ANALYZING THE LONG-RUN AND SHORT-RUN DYNAMICS BETWEEN FOOD PRODUCTION AND LABOR FORCE PARTICIPATION: A VECM APPROACH

Abstract

This research examines the long-run and short-run relationship between the Food Production Index and the Labor Force Participation Rate for the Philippines through the Vector Error Correction Model (VECM). Informed by the Lewis dual-sector model, the study assesses how changes in agriculture productivity affect labor market activity. Spanning 1990 to 2021, the data is subjected to stationarity and cointegration tests, affirming a stable long-run relationship and significant short-run interactions between the two variables. VECM findings show that labor force participation has significant effects on food production in the short term, whereas food production also has a positive effect on labor participation. Error correction terms confirm the strong tendency for both variables to revert towards long-run equilibrium following short-run shocks. Diagnostic tests confirm adequacy of the model, although non-normality of LFPR residuals calls for careful interpretation. Forecast Error Variance Decomposition (FEVD) reveals limited cross-variable shock transmission, reflecting poor short-run interdependence. The results provide empirical evidence for integrated agricultural and labor policy measures, consistent with the Philippine Development Plan 2023–2028 and Sustainable Development Goals on food security and decent work.