An Analysis of Average Propensity to Consume and Average Propensity to Save of Household Families in Region II (Cagayan Valley) from year

2000 to 2009

An Undergraduate Research Paper Presented to Professor Nicetas Sison

Prepared by:

BSPE II-1

Peamante, Russel R.

Robles, Marielle Shaira

August 2013

CHAPTER 1 INTRODUCTION

The average propensity to consume (APC) refers to the percentage of income that is spent on goods and services rather than on savings. The average propensity to save (APS), also known as the savings ratio, refers to the proportion of income which is saved, usually expressed for household savings as a percentage of total household disposable income. The families in Region II, to be described later on, is the subject of this paper upon getting the Average Propensity to Consume and Average Propensity to Save. For instances, we know that income, at the end of the day, is either spent or saved. With this paper, we will figure out how the flow of income of Region II family circulates.

Description. Cagayan Valley (Filipino: Lambak ng Cagayan) is a region of the Philippines (also designated as Region II or Region 02). It is composed of five provinces: Batanes, Cagayan, Isabela, Nueva Vizcaya, and Quirino. It has four cities: industrial center Cauayan City, its regional center Tuguegarao, its investment hub Ilagan City and its Premier City Santiago City. It has 90 municipalities and 2,311 barangays spread over 26,837.6 square kilometer land area. Most of the region lies in a large valley in northeastern Luzon, between the Cordilleras and the Sierra Madre mountain ranges. The eponymous Cagayan River, the country's longest, runs through its center and flows out to the Luzon Strait in the north, at the town of Aparri, Cagayan. The Babuyan and Batanes island groups that lie in the Luzon Strait belong to the region. Cagayan Valley is the second largest region of the Philippines in terms of land area. It is the large mass of land in the northeastern region of Luzon, comprising today the provinces of Cagayan, Isabela, Nueva Vizcaya and Quirino. It is bounded to the west by the Cordillera Mountain Range, to the east by the Sierra Madre Mountain Range, and bounded by the Babuyan Island, where the waters of the Pacific Ocean in the east and the South China Sea in the west meet. Cagayan Valley contains two landlocked provinces, Quirino and Nueva Vizcaya. Both are relatively small in size (3057 km2 for Quirino, 4081 km2 for Nueva Vizcaya) and population (147,000 and 365,000, respectively, by the 2000 census). They are ruggedly mountainous and heavily forested. Nueva Vizcaya is the remnant of the southern province created when Cagayan Province was divided in two in 1839. They are ethnically and linguistically diverse, with a substrate of Agtas, Negritos who are food-gatherers with no fixed abodes, overlaid by Ilongots

and others in a number of tribes, some of whom were fierce head-hunters (they have given up the practice), with the latest bout largest element of the population being Ilokano. Nueva Vizcaya comprises 15 towns; Bayombong is the capital. Agriculture in both has until recently consisted of slash-and-burn cultivation of corn and maize, though more stable cultivation of vegetables and fruits are becoming established. They produce logs and are trying to manage their forest resources so that production can be sustained indefinitely. They have deposits of gold, silver, copper, iron. Nueva Vizcaya has sand and clay. The province of Isabela is the richest in Cagayan Valley. It was the Top 10 Richest Province in the Philippines in 2011, being the only province of Northern Luzon to be included in the list. Cagayan has much to offer visitors: beaches, swimming, snorkeling, skin-diving, and fishing in the river and the sea, hiking in primeval forest, mountain-climbing, archaeological sites, the remarkable collection of the provincial museum, the Callao Caves, and many fine churches. Even here there are fortifications built to protect the inhabitants from raids by the Mara. On January 11, 2008, the Cagayan Bureau of Fisheries and Aquatic Resources (BFAR) stated that tilapia (species of cichlid fishes from the tilapiine cichlid tribe) production grew and Cagayan Valley is now the Philippines tilapia capital (Saint Peters fish). Production supply grew 37.25% since 2003, with 14,000 metric tons (MT) in 2007. The recent aquaculture congress found that the growth of tilapia production was due to government interventions: provision of fast-growing species, accreditation of private hatcheries to ensure supply of quality fingerlings, establishment of demonstration farms, providing free fingerlings to newly constructed fishponds, and the dissemination of tilapia to Nueva Vizcaya (in Diadi town). Former cycling champion Lupo Alava is a multi-awarded tilapia raiser in Bagabag, Nueva Vizcaya

Objective of the Study. The general objective of this research it to satisfy the intellectual orgasm of the researchers which ought to be future political economists, by means of calculating and analyzing the percentage of income that is spent on goods and services or the Average Propensity to Consume (APC) and the portion of income that is saved rather than spent or the Average Propensity to Save (APS) of a particular region which is Region II using the data of year 2000, 2003, 2006 and 2009 at constant price 2000 that will help to determine our objectives.

