Transforming the Philippine Economy

Transcription

1 29/2/212 Transforming the Philippine Economy Industrial Upgrading and Diversification Norio Usui Senior Country Economist Philippines Country Office, Asian Development Bank ADB-AFD-JICA Joint Forum Taking the Right Road to Inclusive Growth 28 February 212 Presentation Issues: A missing link between growth and development, long-term development puzzle, and vulnerability to external shocks Approach: Analyzing the structural transformation and its implications on inclusive growth Economy-wide productivity Product upgrading and diversification Findings: Lagged growth is rooted in productivity growth deficit due to sluggish industrialization Limited job opportunities resulted in slow poverty reduction Growing services provide jobs, but it cannot be a magic trick Recommendations: Waking on two legs Targeted public sector interventions: Product identification Public and private dialogues Solid growth over the 2s 4.9 GDP growth in the past 5 decades (annual average, %) s 197s 198s 199s 2s 1

2 /2/ Weak labor market indicators Persistent poverty 25 2 % Poverty incidence Series break (%) Unemployment Underemployment by Population by Families Growth and investment paradox Chronic problems even in the regional context High unemployment (% of total labor force) Slow poverty reduction (headcount ratio at $2 a day PPP, % of population) Indonesia Malaysia Philippines Thailand Viet Nam Base year Comparison year Indonesia Indonesia 5 Malaysia Malaysia 4 Philippines Philippines Thailand Thailand 3 Vietnam Viet Nam 2 1 Stagnant investment (gross fixed capital formation, % of GDP) 2

3 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 PRC India Indonesia Korea, Rep. Malaysia Philippines Thailand /2/212 Recent development: sharp drop of export How about your neighbors? Long-term growth puzzle Total exports (3 month moving average, % change, year-on-year) Once upon a time. 1,4 1,2 Real GDP per capita 196 (constant 2 $) 1,154 After five decades. 6, 5, Real GDP per capita (constant 2 $) 2 1, , 3, , 1, -5 INO THA MAL PHI China India Indonesia Malaysia Philippines Thailand Vietnam Was it because of high population growth? Growth and Structural Change The two sides of a coin 8 GDP per capita growth (%, annual average) Growth Structural Change INO MAL PHI THA INO MAL PHI THA GDP (constant 2 US$) Population Per capita GDP 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) is about the transformation of the economy by: transferring resources from less productive activities to more productive ones 1. Diversifying production 2. Upgrading production 3. Increasing labor productivity 3

4 /2/212 Economy-wide labor productivity Which sector is more productive in your economy? Constant 2 $ Annual average growth rate, % 12, 7,5 12, , 6, MAL (RHS) 1, , 4,5 THA 7, , 3, PHI INO 5, , 1,5 VIE , Indonesia Malaysia Philippines Thailand Viet Nam 2, Indonesia Philippines Thailand Malaysia Viet Nam Agriculture Industry Service Manufacturing 12, Where did your labor move? Labor productivity by sector 12, Decomposition of labor productivity growth , 1, 2 2 8, 8, 6, 4, 6, 4, , Agriculture Industry Services Manufacturing 2, Agriculture Industry Services Manufacturing Employment by sector Indonesia Malaysia Philippines Thailand -5 Indonesia Malaysia Philippines Thailand 1 1 Sectoral productivity growth Structural transfromation Agriculture Industry Services 4

5 29/2/212 Lego and Development Distance between products Products Far away Capabilities Nearby Country How products are linked each other? Firm Can I jump to the distant tree?...no! But, I can jump to the near one. Ricardo s Metaphor Monkeys in a Forest oil fishing tropical agriculture Product Space (Hidalgo et al. 27) cereals fruits forest products Product 3 garments vehicles Product 2 metallurgy mining Product 1 textiles chemicals machineries electronics animal agriculture Core-Periphery structure, with some clusters 5

6 29/2/212 Where are the monkeys? THA 1965 Denotes RCA 1 (Hidalgo et al. 27) 21 RCA 1 THA 1975 THA

