An Analysis of the link of Philippine Fertility Rate to Economic Growth

By:

Aberin, Jemuel Allen N.

Fernandez, Matthew Ezekiel M.

May 2019

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 TABLE OF CONTENTS

Abstract* ....................................................................................................................................i
List of Tables ............................................................................................................................ ii
List of Figures.......................................................................................................................... iii
Chapter I. Introduction ............................................................................................................ 6
A. Background of the Study ..................................................................................................... 6
B. Statement of the Problem** ................................................................................................ 9
C. Research Questions and Hypothesis .................................................................................. 10
D. Research Objectives ………….……………………………………………………..11
E. Significance of the Study .................................................................................................. 12
Chapter II. Review of Related Literature ……………………………………….….... 12
A. Theoretical Literature ………………………………………………………………14
B. Empirical Literature ………………………………………………………………..16
Chapter III. Theoretical Framework ..................................................................................... 24
Chapter IV. Research Methodology ....................................................................................... 31
A. Empirical Model ……………………………………………………………………31
B. Definition of Variables and Data Sources ......................................................................... 32
C. Statistical Methods and Procedures ………………………………………………..34
Chapter V. Data Presentation and Analysis* ......................................................................... 37
Chapter VI. Conclusion and Recommendation* ................................................................... 46
A. Conclusion …………………………………………………………………………46
B. Recommendations …………………………………………………………………48
List of References ..................................................................................................................... 49

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 ABSTRACT

The discussion on decreasing fertility rates of the Philippines among economic growth and

unemployment in the national and regional level highlighted the need for research in finding how

fertility rates affect macroeconomic variables. This gave way to determine what the direction of

causality occurred between the variables in the national level. This study investigated the impacts

of fertility rate towards economic growth and unemployment and used an appropriate time series

regression model for the national level and panel regression model for the regional level. Fertility

rate was the independent variable used to look at how it affected economic growth and

unemployment. The results discovered that in the national level, fertility rate is an important

indicator of economic growth. On the other hand, fertility rate is an important indicator of

unemployment in the regional level. These finding support that there is a long-run and short-run

impact and significance. Impact of the variables across regions were also discovered in the regional

level of the research.

Key words: Philippines, regional, national, fertility rate, economic growth

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 LIST OF TABLES

Table 1. Unit Root Testing……………………………………………………………………… 37

Table 2. Lag Length Criteria……………………………………………………………………...38

Table 3. Johansen Cointegration Rank Test (Trace)…………………………………………….. 39

Table 4. Granger Causality Test for Fertility Rate and GDP Growth Rate……………………… 40

Table 5. VAR Long Run Coefficients…………………………………………………………… 40

Table 6. Summary of Diagnostic Checks…………………………………………………………42

Table 7. Results of Hausman Test………………………………………………………………. 43

Table 8 Random Effects of RGDP Results……………………………………….………………43

Table 9 Random Effects of Unemployment Results …………………………………………….44

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 LIST OF FIGURES

GDP Growth Rate and Fertility Rate……………………………………………………………..20

Regional Fertility, unemployment and GDP Growth Rate (2013)……………………………….21

Regional Fertility, unemployment and GDP Growth Rate (2016)……………………………….21

GRDP
(2013)…….............………………………………………………………………………………22

Per Capita GRDP (2013)………………………………………………………………………....22

GRDP
(2016)…….............………………………………………………………………………………22

Per Capita GRDP (2016)………………………………………………………………………....22

Liebenstein’s Theory of Fertility Decline……………………………………………………......28

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 Chapter 1

Introduction

A. Background of the Study

The Philippines ranked 13th in the total world population and 65th in average fertility rate

out of 200 economies where fertility rates are measured. However, its fertility rate has been in a

constant decline over the years. Along with that constant declining fertility for the Philippines, the

economy has been on a recent rise. In 2010, the Philippines was considered as one of the fastest

growing economy with a GDP Growth Rate of 7.3% (World Bank, 2010). With the constant

decline of fertility along with the recent economic success, the research will test if there is a

relationship on the trends of the Philippine GDP Growth Rates and Fertility Rate.

To understand the research, pre-tests, regression analyses, model formulation and model

specification must be done. Answering the long running question of whether fertility rates affect

income and unemployment.

Defined by the OECD (2018), the total fertility rate in a specific year is defined as the total

number of children that would be born to each woman if she were to live to the end of her child-

bearing years and give birth to children in alignment with the prevailing age-specific fertility rates.

On the other hand, the population growth rate indicates how fast a population increases or

decreases as a result of the interplay of births, deaths, and migration during a given period of time.

(PSA, 2017)

According to Lucagbo, Ignacio, and Mapa (2010), demographic transition brings change

from a situation of high fertility and high mortality to one of low fertility and low mortality. These

economists put emphasis on fertility rates because of the fact that areas where demographic

transitions occurred, immediate responses from fertility rate followed. Population growth rate

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covers both fertility rate and mortality rate, this implies that the fertility rate is directly proportional

towards population growth rate. Population growth rate defined by Thomas Malthus stated that it

is the main determinant of resources in a nation and that small variables like fertility rate can

influence population growth rate. Choosing fertility rates as a variable in the research will be better

to use rather than population growth rate because of population growth being such a wide and

general variable which already encompasses fertility rates. Li (2015) stated that fertility rates pose

the key proponent to understanding economic growth.

The relationship of fertility rate towards economic growth and unemployment rate can be

classified into two parts, developing and developed countries. For developing countries, high

fertility rates need to decrease in order to promote economic growth through the theory of

dependency ratio or age dependency ratio and solow growth model. For developed countries, low

fertility rates need to increase in order to promote economic growth through the replacement level

of fertility and Malthusian theory of population.

According to the Institute for Health Metrics and Evaluation at the University of

Washington (2017), global fertility rates are steadily declining as of this date including the

Philippines. Mapa (2015) however states that in comparison to its Asian neighboring countries,

rate of decline of the Philippine fertility rate is significantly lower which creates the question if

this is a problem in the country; this results in relatively high population growth rate for the

country, compared to its neighbors in Asia. Due to this slow reduction in the fertility rate, the

country may not able to benefit fully from the demographic dividend and the demographic window

of opportunity is closing fast for the country. This would affect economic growth and

unemployment because of the fact that fertility rate is negatively related with economic growth

and positively related with unemployment.

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 According to the World Bank (2017) the Philippines is ranked third among Asian countries

in terms of economic growth, behind Vietnam and China. With a low relative decline of fertility

rate, if there is a cause for fertility rate to continue to decrease, will that mean that there will be a

greater increase in economic growth.

This research aims to prove if economic growth has a causal relationship with the fertility

rate. This assumption comes from the research objectives that this research wants to answer. With

causality in mind, multidirectionality happening towards fertility rate and economic growth is what

this research wants to prove.

