"The bottom line here is that if the FIES tells us that poverty must have increased from 2003 to 2006, what with average incomes of the bottom 30 percent decreasing, why is it that our National Income Accounts estimates for the same period tell us that real per capita gross domestic product has increased? How are these conflicting statements to be reconciled?"The divergence between GDP per Capita and Annual Average Family income is indeed odd because they are both supposed to measure income per given unit of population, i.e. per individual in the case of GDP and per family in the case of the FIES.
In the chart below, i have compared the above FIES result, as well as that of the previous three reports ( 1994 to 1997, 1997 to 2000, and 2000 to 2003), with the per capita GDP change for the same reporting periods.
It turns out that except for the 1994 to 1997 reporting period, the two measures of income have diverged. From 1997 to 2006, if one looks at the per capita GDP, the story is of one of continuous improvement in incomes. By contrast, if one looks at FIES, we get the opposite picture, one that shows consistent deterioration in incomes.
As i commented over at Manolo's blog (here and here), one possibility is that GDP is being overstated because of smuggling which understates imports. I also mentioned other possible reasons i could think of:
- Use of different population figures as a divisor, but this is unlikely since the figures come from the NSO.
- Consistent under-declaration of income by the survey respondents of the FIES. However, assuming a true random sample, this effect should already have been cancelled out across time periods compared (i.e. 2006 and 2003).
Update Feb-01-2008 4:10am: Here's a chart taken from Poverty in the Philippines: Income, Assets, and Access showing the nominal and real (i.e., in constant 1985 prices) FIES Average Annual Family Income from 1985 to 2003:
Looking at the line depicting the Average Annual Family Income (in constant prices), it's alarming that the average seems to be falling back to levels last seen in the late 80's.
Update Feb-04-2008 12:32am: Monsod's fellow ex-NEDA Chiefs Cielito Habito and Felipe Medalla have also expressed similar misgivings as early as last July, 2007. At that time, this was the NSCB's response (thanks to commenter INE for the link.) This response points to a more detailed explanation (pdf file) by NSCB Secretary General Romulo A. Virola. IMHO, the explanation still sounds lame to me as it is just a more elaborate way of saying that the two measures are different, without providing actual numbers to back it up.
Side Note: I stumbled across this simplified circular flow model which is useful for visualizing investment, income and expenditure flows between the business and household sector.