Geography and the evolution of rural nonfarm sector in the Philippines, 1988-2006

This paper aims to assess the changing impact of distance on the development of rural nonfarm sector by exploring the changing allocation of rural labor force between the farm and nonfarm sectors in the Philippines using provincial-level data from 1988 to 2006. The impact of distance of a province from a major city on the growth of its rural nonfarm sector did not change over time because of the concentration of infrastructure developments in provinces located near the major cities. A well-developed infrastructure system and the availability of an educated labor force appear to be the most potent stimuli in the transformation of the rural economies as these two factors have simultaneously induced the reallocation of rural labor force away from the farm toward the non-tradable sectors such as construction, trade, and transport. The labor absorption capacity of the rural tradable sector (e.g., manufacturing) has been critically affected by the improvements in electricity and concrete roads, not by the quality of human capital, as this sector continues to employ unskilled labor.