20 Balanay et al., Journal of International and Global Economic Studies, 7(1), June 2014, 20-31 Analyzing the Income Effects of Mining with Instrumental Variables for Poverty Reduction Implications in Caraga Region, Philippines Raquel M. Balanay 1 Jose M. Yorobe, Jr. 2 Sheila G. Reyes 3 Adrilene Mae J. Castaños 4 Ordem K. Maglente 5 Jocelyn B. Panduyos 6 and Charry C. Cuenca 7 Caraga State University, UPLB, College, ASSCAT, Caraga State University, Caraga State University, SDSSU, and Caraga State University ________________________________________________________________________________________________________ Abstract: The study has analyzed the income effects of mining in Caraga Region with the use of survey data and IV approach, so that inferences for poverty reduction would be drawn for the region. The IV approach used is a two-stage least squares (2SLS) estimation procedure where mining exposure has yielded a positive influence on income. Access to health facilities and potable water sources have proven to be good instruments for mining exposure through probit analysis and over-identification test. Age of the household head, loans, years in school and food and education expenditures are the covariates that have positive influence on income as well, which are associated with lifelong experience/learning and investments for the development of human resources and enterprises in the area. The findings of the study are suggestive of strengthening measures towards human capital buildup to catalyze sustainable development in the mining areas of Caraga Region. These measures when built around the economics of environmental protection provides a more advantageous optimization strategy for the mining benefits in Caraga Region, which may help institute responsible mining or “mining with a conscience.” The use of IV in this study is justified by the significance of endogeneity problem in the empirical analysis. Keywords: income effects, IV, probit, endogeneity, 2SLS, responsible mining JEL Classification: 1. Introduction Caraga Region is a mining destination in Northeastern Mindanao, Philippines. In 2009, the Mines and Geosciences Bureau (MGB) of the Department of Environment and Natural Resources (DENR) in the country had reported the iron ore deposit in the region as the biggest in the world and the nickel and gold deposits as the largest in the country. Besides this, copper, chromite and coal are among the rich deposits for mining in Caraga Region, with coal as the major lignite reserve in the Philippines located in three of the region’s four provinces – Agusan del Sur, Surigao del Norte and Surigao del Sur (Caraga Watch, 2009). Approved mineral production sharing agreements as of the latest record have reached a total of 51 in Caraga Region, which cover an area of 129,369.49 hectares (DENR-MGB-Caraga, 2014). In 2012, an estimate of US$ 12 million had been raised by the mining sector as royalty payment, which had benefited the local government units of the mining areas in the region (DENR-MGB-Caraga, 2013). With multi-million dollars earned continuously from ore exports from Caraga Region (DENR- MGB-Caraga, 2013), it can be posited that such mining benefit could have been translated into