Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

Core-Periphery Relations and Urban Transport Infrastructure Investment
Cristela Goce-DAKILA
Associate Professor
Economics Department
De La Salle University
2401 Taft Avenue, Manila
1004 Philippines
Tel/Fax: +63-2-303-0867
Email: dakilac@yahoo.com

Shoshi MIZOKAMI
Professor
Department of Civil Engineering
Kumamoto University
2-39-1 Kurokami, Kumamoto
860-8555 Japan
Fax: +81-96-342-3507
Email: smizo@gpo.kumamoto-u.ac.jp

Abstract :This paper attempts to test empirically whether a five percent additional capitalinfusion to land transport services sector in the National Capital Region reinforces centerperiphery spatial configuration in a developing economy like the Philippines. The study captures
the impact of such capacity build-up in terms of changes in interregional flows, regional welfare
and output. The financing of such transport capacity enhancement is through an equivalentamount of government expenditure which is funded by foreign transfer payments like official
development assistance funds. A transport-oriented spatial general equilibrium model ispresented based on a five region social accounting matrix. Results indicate that while absolute
gains in welfare and output still go to National Capital Region, the enhanced interregional flow ofgoods and services creates significant spillover effects in periphery regions which are located inSouthern Philippines namely, Visayas and Mindanao.

Key Words: urban transport infrastructure, center, periphery, spatial general equilibrium
1. INTRODUCTION
The concentration of urban transport infrastructure investment in the National Capital Region(NCR) during the post-war period was one of the factors that promoted huge disparities inregional economic performance between NCR and the rest of the Philippines (ROP) . At thattime, a center periphery relationship existed with NCR as the center of economic activities andthe rest of the other regions were peripheral areas. Key cities that comprised the NCR thenbecame prime cities in the entire Philippine archipelago. (Pernia et al: 1983) The location ofurban transport infrastructure investment played a critical role in shaping the hierarchy of cities
which evolved from that time up to the present within a region and within the nation as well.
However, from the mid 70s up to the present, development efforts are geared towards regional
dispersal of industries and economic centers in the Philippines. This allowed other regional
centers to evolve with cities like Cebu, , Iloilo, Bacolod, Davao, Zamboanga, Cagayan de Oro,
San Fernando, Laoag, Tueguegarao, rising to prominence.
Given the above, this paper attempts to test whether infusion of additional capital inputs to landtransport services sector in NCR leads to further narrowing of gap between NCR and the fourother regions in rest of the Philippines namely Northern Luzon, Southern Luzon, Visayas andMindanao. Financing of urban land transport is through official development assistance funds

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

given by a foreign government to the Philippines. It aims to present a spatial general equilibrium
model with a transport sector .This will be used to analyze the impact of previously mentioned
exogenous shock on interregional flows , regional macroeconomic variables and interregional
equity. Empirical results. which show the extent of spatial interaction among the regions willthen be presented.. The last part will summarize the results and conclude with a policy direction.