Prior studies were done in the similar field concerning fertility rates; studies including -

The Relationship between Fertility Rate and Economic Growth in Developing Countries (Li,

2015), The Effects of Unemployment on Fertility (Andersen & Ozcan, 2013), Do High Birth Rates

Hamper Economic Growth? (Li & Zhang, 2007), and Short and Long-Term Effects of

Unemployment on Fertility (Currie & Schwandt, 2015). These studies have a common result with

fertility rate and economic growth that reducing fertility would increase economic growth and vice

versa. While fertility rates and unemployment have a positive relationship with one another in

developing countries.

The current trend of fertility rate and economic growth in comparison to neighbouring

Asian countries like Thailand, Vietnam, and Malaysia is what is expected from the two variables;

a continuous decline in fertility rates is resulting in an increase in GDP explained by the theories:

demographic transition, quality-quantity approach and Malthusian theory of population growth.

Coming from the data of World Bank (2017), the countries stated beforehand show that the

hypothesis in this research is true that as fertility rates decrease then economic growth increases.

The same can be seen in the Philippine setting, it shows that a developing country increases in

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GDP if fertility rate declines and vice versa. However, findings from developed countries say

otherwise where fertility rate declines actually lead to economic decline. This shows that the trend

between fertility rate and economic growth is expected because the theory is applicable.

B. Statement of the Problem

As mentioned earlier, the Philippine Fertility rate has a slower rate of decline in comparison

to its neighboring Asian countries. With that being said, does it mean that it affects the growth rate

of the Philippine GDP and whether it has a significant causal relationship to each other? This

means that research must further be investigated to know the definitive results as to which if there

is a significant impact or causation among these variables.

If the assumption that fertility rate has a negative relationship with economic growth is

applicable on recent studies (Li and Zhang, 2007), there is a question hovering whether it is also

the same case in the Philippines. Also, with findings differing in some developed countries in

contrast to that of developing countries, does the case of the Philippines be similar to that of

developing or developed countries since recent findings that it has become one of the fastest rising

economies despite its lower rate of fertility decline. In using the findings of this research, what

government policies should be strengthened and be imposed for the Philippines to maximize

increasing economic growth rates.

C. Research Questions and Hypothesis

1. What is the impact of fertility rate on economic growth in the Philippines?

2. Are there differences in the impact of fertility rates on economic growth and unemployment

across regions?

3. Is there causality between economic growth and fertility rate in the national level?

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 The study hypothesizes that Philippine fertility rate negatively affects economic growth

while fertility rate positively affects unemployment levels. With higher fertility rate comes a higher

population coming from a developing country, more people would take part in the available

resources which might lead to shortages and ultimately an imbalance in the economy which can

be explained by the Malthusian theory of Population. The positive relationship of unemployment

and fertility rate can be explained through timing of fertility approach. This theory states that

fertility is dependent on the economic status of a country. If there is a recession, then

unemployment would increase, the theory suggests that having a child during a steady economic

decline would be less costly which would give the positive relationship of unemployment and

fertility rate.

D. Objectives of the Study

1. To determine the short-term impact of fertility rate on economic growth and unemployment

rate in the Philippines.

2. To evaluate the impact of fertility rate on economic growth and unemployment among the

different regions in the country.

3. To investigate if there is a causality among the variables in the national level.

The research methodology would be divided into two models: the long-run and short-run

macroeconomic models which will use time series regression analysis to establish the relationship

between economic growth and fertility rate at the national level. and the regional model will use

panel regression analysis to establish the relationship among the variables at the regional level.

The research time frame for the study covers the years 1961 to 2017 or 50 years. The dependent

variables in the study would be economic growth and unemployment while the independent

variable would be fertility rate. Statistical tests that will be used in this research will focus on VAR

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for the macroeconomic model that will follow the multiple step iterative procedure: stationarity

tests and differencing, lag length criteria, cointegration test, VAR modeling, causality, and

parameter estimation and diagnostic checking.

The scope of the study focuses mainly on fertility rates and its impact on economic growth

and unemployment in the Philippine setting, both nationally and regionally. The study that is being

conducted is limited only to the variables that is fertility rate, economic growth, and unemployment

which stops the further exploration of other variables. The study mainly focuses on fertility rates

that do not include immigration and emigration, a national and regional level of analysis in the

Philippine setting. The scope of the study is limited to knowing the impact of fertility rate towards

economic growth and unemployment in the long run and in the short run while also investigating

the causality among the variables. The scope will also tackle the pros and cons of an increase or

decrease in fertility rates of the Philippines. The differences in the effect of fertility rates on

economic growth and unemployment across regions would be highlighted.

E. Significance of the Study

The significance of the study is the fact that most published studies of the Philippines does

not use fertility as a variable for economic growth. Proponents for this research aims to see the

impact of both national and regional fertility rates which is not normally featured in most studies

as of present. Fertility rates in the Philippines are constantly declining while still being considered

overpopulated in terms of population. A recent study by the Commission on Population

(POPCOM) reveals that there are about 206 babies being born every hour and that there is a

noticeable increase among women of reproductive age from 15 – 49 this year. Having such a

conflicting statement, it is a significant research to be conducted. This is true because of the fact

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that the statement beforehand clearly contradicts what is being stated in the statement of the

problem.

Herrin (2002) describes the policies on fertility and population growth adopted by different

administrations, from President Marcos to President Arroyo. Past administrations in the

Philippines have failed to be consistent in population and fertility policies and the role of family

planning. This gives an added value to researching this problem for contributing to policy

recommendations and formulation in the Philippines through the betterment of the Republic Act

10354 or The Responsible Parenthood and Reproductive Health Act of 2012. This added value

could also be done through broadening population concerns, needing for clarification of policies,

committing to the policies, and listening to the people. The consensus of fertility reduction should

be given more importance and this research will emphasize that reason. Policy makers will be able

to create policies that promote economic growth and the reduction of the unemployment whenever

fertility rates start to increase or decrease.

Lastly, the researchers will conduct their study by using regional data for the main purpose

of it being included as the researchers’ value added to the numerous international studies

conducted on fertility. At the same time these specifications will help the researchers know the

different impacts of economic growth and unemployment from fertility rate with the different

regions in the country. This can be assumed because not all locations have the same trends. There

will be different patterns and trends in different locations in the country which will be adjusted

with the needs of each region.

Research on fertility rate in the Philippines will increase the limited number of studies

regarding fertility rate. Adding to the stockpile of limited research on fertility rate in the

Philippines, this research will contribute to further increasing the knowledge of Filipino citizens

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in the constantly declining fertility rates and will answer the research questions in the study. This

study will give rise to the benefits of proper family planning at the same time the pros and cons of

an increase or a decrease in the fertility rate of the country.

