Why the Philippines is not (yet) in a middle- income trap

Transcription

1 Why the Philippines is not (yet) in a middle- income trap And why we should worry nonetheless 9 June 2016 Emmanuel S. de Dios, UPSE For the EMIT Project

2 1. The idea of it

3 Middle- income trap Original issue: Why do some economies grow rapidly for a Jme but then stagnate long aler without graduajng into high- income economies? Hypothesis: [Such economies are] unable to compete with either low- wage economies or highly skilled advanced economies [Kharas and Kohli 2011]

4 El demonio de las comparaciones Real GDP per capita, Constrant 2005 PPP US$ Chile Estonia Greece Hong Kong Ireland Japan Korea Latvia Lithuania Philippines Portugal Singapore Taiwan Thailand Uruguay Source: Zander, Tulder, Pelkmans- Balaoing [2016]

5 The usual explana=on Rapid growth: catch- up using known technology and low wages to export to developed countries; Employment expands, wages rise, inijal advantage eroded; also diminishing returns to using borrowing technology. UlJmately a slowdown: lose advantage to other countries. Indicated change: shil to more knowledge- intensive industries.

6 The usual prescrip=on Measures at the macro- economic/macro- development level investment in physical infrastructure higher educajon and R&D foreign direct investment (source of technology) Involvement in regional trade and producjon networks diversificajon of trade and output

7 Algebra: how long will it take? Temporal criterion: Jme to traverse middle- income category GNI per capita (2012 $ PPP) LMI to HMI UMI to HI LMI to HI $1,045- $4,125 $4,125- $12,615 $1,045- $12,746 Heuvelen [2015] yrs yrs 44 yrs Implied growth rate 5-6% 5-7% 6% Felipe [2012] 28 yrs 14 yrs 42 yrs Implied growth rate 5% 8% 6%

8 Structural criterion? From experience, those who transited saw peak manufacturing at 25% or more of labour force. Now fewer countries able to achieve this: now peak at 13-16%. Rodrik [2015]: premature deindustrialisajon Fabella [201 development progeria [Fabella ] What does it represent? PossibiliJes: general labour skills; technological levels of firms; middle class consumpjon; middle class polijcs

9 Premature deindustrialisa=on? Source: hjp://rodrik.typepad.com/dani_rodriks_weblog/2013/10/on- premature- deindustrializajon.html

10 Structural criterion? * * * *

11 2. How does all this apply?

12 25,000 20,000 South Korea Global Financial Crisis Bln current US$ Dot-com bubble 400 GDP per capita (1990 int. GK$) 15,000 10,000 Asian Crisis APT+3 Initiated WTO Accession APEC Membership ,

13 Chile GDP per capita (1990 int. GK$) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Coup Democratic elections Associate Member Mercosur WTO Accession APEC Membership Dot-com bubble Global Financial Crisis China - Chile FTA Bln current US$ 2,

14 Thailand GDP per capita (1990 int. GK$) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 ASEAN member Global Financial Crisis Dot-com bubble Asian Crisis ACD APEC member Bln current US$ 2, ,

15 Philippines 3,500 3,000 Global Financial Crisis Bln current US$ GDP per capita (1990 int. GK$) 2,500 2,000 1,500 1,000 ASEAN member APEC member Asian Crisis Dot-com bubble ACD

16 Just algebra: how long will it take? Empirical quesjon: Suppose Philippine GNI grows at 5-7 percent indefinitely? Then the following trajectories result: GNI growth 5 % 6% 7% Cross LMI (years) Cross HMI (years) Total (years) *Assumes annual populajon growth rate of 1.3 percent.

17 The past record Growth (RHS) GDP p.c. (LHS)

18 Pasawáy Philippines deviant behaviour [de Dios and Williamson 2015] (deviajon from the East Asian pajern): Large current account surpluses from overseas remijances and IT- BPM service exports Saving exceeds investment Low inward FDI and low home investment as well Low goods export (manufactures and agriculture) ConsumpJon trumps exports and investment Services dominate output, employment, exports Bi- modal economy: omijed industrialisajon, premature de- agriculturisajon

19 Employment shares (in %) Agriculture Industry Services 0

20 Saving and investment (as % of GDP) Investment Saving

21 Source: MCC- CDT (2016) Farm size

22 Rela=ve labour produc=vity in agriculture (%) PHL IDN MAL THA VNM Source: MCC- CDT (2016)

23 What could go wrong? High chance of crossing into HMI : but can we stay there? Non- inclusive growth (lagging agriculture and low- producjvity services) can lead to social discontent. AutomaJon/roboJsaJon and onshoring trends can threaten IT- BPM; makes manufacturing entry difficult Dutch Disease renders all tradeables uncompejjve PoliJcal and economic condijons in OFW regions may change (e.g., falling oil prices).

24 What can be done? Complete unfinished business to extend growth momentum link agriculture and SMEs with growing urban markets and chains of higher value- added promote manufacturing employment for inclusiveness complete foundajonal requirements of educajon and basic infrastructure Pick up from MIT success stories exogenous v. endogenous: development paths (e.g., low v. high FDI dependence). though not completely relevant to deviant behaviour

25 Successful pathway: Endogenous growth Internal trajectory Low/medium trade openness Strong growth of trade Net exporter Medium/high GVC participation Integration in high-tech GVCs with medium/high DVA Large share of domestically founded lead firms in high-tech GVCs Generic policy Target Inward FDI for integration in high valueadded GVCs Outward FDI to enhance/maintain domestic activities Specialization/diversification/differentiation to upgrade in GVCs and create higher value-added Positive spillovers Investments in education, innovation and R&D Promotion of entrepreneurship Public-private cooperation Regulation of trade and FDI Source: Zander, Tulder, Pelkmans- Balaoing [2016]

26 Hub. Hub trajectory High trade openness Medium/high growth of exports Low/medium growth of imports Net importer Medium/high GVC participation Integration in medium/high-tech GVCs with low/medium DVA Large share of foreign lead firms Generic policy Target Inward FDI in sectors to serve the region Integration in regionally relevant GVCs Incentives to attract FDI in strategic sectors Regional integration and reduction of trade barriers Source: Zander, Tulder, Pelkmans- Balaoing [2016]

27 Exogenous growth External trajectory Low/medium trade openness Low/medium growth of trade Net importer Low/medium GVC participation Integration in low-tech GVCs with high DVA Large share of foreign lead firms active in low/medium-tech GVCs Generic policy Target Inward FDI in sectors to exploit natural resources and low value-added manufacturing Imports for domestic markets Liberalization of trade and FDI Incentives for inward FDI Source: Zander, Tulder, Pelkmans- Balaoing [2016]

28 What can be done? AnJcipate new challenges and approaches (bejer than build it for whoever may come ): strategise regarding country s posijon in the global division of labour formulate policies accounjng for heterogenous firms connect with leading global firms based awareness of firms strategies and country s priorijes (compejjveness and inclusiveness) form a smarter bureaucracy that engenders trust in its strategic policies and decisions align infrastructure and higher- educajon (S&T) investments with strategic goals.

29 END