2 CURRENT SPATIAL DISTRIBUTION OF ECONOMIC ACTIVITIESAt present, economic activity is highly concentrated in the National Capital Region(NCR).Philippines. It has been the leading region because of its importance as the economic,
social, cultural, educational and political center of the Philippines. NCR contributes around 31%
of total gross domestic product, has around 10 million population base with 2.25% annual
population growth rated and has an average gross regional product growth rate of 7.12% . (National Statistical Coordination Board : 2006) Given such, it is imperative that we look into thepattern of growth of the NCR and how it has affected the distribution of economic activity acrossthe Philippines.
The growth of NCR in recent years has been uneven （NEDA: 2004） Lately , uniquepopulation movements are taking place. According to urban planner, Arturo Corpuz, there aresome growth characteristics of NCR which contradict popular perception. Using centrographic
measures of population movement, Corpuz asserts that rapid population increases are taking placein its peripheral cities and slow or even negative growth is taking place in west-central part (including the city of Manila ) of NCR . He attributes the eastward movement of population in theprime region to lack of expansion opportunities along the western bay area, the attraction of theNorth Luzon Expressway (NLEX) and South Luzon Expressway ( SLEX) transportation
corridors and the relatively constrained eastern area. According to Corpuz, NCR and adjacentprovinces of Laguna, Cavite, Bulacan and Rizal are functioning as a single integrated region. So,
NCR is dispersing by itself..(Corpuz : 2006). There is no need for government economic dispersal
policies. Furthermore, World Bank economists consider this kind of urban sprawl as lessexpensive . This is characterized by high densities, the continued dominance of mass transit, thecontinuous slower growth in the core metropolitan area ( not just the central part of NCR ) andlower infrastructure investments than targeted levels. ( World Bank : 2005). On the other hand,
economists at the Philippine government planning agency called National Economic
Development Authority (NEDA), believe that government should disperse economic activity bybuilding transport infrastructure projects outside the National Capital Region.. This is indicated in
the Medium Term Development Plan (2004-2010) of the government as far as infrastructure plans
are concerned. These include the following plans : (1) Develop roads and rail systems that will
decongest Metro Manila and develop Clark-Subic ( Northern Luzon) as the best logistics andservices hub in the region; (2) establishment of new centers for government, business andhousing in non-NCR regions- ( Luzon, Visayas and Mindanao). The central offices of thefollowing government agencies shall be located outside NCR .For example, the Department ofAgriculture will be placed in Mindanao; the Department of Public Works & Highways in Bicol (Luzon); the Department of Transportation & Communication in Clark ( Northern Luzon); theDepartment of Tourism to be located in Cebu (Visayas ) and the Department of Land Reform in
Davao ( Mindanao ). Included in the medium-term development plan is the plan to make Clark
in Northern Luzon as the new government center . ( NEDA: 2004)

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

To put into perspective the center-periphery relationship which has evolved between the National
Capital Region and the rest-of-the-Philippine regions, a discussion of the ideal type of spatialplanning will now commence.

3. IDEAL FORM OF SPATIAL PLANNING FOR TRANSPORT INFRASTRUCTURE
The spatial distribution of economic activity within a country, or within a region is determinedby spatial competition. This initially favors areas with locational advantage which includes richnatural resource base, strategic geography within the economic network and highly skilled
population base.
The ideal form of spatial planning for transport infrastructure should be based on comparativeadvantage of each region. Efficiency considerations can play an important role in determining thelocation of transport infrastructure investment.
This can be complemented by social
infrastructure which is meant to address the equity concern by providing safety nets and is meant
to equalize opportunities across regions. Social infrastructure includes schools, hospitals,
housing which can be set up in disadvantaged regions.
Another point in the discussion of ideal spatial planning is reconciling the conflict between
attainment of national and regional efficiency.
Proper spatial planning can minimize the “seeming “ conflict between between national and regional efficiency goals as far as location oftransport infrastructure investment in the Philippines is concerned.
National government
efficiency goals can complement regional efficiency goals since it is national government whichfacilitates transfer of resources from the affluent regions to the poor regions through publicfinance measures ( taxation, subsidies, transfers ). This improves macroeconomic performance ofboth the high-income region like NCR and also low-income region like Mindanao. However,political reality in the Philippines seems to suggest that national efficiency concerns sometimes
are overlooked in favor of regional efficiency considerations by members of Congress who
approve the infrastructure budget. There is a tendency to lobby for bigger share of transport
infrastructure budget for respective regional turf of each lawmaker.