Definition of Terms. Income - the sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure. Consumption- is the total value of goods and services that a household consumes in a given period. Saving - is the flow that affects the stock of wealth. Average Propensity to Consume or APC - refers to the percentage of income that is spent on goods and services rather than savings. Average Propensity to Save or APS - is an economic term that refers to the proportion of income that is saved rather than spent on goods and services. Family Income and Expenditure Survey or FIES - is a nationwide survey of households undertaken every three by the NSO. It is the main source of data on family income and expenditure, which include among others level of consumption by item of expenditure as well as source of income in cash and in kind.

Scope & Limitations. This research focus on the APS and APC of the household families that living in Region II and also we looked on how greater they spend and saved. We used the source coming from NSO as our primary data, on year 2000-2009.

CHAPTER 2 RESEARCH METHODOLOGY We used the descriptive method and analysis to achieve the objectives of the study. This method is designed for the researcher to describe and evaluate the family income, consumption, expenditure and saving from the archives of FIES on National Statistics Office Website. This method also seeks to describe and determine the sources of data which in this study is a region particularly Region II (Cagayan Valley) which in this study were the Average Propensity to Consume (APC) and Average Propensity to Save (APS).

DATA GATHERING

The data gathered were secondary data; we used the Family Income and Expenditure Survey (FIES) from National Statistics Office because of its validity and reliability. FIES is a nationwide survey conducted every three years which aims to gather data on family income and family living expenditure and related information affecting income and expenditure levels and patterns in the Philippines. Since the study is limited to Region II (Cagayan Valley) only, we used the table of Total Income, Expenditure and Savings of Families by Region and At Constant 2000 Prices for best measurement. A copy of the data gathered is presented below:

Total Family Income and Expenditures at 2000 Prices, by Region: 2000 and 2003 (in Billion Pesos) ========================================================================= Expenditures | Income ------------------------------------------------Region 2000 | 2003 | 2000 | 2003 ------------------------------------------------Total | Total | Total | Total ------------------------------------------------------------------------Philippines National Capital Region Cordillera Administrative Region 1,791,133 534,561 30,351 1,791,275 436,552 30,548 2,187,250 657,268 38,404 2,141,696 533,589 36,765

I - Ilocos

77,324

79,454

97,628

96,249

II

- Cagayan Valley

50,240
185,505 268,005 35,721 74,064 114,756 92,426 53,116 38,465 57,326 65,462 53,168 29,477 31,165

51,945
224,122 300,960 37,301 78,769 108,911 103,342 56,630 40,180 59,134 71,884 54,054 28,994 29,542

61,445
233,724 319,975 44,470 85,693 132,806 109,981 67,432 47,913 74,688 78,107 66,759 33,324 37,633

66,188
259,500 350,480 45,804 91,162 124,162 123,131 69,123 49,747 70,772 84,512 72,007 33,370 36,468

III - Central Luzon IVA - Calabarzon IVB - Mimaropa V - Bicol VI - Western Visayas VII - Central Visayas VIII - Eastern Visayas IX Zamboanga Peninsula X - Northern Mindanao XI - Davao XII - Soccsksargen 2 XIII - Caraga Autonomous Region in Muslim Mindanao 3

-------------------------------------------------------------------------Source: 2003 Family Income and Expenditure Survey Final Results, National Statistics Office. Page last updated: September 14, 2007

Formula and Variables

Variables: Y - Personal Disposable Income C - Personal Consumption Expenditure S - Personal Saving APC - Average Propensity to Consume APS - Average Propensity to Save

Formulas: For Personal Disposable Income: Y = C+S For Personal Consumption Expenditure: C = Y-S For Personal Savings: S = Y-C For Average Propensity to Consume: APC = For Average Propensity to Save APS =

Since Y=C + S, + = 1, hence APC + APS = 1

From these Formulas, the researchers can determine the Average Propensity to Consume and the Average Propensity to save.

