Share4Wild4Population,41903 0.18 0.56 0.02Fraction4Muslim4Population,42000 0.02 0.23 0.01Fraction4of4Mayors4who4are4"Datus" 0.00 0.02 0.00Access4to4Electricity 0.65 0.41 0.49Access4to4Piped4Water 0.39 0.36 0.39Garbage4Collection4by4Truck 0.15 0.08 0.08Elementary4School4Enrollment 0.84 0.75 0.79Road4Density 0.38 0.20 0.26Good4Governance4Index,42008 187.00 148.47 147.90Overall4Land4Gini,42002 0.70 0.64 0.69

Table41Summary4Statistics

020

4060

80Po

verty

Incid

ence

, 201

2

0 20 40 60 80 100Poverty Ranking

LUZON VISAYASMINDANAO

Poverty Ranking (2012)Figure 1

1000

2000

3000

4000

5000

Inco

me

per C

apita

(US)

, 200

6

0 50 100Income per Capita Ranking


Income per Capita Ranking (in USD), 2006Figure 2

What Explains Variation in Poverty?Argument 1: There is Something Special about Mindanao (or Luzon)

We present evidence that poverty is significantly negatively correlatedwith

1 with the presence of political dynasties at the municipal level(coefficient estimates for congress and governor similar but noisier andinsignificant).

2 with the presence of violent incidents by non-state armed actors (NPAand MILF) (state absence - lack of monopoly of violence)

3 with the historical incidence of ‘wild tribes’ from the 1903 US Census(which we also interpret as colonial state absence) and fraction ofpopulation muslim in 2000.

But adding Mindanao and Luzon dummies reduces the size of thecoefficient of (1) by half, switches the sign of (2) and makes (3)insignificant.

Thus many bad things go together in Mindanao (and good things gotogether in Luzon) and the sum of their impacts on poverty isquantitatively large.


What Explains Variation in Poverty?Argument 2: The Puzzling Role of Land Inequality

We present evidence that poverty is significantly negatively correlatedwith land inequality. The quantitative effect is very large.

We show that higher land inequality is associated with severalimportant channels, higher literacy and educational attainment, andhigher provision of public goods measured by access to potable water,road intensity.

This is true inside and outside Mindanao and land inequality is notsignificantly different on average in Mindanao.

This within-country findings mirrors something we found in joint workwith Daron Acemoglu and Marıa Angelica Bautista 5 years ago forColombia (“Economic and Political Inequality in Development: TheCase of Cundinamarca, Colombia”) (and has been since discovered byothers - e.g. Claudio Ferraz and Fred Finan in Brazil).

Very different from the US case.


What’s Going on with Land Inequality?

We propose three interpretations of this partially building on ourearlier work

1 Economic and political elites are distinct. High land inequality indicatesthe presence of strong economic elites who can place de factoconstraints on the activities of political elites which is good for publicgood provision (hypothesis, corruption should be lower in places withhigh land inequality).

2 The relationship is picking up an confounding variable, state presence.Big landed estates are only viable where the state can enforce propertyrights and build infrastructure etc. So extractive elements (coercivelabor relations in sugarcane) are dominated by the positive effects ofstate presence (being neglected is worse than being exploited?).

3 In such a patrimonial society, economic elites are heavily involved inservice provision.

In the Philippines (like Cundinamarca) land inequality and politicalconcentration are negatively correlated.


Correlates of PovertyReduced Form Evidence

Political dynasties measured between 1988 and 2010 by

1 A Herfindahl index of concentration of seats at different levels ofgovernment in the hands of a single family (e.g. 8 elections for mayorin this period, if all mayors are from the same family H = 1, if allmayors were from a different family H = 0.125).

2 Fraction of seats held by the family with the largest number of seats(also ranges from 0.125 to 1).

Conflict - number of violent episodes coded from newspaper reportsbetween November 2005 and October 2006.

‘Wild tribes’ in 1903 proportion of the total population classified asWild (only at the provincial level). US made a distinction between‘civilized’ and ‘barbarian’ with civilized being basically thoseChristianized, ‘wild’ was everyone else.