4. PRESENTATION OF MODEL
4.1 DATABASE
The benchmark data are taken from a five-region social accounting matrix constructed by theauthors for the Philippines, using 1994 Philippine interregional input-output data. ( Dakila andMizokami :2006). The delineation of regions is based on the archipelagic geography of thePhilippines. The disaggregation into seven sectors ( with three transport sectors – water, air, andland mode is done to enable the researcher to look into the impact of a change in transportcapacity on alternative modes of transport and non-transport sectors. Households are divided into
three income groups; namely low-income households, middle-income households and highincome households. Low income households are all those who earn below the regional poverty
threshold as determined by the National Statistical Coordination Board. The high income
households are those who earn 250,000 pesos and above annually. All the households earning

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

income between the regional poverty threshold and the highest income bracket in the Family
Income and Expenditure Survey (250,000 pesos and above ) are classified as middle income
households. The derived interregional flows from this secondary database, match the direction
and relative magnitude of flows estimated JICA and Department of Transportation team using
survey results.( JICA& DOTC: 2004)
4 .2 ASSUMPTIONS OF MODEL
The discussion now presents the model used to estimate the impact of capital infusion within the
NCR land transport services sector .
The assumptions adopted are as follows (1.)All product and factor markets operate under
perfectly competitive conditions. (2) Economic agents like households and firms maximize an
objective function subject to constraints. Households maximize utility whereas firms maximize
profit. (3) Equilibrium is defined as a state where the actions of all agents are mutuallyconsistent and can be executed simultaneously. Quantities adjust in the model and prices follow
to equate the notional and effective demand for labor. (4) In this model, adjustment toequilibrium is implemented by specifiying that markets adjust to minimize the sum of excess
supplies. (5) Among the seven-production sectors; three belong to the transport sector, namely,
water transport services sector, air transport services sector, land transport services sector. The
demand for services of each type of transport mode is a derived demand associated with thedemand of intermediate production goods. (5) Between the two factors of production , capital isimmobile and labor is mobile among the five regions. (6) The economy has 36 markets . This iscomposed of thirty-six product markets of each the aforementioned five regions with sevenproduction sectors each ( except NCR which has six sectors due to negligible agricultural sector ),one capital market and one labor market.
When a national SAM is split into regional SAMs (RSAM), the flow of income from production
units to consuming units is given a spatial dimension. In line with this objective, a five-region
SAM was constructed in order to analyze ripple effects of particular exogenous shocks. This
RSAM is presented in detail in Dakila, C. and Mizokami, S. (2006). The main data source for the
study is the 1994 five-region Philippine inter-regional input-output (PIRIO) table, which
regrouped the 15 administrative regions of the country in 1994 (now 17) into five greater regions
according to geographic proximity (Secretario: 2002). This regional classification is carried overto the present paper.
4.3 DESCRIPTION OF THE MODEL
The model delineates parameters which were calibrated directly from the cell entries of theconstructed five-region SAM. Some examples of these are the expenditure shares ofconsumptions found in Cobb-Douglas utility function, the Leontief technical coefficients, and the
Cobb-Douglas transport input payment share out of total output. No parameters were borrowed
from econometric studies. The five-region SAM was compiled based on the Philippinesinterregional input-output table previously constructed. The interregional flows derived fromfive-region SAM were verified to be similar to those in survey of interregional freight andpassenger flows conducted by JICA and DOTC team in the Philippines.(Dakila & Mizokami :2006) It takes off from Mizokami model of two region economy in the Philippines with four
production sectors including transport. ( Mizokami et al :2005). However, there are variations in
specification of the production function. To produce a transport –oriented computable general

