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Norio Usui Senior Country Economist, Philippines Country Office The Wallace Business Forum

Taking the Right Road to Inclusive Growth Industrial Upgrading and Sophistication in the Philippines. Norio Usui Senior Country Economist, Philippines Country Office The Wallace Business Forum 2 August, 2012. What you need to know…. Presentation. I. Assessment

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Norio Usui Senior Country Economist, Philippines Country Office The Wallace Business Forum

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  1. Taking the Right Roadto Inclusive GrowthIndustrial Upgrading and Sophistication in the Philippines Norio Usui Senior Country Economist, Philippines Country Office The Wallace Business Forum 2 August, 2012

  2. What you need to know…

  3. 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?

  4. I. Assessment

  5. GDP growth in the past 5 decades(annual average, %) Solid growth over the 2000s

  6. Recent economic situationReturning to the potential growth rate? % PDP target: 7-8%

  7. Let it be…. A Policy Option Let it be, let it be Let it be, let it be There will be an answer Let it be Let it be, let it be Let it be, let it be Whisper words of wisdom Let it be

  8. 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

  9. 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 Diversifyingproduction Upgradingproduction Increasing labor productivity Growth and Structural ChangeThe two sides of a coin

  10. Your growth has depended more on services % Contribution to GDP Growth: 1980-2008

  11. Economy-wide labor productivity 1980-2009 Constant 2000 $ MAL (RHS) THA PHI INO VIE

  12. Which sector is more productive in your economy?

  13. Where did your labor move? Labor productivity by sector Employment by sector

  14. Decomposition of labor productivity growth1980 – 2009

  15. Growing business process outsourcing Employment (persons) Export (million $)

  16. Further increasing population (average annual %) (million)

  17. “Lego”and Development Products Capabilities Country

  18. Distance between products Far away Nearby How products are linked each other?

  19. Ricardo’s Metaphor Monkeys in a Forest Can I jump to the distant tree?...No! But, I can jump to the near one.

  20. Product Space (Hidalgo et al. 2007) oil cereals fruits fishing forest tropical products agriculture vehicles garments metallurgy mining animal agriculture textiles chemicals machineries electronics • Core-Periphery structure, with some ‘clusters’

  21. THA 1965 RCA≥1

  22. THA 1975

  23. THA 1985

  24. THA 1995

  25. THA 2005

  26. THA 2008

  27. PHL 1965 RCA≥1

  28. PHL 1975

  29. PHL 1985

  30. PHL 1995

  31. PHL 2005

  32. PHL 2008

  33. 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

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