(1) (2) (3) (4) (5) (6)

Dynasty Herfindahl, 1988-2010 9.586 4.294 4.454(1.877) (1.545) (1.105)

Share Biggest Dynasty, 1988-2010 10.193 4.829 4.821(1.950) (1.603) (1.138)

Mindanao Dummy 6.863 6.871(0.884) (0.883)

Luzon Dummy -14.201 -14.182(0.791) (0.791)

Province Fixed Effects NO NO NO NO YES YESObservations 1,611 1,611 1,611 1,611 1,611 1,611R-squared 0.016 0.017 0.347 0.348 0.724 0.725

Dependent Variable is Poverty Incidence, 2009

Table 2Poverty Incidence and Political Dynasties (Municipal-Level Regressions)

(1) (2) (3)Conflict Episodes, 2006 0.391 -0.275 -0.309

(0.063) (0.061) (0.072)Mindanao Dummy 9.273

(1.007)Luzon Dummy -13.756

(0.838)Province Fixed Effects NO NO YESObservations 1,427 1,427 1,427R-squared 0.026 0.334 0.715

Dependent Variable is Poverty Incidence, 2009Poverty Incidence and Conflict (Municipal-Level Regressions)

Table 3

(1) (2) (3) (4) (5)

Share Wild Population, 1903 9.117 4.807(3.848) (4.436)

Fraction of Population Muslim, 2000 16.046 -0.732 23.068(1.991) (1.881) (3.219)

Mindanao Dummy 1.894 6.965(4.445) (0.989)

Luzon Dummy -9.050 -14.366(3.440) (0.794)

Observations 77 77 1,560 1,560 1,560R-squared 0.070 0.223 0.040 0.340 0.737



Table 4Poverty Incidence, Indigenous Population and Fraction Muslim (Provincial-Level Regressions)

(1) (2)Fraction of Population Muslim, 2000 0.068 0.091

(0.010) (0.023)Province Fixed Effects NO YESObservations 413 413R-squared 0.105 0.411

Table 5Share of Datu Mayors and Percent Population Muslim (Municipal-Level Regressions)

Dependent Variable is Share Datu Mayors, 1988-2010Only for Mindanao

(1) (2) (3)

Dynasty Herfindahl, 1988-2010 4.477 3.236 3.383(2.050) (1.710) (1.198)

Conflict Episodes, 2006 0.241 -0.285 -0.322(0.067) (0.061) (0.070)

Fraction of Population Muslim, 2000 12.485 -0.238 22.339(2.178) (1.957) (3.436)

Luzon Dummy -13.922(0.837)

Mindanao Dummy 9.329(1.073)

Province Fixed Effects NO NO YESObservations 1,406 1,406 1,406R-squared 0.052 0.342 0.732

Table 6Reduced Form Determinants of Poverty (Municipal-Level Regressions)


Correlates of PovertyPotential Channels

We now present evidence through which these variables may beinfluencing poverty. We use public goods outcomes from the 2000Philippine Census.

Fraction of households that use electricity as a source of lighting.

Fraction of households with faucet piped water.

Fraction of households with garbage collected by a truck.

Primary school enrollment (fraction of children aged between 6 and12 attending school).


Electricity Piped Water Garb. Truck School Atten.

Good Governance

Index

(1) (2) (3) (4) (5)Dynasty Herfindahl, 1988-2010 -0.077 -0.174 -0.052 -0.048 -25.358

(0.031) (0.031) (0.021) (0.011) (11.606)Observations 1,580 1,580 1,580 1,580 1,464R-squared 0.004 0.019 0.004 0.011 0.003

Dynasty Herfindahl, 1988-2010 -0.030 -0.167 -0.037 -0.030 -17.205(0.028) (0.031) (0.021) (0.010) (11.438)

Mindanao Dummy -0.086 -0.034 -0.009 -0.043 1.345(0.016) (0.017) (0.012) (0.006) (6.390)

Luzon Dummy 0.167 -0.004 0.078 0.048 38.139(0.014) (0.015) (0.010) (0.005) (5.636)

Observations 1,580 1,580 1,580 1,580 1,464R-squared 0.194 0.022 0.061 0.177 0.046

Table 7Political Dynasties and Public Goods Provision (Municipal-Level Regressions)

Dependent Variable is:

Panel A: Simple Bivariate Regression

Panel B: With Mindanao, Luzon Fixed Effects


Good Governance

Index

(1) (2) (3) (4) (5)Conflict Episodes, 2006 -0.007 -0.004 -0.001 -0.003 -1.550


Conflict Episodes, 2006 0.000 -0.003 0.002 -0.001 -0.959(0.001) (0.001) (0.001) (0.000) (0.407)

Mindanao Dummy -0.094 -0.016 -0.026 -0.040 7.009(0.017) (0.019) (0.013) (0.006) (6.913)

Luzon Dummy 0.188 0.020 0.095 0.051 35.581(0.014) (0.016) (0.011) (0.005) (5.691)


Table 8Conflict and Public Goods Provision (Municipal-Level Regressions)





Good Governance

Index

(1) (2) (3) (4) (5)Fraction of Population Muslim, 2000 -0.360 -0.317 -0.133 -0.173 -58.705


Fraction of Population Muslim, 2000 -0.207 -0.365 -0.093 -0.125 -44.099(0.033) (0.036) (0.024) (0.012) (13.096)

Mindanao Dummy -0.040 0.043 0.010 -0.015 10.119(0.017) (0.019) (0.013) (0.006) (7.125)

Luzon Dummy 0.171 -0.004 0.079 0.050 38.489(0.014) (0.015) (0.010) (0.005) (5.636)


Table 9Fraction Muslim and Public Goods Provision (Municipal-Level Regressions)




Land Inequality and PovertyReduced Form Evidence

Now we present the reduced form results with land inequality andpoverty.

