Vol.

4 · January 2010 · ISSN 20123981

JPAIR: Multidisciplinary Journal
National Peer Reviewed Journal JPAIR Multidisciplinary Journal
doi: http://dx.doi.org/10.7719/jpair.v4i1.105

Rice Production in the Philippines

and the Inverted U
(Environmental Kuznets Curve) Hypothesis
GRACE EDMAR ELIZAR-DEL PRADO
ramsaragrace@yahoo.com
Western Visayas College of Science and Technology
Ilo-ilo City, Philippines

Date Revisions Accepted: December 21, 2009

Abstract - Proponents of the EKC hypothesis say

that economic growth brings both improving and

phases of the development process. At low-income

level, the environmental impact per dollar GDP
increases with increasing GDP per capita, while at high
income it declines. Nobel Prize winner Kenneth Arrow
and a few critics more conceded the validity of the
hypothesis explaining that this has to be valid only for

such framework, variables on population, land area

used for rice production, temperature, average rainfall
and amount of particulates in the atmosphere were

to the country’s rice production trend from 1991-2004.

Results supported the Environmental Kuznets Curve
hypothesis showing that rice production increased
over time as rainfall and temperature accelerate
but reversed its direction as these factors escalate
excessively.

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Keywords - Inverted U Hypothesis, Environmental

Kuznets Curve, Rice Production

INTRODUCTION

The Environmental Kuznets Curve (EKC) has now become

the standard groundwork among technical conversations about
environmental policy since Grossman and Krueger presented their
environmental study in 1991. Grossman and Krueger showed how
some important indicators of environmental quality such as the
concentrations of sulfur dioxide and particulates in the air actually
improved as incomes and levels of consumption go up. This blissful
outcome occurred when incomes were higher. Before that point,
however, at lower income levels, environmental quality deteriorated
as incomes began to rise (Grossman and Krueger, 1995).
The trend is similar to that of Simon Kuznets on growth and
inequality noticing that in the short run, as the economy grows, the
level of inequality rises but which extent slows down as the economy
reaches maturity. Thus, extending similar trend to environmental
concerns the theory ‘Environmental Kuznets Curve’ is conceptualized.
But how should growth respond to variations of particulates in
the air? How should agriculture behave given environmental changes
in climate? Modifying the inverted U construct and converting
production as a function to environmental quality, this study specific
on rice production in the Philippines is made.

OBJECTIVES OF THE STUDY

This study endeavored to determine the changes in rice production

in terms of land area (in ‘000 hectares), population (median assumption
projection), pollution emission measured in terms of total suspended
particulates (tsp in ug/NCM), temperature (in degree centigrade), and
rainfall (in millimeters). This is to assess the effect of environmental
stressors, land and population pressures to rice production.
The study presupposes that variations in the environmental
stressors and in land and population pressures are individually

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and collectively too little to affect rice production variations in the

Philippines. Further it is hypothesized that production trend does not
assume an inverted U shaped curve as believed in the model.

FRAMEWORK

The Inverted U Hypothesis (Environmental Kuznets Curve)

“We examine the reduced-form relationship between per capita

income and various environmental indicators. Our study covers
four types of indicators: urban air pollution, the state of the oxygen
regime in river basins, fecal contamination of river basins, and
contamination of river basins by heavy metals. We find no evidence
that environmental quality deteriorates steadily with economic
growth. Rather, for most indicators, economic growth brings an
initial phase of deterioration followed by a subsequent phase of
improvement. The turning points for the different pollutants vary,
but in most cases they come before a country reaches a per capita
income of $8000”.
Abstract of Grossman and Krueger, 1995

The EKC hypothesis is shown in Figure 1a.

Figure 1. a. The inverted U line

(Environmental Kuznets Curve)

As the line suggests pollution should increase during early stages

of economic development, reaches a maximum level and eventually
starts to decrease as income further rises. This reversal is caused by the

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ability now of the country to allocate enough funds for cleaning up its
air and environment severely damaged by economic growth.
In this study however, the framework reverses the Inverted U
Hypothesis and followed the graph that follows:

Figure 1.b. del-Prado’s EKC Modification

The framework suggests that stressors like heat and rain are
required factors to production but its quadratic rise shall eventually
wreck output.

Theoretical Justification of the Variables

The variables considered in this study are basically factors external
to the calculus decision of the firm. Labor, fertilizers, soil quality and
technology are a few input components, which amount, cost and
quality can be altered depending on the respective production and
cost functions of any farm company. These however are excluded in
the study.
The variable ‘land’ is included because competing land uses
increase with urbanization. Rice production is expected to increase as
land area planted with rice rises.
Also a regular meal comes with rice; thus an increase in population
increases, demand for rice.
Total suspended particulates (TSP), temperature and rainfall are
environmental externalities which degree and magnitudes are not
within the full control of the firms. These three are equally important
with other direct inputs in increasing rice productivity. Extremes in
temperature and rainfall however, could lead to El Niño and La Niña
phenomena - environmental excesses that certainly affect land-related

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production. It is thus expected that intense temperature and TSP

emissions in the air could bring imbalances to climate and thus bring
detrimental effects to rice productivity.