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

equilibrium model, a three- nested production function is estimated. Transport inputs are isolated
in the middle stage of a three-level production function which is of Cobb-Douglas & Leontief
type. At the first stage, capital and labor are combined to produce value-added, using a CobbDouglas production technology. In stage 2, value-added is combined with non-transportintermediate inputs under a Leontief technology, to produce a composite good, which is output
net of transport. Finally, stage 3 combines output net of transport with transport intermediate
inputs under a Cobb-Douglas production function to yield total output gross of transport. A moredetailed disaggregation of transport sector is delineated – namely water transport services sector,
air transport services sector and land transport services sector. Households in each region aredecomposed into three income levels - low, middle and high. Finally, the rest-of-the-Philippines
region is divided into four regions namely Northern Luzon, Southern Luzon, Visayas andMindanao vis-à-vis National Capital Region.
The model presented below has been applied in various papers of Dakila and Mizokami which
address transport issues related to congestion, environmental impact, welfare effects and effect oftechnological change in transport sectors in the Philippines. It is a simple representation of an
economic system with assumption of perfect competition in goods and factor markets andconstant returns to scale in production. Also, it is recognized that recent advances in spatial
computable general equilibrium (SCGE) modeling have incorporated such assumptions asincreasing returns to scale, agglomeration economies , imperfect competition in the model.
Given that SCGE modeling is at its infancy stage in the Philippines, these modifications will be
undertaken in future studies.
This is the first spatial equilibrium model with a disaggregated transport sector in the Philippines.
All Philippine CGE models devised in the past have been national in scope. This is also a firstattempt in constructing a five-region social accounting matrix as database for a spatial
computable general equilibrium (SCGE) model in the Philippines. Since the model uses macrolevel data, important micro considerations as in reduction in travel time are level are left out.
Foreign trade sector and government sector expenditures are exogenized.

Production sectors
Agriculture (Ag)Industry (Ind )Water transport (WtrSrv)
Land transport (LndTr)
Air transport (AirTr)
Other services (OtSrv)
Government (Gov)

Table 1 Sectoral Structure of the Model
Regions
Households
National Capital Region Low income (Low)(NCR)
Middle income(Mid)Northern Luzon (NOL)High income (High)Southern Luzon (SOL )Visayas (VIS)
Mindanao (MIN)

4.3.1 . Household Sector
The model distinguishes between 15 representative households, with 3 household types(representing the low, middle, and high income classes) for each of the six regional groupings
distinguished in this paper. The preferences of each household type are summarized by acorresponding Cobb-Douglas utility function:

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010U h   Cih ih


(1)

i

where ih is the elasticity of the utility of the hth household with respect to consumption of the ith
good. Each representative household maximizes its utility subject to its income constraint, which
we describe below.
For each region, household labor income is assumed to be equal to the sum of the labor incomesthat each household income group earns from supplying labor within the region. The
endowments of labor of different income classes within a region are taken to be a constant; thisthen determines how labor income is distributed within each region.
Since capital is fixed, then each household income group is assumed to own a fixed share of total
capital, and this ratio is maintained through the policy experiments. Household income iscalculated as the sum of labor income ( w i Li ) plus that portion of capital income that accrues tothe households (  h i ri Ki ), plus transfers from government and from the rest of the world. The
latter two are exogenously determined. Thus, if we partition the indices h and i so that the r th
partition belongs to the rth region, then we obtain total income per household type as:

Yh,r  h,r ir wi Li  h,r i ri Ki  TrGOV,h,r  TrROW,h,r(2)

where the ω’s are the labor income distribution parameters, and, as indicated, the summation isfor industries belonging to the rth region. Total disposable income is found by subtracting direct
taxes imposed on the household from the foregoing quantity:

Yd h  Yh 1  h 

(3)where Yd is disposable income and τh is the direct tax rate imposed on household h. Note that thesummation now runs within each household type, so that we have dropped the subscript r
referring to the partitioning across regions.
Each household type is assumed to consume a constant proportion of its disposable income.
Thus, households maximize utility subject to the budget constraint

 pd C c Yd
i

i

ih

h

(4)

h

where pdi is the domestic price of the good and ch is the average propensity to consume ofhousehold h. Given the Cobb-Douglas utility function, the first order conditions yield thefollowing consumption demands for each commodity by each household type in each region:
Ci,h,r  i ch,r h,r ir wi Li  h,r i ri Ki  TrGOV,h,r  TrROW,h,r  1  h,r  / pi

