BEST THESIS about TOBACCO

AN ANALYSIS OF FACTORS AFFECTING THE TOBACCO PRODUCTION IN PHILIPPINES,

1995-2010

A Thesis Proposal

Presented to the Faculty of the Department of Economics

College of Economics, Finance and Politics

Polytechnic University of the Philippines

Sta. Mesa, Manila

In Partial Fulfillment of the Requirements for the Subject

EC 250 Economic Research and Report Writing

by:

Akira M. Imaoku

Niña Zarah Z. Lomio

Jamie Janine M. Rariza

August 2011

RECOMMENDATION AND APPROVAL FOR READERS EVALUATION

This thesis proposal entitled

FACTORS AFFECTING THE TOBACCO PRODUCTION IN PHILIPPINES, 1995-2010

Prepared and submitted by

Akira M. Imaoku Niña Zarah Z. Lomio


In partial fulfillment of the requirements for the subject

EC250 Economic Research and Report Writing

has been examined and is recommended for

acceptance and approval for Readers’ Evaluation.

Prof. ANTONIUS C. UMALI

Adviser

Approved for Readers’ Evaluation:

Prof. NORIE M. LOLONG

Chairperson

Department of Economics

WAIVER

Relevant portions of this thesis maybe quoted and used for research and scholarly purposes

provided proper citation is made.

Akira M. Imaoku

Niña Zarah Z. Lomio


CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

One of the main sources of living in the Philippines is Tobacco. It is also known as a

“unique” plant for several reasons. First, it has penetrated the economic and political systems

in the country so as to warrant policy considerations as well as legislative interventions through

the years. Second, among the non-food crops, tobacco is the most widely grown commercially,

thus, contributing a sizable amount to the economy. Third, it has spurred wide scale

controversy about its use which, nevertheless, has not decreased but rather has steadily

increased despite the warning that consuming it in any form is dangerous to one`s health

(National Tobacco Administration).

Tobacco is one of the top six major non-food and industrial crops in the Philippines. It is

basically a crop of the Ilocanos. The major producing provinces were Ilocos Sur, Pangasinan and

La Union with contribution to the total production of 27 %, 21 % and 20 %, respectively. Other

top producing provinces were Isabela with 13 % share and Ilocos Norte with 6% share.

Production in Ilocos Region accounted for 94% of the national tobacco production.

In 2008, about 42 million kilos were produced in the country, according to the National

Tobacco Administration, and 55 million kilos in 2009. The tobacco industry is generating

revenue for the government amounting to an average of P30 billion every year which is used to

fund economic, infrastructure, education, health and social welfare programs all the over

country.

Tobacco in the Philippines experienced a decline in volume sales over the review period

in 2009 as the effects of the global economic recession became more apparent in Philippines.

But for four decades now, tobacco continues to dominate the agricultural, economic, social and

political life in the region’s growing it.

Production of tobacco of all varieties increased by 1.47 percent or by 157 metric tons in

January-March 2011 compared to the same period in 2010. Virginia tobacco production was up

by 1.78 percent or 183 metric tons. Yellow corn, mongo and garlic farmers in Ilocos Sur and

Ilocos Norte shifted to tobacco because of high price, thus, increasing the production area in

Ilocos Region. Harvest of other tobacco varieties, mostly Burley tobacco, increased by 7.33

percent. Only Native tobacco posted a negative growth of 14.62 percent due to late planting in

La Union and Iloilo as a result of the dry spell last year (Bureau of Agricultural Statistics,

MNF&IC 1stQ2011).

The tobacco industry also provides an income and sustenance of about 2.7 million

Filipinos including at least 500,000 tobacco farmers and their family.

Background of the Study

This study will intend not just to deal with the issue on imposing tax on the tobacco but

also on the other factors affecting the production of the tobacco. Researchers also want to see

if what are the effects on this industry as the government banned the use of cigarette.

Tobacco and tobacco products, however, are produced, traded and consumed legally, as

all other products, and their production and trade is subject to the same rules and regulations

as all other products. Thus, although many countries take active measures to reduce smoking

and other tobacco use as a policy for reducing tobacco-related social costs, economies of other

countries have to depend heavily on tobacco growing and tobacco-related manufacturing for

employment and income.

