Advanced Search
MyIDEAS: Login to save this paper or follow this series

Rising growth, declining investment : the puzzle of the Philippines

Contents:

Author Info

  • Magnoli Bocchi, Alessandro

Abstract

The economy of the Philippines is open to trade and capital inflows, and has grown rapidly since 2002. Over the last 10 years, however, domestic investment, while stagnant in real terms, has shrunk as a share of GDP. In an open and growing economy, why the decline? Three reasons explain the puzzle. First, the public sector cannot afford expanding its investment at GDP growth rates. Second, the capital-intensive private sector does not find it convenient to raise investment at the economy's pace. Third, fast-growing businesses in the service sector do not need to rapidly increase investment to enjoy rising profits. Yet, the economy keeps growing. On the demand-side, massive labor migration results in remittances that fuel consumption-led-growth. On the supply-side, free from rent-capturing regulations, a few non-capital-intensive manufactures and services boost exports. The economic system is in equilibrium at a low level of capital stock, where all economic agents have no incentive to unilaterally increase investment and the first mover bears short-term costs. As a consequence, growth is slower and less inclusive than it could be. To make it speedier and more sustainable, and to reduce unemployment and poverty, the economy needs to move to a"high-capital-stock"equilibrium. This would be attainable through better-performing eco-zones, a competitive exchange rate, greater government revenues, and fewer elite-capturing regulations.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/04/03/000158349_20080403232837/Rendered/PDF/wps4472.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4472.

as in new window
Length:
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:wbk:wbrwps:4472

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Debt Markets; Political Economy; Access to Finance;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hurwicz, Leonid, 1973. "The Design of Mechanisms for Resource Allocation," American Economic Review, American Economic Association, American Economic Association, vol. 63(2), pages 1-30, May.
  2. Benjamin F. Jones & Benjamin A. Olken, 2008. "The Anatomy of Start-Stop Growth," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 582-587, August.
  3. Swati R. Ghosh, 2006. "East Asian Finance : The Road to Robust Markets," World Bank Publications, The World Bank, number 7063, August.
  4. World Bank, 2005. "Philippines : From Short-Term Growth to Sustained Development," World Bank Other Operational Studies 8552, The World Bank.
  5. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  6. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1767-97, November.
  7. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," NBER Working Papers 13619, National Bureau of Economic Research, Inc.
  8. Klaus Deininger, 2003. "Land Policies for Growth and Poverty Reduction," World Bank Publications, The World Bank, number 15125, August.
  9. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Feb.
  10. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large Fixed Costs," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 549-69, May.
  11. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  12. Asian Development Bank & World Bank & Japan Bank for International Cooperation, 2005. "Connecting East Asia : A New Framework for Infrastructure," World Bank Publications, The World Bank, number 7267, August.
  13. Douglass C North & John Joseph Wallis & Barry R. Weingast, 2006. "A Conceptual Framework for Interpreting Recorded Human History," NBER Working Papers 12795, National Bureau of Economic Research, Inc.
  14. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 62(2), pages 285-313, August.
  15. Eduardo Araral, 2006. "The Political Economy of Policy Reform in the Philippines: 1992-1998," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(4), pages 261-274.
  16. Hurwicz, Leonid, 1979. "On allocations attainable through Nash equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 21(1), pages 140-165, August.
  17. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 571-99, May.
  18. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 23-38, January.
  19. Raul V. Fabella, 2000. "The Soft State : The Market and Governance," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 37(1), pages 1-11, June.
  20. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series, The European Institute of Japanese Studies 168, The European Institute of Japanese Studies.
  21. repec:rus:hseeco:317881 is not listed on IDEAS
  22. Ray Brooks, 2002. "Why is Unemployment High in the Philippines?," IMF Working Papers, International Monetary Fund 02/23, International Monetary Fund.
  23. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, American Economic Association, vol. 64(3), pages 291-303, June.
  24. Kumar, Rajiv, 1987. "Performance of foreign and domestic firms in export processing zones," World Development, Elsevier, Elsevier, vol. 15(10-11), pages 1309-1319.
  25. Esfahani, Hadi Salehi & DEC, 1994. "Regulations, institutions, and economic performance : the political economy of the Philippines'telecommunications sector," Policy Research Working Paper Series 1294, The World Bank.
  26. David, Cristina C. & Intal, Ponciano & Balisacan, Arsenio M., 2007. "Distortions to Agricultural Incentives in the Philippines," Agricultural Distortions Working Paper, World Bank 48477, World Bank.
  27. Roger B. Myerson, 1999. "Nash Equilibrium and the History of Economic Theory," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(3), pages 1067-1082, September.
  28. World Bank, 2005. "Philippines : Meeting the Infrastructure Challenges," World Bank Other Operational Studies 8459, The World Bank.
  29. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pisit, Puapan, 2014. "Assessment of FDI impact on Thailand's production sectors : implications for investment promotion activities," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 443, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  2. Yap, Josef T. & Cabalfin, Michael R., 2008. "Sustainable Development Framework for Local Governance," Discussion Papers, Philippine Institute for Development Studies DP 2008-33, Philippine Institute for Development Studies.
  3. Maureen Ane D. Rosellon & Josef T. Yap, 2010. "The Role of the Private Sector in Regional Economic Integration : a View from the Philippines," Governance Working Papers 23107, East Asian Bureau of Economic Research.
  4. Arsenio Balisacan & Sharon Piza & Dennis Mapa & Carlos Abad Santos & Donna Odra, 2010. "The Philippine economy and poverty during the global economic crisis," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 47(1), pages 1-37, June.
  5. Llanto, Gilberto M., 2012. "Philippine Productivity Dynamics in the Last Five Decades and Determinants of Total Factor Productivity," Discussion Papers, Philippine Institute for Development Studies DP 2012-11, Philippine Institute for Development Studies.
  6. Manop Udomkerdmongkol & Sra Chuenchoksan & Nutthikarn Vorasa-ngasil, 2010. "Investment in Thailand: How to unleash the new investment cycle?," Working Papers, Economic Research Department, Bank of Thailand 2010-05, Economic Research Department, Bank of Thailand.
  7. Briones, Roehlano M., 2009. "Asia's Underachiever: Deep Constraints in Philippine Economic Growth," Discussion Papers, Philippine Institute for Development Studies DP 2009-04, Philippine Institute for Development Studies.
  8. Willa Boots J. Tolo, 2011. "The Determinants of Economic Growth in the Philippines," IMF Working Papers, International Monetary Fund 11/288, International Monetary Fund.
  9. El Achkar Hilal, Souleima & Sparreboom, Theo & Meade, Douglas, 2013. "The Philippines employment projections model employment targeting and scenarios," ILO Working Papers, International Labour Organization 480601, International Labour Organization.
  10. Krist Dacharux & Pornnapa Leelapornchai & Manop Udomkerdmongkol, 2009. "Thailand’s Investment in the Post-Crisis Era: Issues and Challenges," Working Papers, Economic Research Department, Bank of Thailand 2009-08, Economic Research Department, Bank of Thailand.
  11. Yap, Josef T. & Majuca, Ruperto P., 2013. "Aspirations and Challenges for Economic and Social Development in the Philippines Toward 2030," Discussion Papers, Philippine Institute for Development Studies DP 2013-27, Philippine Institute for Development Studies.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4472. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.