7 29/2/212 THA 1995 THA 25 THA 28 PHL 1965 RCA 1 7

8 29/2/212 PHL 1975 PHL 1985 PHL 1995 PHL 25 8

9 29/2/212 PHL 28 How many of your products have comparative advantage? core core core core core core core core core core core core Do you want to see PRC and India? You have depended more on services % Contribution to GDP Growth: , 8, Growing business process outsourcing A magic trick? Export (million $) 7, , 4, Employment (persons) 355, , , 5, , , 8 2,.8 2, 4 1, INO MAL PHI THA IND PRC Industry Services Agriculture Contact Center Transcription Animation Software Development Other BPOs % of total export of goods & services (RHS) Contact Center Transcription Animation Software Development Other BPOs % of total labor force (RHS) 9

10 29/2/212 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 How can we help entrepreneurs jump to new products? Growth diagnostics, cross country regressions Resolving long-standing issues: Infrastructure Business and investment climate Horizontal interventions: Is that all? Critical importance of focusing on product-specific constraints Public and private dialogue (joint diagnostic exercise) High electricity price Is it a real headache for all? Share of electricity cost in total production cost (including labor cost, depreciation, net tax) Electronics.have you fully exploited the opportunities? RCA 1 RCA<1 2: Ave: 7.67 Manufacturing 4: Ave:.27 5: Ave: : Ave:.57 7: Ave: : Ave: : Ave:.48 11: Ave:.99 3: Ave: : Ave:.79 1: Ave:

11 29/2/212 Targeted Public Sector Support - Policymakers headaches - Headache 1: Product identification (targeting) Headache 2: Diagnostics of binding constraints for the targeted products Are we picking winners? Picking winners in the old sense of the term is about protecting and subsidizing low productivity Many inputs that the government has to provide are sector and/or product-specific doomed to choose Not about subsidizing low-productivity, but investing in higher productivity The product space gives additional information to inform that choice How can we choose? Key dimensions of product identification Easiness to jump: Nearby? Middle? Far Away? Above average sophistication (direct effect) Opportunities for further structural change (spillover effects) Capacity to absorb labor (job creation) If your targets are far away foreign direct investment ($ billion, cumulative) s 198s 199s 2s Others such as global demand growth Indonesia Malaysia Philippines Thailand Viet Nam 11

12 29/2/212 Public - Private Dialogues How to provide highly specific, high dimensional public inputs that are complements in private production? Private inputs: Prices: information Profit-motivated firms: incentives Capital markets: move resources Public inputs: No price: where to get the information? What are the incentives? Political? Even with incentives, how would resources move? Exchange of Information & Shared Risks Private Inputs Information, Incentives, Resources Public Inputs In the absence of coordination, monkeys can only jump to trees that require inputs that are already present Thank you For further information, please contact: Norio Usui (nusui@adb.org) Philippine Country Office, Asian Development Bank The findings, interpretations, and views expressed are entirely those of the author, and do not necessarily represent the views of the Asian Development Bank, its executive directors, or the countries they represent. Capabilities PRC 28 Producing (& exporting) mango requires: a certain type of soil mechanized farming equipment agribusinesses firms that know the market, etc., but also public goods such as: specific property rights port infrastructure road system cold-storage facilities phytosanitary regulations market access agreements, etc. 12

13 29/2/212 India 28 How far unexploited products from your current export basket? Far Away Nearby RCA<1 RCA 1 Where do you want to go? Nearby Middle Far away SITC Code For example, if you want to choose sophisticated products "Nearby" Commodities Leamer Classification 7522 Complete digital data processing machines Machinery 28,19 3, Watches, watch movements and case Machinery 25,31 6, Photographic cameras, flashlight apparatus, parts, accessories, nes Machinery 17,72 5, Television, radio-broadcasting; transmitters, etc Machinery 16,537 8, Clocks, clock movements and parts Machinery 15,4 7, Fabrics, woven, of continuous synthetic textile materials Capital intensive 14,843 9, Electrical line telephonic and telegraphic apparatus Machinery 14,713 8, Portable radio receivers Machinery 13,995 3, Fish, dried, salted or in brine; smoked fish Animal products 13,841 5, Microphones; loud-speakers; audio-frequency electric amplifiers Machinery 13,583 7, Calculating, accounting, cash registers, ticketing, etc, machines Machinery 13,485 8, Fish fillets, frozen Animal products 13,286 5, Refined sugar etc Tropical Agruculture 12,595 7, Precious jewellery, goldsmiths' or silversmiths' wares Labor intensive 12,91 6, Porcelain or china house ware Labor intensive 11,998 1, Pianos, other string musical instruments Labor intensive 11,293 6, Flours and meals, of meat, fish,etc, unfit for human; greaves Cereals 11,284 4, Sewing machines, furniture, needles etc, and parts thereof, nes Machinery 11,25 9, Domestic electro-mechanical appliances; and parts thereof, nes Machinery 1,866 8, Pens, pencils and, fountain pens Labor intensive 1,829 9, PRODY Strategic Value Labor Intensity RCA Export value (M US$) Share to world export (%) Annual average growth rate (%, 2-27) 13