One of the basic problems of most developing countries like the Philippines in

production of tobacco is the globally banned use of tobacco. Government imposed the ban of

tobacco due to the health problem caused by smoking. Despite of this problem many farmers

dependent on tobacco industry continue to plant tobacco. Specially, smoking is not the only

used of tobacco there are many purposes and benefits that everyone can surprisingly get from

there, like, medicinal and veterinary product, foods and feeds product, and wood, pulp and

fiber product. Moreover the taxes impose to tobacco which greatly contributes to fund the

economy.

With this paper the researchers would hopefully give valuable information regarding the

importance of the tobacco production in the economy and also the impact of different factors

that might influenced it.

Theoretical Framework

This study will show the effects of Excise Tax (TX), Farm gate Prices (FGP) and the No. of

Farmers (NoF) in the Local Tobacco Production (LTPROD) of the given industry. The theory is

present to support the impact between the given variables.

According to Law of supply, all other factors being equal, as the price of a good or

service increases, the quantity of goods or services offered by supplier’s increases and vice

versa. In short, it states that ceteris paribus sellers supply more goods at a higher price than

they are willing at a lower price. This makes sense intuitively since firms would likely be more

willing to sell more of a good for more money rather than less of it. Supply responds to changes

in prices differently for different goods, depending on their elasticity or inelasticity. Goods are

elastic when a modest change in price leads to a large change in the quantity supplied. In

contrast, goods are inelastic when a change in price leads to relatively no response to the

quantity supplied.

The supply of a commodity is the amount of commodity a producer is willing to put in

the market at a given time at a given price. The factors affecting supply are:

Price of the commodity- the more the price of the commodity, the more the supply and

less the price of the commodity, less the supply.

Price of factors of production (e.g. land, labor) – the more prices of factors of production

results in less profit for the producer therefore reduced supply.

Price of related goods - If a producer sees more profit in another good, and if the

producer is easily able to switch, it will start making the other good, thereby reducing

the supply for the good in question.

o Eg: If a farmer is currently growing wheat and he calculates more profit in

growing barley, next year he will plant barley, thereby reducing supply of wheat.

Technology- Better technology allows for more efficient use of factors of productions

Environmental: Weather/Natural Disasters

Subsidies: If government decides to subsidize a good, there will be more profit for

producer. (Opposite of Tax)

Indirect Taxes: If the government increases the taxes that it takes from producers, there

will be reduced profit therefore less supply.

Conceptual Framework

In conducting this study, the researchers have to retain the relationship between the

independent variables and its dependent variable.

From the conceptual viewpoint, tobacco productions are affected by the behavior of

Farm gate Prices, Tax imposes on tobacco, and the Number of Farmers in tobacco industry of

the Philippines.

The relationship of Farm gate Prices also with the Tax imposes on the tobacco to the

Production of tobacco is negative, because this factors really affect the production of the

tobacco. As the price of the tobacco increases, the production decreases. It’s because other

factor are influencing the production like the government intervention or in other word, the

imposing of tax. Because of the intervening tax, the price of tobacco increases so the effect is

for the industry to lessen their production. Other factors to be considered are the laws or policy

implemented against the use of tobacco products most especially the cigarette.

On the other hand, number of farmers has a positive relationship to the production of

tobacco. The more the farmers in the industry, the higher production of tobacco.

Taken collectively, the above relationship maybe summarized in single formulated

statement in which:

(-) (+) (+)

LTPROD= f (FGP, TX, NoF)

Where:

LTPROD= Local Tobacco Production (Million Pcs.)

FGP= Farm gate Prices (

TX= Tax imposes on tobacco ()

NoF= Number of Farmers ()

This serves as the unified model for this study. The algebraic sign, step each of the

explanatory variable indicates the factors affecting the Local Tobacco Production, 1999-2009.

Figure 1

THE PARADIGM OF THE TOBACCO PRODUCTION IN THE PHILIPPINES

INPUT

Farm gate

Prices

Tax imposes on

Tobacco

Number of

farmers

Process

Multiple

Regression

Analysis

OUTPUT

Tobacco

Production in

the Philippines

Statement of the Problem

General Problem

Generally, this study attempts to determine the factors affecting the tobacco production

from 1995-2010. Specifically, this study sought to answer the following questions:

1. What has been the behavior of the following from 1995-2010?

1.1 Numbers of farmers

1.2 Farm gate Prices

1.3 Tax

2. Is there a significant impact on the tobacco production if these factors are taken

collectively?