Environmental Kuznets Curve: The Theory

EKC quickly generated extensive scholarship. The study on “The
Environmental Kuznets Curve: A Primer,” by Bruce Yandle, Maya
Vijayaraghavan, and Madhusudan Bhattarai (2002) reveals that while
there is no single relationship that fits all pollutants for all places and
times but in many cases introduces the close relationship between
nation’s prosperity, governability and security and the improvement
of the country’s environment health. Because market operations will
ultimately determine the price of environmental quality, policies that
allow market forces to operate are expected to abate surmounting
hazards brought about by environmental degradation.
Other studies are more interested in model building. It is observed
that in most cases EKC literature deals with empirical studies where
econometric estimations are based on ad hoc specifications even
without any sound theoretical background (Bretschger and Egli, 2005)
Particularly on EKC modeling, most works show the econometric
relationship between environmental quality and economic
development.
Karen Pittel (2005) in her paper “Integration, Growth and
Pollution” focused on the impact of globalization – free trade, extensive
integration and idea flows – on pollution and economic growth in the
presence of environmental externalities This study exemplifies the fact
that climate system and environment is a shared resource and thus
pollution and other externalities do not only harm local resources
but also endanger others’ across borders. But a more comprehensive
model is the climate-change model on RICE AND DICE developed by
William Nordhaus.
The Rice and Dice Models, or the Regional Dynamic Integrated
Model of Climate and the Environment provide forecasts about the
interaction between economic growth and environmental degradation
under different environmental scenarios (say, laissez faire, optimal
carbon tax, implementing Kyoto protocol). This new Growth Theory
suggests that allowing endogenous accumulation of knowledge

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and considering positive spillovers will lead to optimistic growth

possibilities.
Despite soundness of the theory Grossman and Krueger’s paper is
not without scrutiny. A group of economists including Nobel laureate
economist Kenneth Arrow in Science asserted that the inverted-U
curve is only valid for pollutants involving local short-term costs like
sulfur, particulates, and fecal coliforms (Arrow et al., 1995). Also in the
accumulation of stocks of waste or for pollutants involving long-term
and more dispersed costs (such as CO2), which are often increasing
functions of income, the theory is found to weakly hold. The critics
finally expressed doubt that the curve applies to “resource stocks”
where the feedback effects of resource stocks are significant, such as
those involving soil and its cover, forests, and other ecosystems.

Methodologies Verifying EKZ

Lucas Bretschger and Hannes Egli worked on more appropriate
econometrical estimation procedures. They maintain the use of
time series data instead of cross country or panel data and employ
estimation specifications in the style of error correction models. First,
results show that the typical EKC pattern can only be confirmed for a
few pollutants, so that doubts about the general suitability of the EKC
approach are legitimate.

MATERIALS AND METHODS

The study is divided into two parts. The first part is pure description
of data and the second part is statistical presentation of measurement
results.
Data in the untransformed form are treated statistically using the
OLS method. Raw data are found nearly linear. Also, information is not
lagged for years because the study does not wish to quantify previous
year’s particulates’ impact to current year’s total rice production.
Markovian first order autoregressive scheme AR (1) is neither used
in the study since the Durbin Watson d statistic (DW= 2.5) lies within
the boundary of no positive and negative autocorrelation areas
(1.152<d<2.848). Finally variables in temperature and particulates
are squared to denote the quadratic property of the Environmental
Kuznets Curve.
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The basic limitation of this study is its strict assumption that

externalities are solely produced internally. Many theories in resource
economics as well as in environmental economics still concentrate on
the case of closed economies but with globalization the integration of
national economies have been increasingly becoming evident; thus
environmental problems as well are expected to spill over national
borders. In this study, international pollution spills are excluded in the
model construction, making the system still inadequate in identifying
fully sources of environmental degradation.

RESULTS AND DISCUSSION

Rice Production in the Philippines

Rice is essential to the Filipino diet and one important food crop,
a staple food in most of the country. Since 1991 to 2004, except in 1998,
total rice production is growing at a fairly positive rate but declined in
1998 which was mainly caused by the unabated growth on population
(2.5 percent per annum), diminishing rice production area (1.8 percent
per annum) and leveling-off of rice yields [5 to 6 tonnes/ha during the
dry season] (S.R. Obien, E.D. Redoña and F.M. Malabanan, 1998). El
Nino problem also exacerbated the problem (Leocadio S. Sebastian,
Pedro A. Alviola, Sergio R. Francisco, 1998).