(5)

4.3.2 Production Sector
Production is modeled assuming a three-stage production function. At the first stage, capital andlabor are combined to produce value-added, using a Cobb-Douglas production technology.
1iVi  Ai Ki i Li

(6)

where for sector i and region r, V = value added, K = capital, L = labor, α = share of capital invalue-added, and 1-α = share of labor in value-added. This specification of the Cobb-Douglas

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

function assumes constant returns to scale. Capital is assumed to be immobile across sectors
while labor is mobile. In this paper, the exogenous shock which is 5% capital infusion into NCR
land transport services sector, is introduced at this bottom level of the production function. It
takes the form of an improvement in road capacity via road widening and extension in the
National Capital Region .
In stage 2 of the production process, value-added is combined with non-transport intermediate
inputs under a Leontief technology, to produce a composite good, which is output net oftransport.


X NTi
X 2i
Vi
X iNT  min X1i

a
,
a
,

,
a
,
a
1i
2i
NTi
V,i 


(7)

Finally, stage 3 combines output net of transport with transport intermediate inputs under a
Cobb-Douglas production function to yield total output gross of transport of commodity i (XT,i).



XT,i  Bi Xi

 W A La

NT 1i

2i

3i

i

i

4i
i

(8)

where W, A and La represent the different transport intermediate inputs that go into sector i,
namely, water, air and land transport. This specification allows substitutability between thevarious transport modes. Total output of sector i (Xi) is found by summing together total output
gross of transport of commodity i (XT,i), indirect taxes on i (Tindirect,i), direct taxes imposed on
firms in sector i (Tdirect,i), imports of i (Mi), tariffs imposed on i (Tari), and net dividends from theforeign sector into sector i (DivFor,i).
Xi  XT,i  TIndirect,i  TDirect,i  Mi  Tari  DivFor,i(9)

The firm is assumed to maximize profits. Because of the nature of the production function, profit
maximization can be described in three stages. The bottom stage entails choosing the optimum
levels of capital and labor so as to maximize the contribution of value added to profits. At thesecond stage, as noted above, value-added is combined with other intermediate non-transport
inputs in a fixed coefficients (Leontief) technology to produce output net of transport. Finally,
the top stage determines the optimal combination of transport inputs to deliver output to theregion of destination. Then for commodity j, the optimization problem is
Maximize j  pd j X j   pd j Mati , j  pva j V j

(10)

i

subject to
1j







X j  B j X NT
W j 2j A j 3j La j 4j
j
X
Vj
X

X NT
 min  1j  NTj
j

a
,
a
,
a
1j
NTj
V, j 

α

(11)

1α j

Vj  A j K j j L jwhere  is total profits, Matij is the matrix of intermediate inputs of each commodity into

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

commodity j, V represents value added, and pva is its corresponding price.
At the top production level, the corresponding first order conditions (FOCs) for profit
maximization are
pdi *

Xi
X
 p NT or pdi1i NTi  p NT
NT
X i
X i

pdi *

Xi
X
 p w or pdi2i i  p W
WiWi

pd i *Xi
X
 p A or pd i3i i  p A
Ai
Ai

pdi *

Xi
X
 p L or pdi4i i  p La
La i
La i

(12)

There are no corresponding FOCs for the second level production stage, since this ischaracterized by fixed coefficients technology, and marginal conditions are not defined.
However, once output net of transport is determined, the different non-transport inputs as well as
total value added can be derived using the fixed coefficients technology in Eqn (7).
At the bottom level, profit maximization entails choosing the least cost combination of labor andcapital to produce the required value-added. Since capital is immobile, of particular interest is thefirst-order condition for labor, which is
pva i *

Vi
 wi
Li

pva i 1  i 

Vi
 wi
Li

(13)