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 Chapter 2

Review of Related Literature

A. Theoretical Literature

The theories in the review of related literature are theories that are not directly tied up with

fertility rate, economic growth, and unemployment. These theories are used in the many literatures

that this study uses. It is not a direct link but rather an indirect link which means that these theories

will not be placed in the theoretical framework. The following theories are not well established

and concrete enough to explain the relationship of fertility rate and economic growth. Some

instances are applicable to developed countries contrary to what is the subject of research.

Age Dependency Ratio

Age dependency ratio explained by Bongaarts (2001) is the ratio of persons in the

dependent to those in the economically productive ages in the population. In the Philippine setting,

PSA (2003) define people under the dependent ages are those who are generally under age 15 and

over the age of 64. Independent/Economically Productive ages are the population who are aged

between 15 to 64 years old.

A lower dependency ratio, in turn, would reduce consumption and increase saving at any

given level of income, permitting a higher rate of asset accumulation. Taken together, these three

benefits from slower population growth could raise income levels at both the household and

aggregate levels. In summary, a decrease in the labor force resulting from the increase in the elderly

population, and a decrease in the fertility rate would translate into lower economic growth.

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 A higher dependency ratio would decrease economic growth and in turn decrease fertility

rates because more and more young population are dependent on the working population. This will

cause a decrease in fertility rate because the working population will not have time to engage in

child rearing activities.

Replacement Level of Fertility

Replacement level fertility refers to the level of fertility at which a population exactly

replaces itself from one generation to the next (Craig, 1994). In countries with high infant

population and child mortality rates, the average number of births may need to be much higher.

With the view of the younger generation replacing the older population in the labor force, this

theory describes that population growth and fertility rate are constant, but unemployment lowers

because the new generation will replace the generation before them without causing a change in

fertility rate or population growth. Unemployment lowers but fertility rate remains the same.

In contrast to the assumption in developing countries, it can be said that there would be a

positive relationship between fertility rate and economic growth because with more people joining

in the labor force, it will result to higher output levels hence higher income and economic growth.

B. Empirical Literature

Fertility and Economic Growth

Several sources have seen that there is a negative relationship between a country’s total

fertility rate to its economic growth in developing nations. A study by Li (2015) suggests that

developing countries show a more significantly stronger negative relationship to economic

growth. The study shows that economic growth starts at high fertility rate numbers. However, as

economic growth accelerates, fertility rate declines. Findings also tells that greater gross capital

15
formation results to lower fertility rate. Since fertility is the total number of children a woman has,

it is also implied that a country with a higher fertility rate also has a higher population and

population growth rate. In a similar manner, it was seen that higher fertility rates hinder economic

growth since the cost of child rearing is increasing along with capital. However, families are

pushed to have a higher number of children as economic growth rises (Lee, 2014).

A study by Brander and Dorwick (1993) suggests that high birthrates appear to reduce

economic growth in relation to investment effects and capital dilution. With that being said, it was

found that birth-rate declines have a strong positive impact to per capita economic growth (GDP).

It was found that a negative relationship between fertility rate and income levels in terms

of gross domestic product (GDP) and gross national product (GNP) suggesting that children are

considered as inferior good which means that demand for children will decrease as level of income

rises.

However, some studies have differing views regarding fertility and economic growth.

Some instances state that there is no significant correlation between fertility and income per capita

along with population growth and saving rate. (Ashraf, Weil and Wilde, 2013)

Fertility and Human Capital

Instances that there are high human capital leads to higher rate of return to investment of

human capital relative on children. As a result, countries with a low number of human capitals will

choose to have more offsprings, resulting to a smaller level of investment to each family member.

This case is the opposite in countries with high human capital where families would choose to

have a smaller number of offsprings resulting to a higher level of investment to each family

member. (Becker, Murphy and Tamura, 1990)

16
 Philippine fertility rate is relatively higher in comparison to other countries and along with

that comes a lower average age of the Philippine population. With that, more people are part of

the working age population which could lead to higher productivity with the increasing number of

jobs being available in the labor market leading to higher human capital (Mapa, 2010).

With the rise and development of technology and the timing of demographic transitions,

human capital increases but decreases the fertility rate of this certain area; a decrease in fertility

rates cause a decrease in population as well. Because of the fact that parents are given more

incentive to increase in the investment of quality rather than quantity of children, then the total

fertility rate would gradually fall.

Fertility and Unemployment

A research regarding unemployment and fertility were done to determine the effect of

unemployment rate to fertility rate and vice versa (Andersen & Ozcan, 2013). One research was

done in Denmark looking at the causality effect between both variables. Based on the results, it is

suggested that unemployment has a positive causal relationship with fertility. This means that

being employed encourages having more offsprings.

Another factor for unemployment is firm closure which can be a reason for households to

not have more children because of the higher costs that will be incurred in raising one especially

on the case of developed countries where standard of living is higher.

In applying statistical methods in the study, firm closure was considered as a valid

instrument in drawing conclusions in the study. This would be crucial in determining

unemployment because closure of companies would lead to a sudden increase in unemployment

which is outside the scope of the study (Andersen & Oczan, 2013).

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 According to a study by Fanti & Gori (2007), it is found that wage regulations determines

a positive unemployment relationship, which negatively affects a family’s fertility decision leading

to a negative impact to fertility rate. It is also found in the study that absence of child

support/subsidy actually increases the fertility rate in developed countries. The introduction of

child subsidies actually reduces capital accumulation which leads to higher unemployment in the

long run which negatively affects the demand for children in spite of the financial assistance

provided by the government.

Looking at the Philippine setting, higher unemployment is due to the low population mean

age of Filipinos resulting to relatively high unemployment and underemployment especially on

the 20-24 age bracket. Government actions were done in order to reduce the fertility rate especially

on the poorest households where fertility is at the highest. (Mapa, 2010)

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TREND ANALYSIS

State of Fertility in the Philippines

One of the major economic issues of the Philippines is overpopulation especially in urban

areas where poverty rates are significantly higher compared to rural provinces. The world fertility

rate as of 2016 is 2.439 which is lower in comparison to the Philippines with the fertility rate of

2.925. Certain policies were brought up by the government in order to prevent higher population.

From data recovered from World Bank, it can be observed that national fertility rate is steadily

decreasing over time. However, in comparison to other countries, fertility rate decline in the

Philippines is slower which may lead to higher population growth and slower economic progress.

(Mapa, 2010)

With this concern in population growth, national government has intervened and created

policies to reduce fertility rate and population growth rate. A recent government intervention was

the policy implementation of the RH Bill in 2012 which provides family planning and information

services, STI (Sexually Transmitted Infections) treatment and prevention, contraceptive provision

and awareness of the public in reproductive health via inclusion of sex education in the academe.

It was measured that as income increases by 1 percentage point, total fertility rate decreases by

0.0145. (Mapa, 2015)

Main variables of this research were compared throughout the years from 1961 to 2017,

namely National Fertility Rate and GDP growth rate. Data of National Fertility and Economic

Growth Rate came from the World Bank database.