Figure 2. Rice production in the Philippines: 1991-2004

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Figure 3. Rice production trends and total land area planted

with rice: Philippines, 1991-2004

Such downward trend was immediately addressed by the

implementation of food security policy through rice sufficiency. The
trend is optimistic. Crop production, specifically in 2004 grew by 4.89
percent compared to 2003. In its totality, palay farm output reached a
total output of 14.50 million metric tons in 2004 and which was 7.38
percent higher than that in 2003 (BAS, 2005).
The Philippines is growing annually at 2.33%. Considering the
inability of the country to create jobs quickly, the additional number
of people added yearly is over the economic carrying capacity of the
country. This means that although agriculture has been able to increase
rice production from 7.6 million tonnes in 1980 to 11.3 million tonnes
in 1996, its growth has mostly lagged behind population growth. (S.R.
Obien, E.D. Redoña and F.M. Malabanan, 1998). The projection is that
by 2025, 40 to 50 percent more rice relative to current production levels
will be needed to feed the Philippines’ projected population of 100
million.
In preparation for such enormous task and in response to the
increasing pressure to increase rice production, the government tries
to modernize its agricultural research, development and extension
delivery systems and infrastructure. In 1998, the government launched
a national hybrid rice program. With this food security policy, based on
rice self-sufficiency, the extra rice production should come abundant

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without giving so much pressure on the demand for more land area,
water, labor and pesticides.
It is noticed that production increases with a rather fixed land input.
This reveals the increased productivity of land per hectare brought by
the sophistication of direct inputs; and/or advances made in hybrid rice
technology. Labor productivity could be a factor (though doubtful).
Increased machinery per worker increases marginal efficiency per farm
labor, making machine use more efficient in the machine-labor mix.
However, it is also possible that production growth comes not from
the heightened productivity per labor but on the increasing number of
misplaced workers from other sectors (OFW returnee or a structural
unemployment casualty) who now join farm work.

Figure 4. Total TSP magnitude in the atmosphere: 1991-2004

To counter the possible decline in general welfare caused

by environmental pressures, the government enforces laws and
ordinances that monitor, manage and control pollution as well as
inform, rehabilitate, educate communities about cleanliness and
implement action, strengthen network, hasten techniques to preserve
ambient air quality. These include Solid Waste Management Act
(RA9003), Clean Air Act (RA 8794), Toxic Substances and Hazardous
and Nuclear Wastes Control Act of 1990 (RA 6969), PD No. 1151, PD
No. 1152 and PD no. 856.

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However, only a few cities responded seriously to these calls. Total

particulates have not been totally abated, despite the existence of laws
and ordinances.
Temperature follows the movement of with heavy rainfall (See
Figures 5). Prolonged high temperature melts the iceberg in the poles
and formed vapors would constitute the volume of rain. In some areas
where rain is needed, rain is beneficial; in some where clogged drainage
and garbage are a problem, it is detrimental. Heavy downpour causes
sea level to raise, riverbanks to glut, dams to overflow, and finally
deluge lower areas including farmlands. Or it could be that faulty
drainage and surmounting amount of garbage causes canals to
overflow and flood lower farm land areas. Either reason, production
is damaged.
The equation shows that except for TSP and TSP in the second
order, all factors attain statistical significance (a= 5%) in affecting
rice production over time. As expected in economic theory, land
variable is significant (p=0.0004) and its effect is positive (2.0828162).
Also population pressures increase rice demand, the rate of which is
less than that of population (slope of only 0.00016), ceteris paribus.
Certainly possible rice shortages have to be expected in the nearest
future.
One critical result to note is that adequate amount of temperature
raises rice output remarkably by roughly 199821 metric tons per unit
degree centigrade hotness, but a decline of 3649 metric tons is also
noticed given intense and prolonged dryness. True enough the EKC
modification is reflected.
F-test statistic value is 0.000000. This means that 99% of the
variation of rice production is explained by the variables defined and
the remaining 1% is attributed to all other factors not defined in the
model.
TSP and TSP in the second degree came out insignificant in the
model but are not removed from the equation because there have
been some notable moves by the government and non-government
organizations to abate pollution emission in the air. Pollution control
devices have been installed to internalize the cost of pollution into their
cost of production. Without the pollution control, effects from polluted
environment could have been worse than expected. Thus, pollution

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Figure 5. Changes in rainfall levels and temperature:

Philippines, 1991-2004

emission variable measured by particulates is still, theoretically, a

significant factor.

The Focal Point and the State of Urgency

The country is now severely pained by various crises it is
experiencing – economic, social, political, peace and order, fiscal, etc. -
all happening simultaneously. But what pains most is the fact that the
target on food security is not achieved. Food supply is weakened by
its own rising cost of production. Not only has unpredictable changes
in climate and flashfloods ‘thieved’ directly and indirectly people’s
welfare, destroying farm investments too quickly and devastating
status quo conditions rapidly. . Economic fate is becoming unfortunate
for many Filipinos.
From the data, rain and drought are two environment externalities
found to affect rice-growing activity significantly. The alternative
actions to avert prolonged dry and rain seasons are not held concealed.
They are not only to be implemented strictly. The obvious problem
therefore that prevented solutions to work is the absence of a high-
quality and superior rule of governance. Existing laws only need to be
implemented strictly.

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