Taking the Right Roadto Inclusive Growth
Industrial Upgrading and Sophistication in the Philippines
Norio Usui
Senior Country Economist, Philippines Country Office
The Wallace Business Forum2 August, 2012
What you need to know…
Presentation
I. Assessment
How can we assess the past growth and development pattern of the Philippine economy and its implications on inclusive growth?
II. Policy Options
What can we do to increase the potential growth rate to 7-8% and make growth more inclusive?
I. Assessment
GDP growth in the past 5 decades(annual average, %)
1960s 1970s 1980s 1990s 2000s0
1
2
3
4
5
6
7
4.9
5.9
1.7
2.9
4.8
Solid growth over the 2000s
Recent economic situationReturning to the potential growth rate?
PDP target: 7-8%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-4
-2
0
2
4
6
8
10
1.1
7.6
3.9
Potential growth (HP Filter) Actual growth
%
Let it be….
Let it be, let it beLet it be, let it beThere will be an answerLet it be
Let it be, let it beLet it be, let it beWhisper words of wisdomLet it be
A Policy Option
I don’t think so. Why?
Structural weaknesses
– Weak link between growth and development
– Rising growth and declining investment
– Limited diversification of exports
Long-term development puzzle
Growth and Structural Change The two sides of a coin
Growth
is not just more of the same
“A growth miracle sustained for a period of decades...must involve the continual introduction of new goods, not merely continual learning on a fixed set of goods”
(Robert Lucas)
Structural Change
is about the transformation of the economy by:
transferring resources from less productive activities to more productive ones
1. Diversifying production 2. Upgrading production3. Increasing labor productivity
INO MAL PHI THA0
20
40
60
80
100
50.1 49.4
26.3
48.3
38.5 43.5
66.6
43.2
11.4 7.2 7.1 8.6
Industry Services Agriculture
Your growth has depended more on services
% Contribution to GDP Growth: 1980-2008
0
1,500
3,000
4,500
6,000
7,500
0
2,500
5,000
7,500
10,000
12,500
Indonesia Philippines Thailand Malaysia Viet Nam
Economy-wide labor productivity1980-2009
Constant 2000 $
MAL(RHS)
THA
INO
PHI
VIE
Which sector is more productive in your economy?
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
2,000
4,000
6,000
8,000
10,000
12,000
Agriculture Industry Service Manufacturing
Where did your labor move?
0
2,000
4,000
6,000
8,000
10,000
12,000
Agriculture Industry Services Manufacturing
0
2,000
4,000
6,000
8,000
10,000
12,000
Agriculture Industry Services Manufacturing
0
10
20
30
40
50
60
70
80
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0
10
20
30
40
50
60
70
80
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Employment by sector
Labor productivity by sector
Decomposition of labor productivity growth1980 – 2009
Indonesia Malaysia Philippines Thailand-50
0
50
100
150
200
9.0-2.2 -10.7
8.4
61.054.0
-3.8
90.9
37.2 62.8
24.9
76.7
Agriculture Industry Services
Indonesia Malaysia Philippines Thailand-50
0
50
100
150
200
71.3
105.6
-1.8
77.8
35.8
9.0
12.2
98.2
Sectoral productivity growthStructural transfromation
Growing business process outsourcing
2004 2005 2006 2007 2008 20090
2,000
4,000
6,000
8,000
10,000
0
4
8
12
16
20
5,288
7,717
Contact Center
Transcription
Animation
Software Development
Other BPOs
% of total export of goods & services (RHS)
2004 2005 2006 2007 2008 20090
100,000
200,000
300,000
400,000
500,000
0.0
0.4
0.8
1.2
1.6
2.0
355,135
444,811
Contact Center Transcription
Animation Software Development
Other BPOs % of total labor force (RHS)
Export (million $) Employment (persons)
Further increasing population
0
10
20
30
40
50
60
70
80
90
100
26.0
94.9
23.7
38.7
Population, total Labor force, total
60s 70s 80s 90s 00s0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
3.15
2.872.73
2.29
1.89
2.70
2.26
Population Labor force
(million) (average annual %)
Country
Capabilities
Products
“Lego” and Development
Distance between products
Nearby
Far away
How products are linked each other?
Ricardo’s MetaphorMonkeys in a ForestCan I jump to the distant
tree?...No!But, I can jump to the near one.
oil
fishing
agriculturetropical
garments
metallurgy
textiles
agricultureanimal
machineries
fruits
cereals
vehicles
electronics
chemicals
mining
productsforest
Product Space(Hidalgo et al. 2007)
Core-Periphery structure, with some ‘clusters’
THA 1975
THA 1985
THA 1995
THA 2005
THA 2008
PHL 1965
RCA≥1
PHL 1975
PHL 1985
PHL 1995
PHL 2005
PHL 2008
Assessment- Summing up -
• The past growth has been largely led by services• Lagged growth is rooted in persistent productivity growth
deficit due to stagnant industrialization, in particular lack of product diversification
• Limited job opportunities resulted in the slow poverty reduction
• The service-led growth did not require a relatively high investment
• Booming BPOs create jobs, but its impact is limited given the scale of utilized workforce, and its bias toward educated labor
• To join the growth club in the region and translate the growth into inclusive one, the country needs to “walk on two legs” both in industry and modern services