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Figure 1. GDP Growth Rate and Fertility Rate, 1961-2017

GDP Growth Rate and Fert. Rate

10
8
6
4
2
0
1963

1991

1997
1961

1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989

1993
1995

1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
-2
-4
-6
-8
-10

From the figure above, a sudden drop off in the mid to late 1980s can be observed in the

GDP growth rate due to the implementation of martial law and the heavy borrowings of the Marcos

regime, resulting to heaping masses of debt, burying the Philippine economy. Another notable

trend is the steadily declining fertility rate of the Philippines. However, in comparison to other

ASEAN countries, Philippine fertility rate is declining at a slower pace. Looking at the

unemployment rate, no noticeable trend could be observed from the given data. It can be because

of the changing definition and methodology of the measurement of unemployment in the

Philippines throughout the years.

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 Figure 2.1 Regional Fert. Unemployment Figure 2.2 Regional Fert. Unemployment
and Growth Rate (2013) and Growth Rate (2016)

Data for regional fertility came from the National Health Demographic and Health Survey

of 2013 and 2017. Regional unemployment rate data came from the Labor Force Survey of 2013

and 2017. Lastly, RGDP data came from the PSA website.

Looking at the figures, unemployment is significantly the highest in 2013 NCR even

though it has the lowest fertility rate among the regions. NCR’s total population might be the

reason why it has a high unemployment despite the low fertility level. It would be a different case

in 2017 where Ilocos Region would have the highest unemployment rate. It could be that more

jobs were made available in Metro Manila, resulting to a decline in unemployment in comparison

of the two time frames. Growth rates of GRDP in 2013 saw Region V having the highest income

level increase from its previous year (2012). In 2017 however, CAR and Davao Region

skyrocketed its income growth rate from the previous year (2016), Zamboanga Peninsula took saw

plummeted growth rates from 2013 going to 2017. One explanation that comes to mind is the

terrorist activities that occurred recently to the region, halting economic activity in the area.

21
 Figure 3.1 GRDP (2013)
Figure 3.2 Per Capita GRDP (2013)

Looking at both figures, NCR is significantly the region where income is concentrated on.

It would be apparent because Metro Manila is considered as the business capital of the Philippines

and income is naturally generated at higher level. The lowest region to have a part of the Philippine

GDP is the Autonomous Region in Muslim Mindanao (ARMM). It could be because of the region

being the farthest from the capital (NCR) and the business center of the Philippines. Another

factor contributing to the low RGDP of ARMM is the ongoing war and terrorist activity in the area

which might be preventing the region to gain productivity and have economic progress.

Figure 4.1 GRDP (2016) Figure 4.2 Per Capita GRDP (2016)

22
 Looking at the 2016 data of GRDP and GRDP per capita, all regions had significant GDP

growth which also led to higher per capita GRDP levels in comparison to past data. It could be

because of president Duterte’s Build Build Build Initiative which made the Philippines borrow

monetary resources to its global partners, making our national GDP increase at a significant

amount however, significantly increases debt as well.

The ranking of regions in terms of total income and income per capita hardly have any

noticeable changes other than looking at Davao. The region had a significant increase in per capita

GDP, overtaking Central Luzon, Central Visayas and Northern Mindanao. One explanation that

can be given is the change or presidency in 2015 where president Rodrigo Duterte, a Davao native

and former Mayor of Davao City, succeeded Benigno Aquino III in the presidential seat.

23
 Chapter 3

Theoretical Framework

The main economic theories and principles that are applied in the study are stated in this

chapter. To provide more practical information on how fertility rates affect the variables of

economic growth and unemployment, an assumption to the study is that children are considered

normal goods.

Fertility rates and unemployment impact income and economic growth in various ways. At

the same time the research looks for a causal relationship with income and unemployment towards

fertility rates. This chapter focuses on these various impacts and theories on how and why these

variables have a connection with each other.

Malthusian Theory of Population

In terms of population, Thomas Malthus stated that population increases in an exponential

manner and food source only increasing arithmetically (constant manner). It is stated in this theory

that in time, without controlling population increase and fertility, an economy would eventually

experience shortage of food (Gillis, Perkins, Roemer & Snodgrass, 2013).

In order to avoid shortage on food supply, countries might resort to importing goods in

order to sustain and provide for its population. Higher imports have a negative implication on GDP

and when a country is dependent on imports to sustain its population, it might reflect on the

country’s income and economic growth.

This might also be an explanation for the long term fertility rate decline since people are

aware that in order to have more children, more resources would be required from them therefore

people are being discouraged to have more children in order for them to have more income instead

of using it for their children (Becker & Glaeser, 1999).

24
Solow Growth Model

The Solow Growth model, developed by Robert Solow, is the modern basis of economic

growth. Solow’s model forecasts that a richer nation having higher GDP degrees would develop

at a slower pace compared to a relatively impoverished nation because of declining returns to

renewable variables (Guerrini, 2006). Using an assumption for developing countries, it is expected

that there is a negative relationship of fertility rate and economic growth. With the claim of the

Solow Growth model, developing countries have more room and opportunity to expand its income

levels. The theory suggests that more rapid population growth because of an increase in fertility

rate reduces capital appreciation and hence reduces growth in output per worker which in turn

reduces economic growth.

Demographic Transition

Demographic transition according to Li (2015), the theory of which was actually describing

changes of population in developed countries, especially the transition from a mode of high birth

and mortality rates to that of low birth and mortality rate with a sudden increase of growth rates,

by which a larger population was produced at the transition end than its beginning.

For a developing country, it is in the process of demographic transitions. This theory fits

on the expected trends and is directly related to fertility rate and economic growth through the fact

that demographic transition brings a reduction of fertility rate to an area while bringing an increase

in economic growth. The theory states the hypothesis this research is trying to obtain through

statistical tests that a developing country must reduce fertility rates in order to flourish and increase

economic growth. As a result, this directly ties up fertility rates and economic growth as negatively

related to one another.

25
 The current demographic change is affecting economies in the sense that labor supply

diminishes as fertility rate decrease drastically. Female labor participation is increasing which

means female unemployment is decreasing as more countries become more industrialized. This

brings consequences to fertility rates as it decreases due to this transition (Sundman, 2011). This

statement means that fertility rate and unemployment has a positive relationship with one another.

Decreasing the unemployment rate in the Philippines would entail a decrease in fertility rate while

an increase in unemployment rate would increase fertility rate.

Quality-Quantity Model

Becker (1981) explains the fall in fertility as income rises over time by saying that the cost

of children tends to rise, especially because the opportunity cost of the parents’ time, particularly

the mother’s, goes up along with unemployment.

Becker and Lewis (1973) said child quality is modeled as goods spending on each child.

