This is a repost from the site, http://www.bworldonline.com/Research/populareconomics.php?id=0113 ,I found it informative for my readers,students to know about this research findings. June 19, 2009 | Manila, Philippines
Popular Economics
BY ALRIA M. VENTANILLA, Senior Researcher
What hampers the Philippines’ growth
THE PHILIPPINES’ poor growth performance is expected to continue in the long run with the existence of deep constraints in its system, according to a Philippine Institute for Development Studies (PIDS) research paper.
A country’s economic growth is measured by gross domestic product (GDP) or the sum of goods and services produced locally in a year. In 2007, the Philippines recorded a remarkable 7.1% annual GDP growth while the following year the country expanded at a slower rate of 3.8%.
In the first quarter of 2009, meanwhile, the country’s GDP grew at a slower pace of 0.4% while seasonally-adjusted GDP slipped by 2.3% from a meager 0.3% the previous quarter. This indicated that the economy is on the verge of entering into a recession should another contraction happen in the succeeding quarters.
But while the country has better economic fundamentals and has been showing signs of resiliency amidst the current crisis it is still in the mediocre growth levels as such growth in the long-term continues to be bleak. The country’s economic performance still lags behind that of its neighbors and is still far from regaining its historical high levels of per capita output as well as rapid growth experienced in the 1950s.
PIDS senior research fellow and economist Roehlano M. Briones in the research paper entitled "Asia’s Underachiever: Deep Constraints in Philippine Economic Growth" synthesized culture, corruption and institutions which are believed to be the deep constraints that limit the expansion of the country.
Pundits say the Philippines’ under-achievement is rooted in culture and that the country’s growth is weighed down by the following factors: myopic child-bearing or the Filipinos’ inability to plan family size and properly caring for additional children; a deep sense of national shame than pride; and loyalty to narrow social groups based on kinship and ethnicity; as well as weak individual and social restraints on behavior that imposes negative externalities.
Filipinos’ inability to follow through a task to completion or perfection (puede na); disregard for consequences of one’s actions (bahala na), prioritization of consumption over savings or investment (which can be referred as fiesta mentality) adds to the list of cultural failings, among others.
But, Mr. Briones said there is no empirical data available that support the notion that culture is a factor that is inimical to economic progress rather, these traits are minor irritants.
While a lot of studies and surveys on the relation of economic growth and corruption exist, links have been found to be weak and ambiguous at best, he said. The PIDS senior research fellow cited Jakob Svensson’s study, Eight Questions about Corruption, which found that some corruption indicators, such as those produced by private risk assessment firms and the corruption perception index of Transparency International, are inconclusive.
“The explanation may be (taking cue from the equivocal theory) that corruption takes many forms, and not all types of corruption are equally harmful to growth,” Mr. Briones said.
Even the World Bank’s "Doing Business" survey reports show that relative to all countries, the Philippines failed seriously only with respect to informal payments to get things done, which is still much better off than its neighboring countries, Mr. Briones noted.
More empirical studies point to the relationship of institutions and long-term growth thus the strength of institutions will determine the growth path of a country.
Mr. Briones described capitalism in the Philippines as rent-seeking than profit-seeking and identified booty capitalism existing in almost all sectors.
In economics, rent-seeking occurs when an individual seeks to obtain benefits from favorable government decisions while booty capitalism exists when the economy is dominated by powerful business groups who finance electoral exercises and use politicians and the machinery of government to further their economic interests.
"This machinery survives up to now, despite differences in identity of some key players," Mr. Briones said. "In capital-intensive sectors, corporate conglomerates are able to limit competition and monopolize cheap credit through policy influence and ownership of the major banks. Big chunks of nontradable sector are dominated by oligopolies, often perpetuated by regulations.
"Despite these structural constraints, the economy is able to grow because of the noncapital-intensive competitive sectors namely consumer electronics, telecommunications, the financial sector, private services such as business process outsourcing and tourism."
The economist said decades of bad policy — which included the pursuit of import substitution industrialization at the expense of an agriculture-led, outward-looking strategy — is also a big contributor to the growth malaise. Moreover, policies that went from bad to worst under the shift to authoritarian rule further dragged the growth of the economy.
The country gained little benefit on the policies previously implemented due to tight financial conditions; inadequate infrastructure for transport and electricity distribution; weak investor confidence due to political instability and market failures that restrict the size of the manufacturing base.
To raise the country’s growth trajectory, Mr. Briones prescribed a sustained policy reform; less hand-wringing over Filipino culture and corruption, and for the government to have focused and sustained development of functional capitalistic institutions.
Source:
— "Asia’s Under achiever: Deep Constraints in Philippine Economic Growth," by Roehlano M. Briones, Philippine Institute for Development Studies Working Paper no. 2009-02, January 2009.
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