THE PROBLEM AND ITS BACKGROUND
Most economists acknowledged a country's investment in infrastructure as one of the pillars of a sound economy. Empirical studies of countries and cross-country regressions have shown that it is a significant factor in achieving economic growth as it tends to effect to an increase in output, private investment and employment. Without it, trade and other various economic activities would be impaired.
To measure the effect of the infrastructure on production activities, previous studies have estimated a production function that incorporated infrastructure as one of factors of production or a model of utility and production functions that incorporated infrastructure in the context of growth theory. To measure the effect on quality of life, qualitative, theoretical analyses have been made, using a growth model that incorporated infrastructure as an argument in the utility function (e.g. Arrow and Kurz(1970)), while empirical analyses have been conducted, among others, by governments which applied the cost-benefit analysis.
Rural infrastructure development is highly related to rice production. The exceptional importance of irrigation systems and local roads as a driving force in raising rice productivity and economic development cannot be neglected over time. Its' contributions to the economy has been well known since the early times.
Agriculture has always been a part of the Philippine economy. Although the performance of the agricultural sector had been erratic through the years, we cannot deny the fact that it still plays a significant part in forming the country's aggregate domestic output which accounts for less than 20% of the Philippine Gross Domestic Product. Its equitable share in economic growth is essential in reducing poverty and enabling each and every person to have access to food. Economic progress in the agricultural sector is crucial to raising income of the poor and increasing food supply and vital raw materials for other industries. It also provides a significant market for farm inputs that are needed in carrying out its processes.
This paper aims to analyze the effects of infrastructure, specifically irrigation systems provided by the government and the private sector as well as local roads, together with fertilizers to the rice production of Central Luzon from 1971-2005.
It has been noted that in the past six decades, the Philippine agricultural sector had experienced a tremendous drop in output relative to its Asian counterparts. The once leading economy in Southeast Asia in terms of agricultural productivity is being left behind by its neighboring nations like Thailand, Indonesia, China and Malaysia. (See Appendix A)
This study aims to analyze the different factors that affect the level of rice productivity in Central Luzon and to assess their respective impacts to the production in the area of concern.