3. Is there a significant relationship between tobacco production and each of the following

variables?



3.3 Tax

4. Is tobacco production significantly affected by the following?



4.3 Tax

5. Is tobacco production a stable function of the following?



5.3 Tax

6. Is the economic model employed in this paper correctly?

General Objectives

The main objective of this paper is to provide an Analysis on the Production of Tobacco

in the Philippines at the given range of 1995-2010. Tobacco production, number of farmers

employed in tobacco industry, farm gate prices on tobacco, and tax imposed to tobacco will be

use as the explanatory variables in the study. In addition, the study also wants to show the

effects of these variables to the production of tobacco in our country on the past 10 years.

Specific Objectives

Specifically, this research study aims to attain the following objectives:

1. To know the behavior of the Tobacco production and its explanatory variables: number

of farmers, Farm gate Prices and tax.

2. To determine the significant impact of the following variables: number of farmers, Farm

gate Prices and tax if taken collectively in the local tobacco production.

3. To describe the significant relationship between Tobacco production and each of its

explanatory variables: number of farmers, Farm gate Prices and tax.

4. To know the significant effect of number of farmers, Farm gate Prices and tax to tobacco

production.

5. To know if the tobacco production is a stable function of number of farmers, Farm gate

Prices and tax.

6. To show that economic model is employed to this paper correctly.

Hypothesis

The null hypotheses to be tested are:

1. The number of farmers, Farm gate Prices and tax has no significant impact if taken

collectively on the local tobacco production.

2. The following variables are not significantly related to tobacco production.



2.3 Tax

3. Each of the following variables does not have significantly affected by the production of

tobacco.

3.1 Number of farmers


3.3 Tax

4. Tobacco production is a not stable function of the following variables:

4.1 Number of farmers


4.3 Tax

5. The economic model employed in this paper is not correctly employed.

Significance of the study

This study could be significant to the government officials both local and national, the

National Tobacco Administration, the policy makers, and the tobacco farmers whose interest

are to improve and focused towards the development of tobacco industry and also the

consumers who makes the industry works.

The contribution of this study to the LGU`s for them to encourage foreign as well local

investors to engage in the different aspects of the industry, both for tobacco manufacturers

and other usages of tobacco. These may be the bases of the creation of government programs

to meet the needs of the people who depend much on this industry.

To the National Tobacco Administration, as a implementing agency of the different

programs and projects towards the development of the tobacco industry, this will serve as their

basis in planning, revising and or refocusing of their strategies and available resources, towards

the effective and efficient program implementation in order to facilitate the achievement of its

mandate, that is to alleviate the living condition of the tobacco farmers and other sectors which

are dependent on the tobacco industry.

The study could also help the beneficiaries or participants determine their strength and

weaknesses towards the success of the program and can be used as aids to national policy

makers particularly in the quantitative appraisal of tobacco production.

Moreover, knowledge of important factors affecting the volume of tobacco production may

also have some effects on the decision-making of farmers, dealers, manufacturers, and

consumers in their economic adjustments along with the predicted production. Also, the

information obtain in this study can be used in developing a viable package of technology for

tobacco production.

This study will also serve as guidelines to the academe and other readers for this may give

them insights about the Production of Tobacco in the Philippines and its importance to the

economy as well. Finally, for the future researchers, this study may help them analyze the

contribution of Tobacco Production in the Philippines and will serve as a guide for them to have

a better research in the future. Future researchers may gather more data and related studies in

line with the said industry as well.

Scopes and Limitations

The study will examine the tobacco production in the Philippines in year 1995-2010 with

the annual data using statistical and descriptive procedure. Specifically, graphical and tabular

presentations are employing for the descriptive and the use of multiple regressions for the

statistical part.

This paper will use tobacco production as dependent variable; Excise Tax, Farm gate

Prices, and No. of Farmers are used as Independent Variables.

Findings of the study will therefore, be true for the subjects concerned and for the given

period of time, although these could be used as basis for similar studies that would be

conducted through the production of tobacco.

