Finance and Competitiveness in Developing Countries

By José María Fanelli; Rohinton Medhora | Go to book overview

6

Trade, competitiveness and financein the Philippine manufacturing sector, 1980-951
Josef T. Yap
1.Introduction: The Philippine development experience
The East Asian miracle of the 1960s up to the mid-1990s and the East Asian debacle in 1997 put in perspective two crucial factors that affect sustainable economic growth and development. The first factor is outward orientation, which is a necessary ingredient for increasing the competitiveness of an economy, and the second is a sound financial structure that is required for efficient resource allocation and macroeconomic stability. The primary objective of this chapter, is to analyse how these two factors interact with each other, i.e. how the level of financial development affected the evolution of the Philippine current account. Of particular concern is the trade sector, with emphasis on the dynamics of competitiveness and the pattern of exports in the Philippine manufacturing sector. The Philippines was pointedly left out of the list of High Powered Asian Economies (HPAEs) identified by the World Bank (1993) in its study of the East Asian miracle. This is due primarily to her erratic economic performance that has been characterized by boom-bust cycles. During the period 1970-97, for which data is presented in Table 6.1, the Philippines experienced three balance-of-payments (BOP) crises. The first and most acute was in 1983-5 following the onset of the international debt crisis, the second was in 1990-2 in the aftermath of Gulf War; and the last was in the second half of 1997 as the Philippines was drawn into the financial crisis. Even when the economy's performance was being considered exceptional by the international community, the peak GDP growth rate was only 5.7 per cent, which was recorded in 1996. Not surprisingly, this growth was the second lowest in Southeast Asia in that year.
The Orthodox view
The performance of the Philippine economy during the postwar period has been directly linked to the fortunes of its industrial sector. The various studies on this sector came up with the following major conclusions (Medalla et al. 1995):
1 That the more than three decades of protection had been very costly in terms of its inherent penalty on exports, its serious adverse impact on resource allocation, and dynamic efficiency losses arising from lack of competition.

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