Land inequality measured from 2002 Agricultural Census at theprovincial level imputing fraction of landless households.

This is not a Mindanao versus Luzon phenomenon (same relationshipis significant using just Luzon or just Mindanao data).


Land Inequality and PovertyPotential Channels

Same as before from the 2002 Census plus:

Road density (Department of Public Works and Highways).

Functional illiteracy (Human Development Report 2006).

Note the connection between land inequality and public goodprovision - consistent with both the above stories: economic elitesconstrain politicians, land inequality correlated with state presence.


020

4060

80

.4 .5 .6 .7 .8 .9Land Gini


Poverty Incidence (2012) and Land InequalityFigure 3

(1) (2) (3) (4) (5)Overall Land Gini, 2002 -48.714 -35.493 -28.995 -6.310 -60.588

(14.596) (13.771) (19.619) (38.207) (22.017)Mindanao Dummy 4.435

(3.745)Luzon Dummy -8.032

(3.400)Sample All Provinces All Provinces Luzon Visayas MindanaoObservations 78 78 38 16 24R-squared 0.128 0.295 0.057 0.002 0.256

Table 10Poverty Incidence and Land Inequality (Provincial-Level Regressions)


Road Density Electricity Piped Water Garb. Truck School Atten. Func. Illiteracy(1) (2) (3) (4) (5) (6)

Overall Land Gini, 2002 0.595 0.158 0.402 0.592 0.137 -20.448(0.242) (0.191) (0.182) (0.163) (0.068) (10.194)

Observations 72 72 78 78 78 77R-squared 0.079 0.166 0.060 0.148 0.051 0.051

Overall Land Gini, 2002 0.399 0.158 0.287 0.575 0.055 -12.181(0.239) (0.191) (0.183) (0.166) (0.059) (9.628)

Luzon Dummy 0.119 0.069 0.053 0.088 0.040 -6.422(0.059) (0.047) (0.045) (0.041) (0.015) (2.377)

Mindanao Dummy -0.038 -0.065 -0.052 0.055 -0.036 1.889(0.065) (0.052) (0.050) (0.045) (0.016) (2.639)

Observations 72 72 78 78 78 77R-squared 0.198 0.166 0.138 0.198 0.347 0.230



Table 11Land Inequality and Public Goods Provision (Provincial-Level Regressions)


Putting the Results Together: The Ampatuans inMaguindanao

On November 23, 2009 a convoy of female relatives of Esmail “Toto”Mangudadatu and journalists was intercepted by around 100 armedmen in the municipality of Datu Saudi-Ampatuan.

The relatives were on their way to the capital of Maguindanao, ShariffAgauk, to file papers for Mangudadatu’s candidacy to contest theelection for the governorship of Maguindanao in 2010.

21 women and 36 men were killed.

That the massacre happened in the municipality of DatuSaudi-Ampatuan on the way to Shariff Aguak was significant. Bothnames reflect the rise to power and political dominance in theprovince of the Ampatuan family.

The family claims to be descended from a preacher Shariff Aguak whobrought Islam to the area, probably in the 14th century. The capitalof Maguindanao was renamed in his honor in 2000.


History of the Ampatuans

Andal Ampatuan Sr started the dynasty. He started as vice-mayorthen mayor of Shariff Aguak (then Maganoy) during the dictatorshipof Ferdinand Marcos, was back as mayor in 1988. After 10 years inthis job he stood down and was elected governor of Maguindanao in2001. He was re-elected in 2004 and then again in 2007 when he wasunopposed.As Toto Mangudadatu discovered, this was his preferred type ofelection contest and he anticipated something similar when his sonAndal Jr planned to replace him as governor in 2010 (since Andal Srwas term limited).In 1995, Maguindanao had eighteen municipalities, by 2009 it had 36,most of them run by Andal Sr’s sons, nephews, in-laws and othermembers of his extended family. The municipality of Datu Unsay wascreated in 2003. Its first mayor, still in power at the time of themassacre, was Andal Ampatuan Jr, (nickname is Datu Unsay). Themunicipality of Datu Saudi-Ampatuan, also created in 2003, wasnamed after his eldest son.