Definition of Terms

For better understanding and interpretation of this study, the following terms are

operationally defined.

Farm gate prices- prices received by farmers and livestock raisers for the sale of their

produce at the first point of sale, net of freight costs (Bureau of Agricultural Statistics).

National Tobacco Administration (NTA) - designed as the definitive government body

that will handle anything and everything that has to do with the Philippine tobacco industry,

especially in ensuring its growth and development.

Tax- tax imposes to tobacco production which gives a big revenue to government to

fund different economic needs such infrastructure, education, health and social welfare.

Tobacco- the leaves of the plant prepared not only for smoking, chewing, but also use as

organic pesticides, medicines and etc., by being dried, cured, and manufactured in various

ways.

Tobacco industry - an industry that manufactures and sells products containing tobacco.

CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter contains local and foreign literature as well as local and foreign study. The

related literatures consist of books and articles, while the related studies include theses and

dissertations read which are closely related to the present study.

Foreign Literature

Tobacco production is the supply side of the economic supply-demand equation

Womach (2003). According to (Jacobs et al., 2000), the supply of tobacco is determined by the

price of tobacco and production costs of tobacco relative to its competing crops. Real prices of

tobacco have fallen in most countries, but much less rapidly than prices of other agricultural

crops and basic commodities. Tobacco is one of the most profitable crops in many countries.

In addition with Huff, a staff writer of Natural News it is difficult for tobacco farmers to

transition to other crops because of the unique equipment used in tobacco farming. Many

continue to produce it even though overall demand is in decline, which leaves many of them

with excess crop every year that ends up going to waste. So using it as an alternative to

harmful, chemical pesticides could not only turn the tobacco industry into a positive benefit on

society, but also save the livelihoods of the farmers that grow it.

Furthermore tobacco has long been used as a natural, organic pesticide, and it could be

the answer to the widespread use of outmoded, chemical pesticides that are destroying both

health and the planet (journal Industrial & Engineering Chemistry Research)

The above cited literature reveals that tobacco has many purposes. Cigarette smoking is

not the only use for tobacco and it will surprise many people to know that there are beneficial

uses for this plant.

However, taxation has been applied to cigarettes and other tobacco products in order to

promote health as well as raising revenue. Cigarettes and other tobacco products are taxed in a

variety of ways. The most commonly used methods of taxation include specific taxes, value

added and other ad valorem taxes, and import duties (Chaloupka et al., 2001).

With regards to this, the tax merely affects the tobacco industry. The tax has a negative

impact on the growth of tobacco production. Although tobacco use results in costs for

government, it also creates benefits through tax revenues. Because tobacco sales account for

important portions of government revenues, such benefits are often heavily weighted in

health-care policy decision-making.

Local Literature

Several government agencies are tasked to monitor and assess the Tobacco Production

in the Philippines. According to the report of National Tobacco Authority (2009), the tobacco

industry carries a lot of promise as it continues to flourish in spite of the country’s troublesome

economy. Report said that tobacco farmers have a bountiful harvest of quality tobacco leaves,

which together with the good price this year, brings a lot of hope to those who are dependent

in this industry.

Perhaps, one reason for the increase in harvest and sales of tobacco leaves this year is

that there were more farmers who planted the leaf in more areas of Northern Luzon, as noted

by National Tobacco Authority (NTA).

According to Teoxon (2010), Department Manager of the Corporate Planning

Department and officer-in-charge of the Industrial Research Department of NTA, the local

tobacco industry provides livelihood and sustenance to two million people including 600,000

tobacco farmers and families. It generates more than P30 billion in taxes annually, which help

government fund education, health, welfare, infrastructure and economic programs all over the

country.

Under Executive Order 245, the NTA is mandated to improve the economic and living

conditions of tobacco farmers and those who depend on the industry. It is also tasked to

promote the balanced and integrated growth of the tobacco industry to help make agriculture a

solid basis for industrialization.

Another report from the President of the Philippine Aromatic Tobacco Dealers

Association – Uy (2010), on the other says while the NTA is looking for alternative crops for

tobacco farmers, its research found the produce or earnings from one hectare of tobacco is

equivalent to three hectares planted to rice or corn.