This implies that if child quality increases (more spending per child), increasing quantity (more

children) becomes more expensive. Conversely, if quantity increases, increasing quality also

becomes more costly, because the spending on quality accrues for each child. There is a tradeoff

on whenever income or unemployment increases or decreases. An increase in income is to magnify

the demand for quality of children or the quantity of children, never both. This means that as

economic growth increases which increases the individual wealth of people, then there is more

reason for couples to have spent more on children which lessens the fertility rate. There is an

income effect in the negative relationship between economic growth and fertility rate if quality

and quantity of children are being talked about.

As a woman’s wage rises, the opportunity cost of her time also goes up, so the price of

raising children rises. As a result, her demand for any activity that is intensive in the use of her

26
time decreases, including child rearing. This shows the substitution effect is greater than the

income effect, so couples may decide to have fewer offspring. That when wages rise due to

increase economic growth then women will decide to substitute giving birth which decreases

fertility rate.

Substitution effect implies that unemployment may be positively associated with women’s

fertility decisions, because it reduces the cost of having children by conveniently providing

additional time for childbearing and childcare (Andersen & Ozcan, 2013). This theory assumes

that children are normal goods mentioned from the beginning of chapter 2. When unemployment

rises, fertility rate also rises due to women substituting work in order to take care of the children.

This is true with the fact that with unemployment comes more time for women to give care which

adds to the quality of children and from the theory gives more reason to increase in fertility rate

which adds to the quantity.

The theory stated above explains why couples substitute work over choosing to maximize

utility with having children or choosing to work rather than be unemployed to sustain the income

for the use of childbearing.

Timing of Fertility Approach

The theory of the Timing of Fertility approach was originally developed by Gary Becker

under the New Home Economics approach where it is stated that the timing of forming a child is

attributed to the low opportunity cost of child rearing during recessions, which could imply a

positive relationship between unemployment and fertility (Becker, 1960). It is implied that during

times of steady economic decline, it is cheaper to have a child compared to when the economy is

thriving.

27
 In assuming traditional gender roles in society, recessions have more impact on male

unemployment than female unemployment which means couples have more time together during

the time where the male does not have a job, hence leading to an income effect. However, in the

case of female unemployment, it can have both a negative income effect and a potentially positive

opportunity cost effect. In other words, male unemployment has a positive relationship with

fertility, and it may be that female unemployment causes fertility decline. With that being said,

there may be a substitution effect leaning towards higher fertility because of the low opportunity

cost of having a child. (Aksoy, 2016)

Liebenstein’s Theory of Fertility Decline

Figure 5. Liebenstein’s Model of Fertility Decline

Liebenstein’s theory of fertility states that fertility rates have the tendency to decline in the

long run. According to Liebenstein (1975), there are three classifications of utilities of an

additional child, as a ‘consumption good’ where a child is considered as a source of pleasure for

the parents; as a ‘productive unit’ where a child is expected to contribute as part of the family

income after he enters into the labor force; and as a ‘source of security’ for the latter years of the

parents. On the other hand, utility decline refers to the costs involved in having an additional child.

28
While the direct costs relate to the expenses involved in the bringing up, the indirect costs are the

opportunities, measured in economic terms, foregone in the event of an additional child.

Liebenstein states that a couple weighs in their options regarding the balance between the utilities

and disutilities before deciding for an additional child. It should be noted here that Liebenstein’s

highlights specifically the higher order births (births of more than one offspring and up).

Liebenstein mentioned that the concept of ‘utility and disutility’ is the norm in the society where

parents assess the scenarios of having more children or not to have children at all. The process of

economic development operates through income effects, survival effects and occupational

distribution effects.

The relationship between economic development and utilities and cost of an additional

child is shown from the figure above. It can be seen from the figure that with increasing income

levels, while the ‘consumption utility’ remains unchanged, the other two types of utilities undergo

an abrupt decline. The costs involved in bringing up the additional child, however, report a constant

rise. On the basis of this, Liebenstein stated that as economic conditions improve, the number of

high parity children for the representative family has a tendency to decline.

29
 Chapter 4

Methodology

A. EMPIRICAL MODEL

In the following paragraphs, certain models will be introduced regarding the variables:

fertility rate and economic growth. The key significance of this of this study is to evaluate the

impacts of fertility rate on economic growth. With the constant decrease in fertility rates, the

theories found in the theoretical framework state a direct relationship between the variables.

Hence, economic growth changes as fertility rate changes.

Fertility Model (National)

Economic Growtht = α0 + β1 Economic Growtht-1 + β2 Fertility Ratet + εt

Where: Fertility = National Total Fertility Rate (TFR)

t

Economic Growth = Real National Gross Domestic Product (RGDP)

t

In the above equation, economic growth is considered as the dependent variable where it

is determined by its lagged variable (economic growth from the previous year), fertility rate is also

determined by its lagged variables in terms of total fertility rates. In line with that, an analysis of

the impact of the variables and the causal relationship among variables will also be explored given

the following econometric models.

Fertility Model (Regional)

Economic Growth = α0+ β1 Fertility Rate + εt

Unemployment = α0+ β1 Fertility Rate + εt

Where: Fertility rate = Regional Fertility Rate

Economic Growth= Real Gross Regional Domestic Product (RGRDP)

Unemployment = Regional Unemployment Rate

30
 In the above equation, the study will be tested using two different models or will be run in

a bivariate manner. Economic growth is considered as the dependent variable where it is

determined by regional fertility rate (in terms of TFR per region). Unemployment is considered as

the dependent variable in the second model where it is also determined by regional fertility rate

(in terms of TFR per region). In line with that, an analysis of the impact among variables will also

be explored. Regarding the different regions in the research, these regions will be accounted for in

panel form which will be seen in latter parts of the paper.

B. DEFINITIONS OF VARIABLES AND DATA SOURCES

Total Fertility Rate

Total fertility rate is the average number of children born from a woman during

childbearing years. For the analysis at a national level, data used for the study came from the World

Bank data collections ranging from year 1961 to 2017. Data for the total fertility rate at a regional

analysis were derived by the researchers from a provided formula by the Philippine Statistics

Authority using live births by age group and women population per region. Fertility rate is the

more specific and more detailed measurement being used in the research compared to the overhead

population growth rate. TFR can be further subdivided into the national and regional levels.

Real Gross Domestic Product

Gross Domestic Product is the total value of goods and services under one country. For

this study, annual growth rates of real GDP were used to measure economic growth. Real Gross

Regional Domestic Product is the total income level of one region in an annual time frame. Data

for RGDP came from the Philippine Statistics Authority annual forecasts while the RGRDP came

from the researchers who undertook the formula given to them by the Philippine Statistics

Authority.

31
Unemployment Rate

Unemployment rate is the total unemployed as a percentage share of total labor force or

the number of unemployed including people who are aged 15 and over who are reported without

work, currently actively searching for work and are willing to be paid, or people who are not

seeking for work continuously (PSA, 2019). Data for national unemployment rate came from the

Labor Force Survey yearbook (2015) and the Labor Force Survey results (2016 & 2017) ranging

from year 1961 to 2017. Regional data for unemployment rate is provided by the Philippine

Statistics Authority Quickstat feature in the official website.