The Politics of Persistent Poverty

How is the absence of the state and the rule by the Ampatuans anequilibrium?

Andal Sr’s consolidation of power was greatly helped by his ability toforge links with national politicians such as Gloria Macapagal Arroyo,elected President of the country in 2004.

Arroyo received statistically improbable numbers in Maguindanao. Inat least two towns in the province, Arroyo won all the votes cast inthe election, while her hugely popular opponent, ex film star FernandoPoe Jr. got zero votes. Andal Sr. had also promised a 12-0 sweep forArroyo’s senatorial lineup, and he delivered.

This is similar to what drives regional inequality in other parts of theworld, the Hayes-Tilden agreement of 1877 where the North agreed tostop trying to reform the US South (ending Reconstruction) inexchange for votes in the electoral college. Santa Fe de Ralito inColombia (Acemoglu, Robinson and Santos, 2013). How does anorthern Italian politician like Berlosconi manage to win big in Sicily?


Why in Maguindanao?

All the structural factors we have identified point towards highpoverty in Maguindanao.

During the colonial period the state was absent (98% of the peoplewere wild in 1903). Since independence the state has also been weakand clearly lacks a monopoly of violence.

Political dynasties emerged.

Very low levels of land inequality (Gini of 0.68) so no landed elites tooppose the rise of the Ampatuans (interestingly the more functionalparts of Mindanao with far better governance and low politics, suchas Davao City in the province of Davao del Sur (Land Gini 0.84) orGeneral Santos in South Cotabato (Land Gini 0.83) far higher levelsof land inequality.


Is Mindanao Historically Condemned to Poverty?

Note that Mindanao is closer to the equator than Luzon. Is itcondemned by its geography to poverty and under-development?

In fact in the early modern period, Mindanao, even Maguindanaowhere the Ampatuans now hold sway was the most developed part ofthe Philippines, producing spices like pepper for export and integratedinto the mercantile trade routes of Southeast Asia.

In fact, as we discuss in Why Nations Fail, the relative developmentof the Philippines was reversed (A ‘Reversal of Fortune’) by the DutchEast India Company which systematically attacked the Sultanates ofMaguindanao, Sulu and elsewhere.


Reality Check: Leyte and Samar

Obviously hard to compare Mindanao and Luzon, many omittedvariables and hard to distinguish between the direct and indirecteffects of factors that lead to extractive political institutions.

An interesting natural experiment is Leyte and Samar. Two islands,right next to each other, connected by a bridge since 1973.

No ethnic, religious or significant geographical differences Yet hugegap in terms of poverty and income per-capita.

Why?


Leyte and Samar: Some Ideas

The developmental differences between Leyte and Samar are veryconsistent with our emphasis on extractive political institutions.

Long history of relative absence of the state in Samar (wild tribes)which continues today (road density, irrigation, presence of NPA andnon-state armed actors)

Relative governance failure (Leyte has flourishing participatorybudgeting, Samar had one attempt - Santa Rita - which collapsed)and large differences in accountability (Leyte has a radio station andindependent media, Samar has neither).

Suggests that the differences in political institutions between twosimilar places may cause large differences in poverty (and not theother way round: modernization?)


provincePoverty,Incidence,

2009Income,Per,Capita,

($US,,2000)Wild,Tribes,,

1903%,with,Radio

Road,Density

Access,to,Irrigation

No.,Airports

NORTHERN,SAMAR 48.92915 1182 688 0.572 0.125 0.195 1.0EASTERN,SAMAR 47.47903 1140 688 0.556 0.095 0.499 1.0SAMAR 41.80927 1231 688 0.609 0.084 0.308 1.0

LEYTE 33.36749 1715 0 0.695 0.352 0.740 3.0SOUTHERN,LEYTE 37.37077 1564 0 0.747 0.347 0.909 2.0BILIRAN 32.19226 1367 0 0.663 . . .

Conclusions: Back to Why Regions Fail

In this talk we presented some simple facts about the correlates ofpoverty in the Phillippines.

There are two big stories

1 Bad things go together in Mindanao, Good things go together inLuzon, accounting for the large differences in poverty rates (andincome per-capita) between them.

2 Land Inequality is strongly associated with lower levels of poverty.

Both of these findings can be related to the underlying nexus ofextractive and inclusive institutions in the Philippines. For example,

Mindanao suffers from a long-running absence of the state which leadsto violence, the undersupply of public goods, low educationalattainment, high poverty and low incomes. This is a key part of‘extractive political institutions’This spills over into political dynasties, which adversely influences theother margin of extractive political institutions - a pluralisticdistribution of power - which further increases poverty.


why regions fail: the case of the philippines

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