Informality and production linkages in the Philippines: evidence from an input–output analysis

Informal economic activities account for a large share of employment in the Philippines, yet their contribution to the production system is not fully captured in standard economic measures. This study uses an economy-wide input–output model, disaggregated into formal and informal activities. It estimates how changes in demand affect total output, household income, and production linkages across formal and informal activities. Results show that informality is concentrated in agriculture and key service sectors, while industry sector remains predominantly formal. Despite smaller transaction volumes, informal activities are more strongly connected to domestic supply chains than their formal counterparts, both upstream as input buyers and downstream as suppliers. Informal activities also generate larger household income gains when local demand expands. These findings suggest that policies addressing informality should promote improvements in productivity and fairer market integration of informal producers into domestic production networks, as regulatory constraints may dampen multipliers and income gains.