Labor, Credit, and Markets: Evidence from the Philippines, 1970-2016

We use panel data on rice farmers in the Central Luzon provinces of the Philippines between 1970 and 2016 to test for market completeness, following Benjamin (1992) and LaFave and Thomas (2016). We find that markets in this context are incomplete. This suggests that households rely on labor endowments for their labor demand decisions, rather than solely relying on their production technology to make production decisions. Previously, the recursion test has only been used to identify the existence of market completeness in general; however we show that it can be used to identify one market becoming complete over time. We apply the Benjamin (1992) test to investigate if credit constraints from land reform laws made credit markets incomplete. However, we do not find evidence that credit constraints from land reform laws made credit markets incomplete.

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