Ekonomista: Philippines’ Wealthiest City

A few days ago, a news article was published by Manila Bulletin identifying Baguio City as the top wealthiest city outside Metro Manila. This was based on the latest press release of the Philippine Statistics Office on the first-ever Provincial Product Account, compiling the Gross Domestic Product (GDP) at the subnational level.

This Special Release highlights the economic performance of 16 areas, which includes 82 provinces and 17 highly urbanized cities in terms of their GDP per capita.

Many of my friends from Baguio were happy to be residents of the wealthiest city (outside NCR), but most of them really just read the headlines and do not really understand the basis for this.

The basis for this ranking is the 2022 per capita GDP at 2018 constant prices. It is important to note the significant aspects of this measure. First, the Gross Domestic Product (GDP) for these areas. The term used by the PSA is Provincial Product Accounts (PPA). 

The second aspect of the per capita GDP at 2018 constant prices is inflation rate. The effect of inflation was removed so it cancels out price changes between years so that comparing figures can be more accurate. 

The third aspect of the measure is the population. In order to get per capita GDP, we need to divide the GDP by the population. 

GDP may be measured in three ways: by expenditures, by income and by output. When we say expenditures, these are the aggregate amounts of spending of consumers, business firms, the government and net exports, while for the income approach, we get the total of all income from the use of the factors of production like land (in the form of rent), labor (in the form of wages), capital (in the form of interest), and the entrepreneur (in the form of profit).

For this particular information, GDP of these areas are based on the total output of the different sectors of the economy, to wit: primary, secondary and tertiary sectors. These sectors include agriculture, forestry and fishing, mining and quarrying, manufacturing, electricity, steam, water and waste management, construction, wholesale and retail trade, repair of vehicles, and transportation and storage. 

Accommodation and food service activities, information and communication, financial and insurance activities, real estate and ownership of dwellings, professional and business services, public administration and defense, education, human health and social work, and other services are also included in the aggregation.

Note, however, that whichever approach that is used to compute the GDP, income, expenditure or output approach, the results will be the same.

With these in mind, we now analyze how Baguio City could be the wealthiest city based on the per capita GDP. The real GDP of Baguio could be relatively high, meaning that the output of the industries within Baguio, the aggregate income or expenditures of households, business firms, and government is bigger compared to other areas. 

However, this is not the case. Baguio City’s GDP is P155,026,121.19. If we compare it with that of Cebu’s which is P288,644,391.93 and that of Davao’s which is P495,313,798.61, Baguio’s GDP is way much lower. Cagayan de Oro, which is in second place only registered P3,059,520.71, while Lapu-Lapu in third place raked in P151,423,106.95.

So the more important factor in determining the per capita GDP is the divisor, which is the population. The per capita GDP would be higher if the population is lower. Baguio City’s population is 385,366. It is relatively lower than the population of Cebu and Davao, which are about 1,000,000 and 1,900,000, respectively. Their population are much higher compared to that of Baguio that is why their per capita GDP is much lower.

So, basically, Baguio City has a higher per capita GDP, and thus considered as the wealthiest city outside NCR because it has a lower population compared to the other areas.

But why is per capita GDP used to measure wealth of a certain place? 

Basically, per capita GDP is used to evaluate the standard of living and quality of life of the population. Standard of living pertains to the degree to which a person can afford necessities, comfort and luxuries, while quality of life is a measure of happiness that is an essential component to financial decisions.

With this in mind, I could say that the standard of living and quality of life in our beloved Baguio City is much better than anywhere else. I am biased, of course, because I was born and raised in Baguio, but then again, as someone who has a good understanding of economics, I could say that Baguio City could very well be the happiest place in the Philippines, if only PSA did the Happiness Index on the subnational level as well.