Comments on Trade, Inclusive Growth and Inclusive Policy

Making by P. S. Intal, Jr.

Josef T. YapPhilippine Institute for

Development Studies (PIDS)

9 December 2008

Record of Trade Liberalization Share of Manufacturing Sector in the GDP

1980 1985 1990 1995 2000 2006China 43.47 38.00 35.45 39.47 40.54 43.1Indonesia 12.97 17.81 23.03 26.90 27.75 28.0Malaysia 20.70 21.10 24.22 26.38 32.60 29.8Philippines 25.70 25.15 24.83 22.99 22.49 22.9Thailand 21.51 21.92 21.52 25.20 33.59 35.1Viet Nam 16.09 16.39 12.26 14.99 18.56 21.3

Development Has Lagged Gross domestic product based on purchasing-power-parity (PPP) per capita, current international dollars

1980 1985 1990 1995 2000 2007*China 252.382 503.02 795.913 1,512.37 2,372.14 5,292.02Indonesia 727.179 1,059.86 1,537.79 2,262.57 2,435.31 3,724.54Malaysia 2,353.10 3,425.11 4,837.74 7,513.25 9,062.08 13,315.08Philippines 1,248.56 1,335.07 1,750.42 1,979.16 2,333.09 3,377.52Thailand 1,090.44 1,646.27 2,901.23 4,679.26 4,950.67 7,900.24Viet Nam 299.613 491.986 656.97 1,007.80 1,419.90 2,586.63Source: IMF World Economic Outlook Database, April 2008

*IMF Estimates

Poverty Record is DisappointingPoverty and Inequality in East Asia

 

Population in Poverty

(in percent)

2002-07

Proportion of Population Below $1

(PPP) a Day (%)

2002-06

Gini Coefficient

China 2.50 10.80 0.47

Indonesia 16.70 7.70 0.34

Malaysia 5.10 0.00 0.40

Philippines 30.00 13.20 0.44

Thailand 9.80 0.00 0.42

Viet Nam 19.50 8.40 0.37

Source: Asian Development Bank Key Indicators, 2007

Why Has Trade Liberalization Failed in Many Aspects?

• EXCHANGE RATE POLICY NOT SUPPORTIVE

• Rodrik, D. (2008): “The Real Exchange Rate and Economic Growth”. Downloaded from http://ksghome.harvard.edu/~drodrik/RER%20and%20growth.pdf (October).

Why Has Trade Liberalization Failed in Many Aspects?

• Lack of a Strategic and Coherent Industrial Policy

• Memiş, E. and M. F. Montes (2008): “Who’s Afraid of Industrial Policy?” Discussion Paper, Asia Pacific Trade and Investment Initiative, UNDP Regional Centre in Colombo (May).

Why Has Trade Liberalization Failed in Many Aspects?

• Poor physical infrastructureRoots in the country’s external debt

policy and weak tax effort

• Weak institutions and poor governance

Why Has Trade Liberalization Not Been Inclusive?

• Spotty record in improving human capital

• Lack of Safety Nets

• Labor market institutions, industrial relations

WHAT CAN BE DONE?

Main recommendation: Inclusive Policy Making

• “An approach to ensuring that policies and strategies take into clear consideration the impact of such policies on disadvantaged groups, operationalize social integration of previously marginalized groups, and to enhance citizen participation in governance”

• Q: Isn’t this DEMOCRACY?

Main recommendation: Inclusive Policy Making

• Q: Why haven’t democratic institutions worked in the Philippines?

• Q: Why are institutions weak?

• Q: How does one strengthen institutions?

INDUSTRIAL POLICY

• Review our tariff rates vis-à-vis WTO bound rates

• Mining-Manufacturing Link

• Competitiveness of Firms

ASEAN’s COMPETITIVENESS GOAL

• Transform their economies from mass production-based ones relying on unskilled or semiskilled labor to knowledge-based ones. Knowledge-based economic activities comprise R&D, product and service design, high value-added skills processing and marketing for the domestic, regional and global market places (Ariff 2003 as cited by Yamazawa and Hiratsuka, 2003)

Strategic Industrial Policy: Main Areas

• Human Resource Development

• Technological Capability and Skill Development

• Physical Infrastructure

Enhancing Technological Capability through Regional Cooperation and Integration

• Fostering local firms/entrepreneurs: e.g. Local Industries Upgrading Program; New age economic agreements, e.g. JPEPA

• Focus on SMEs

Main Elements of Fragmentation and Agglomeration

Main Elements of Fragmentation and Agglomeration

Emphasis should be at the sub-national levelInvolve local governmentsIslands of excellence should lead the way

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