Live Births by Age Group

Live births by age group is the number of successful delivery of children classified into

age groups. Data for live births by age group were provided by the Vital Statistics department of

the Philippine Statistics Authority and the National Statistics Office.

Women Population

Women population is the number of local female citizens in a specific country or place.

Data for the regional women’s population were provided by the Vital Statistics department of the

Philippine Statistics Authority and the National Statistics Office. These specific variables will

control the impact of fertility rate towards economic growth and unemployment rate in the

Philippine setting while following all the answers from recent studies. Hence, the objectives of the

study will be tested through different analyzing and regressions methods.

The dataset of fertility rate in the national level, Real Gross Domestic Product (GDP), and

national unemployment rate were extracted from the World Bank; while the dataset of fertility rate

in the regional level, regional unemployment rate, and Real Gross Regional Domestic Product

(RGDP) were collected from the Philippine Statistics Authority (PSA).

32
C. STATISTICAL TECHNIQUES AND PROCEDURES

Time Series Analysis (Vector Autoregression)

Analysis of data would be divided into two parts: National level and regional level. In

looking at a national level, a time-series analysis would be conducted to see the impact of economic

growth and unemployment. Using a dynamic time series model to relate the control variables in

the model to the current and previous periods. With the dynamic time series model, a VAR model

which can be further used to allow one or more variables to affect the dependent variable with lag

values. Using the VAR model would have the equivalence of running multiple regression

simultaneously using the lags of the dependent variable and independent variable as your predictor

variables, the only difference of using the VAR model is that the variables will be treated as

dependent variables meaning each variable affects each other. The requirement for using a VAR

model would be to have variables resulting in I (0); using the VECM model, the results would

have to be variables resulting in I(I). This research uses exponential time trends which shows the

growth rate of the chosen variables. But with using time trends, there are certain problems that the

research will face including spurious regression which will have a regression that is simply

explained by the time trend or the variables’ growth/decline over time (Wooldridge, 2013).

Specifying what kind of time series model this research uses, the researchers now go to the pretests

on time series regression.

Unit root test will be used in testing whether the datasets in the national level are stationary

or non-stationary. In unit root testing, it is used to check whether the time series variables are

stationary and does not contain a unit root. If and only if there is a unit root, then differencing will

be used to cure this problem. Other forms of unit root tests that will be used in the research are

Augmented Dickey-Fuller test and Philip-Perron test. The Augmented Dickey-Fuller test (ADF)

33
and the Philip-Perron test (PP) are widely used to test whether there is a unit root and if the

variables are stationary. The main difference between the two pretests is that the PP test accounts

for the serial correlation while the ADF test accounts for additional lags of the first differenced

variables.

The Pearson’s R correlation is to test the measure of the strength of a linear association

between two variables. The Pearson’s R correlation does not need the variables of the dependent

or independent, rather it treats all the variables equally.

The lag length criteria is tested through certain commands in Eviews through checking the

Akaike information criterion, Schwartcz information criterion; Hannan-Quinn criterion; Root

Mean Square Error; Mean Absolute Error; Bias proportion; Log-Likelihood.

After all the pretests within the datasets and the final model has been acquired then it is

time to formulate the time series regression analysis. The study will be using the Johansen

Cointegration test to test the long run relationship of the different control variables in the study.

Another test will be the Granger Causality test which reveal the causality of the variables in the

study. The Granger Causality test stated from EViews (2017) is that whether to see how much of

the current y can be explained by past values of y and then to see whether adding lagged values of

x can improve the explanation. Y is said to be Granger-caused by x if x helps in the prediction of

y, or equivalently if the coefficients on the lagged x’s are statistically significant. Once the

residuals in the model become stationary then the whole estimated model itself becomes

cointegrated in the long-run.

34
 In the time series process, the researchers use the iterative procedure.

1. Correlations

1. Unit root testing

2. Lag Length test

3. Cointegration test

4. Time series regression

5. VAR model

6. Granger causality test

Panel Regression Analysis

Computation of Regional Model TFR

TFR is derived from the age-specific fertility rate (ASFR), the number of births to women

of a given age group per 1,000 women in that age group, multiplied by five. To derive the ASFR,

live births of women that are grouped in age specific brackets are divided to the total population

of women in age specific brackets. The equations below will be used to get the regional TFR or

the TFR per region.

TFR = ASFR *5;

ASFR = Wbirths /wpop + wbirths /wpop + wbirths /wpop

15-19 15-19 20-24 20-24 25-29 25-29 + wbirths /wpop
30-34 30-34

+ wbirths /wpop
35-39 35-39 + wbirths /wpop + wbirths /wpop
40-44 40-44 45-49 45-49

Where: Wbirths = Live births in the specific age group

Wpop = Women population in the specific age group

35
Fixed and Random Effects

There are two methods of panel regression analysis, one is the fixed effects method and the

other is the random effect method. Fixed effects method is used when parameters are considered

fixed or contain non-random qualities. Random effect model, also known as variance components

model, is used when parameters are considered as random variables. In order to determine what

test should be used among the two, Hausman test would be applied to the variables. Hausman test

is the test for econometric model where two different estimators of the model parameters are

compared. In order to conclude that fixed effects method should be used, chi-square value of the

Hausman test should be less than 0.05, otherwise random effect method should be used.

Diagnostics Tests

According to Oscar Torres-Reyna (2007) panel regression include variables at different

levels of analysis (i.e. students, schools, districts, states) suitable for multilevel or hierarchical

modeling which fits perfectly to regional data. Assumptions for the following regression analysis

will follow the assumptions for pooled Ordinary Least Squares (OLS) Estimation:

1. Regression model is linear in parameters

2. Random Sampling of Observations

3. Conditional Mean is equal to zero

4. No perfect collinearity

5. Homoskedaticity

6. Normality of Error Terms

36
 Chapter 5

Data Presentation and Analysis

National level of Analysis

Unit Root Tests

Except for cointegration testing, all the other time series models require that the input series

must be stationary. This is to avoid spurious relationship and ensure that the model provides

accurate results and estimates. Particularly, the proponents used the augmented Dickey-Fuller Test

(ADF Test) to test for unit root. Unit root is the condition where the series follows a random walk

process which is not a stationary process. The null hypothesis of the ADF Test is that the series

has unit root thus, we want to reject the null hypothesis. The summary of the results is shown in

the table below.

Table 1: Unit Root Testing

Variable ADF Test Stat P-Value Remarks

Fertility Rate -3.002324 0.0034*** Stationary, I(0)
GDP Growth Rate -2.125841 0.0333** Stationary, I(0)
Note: *, **, *** indicate the level of significance at 10%, 5%, and 1% respectively.

