The effect of middle class size on GDP growth in the Philippines
Date
2016-12
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Abstract
Despite the significant changes in the size of the middle-income class, it still gains little attention
in the context of the Philippines. As its demographic changes through time, it also impacts the
country’s economic growth. Using panel data from 16 regions for the period 1985-2012, we
study the relationship between the Philippine middle-income class and GDP growth. We use
instrumental variable (IV) estimation, specifically the two-stage least squares method, to quantify
the effect of the changes in the middle class size on Philippine economic growth and vice versa.
The instruments that we use are fuel consumption for regional GDP and the percentage of
households with strong roofing for middle class. Similar with studies from other countries, the
results show that there is a positive relationship between the middle class size and economic
growth. We find that in the Philippines, expansion of the middle class contributes to economic
growth and conversely, economic growth expands the middle class.
Description
Keywords
middle-income class, economic growth, Philippines, two-stage least squares