4.3.3 Government and the External Sector.
The model incorporates a national government sector, i.e., the behavior of local government units
is not considered. Government enters the economy in several ways: it purchases output from eachsector, imposes indirect taxes on production and tariffs on imported goods, and direct taxes on
income of each household type. Government expenditures on each commodity are taken as
exogenous in the model, while taxes are endogenous.
Tariff revenues per commodity equal the product of the tariff rates and import values:
Tari  tari  mi 
(14)
where Tari and tari are total tariff collections from i and the tariff rate on commodity i,
respectively. Indirect tax collections are given by the product of the indirect tax rate imposed on
domestic production and the rate imposed on imports of the product:

TIndirect,i  tindi  di  mi 1  tari  
Direct tax collections per household type in the model are computed as:(15)

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

TDirect,h  Yh  Yd h

(16)

At this stage of model specification, imports and exports are taken as exogenous.
4.3.4 Investment-Saving Balance
Total household savings in the model are given by the aggregate difference between household
disposable income and consumption expenditures:Sh  h  Yd h  Ch 

(17)

We introduce a balancing factor () to account for any discrepancies between measured savings
and investments.
Total government savings are the sum of the various revenue sources minus total government
purchases of the outputs of the various sectors, total government transfers to households, and total
net transfers of the government to the foreign sector:
SG  i Tari  i TIndirect,i  h TDirect,h  iGi  h TrGOV,h  TrGOV,FOR(18)

Total foreign savings, SFOR, are given by the current account deficit minus net dividends toforeigners. Therefore, total savings are

STOTAL  Sh  SGOV  SFOR

(19)

Conceptually, total savings should equal total investment. As noted previously, our framework
allows for statistical discrepancy by introducing a factor  which transforms savings toinvestments. Investment distribution per sector is then modeled as constant proportion of total
investment, with the distribution coefficients i calibrated according to the sectoral distribution of
investment in 1994:

Ii   i  STOTAL (20)

4.3.5 Demand
Total intermediate demand for commodities by the firm arises from its maximization of profits
subject to the three-level production function. At the first level, the first order condition for profit
maximization entails equating the marginal product to the marginal cost of labor.
Vi
 wi
Li
V
pva i 1  i  i  w i
Li

pva i *

(11)

where the marginal product of labor for each production sector is evaluated assuming that capitalis immobile across sectors. For any given employment, equilibrium entails that thecorresponding level of production equal the demand forthcoming at the employment level.
Similar equations hold for the choice between output net of transport and the various transport
inputs, at the third level of the production function. This equilibrium condition together with (11)determines pva. We turn to this in greater detail in the section on prices.

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

At the second level, each production sector combines value-added and every non-transportintermediate input according to a fixed proportions technology:

Mat i, j  a ijX j

NT

(21)

where i runs through all the non-transport intermediate inputs and value added for each sector, jruns through all the production sectors in the economy, Matij is the matrix of interindustry flows
in the economy, aij represents the fixed coefficients technology, and, as before XjNT is output netof transport for the jth sector.
Final demand in the economy originates from households (consumption demand), firms(investment demand), government spending, and the foreign sector (export demand).
Consumption demand by households originates from the maximization of the utility function, as
described in previous section . Although for simplicity, firms’ investment demand are notdescribed explicitly in terms of optimization, the level of investment is determined by thetransformation of savings into such. Government and export expenditures are taken to be
exogenously determined.
The domestic demand for commodity i consists of the total intermediate demand, plus the total
final demands for consumption, investment, and government purchases, while the total composite
demand, represented by Qi, is the sum of the domestic demand and exports:
Qi   Mati , j   C h,i  I i  G i  Exportsi
j

(22)

h

4.3.6
Prices and Equilibrium
For any given employment level, equilibrium entails that the corresponding level of production
should equal the demand forthcoming at the employment level. This requirement, together withthe first order conditions for profit maximization by the firms in each region, determines the pricelevels in the economy, relative to the price of labor. The labor price is assumed to be thenumeraire, and is thus taken to be fixed. Since capital is a fixed factor, we take returns to capital
as a residual determined by the identity:ri  pva * V  w L 
i

i

k

0
i

i

0
i

(23)