In the last three years, Philippines exported an average annual volume of 8.967 million

kilos of tobacco valued at US$31.994 million, which is consists of manufactured tobacco

averaging 2.906 million kilos and unmanufactured tobacco averaging 7.029 million kilos.

For the same period, the country's average annual importation of tobacco was 81.079

million kilos valued at US$299.507 million. In 2008, about 42 million kilos were produced in the

country, according to the National Tobacco Administration, and 55 million kilos in 2009.

Furthermore as Uy cited, the Philippine Virginia tobacco has become good value in

today's market conditions. Its development over recent years has shown a lot of promise. The

lower-middle stalks are definitely showing improvement in quality, and the upper stalks are

unique, so price is now a critical factor.

According to Tan, President of Continental Leaf Tobacco Philippines (2009), we have

seen a tremendous increase in the price farmers are paying for fertilizer and other inputs,

depending on the type of tobacco they are growing. Some farmers may elect to cut back on

fertilizer use, and this could lead to a reduction of quality and quantity of tobacco.

The above – cited literature reveals the share of tobacco production in the agriculture. It

also shows some way on how farmers and prices affect the growth of the production of

tobacco. The researchers focused their attention only on the tobacco industry because of the

above – cited literature.

Foreign Studies

In the study of Konishi (2003), it looked at tobacco as one of a number of existing

economic sectors with potential for private-sector led economic growth in Cambodia. The 2003

value chain analysis identifies administrative and market barriers hindering the competitiveness

of the tobacco industry, despite the existence of an integrated supply chain. The study states

that 50,000 jobs can be linked to tobacco; it does not specify whether this figure represents

Part-Time or Full Time Equivalents (FTE), nor their source or method of calculation.

The research made by Sarntisart (2003), it assessed the contribution to employment

made by the tobacco sector in Thailand. It states that tobacco as a source of employment has

been decreasing continuously and that tobacco employment is a very small fraction of total

manufacturing employment. The number of Thai tobacco farmers decreased from prior higher

levels to 150,000 in 1992-93 and subsequently ranged from nearly 115,000 in 1997-1998 to

about 94,500 in 1999-2000. However, employment in the tobacco import trade increased in

that period.

In the Study of Keyser (2005), he provides an extensive analysis of the tobacco value

chain in Indonesia, as compared with alternate crops, both in terms of costs and potential

returns. The study finds that chili, potatoes, nilam, and oranges offer potential for similar or

better net profits and rates of return than tobacco, but that markets are not as developed for

these alternate crops.

Marks (2003) focused primarily on the goal of maximization of cigarette excise tax

revenue in Indonesia. However, it also considered other policy goals such as employment

generation, promotion of small enterprise, promotion of public health, and tobacco tax policy.

The study estimated that, if revenue maximization were pursued, a tobacco tax increase would

result in as many as 89,756 jobs lost, mostly in the SKT (kretek) manufacturing sector. The

author also calls the hand-rolled cigarette industry, “an industry in its senescence,” and

recommends against perpetuating such low wage and low productivity employment. The direct

employment consequences of an excise tax increase on employment in agriculture are minimal.

Clove and tobacco farmers typically have diverse crop holdings, and the possibilities for

alternative crops are numerous.

Local Studies

In the study of Austria (2008), the tobacco farming employment is declining; tobacco-

related manufacturing jobs are increasing, but at a much slower pace than increases in

manufacturing production volumes and the trend seemed to reverse in the mid-2000s. Overall,

the tobacco sector contributes less that 1% to total employment in the Philippines.

Moreover, Espino (2008) Philippine tobacco farmers surveyed continue to grow tobacco

because they have forty to fifty years of experience growing the crop, and they may not

necessarily conduct or rely on a cost-benefit analysis of tobacco growing as the basis for their

decision.

This study stated above had given information to the researchers that tobacco is one of

the sources of employment in many countries. Given that it has strong impact on farmer’s that

is on dependent in tobacco industry and to the economy as well.

Synthesis

CHAPTER III

RESEARCH METHODOLOGY

This chapter presents the research methodology and sources of data which will be use

in conducting this study. In addition, it also includes different statistical treatments to be

employed in the study.