CHAPTER 3 PRESENTATION, ANALYSIS AND PRESENTATION OF DATA

Table 1. Total Income, Expenditure and Savings of Families of Region II (Cagayan Valley) Annual 2000 to 2009. At Constant 2000 Prices Unit: In Billion Pesos

CONSUMPTION SCHEDULE

YEAR 2000 2003 2006 2009

Y 61 66 67 75

C 50 52 55 58

APC 0.82 0.79 0.82 0.77

S 11 14 12 17

APS 0.18 0.21 0.18 0.23

Table 1: The Cagayan Valley Region: in year 2000, 82 % of their total income goes to consumption and the remaining 16% goes to savings. In year 2003, their consumption decreases by 3% and savings increases by 3% that is why 79% was consumed and 21% was saved. In year 2006, the regions consumption goes up by 3% and their saving decreases by 3% and their consumption and saving is the same as year 2000. In year 2009, the regions consumption again decreases by 5% - from 82% to 77% and their savings increases by 5% from 18% to 23%.

Year 2000
Savings (S) Consumption (C) 18% of income goes to savings

Year 2003
Savings (S) Consumption (C) 21% of income goes to savings

88% of the Total Income goes to Consum ption

79% of the Total Income goes to Consum ption

Year 2006
Savings (S) Consumption (C) 18% of income goes to savings

Year 2009
Savings (S) Consumption (C) 23% of income goes to savings

88% of the Total Income goes to Consump tion

77% of the Total Income goes to Consump tion

Table 2
Y,C,S 80 75 70 66 60 50 40 30 20 17 14 10 0 2000 2003 2006 2009 YEAR 11 12 61 58 55 50 52 Family Disposable Income Consumption Expenditure Personal Savings 67

Table 2. From year 2000 to 2009, the total income of families of Region II increases by approximately 14 billion and from year2006 to 2009 it reaches its highest income rate. In terms of Consumption, from year 2000 to 2009 the regions total consumption increase by approximately 8 billion and from year 2006 to 2009 it reaches its highest consumption rate. From year 2000 to 2003, the personal savings of the families of Region II increases by approximately 3 billion and decreases by approximately 2 billion from 2003 to 2006 but increase by almost 5 billion in 2006-2009.

Table 3
APC,APS 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2000 2003 2006 2009 YEAR 0.21 0.18 0.18 0.23 Average Propensity to Consume Average Propensity to Save 0.82 0.79 0.82 0.77

Table 3. Base on the graph, in the years 2000 and 2009 takes place the highest percentage rate of consumption of 82% but lowest percentage rate of saving from their total income of 18% while year 2009 has the lowest percentage rate of consumption of 77% but highest percentage rate of savings of 23 %.

IV. CONCLUSION

After interpreting and analyzing the data the following conclusions are drawn out: 1.) From year 2000 to year 2009 at constant 2000 prices, 77% to 82 % of total personal disposable income of the household families in Region II goes to consumption and 11% to 16% of their total personal disposable income goes to savings meaning as the consumption increases the savings decreases. 2.) We can determine the behavior of household families of Region 2 (Cagayan Valley) on how their personal disposable income affects their personal consumption and personal savings through the use of average propensity to consume and average propensity to save. 3.) Even the family disposable income and consumption expenditure increases their personal savings are not constantly or gradually increasing because the increase in income and consumption are not proportion to each other. 4.) The data about the household families of region 2 shows that not all income are consumed but instead saved. 5.) In the years 2000 and 2006 has the same Average Propensity to Consume and Average Propensity to Save but differ in personal disposable income, consumption expenditure and personal saving by 1% meaning if the interval in change of income and consumption is closely the same the result will be same Average Propensity to Consume and Average Propensity to Save.

V. BIBLIOGRAPHY Ericta, Carmelita N.. "Total Income, Expenditure and Savings of Families By Region:2006 and 2009." National Statistics Office. Press Release, n.d. Web. 22 Aug 2013. <http:// www.census.gov.ph/old/ data/sectordata/2009/ iefr09tab2b.pdf>. http://en.wikipedia.org/wiki/Cagayan_Valley Investopedia contributors."Terms".Dictionary.August 2013.Web.<http://www.investopedia.com/Terms.asp>. Pascua, Melissa C. Philippine Government. National Statistical Coordination Board. Some Notes om the Questions Asked in the Family Income and Expenditure Survey (FIES). Technical Notes, 2003. Web. <http:// www.nscb.gov.ph/ technotes/poverty/partii/ annex5_2.asp>. Philippine Government.National Statistical Coordination Board.Family Income.Web.<http://www.nscb.gov.ph/secstat/d_income.asp> Philippine Government. National Statistics Office. Family Income and Expenditure Survey (FIES). 2011. Web. <http:// www.census.gov.ph/ content/family-income- and-expendituresurvey- fies>. Statistics Office conducts the 2012 Family Income and Expenditure Survey. Press Release, 2012. Web. <http://www.nscb.gov.ph/ pressreleases/2012/ PR-201207_PP1_08.fies.asp>.