The total product cost can then be built up from the components in a standard way. Thus, average
cost per unit isACi 

 jpd jMat j,i  pva i Vi
Xi

(24)

where pdi is the domestic (tax-inclusive) price of i. In equilibrium, the average cost equals thecomposite price pqi of the commodity (the composite price is the peso price of both domesticallyJournal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

produced and imported commodities).
The excess supply for each commodity is given by:

ESi  Xi  Qi

(25)

The model treats all the foregoing relationships as constraints in a nonlinear programming
problem. Markets are assumed to operate so as to minimize the value of sum of squared excess
supplies for all commodities; i.e., the objective of the programming problem is to minimize thequantity  i pqi *ESi2In equilibrium, therefore, the unit cost is divisible into three parts: (1)(26)

 pd q , where the j’s
j

j

ji

Xi
are the non-transport inputs give the cost of non transport intermediate inputs per unit of X; (2)the same formula with the j’s taken to be the transport inputs yields the transport margin; andw i Li  ri K i
is the cost of value added per unit of X.
Xi
4.3.7

Equilibrium Condition

Y = C + I +G + X – M(27)

Where Y : aggregate supply
C: total consumption expenditures of the national economy
I: total investment expenditures of the national economy
G : total government expenditures of the national economy
X: total purchases of locally-made goods by foreign sector
M : total purchases of foreign-made goods by domestic residents of nation

5 .EMPIRICAL RESULTS
The following results indicate the direction and magnitude of impact of enhanced road capacityof urban transport infrastructure in the National Capital Region of the Philippines
5.1 IMPACT ON INTERREGIONAL FLOWS
Within the National Capital Region, all trade flows with origin and destination classified as watertransport services sector and air transport services sector experienced a decline in magnitude.
This indicates that substitution in favor of more intensive use of land transport mode relative towater and air transport mode took place. The industrial sector in adjacent regions like Southern
Luzon and Northern Luzon experienced substantial gains in trade as evidenced by the increase ininterregional flows emanating from and going to these two regions. Interregional flows
originating from agriculture sector in Mindanao, Southern Luzon and the Visayas benefited from

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

NCR land transport infrastructure improvement as they registered the biggest increment in tradeflows. In terms of other services sector, the regions of NCR, Visayas and Southern Luzon had
positive increments in interregional flows as origin and destination sectors.
The figure below shows the general direction of changes in interregional flow of goods andservices after the introduction of the exogenous shock. The sectors with visible bar graphs are theorigin-destination sectors which had the highest interregional trade volume after the occurence ofthe exogenous shock. It can be deduced from the these results that while the center-periphery
configuration remains, the spillover effects of additional urban transport infrastructure in therest-of-the Philippines are of significant importance. Adjacent regions like Southern Luzon andNorthern Luzon benefited and even as regions as far down as Mindanao. The extent ofinterconnection reinforced by the additional provision of urban land transport infrastructure in
National Capital Region will make the lagging regions catch up with the lead region.

Figure 1. Change in Interregional Flows
5.2 IMPACT ON GROSS OUTPUT
The effect of additional urban land transport infrastructure in NCR resulted in productivity
increases in industrial and agricultural sector of adjacent region – Southern Luzon andagricultural sector in Mindanao. This reflects the strong interregional linkage between NCR andSouthern Luzon and Mindanao. However, the highest increase in output was in transport
intensive sectors located in NCR namely industry and other services sector. The intermodaltransport routes which transport industrial goods coming from Southern Luzon and Mindanao toJournal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

NCR and the increased demand for output of industry and services within NCR and adjacentSouthern Luzon could explain why these two sectors enjoyed highest level of output. The
substitution away from production of air transport services was reflected in decline in gross
output of such sector in almost all regions. Another manifestation of the substitution effect is low
increase in output of water transport services sector in all five regions. The figure below
indicates such outcomes.