Research Design

The present study will utilize the descriptive approach in analyzing the behavior of the

tobacco production and some of its explanatory variables such as: Number of Farmers, Farm

gate prices and Tax.

Moreover, regression analysis will be utilized as the procedure in the research design. It

is a technique used for the modeling and analysis of numerical data consisting of values of a

dependent variable and of one or more independent variables. The dependent variable in the

regression equation will be modeled as a function of the independent variable, corresponding,

parameters and an error term. The error term will be treated as a random variable which

represents unexplained variation in the dependent variable. The parameters will be estimated

so as to give a “best fit” of the data. Most commonly the best fit will be evaluated using the

least square method, but other criteria will also be used.

Sources of Data

Secondary annual time series data, covering years 1995-2010 will be gathered from

different government agency. More specifically, the data on Tobacco Production and Farm gate

prices will come from the Bureaus of Agricultural and Statistics while data on Number of

Farmers will be collected from National Tobacco Administration and data on Tax will be

collected from Bureau of Internal Revenue.

Statistical Treatment of Data

This study will assess the impact of Excise Tax, Farm gate prices, and No. of Farmers

from 1995-2010 using the multiple regression models that follows:

1. Measure of Correlation

The coefficient of correlation was used to determine if there exists a relationship

between Tobacco Production in the Philippines, Excise Tax, Farm gate prices, and

No. of Farmers. The formula would be:

where r2 indicates the proportion of the variation in the dependent variable

explained by the explanatory variable. And if the variable of r lies between the limit

of -1 and +1, then there is covariance between the variable, while if the value of r is -

1/+1 then there is linearity. And when the value of r is 0 then the 2 variables is said

to be independent (Gujarati, 2003).

2. Measure of Regression

This study will be estimating the impact of Excise Tax, Farm gate prices, and No.

of Farmers on Tobacco Production in the Philippines from the year 1995-2010, making

use of multiple regression models as follows:

The above model will be modifying to address the presence of first order serial

correlation.

In order to obtain the results which will be analyzing and interpreting to prove solution

to the problems and hypotheses presented in Chapter I, the researchers employed the

following statistical tests:

a. Test of the Individual Significance of the Regression

To be able to test the statistical significance of the parameter estimates, the t-test was

applied. It was given as:

)ˆ(

ˆ

2

22

seT

where the value of the estimated parameter is divided by its standard error to get the t-

statistic (Gujarati, 2003).We accept that β0, β1, β2, β3 are statistically significant if the value of

the t statistic exceeds the critical value of the t distribution at 5 percent level of significance

with n-k degrees of freedom.

b. Test of Overall Significance of the Regression

The overall significance of the regression was tested by getting the ratio of the

explained to the unexplained variance through the use of the F-statistic:

))(1(

)1/(2

2

knR

kRF

If the value of the F-statistics exceeded the critical value of the distribution at 5 percent

level of significance with k-1 and n-k degree of freedom, it can be inferred that not all of the

regression coefficients are not equal to zero and thus the regression estimate is significant and

the model is to be considered valid (Gujarati, 2003).

c. Test of Goodness of Fit

R2 being known as the coefficient of multiple determination is defined as the proportion

of the total variation in Y explained by the multiple regression of Tobacco Production and the

following variables: Excise Tax, Farm gate prices, and No. of Farmers. It is used to determine

how well the estimated regression fits the data.

2

22 1

y

eR

On the contrary, the adjusted coefficient of determination, R2, was used to penalize for

the reduction in degrees of freedom as the number of injected independent variables in the

regression increase.

kn

nRR

1)1(1 22

3. Test of Autocorrelation

The researchers make used of the Durbin-Watson statistic at a 5 percent level of

significance for 25 observations after adjustment and 3 independent variables to determine the

autocorrelation in the multiple regression models.

2

1

212

ˆ

)ˆˆ(

nt

t

ttnt

td

If the computed d statistic is greater than the critical upper limit of d but less than the

four minus the critical upper limit (i.e., du ‹ d ‹ 4-du) at 5 percent level of significance, there is no

significant evidence of positive or negative autocorrelation (Gujarati, 2003).