14 29/2/212 High opportunities for further structural change High labor absorption Table 1.2: Ranked based on Strategic Value Export Annual Share to value average SITC Leamer Strategic Labor world "Nearby" Commodities PRODY RCA growth rate Code Classification Value Intensity export (M US$) (%, 2- (%) 27) 6664 Porcelain or china house ware Labor intensive 11,998 1, Pens, pencils and, fountain pens Labor intensive 1,829 9, Fabrics, woven, of continuous synthetic textile materials Capital intensive 14,843 9, Sewing machines, furniture, needles etc, and parts thereof, nes Machinery 11,25 9, Synthetic or reconstructed precious or semi-precious stones Labor intensive 1,643 8, Domestic electro-mechanical appliances; and parts thereof, nes Machinery 1,866 8, Electrical line telephonic and telegraphic apparatus Machinery 14,713 8, Small-wares and toilet articles, nes; sieves; tailors' dummies, etc Labor intensive 1,275 8, Calculating, accounting, cash registers, ticketing, etc, machines Machinery 13,485 8, Television, radio-broadcasting; transmitters, etc Machinery 16,537 8, Microphones; loud-speakers; audio-frequency electric amplifiers Machinery 13,583 7, Refined sugar etc Tropical Agruculture 12,595 7, Clocks, clock movements Machinery 15,4 7, and parts 6552 Knitted, not elastic nor rubberized, of fibres other than synthetic Capital intensive 1,446 7, Pianos, other string musical instruments Labor intensive 11,293 6, Precious jewellery, goldsmiths' or silversmiths' wares Labor intensive 12,91 6, Distilled alcoholic beverages, nes Tropical Agruculture 1,88 6, Watches, watch movements and case Machinery 25,31 6, Fish, dried, salted or in brine; smoked fish Animal products 13,841 5, Photographic cameras, flashlight apparatus, parts, accessories, nes Machinery 17,72 5, Table 1.3: Ranked based on Labor Intensity Export Annual Share to value average SITC Leamer Strategic Labor world "Nearby" Commodities PRODY RCA growth rate Code Classification Value Intensity export (M US$) (%, 2- (%) 27) 6674 Synthetic or reconstructed precious or semi-precious stones Labor intensive 1,643 8, Pianos, other string musical instruments Labor intensive 11,293 6, Knitted, not elastic nor rubberized, of fibres other than synthetic Capital intensive 1,446 7, Pens, pencils and, fountain pens Labor intensive 1,829 9, Small-wares and toilet articles, nes; sieves; tailors' dummies, etc Labor intensive 1,275 8, Fabrics, woven, of continuous synthetic textile materials Capital intensive 14,843 9, Clocks, clock movements and parts Machinery 15,4 7, Precious jewellery, goldsmiths' or silversmiths' wares Labor intensive 12,91 6, Watches, watch movements and case Machinery 25,31 6, Porcelain or china house ware Labor intensive 11,998 1, Photographic cameras, flashlight apparatus, parts, accessories, nes Machinery 17,72 5, Fish, dried, salted or in brine; smoked fish Animal products 13,841 5, Fish fillets, frozen Animal products 13,286 5, Sewing machines, furniture, needles etc, and parts thereof, nes Machinery 11,25 9, Complete digital data processing machines Machinery 28,19 3, Electrical line telephonic and telegraphic apparatus Machinery 14,713 8, Television, radio-broadcasting; transmitters, etc Machinery 16,537 8, Flours and meals, of meat, fish,etc, unfit for human; greaves Cereals 11,284 4, Microphones; loud-speakers; audio-frequency electric amplifiers Machinery 13,583 7, Portable radio receivers Machinery 13,995 3,