Based on the table, the p-value of the ADF Test statistic for fertility rate is 0.0034 which

is less than 0.05 (level of significance) thus we will reject the null hypothesis and conclude that

the data for fertility rate is already stationary. Moreover, the p-value of the ADF Test statistic for

GDP growth rate is 0.0333 which is less than 0.05 hence, the series is also stationary.

Now that we have confirmed the assumption of stationarity for the input series, we will

now proceed to the modelling process.

37
Lag Length Criteria

Estimating the lag length of autoregressive process for a time series is a crucial econometric

exercise in most economic studies. The Lag length criteria are part of the time series regression

process for estimating the true lag length. This test shows the autoregressive lag length to provide

helpful guidelines that will be used in the Johansen Cointegration test and to test for serial

correlation.

Table 2: Lag Length Criteria

Lag LogL LR FPE AIC SC HQ

1 25.61302 456.7152 0.001636 -0.740114 -0.517062 -0.654339

2 95.51326 126.6118 0.000136 -3.226916 -2.855162 -3.083957

3 138.8244 75.18152* 3.10e-05* -4.710353* -4.189898* -4.510211*

4 139.4366 1.016507 3.53e-05 -4.582512 -3.913356 -4.325187

Table 2 displays the optimal lag length criteria for the vector autoregression model. The

results indicate that many of the selection criteria, including the Likelihood Ratio (LR), Final

Predictor Error (FPE), Akaika Information Criterion (AIC), Schwartz Information Criterion (SC),

and Hannan-Quinn Information Criterion (HQ), selected the optimal lag length of three. Therefore,

the lag length criteria of 3 will be utilized in running the Johansen Cointegration test and in

estimating the VAR model.

Johansen Cointegration Test

The Johansen Cointegration test reveals which variables in the research have cointegrating

properties with each other. This test will show if the dependent variable of economic growth is

cointegrated with the independent variable of fertility rate. The Johansen test has two forms: the

38
trace test and the maximum eigenvalue test. Both of the following tests address the Cointegration

presence hypothesis, but each asks very different questions.

Under the trace test, it answers the question if whether there is at least one possible linear

combination for the input variables to yield a stationary process or otherwise. Under the maximum

eigenvalue test, it is to verify that the number of linear combinations does not equal the number of

input variables.

Table 3: Johansen Cointegration Rank Test (Trace)

Hypothesized No. Eigenvalue Trace Statistic 0.05 Prob.**

of CE(s) Critical Value

None * 0.223722 16.57501 15.49471 0.0343

At most 1 0.057757 3.153057 3.841466 0.0758

As shown in table 3, Trace test shows that there is at most one cointegrating equation at

5% level. The results fail to reject the null hypothesis and at essence agree with the null hypothesis

that there is one cointegrating equation. The results indicate that the variables in the time series

are cointegrated which gives meaning to a long-run relationship.

Granger Causality Tests

In econometrics, a variable, say X, is said to “Granger-cause” another variable, Y, if the

past values of X contain information that helps predict Y and is beyond the information of the past

values of Y alone. This section reveals whether or not fertility rate has relevant information in

predicting GDP growth rates and unemployment rate and the other way around.

39
Table 4: Granger Causality Test for Fertility Rate and GDP Growth rate

Null Hypothesis F-statistic p-value

GDP Growth Rate does not Granger cause 0.2614 0.6166

Fertility Rate
Fertility Rate does not Granger cause GDP 4.8412 0.0439**
Growth Rate
Note: ** indicate the level of significance at 5%.

The table above shows the result of Granger Causality test on fertility rate and GDP growth

rate. The test only considered 1 lag of past information. In the first case, we fail to reject the null

hypothesis that GDP growth rate Granger-cause fertility rate. Hence, the past values of GDP

growth rate have no relevant information in predicting future fertility rates. On the other hand,

there is sufficient evidence to conclude that fertility rate Granger-causes GDP growth rate at 5%

level of significance. Therefore, the information about fertility rate on this year is helpful in

predicting the GDP growth rate for next year. These results are partially consistent to Li’s study

(2015) where the economic growth displayed causal significance with fertility rate.

VAR Model Estimation

The Vector Autoregression (VAR) model estimation show if there are any significant

impacts between the variables of economic growth and fertility rate. The VAR model will reveal

the long run impacts of the variables as well as showing the percentage point increase or decrease

resulting from the change of a variable.

Table 5: VAR Long-Run Coefficients

Test Statistic Coefficient Probability
Impact of Fertility rate - 0.135372 0.0359**
Impact of Economic Growth - 0.000268 0.8469
Note: *, **, *** indicate the level of significance at 10%, 5%, and 1% respectively.

40
 Table 5 shows the results of the test used to determine the significance of the coefficients

in the long run. The results reveal that the long run impact of fertility rate towards economic growth

is – 0.135372 and is significant at the level 0.05. In addition, the results show that the long run

impact of economic growth towards fertility rate is – 0.000268. This strengthens the findings on a

univariate relationship between the variables.

The findings of this research suggest that fertility rate significantly affects economic

growth. A one percentage point increase in fertility rate would be able to cause economic growth

to decrease by 0.135372 percentage point in the long run. Results of this research for the time

series data shows that is it consistent with the assumptions of the Malthusian Theory of Population

where population growth (in terms of fertility) leads to a decline in economic progress. These

results are partially consistent to Li’s study (2015) where the economic growth displayed causal

significance with fertility rate showing a negative relationship between variables. The same can

be said to Brander and Dorwick’s paper (1993) which suggests that higher birth rates ultimately

result to a reduction of economic growth where it was found that birth rate declines have a strong

positive impact to per capita GDP.

The following figures show that the results of the tests used to determine the long-run

significance of the stated coefficients. The long-run impact coming from the Wald Test results

indicates that the total fertility rate significantly affects GDP Growth Rate. It is also stated from

the results that there exist a long-run significance towards GDP Growth Rate when it is affected

by the total fertility rate which is similar to Li’s study (2015) where the results displayed long run

significance between economic growth and fertility.

41
Diagnostics

Regression diagnostics is one of a set of procedures available for regression analysis that

seeks to provide evaluation of the validity of a model in various methods. This assessment may

include exploring the model's underlying statistical assumptions, an examination of the structure

of the model, or a study of observation pools, looking for those that are either poorly represented

by the model or that have a relatively significant effect on the regression model's forecasts.

Table 6: Summary of diagnostic checks

Diagnostic Test
Dependent
Heteroskedasticity
Variable Test: Breusch- LM Test
Pagan-Godfrey

Economic No serial
Homoskedastic
Growth correlation

Homoskedasticity

The results in table 5 show that the null hypothesis is accepted. The null hypothesis is that

there is no heteroskedasticity in the model.

Serial Correlation using one period lag of dependent variable

The results in table 5 show that the p-value exceeds the significance level of 0.05.

Therefore, the null hypothesis is accepted that there is no serial correlation in the model.