4. Test of Multicollinearity (Tolerance & Variance Inflating Factor)

This study made use of Tolerance and Variance Inflator Factor (VIF) estimated by,

Var(β) = (σ2/∑xj2) (1/1-Rj

2)

= (σ2/∑xj2) VIFj

Where Rj2 is the R2 the (auxillary) regression of X1 on the remaining (k-2) regressors, thus

if VIF of a variate exceeds 10, that variable is said to be highly collinear. The measure of

tolerance was also be used to detect multicollinearity. It is defined as

TOLj = 1-Rj2

If TOLj = 1, Xj is not correlated with the other regressors, whereas if it is zero, it is

perfectly related to the other regressors (Gujarati, 2003).

5. Test of Specific Error

Ramsey’s RESET was utilized to test if the model is correctly specified using the

formula:

model) in the parameters ofnumber /()1(

regressors new ofnumber /)(2

22

nR

RRF

new

oldnew

If the result that was obtained in the calculation of F-ratio is higher than the critical

value at a specified level of significance, there existed a specification error. On the other hand,

if the calculated F-ratio is smaller than the critical value, we concluded that there is no

specification error in the model used.

CHAPTER IV

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

OF STATISTICAL RESULTS

The preceding part of this chapter gives the presentation and discussion of the behavior

of the Tobacco Production, Number of Farmers, Farm gate prices and Excise Tax in the

Philippines from 1995 to 2010. The data drawn were presented in tables and graphs. Statistical

tests and estimates were done to draw inferences. The presentation and discussion follow the

sequence of the problem statement in Chapter I of this study.

Presentation and Analysis of Data

This part of the paper shows the presentation and the analysis of the data used in the

study.

1. Behavior of Tobacco Production in the Philippines, 1999 to 2009

Table 1.1

YEAR PRDUCTION GROWTH RATE

1999 51,692 --------------

2000 49,529 (4.184399907)

2001 48,173 (2.737789982)

2002 50,174 4.153779088

2003 52,903 5.439072029

2004 48,308 (8.685707805)

2005 45,093 (6.655212387)

2006 38,368 (14.91362296)

2007 34,289 (10.63125521)

2008 32,466 (5.316573828)

2009 36,383 12.06492946

Table 1.1 shows the Philippines tobacco production from 1999 t0 2009 together with its

growth rate. In year 1999 the production of tobacco produces 51,692, but on the following

year, it decreases to 49,529 a fluctuation by -4.18 percent due to factors affecting it. On the

succeeding year, the production again decreased by -2.73 percent equivalent to 48, 173. But in

year 2002, the production increases to 50,174 or a growth rate of 4.15 percent. Unlike on the

previous years, the production by year 2003 sustained a high production which is 52,903 a

growth rate of 5.43percent. But due to factors affecting the production of tobacco, again, on

year 2004 the production decreases by -8.68 or 48,308, on the following year, the production

continuously decreased by up to -6.65percent equivalently 45,093 but in the year 2006, the

highest percentage of a negative growth rate was reported because the production is just 38,

368 or -14 .91percent. The low production of the tobacco continues up to year 2008 by 32,466

or -5.31 percent. But in year 2009, the production increases to 36,383 or a growth rate of

12.06percent.

2. Behavior of Number of Farmers, 1999 to 2009.

YEAR No. Of Farmers GROWTH RATE

1999 62,739 -----------------------

2000 61,695 (1.664036724)

2001 60,899 (1.290218008)

2002 59,112 (2.934366738)

2003 61,252 3.620246312

2004 52,859 (13.70240972)

2005 46,616 (11.81066611)

2006 35,026 (24.86270808

2007 38,229 9.144635414

2008 38,610 0.996625598

2009 43,970 13.88241388

Table 1.2

We can see that the number of farmers for the year 1999 is a huge number for workers

or the farmers, but on the following year, the numbers of farmer’s decreases by -1.66 or 61,

695

3. Behavior of Excise Tax, 1999 to 2009

year TX Growth Rate

1999 16,530.75

2000 17,416.68 5.36

2001 19,352.15 11.11

2002 20,063.78 0.37

2003 19,971.95 -0.46

2004 23,061.63 15.47

2005 23,702.17 2.78

2006 26,808.23 13.1

2007 23,195.21 -13.48

2008 27,554.88 18.8

2009 24,229.80 -12.07

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