Figure 2. Absolute Change in Regional Gross Production Output

5.3 IMPACT ON WELFARE
Welfare is measured in terms of equivalent variation. (EV). EV is the change in money incomethat would put the household on the new indifference curve at the old prices before the exogenous
shock. The change in price is brought about by the exogenous shock in the form of capitalinfusion into the land transport infrastructure sector.
5.3.1 CHANGE IN ABSOLUTE LEVELS OF WELFARE
The biggest increase in welfare as measured by change in equivalent variation was experienced
by the middle income group in all four regions -NCR, Visayas, Mindanao and Southern Luzon.
This complements earlier results since the middle income group are owners of land transport
vehicles and therefore are constant users of land transport infrastructure services. Middle income
groups which use intermodal combination of land and water transport services stand to gain
more utility in terms of less travel time and less disutility in moving from one point to another.This is an offshoot of the increased capacity in land transport services in NCR. The low income
groups in Southern Luzon, Visayas and Northern Luzon had the sixth , seventh and ninth highest
increase in welfare. It is also significant to note that the group with the highest welfare gain , themiddle income class in NCR was double that of the Visayas and Mindanao middle income group .
The intraregional equity effect can be seen in the fact that the high income group in Southern
Luzon, Northern Luzon, Mindanao and Visayas experienced the smallest increase in welfare. The
figure below shows the aforementioned results.

Journal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

Figure 3. Absolute Change in Level of EV of Regional HH Income Groups

5.3.2 CHANGE IN RELATIVE WELFARE LEVELSThe narrowing of welfare differentials across income groups within regions and across regions
can be deduced from the result indicated in the figure below. The low income groups in the
Visayas and Southern Luzon had the biggest relative welfare gains despite the fact that the capitalinfusion took place in NCR land transport sector. The middle income groups in NCR , Visayas
and Mindanao had the next highest welfare gains. The low income class in Northern Luzon
followed.
These results indicate that low and middle income groups in other regions specially those inSouthern Philippines, namely Visayas and Mindanao benefit from capital infusion in NCR. Thereis a very prominent effect in terms of relative change in welfare of low income class in the
Visayas and Southern Luzon. In fact, the low income groups of aforementioned regions had thebiggest increment in relative welfare after the exogenous shock occurred, The middle income
classes of Mindanao, Visayas and NCR had the next highest welfare gain.

Figure 4. Relative Change in Level of EV of Regional HH Income GroupsJournal of the Eastern Asia Society for Transportation Studies, Vol. 8, 2010

6. CONCLUSION
The study demonstrates that there are significant spillover and equity effects of capital infusion
in land transport services sector in the National Capital Region. It affects the spatial pattern of
economic benefits, the value of economic benefits among industries and the distribution of
benefits among income classes. The results also indicate that production sectors in adjacentregion like Southern Luzon and even those in Southern Philippines composed of the Visayas andMindanao benefited in terms of increased interregional trade flows and higher levels of output.
Specific reference is made to the industrial and other services sector. Welfare gains in absoluteterms went to middle income groups in almost all regions . But a significant finding is that inrelative terms, the low income groups in non-NCR regions acquired the biggest welfare gain .
It also shows that allocation of resources in the prime region, NCR, can narrow the economic
gap among regions in the Philippines. This is so because significant increases in output, welfare
and interregional flows occured in the other four regions in the rest of the Philippines, specially
Visayas, Mindanao and Southern Luzon after more capital was introduced in NCR land transport
services sector.
Overall, the study indicates that the location of urban transport infrastructure investment is one
factor which determines the spatial configuration of the Philippine economy and has a significant
impact on narrowing interregional gaps in economic performance.
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