42
Regional Level of Analysis

Hausman Test

The Hausman test will show what specific panel regression test will be used in the research.

The basis of using a fixed effects model is if the p-value is less than the significance level of 0.05.

A p-value that exceeds the significance level of 0.05 will use random effects model. The null

hypothesis of the test is that random model is preferred.

Table 7. Results of Hausman Test

Probability
Hausman Test 0.9988

As shown above, the p-value of the Hausman test shows a value, 0.9988, exceeding the

significance level of 0.05. Therefore, the study in the regional level of panel regression will accept

the null hypothesis and will use random effects model.

Panel Regression Results

Table 8. Random Effects of RGDP results

RGDP Coefficient
Constant 10.69976**
(1.243354)
Fertility Rate -.0991212
(.4761626)
2011 -2.747934**
(.9192931)
2012 -2.920766**
(.7291882)
2013 2.030796**
(.7364214)
2014 -.0167944**

43
 (.741369)
2015 -6.994373**
(.7362666)
2016 -2.031152**
(.7398197)
***, **, and * indicates significance levels at 1%, 5%, and 10%, respectively

Table 9. Random Effects of Unemployment results

Unemployment Coefficient
Constant 5.527592
(.4359388)
Fertility Rate .3763464**
(.1667448)
2011 -1.211693**
(.1245504)
2012 -.7529824**
(.1326262)
2013 -.3838989**
(.1511327)
2014 -.6063856**
(.1632816)
2015 -.7304269**
(.1688564)
2016 -1.235922**
(.1764367)

The estimates of the different determinants from the panel regression analysis are in line

with the hypothesis of the study. Unemployment in the test results a positive significant

relationship while RGDP results a negative insignificant relationship. Between the two dependent

variables, unemployment has the most important impact among all variables.

44
Econometric model for RGDP (Dependent) and TFR (Independent):

RGDP = 10.69976 - 0.0991212 (TFR) - 2.747934 (year2011) - 2.920766 (year2012) -

2.030796 (year2013) - 0.0167944 (year2014) - 6.994373 (year2015) – 2.031152 (year2016)

For every percentage point increase in total fertility rate, the RGDP decreases by 0.0991212

percentage point, holding all other variables constant. This shows similar result from the time

series analysis displaying negative relationship between economic growth and fertility rate.

Econometric model for Unemployment Rate (Dependent) and TFR (Independent):

Unemployment rate = 5.527592 + 0.3763464 (TFR) - 1.211693 (year2011) –

0.7529824 (year2012) – 0.3838989 (year2013) - 0.6063856 (year2014) – 0.7304269

(year2015) – 1.235922 (year2016)

For every percentage point increase in total fertility rate, the unemployment rate increases

by 0.3763464 percentage point, holding all other variables constant. Results stated are consistent

to Becker’s Timing of Fertility Approach (1960) where it is stated that during times of recession,

the opportunity cost of having a child is low therefore exhibiting a positive relationship between

fertility and unemployment. Literature also supports the relationship of the variables given in this

study. One example is Kreyenfield’s research (2001) which suggests that there exist a positive

relationship of fertility and unemployment in Germany during the 1990s. Currie and Schwandts’

paper (2014) also suggests that there is a long term positive relationship between high

unemployment rate and high fertility.

45
 Chapter 6

Conclusion and Recommendations

The discussion of fertility rate affecting variables such as economic growth and

unemployment was emphasized through the steady decline of fertility rate in the Philippines. The

specific goals of this study are to uncover and comprehend the impact of fertility rate towards

economic growth and unemployment and to evaluate if there is causation that happened between

the variables.

Looking at the results from the statistical methods, findings at a national level and regional

level differ from each other. According to the Malthusian Theory on population, there is a negative

implication for economic growth in terms of level of output. The theory states that economic

growth has a negative effect on fertility rate. The quality-quantity model and timing of fertility

approach stated that unemployment has a positive effect on fertility rate.

Literature have been consistent to the results of the study in saying that there is a directly

negative relationship between fertility rate and economic growth. (Li, 2015 and Brander and

Dorwick, 1999). In terms of unemployment, theory and literature have been consistent to the

relationship of unemployment and fertility rate (where there is a positive relationship). However,

it cannot be concluded that there exists a positive relationship since it was deemed not significant

to each other.

The different impacts of fertility rate towards economic growth and unemployment stated

in the objectives can be answered through time series and panel-random analysis. Time series

regression analysis using VAR models was used as the estimation technique for the Philippines’

national level of regression while panel-random effect regression estimation technique was used

46
for the Philippines’ regional level of regression. The variables that were used were fertility rate as

the independent variable and economic growth and unemployment as the dependent variables. The

results in the national level revealed that there was a level of significance towards economic growth

and fertility rate. The panel-random effect regression estimation technique results, the regional

level revealed that there was a level of significance of unemployment and fertility rate while

economic growth and fertility rate are insignificant.

To test the causality of the variables, this study used the Granger Causality test. The results

indicate that fertility rate Granger-causes GDP but not the other way around. Consequently, the

results on unemployment reveal that there is no underlying Granger causality (in both directions)

between fertility rate and unemployment rate.\Summing up, the study was able to provide an

analysis and give answers to the research problems stated in the introduction. The first research

question was answered showing the significant determinant being fertility rate in the nation level

of analysis. Furthermore, the impact of fertility rate towards economic growth and unemployment

emerged that the significant determinant of fertility rate is GDP in the national level and the

unemployment rate in the regional level of analysis. Lastly, it was found that fertility rate Granger-

causes GDP and nothing else.

Given that fertility tends to be negatively related to economic growth, government policies

could be a tool in influencing economic growth in the Philippines. One policy recommendation

would be strengthening the current RH Bill implementation in the country in order to control

population increase especially on non-urban regions where poverty rate and fertility rate are at the

highest (Mapa, 2015). With the given relationship of economic growth towards unemployment,

the positive correlation among the said variables could mean that there should be actions in order

to lessen fertility rate to ease unemployment in the country. Lessening fertility would lead to a

47
lower population growth which would mean a smaller amount of the labor force in the future which

would decrease the shortage of jobs available for the people and firms to be able to accommodate

more employees.

For future studies, the researchers suggest that more years could be added to the regional

panel analysis. Insignificance of the variables in the regression analysis might be because of the

number of years given in the dataset. Data for the regional panel analysis only stretches from 2010

to 2016 and might be insufficient in concluding findings for the study. Also, it might also be

beneficial if other researches in the similar field would add more variables in determining fertility

rate because there might be other factors not discussed in this research which could influence the

significance of the existing variables in this research. To conclude, other researches in this topic

would want to reconsider the application of other similar fields and not just economics.

48
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Andersen, S. H., & Ozcan, B. (2011). The effects of unemployment on fertility. In European
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Becker, G. S., Glaeser, E. L., & Murphy, K. M. (1999). Population and economic growth.
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