STRUCTURAL CHANGE IN THE PHILIPPINE ECONOMY

MUNOZ, ALYSSA NICOLE B.
11/21/24
AEC 401 - ECONOMIC DEVELOPMENT WRITTEN OUTPUT F2
1. What are the key factors hindering the Philippines' structural transformation
● Agricultural underdevelopment, marked by low productivity due to outdated
farming practices, fragmented land ownership, inadequate access to technology,
and vulnerability to climate change, remains a significant challenge.
● Skill mismatch - The mismatch between education and labor market needs,
inadequate technical and vocational education, and a persistent brain drain
hinder workforce productivity and structural transformation.
● Regional inequalities, with economic activity heavily concentrated in urban areas
like Metro Manila, leave rural areas underdeveloped and exacerbate disparities in
resource distribution.
● Governance and policy challenges, such as corruption, bureaucratic
inefficiencies, and inconsistent trade and investment policies, discourage foreign
direct investment and reduce public sector effectiveness.
2. How can the Philippines diversify its economy to create more job opportunities?
- In order to lessen economic concentration in Metro Manila and promote inclusive
economic growth, the Philippines should consider building economic hubs in
outlying provinces. The implementation of special economic zones (SEZs) in
poorer areas has the potential to trigger investment inflows in manufacturing,
agriculture, and services thereby invigorating local economies. Tax incentives,
simple procedures in starting a business, and better transport facilities are some
of the perks that such zones may offer to encourage local and foreign investors
to establish their businesses there. Moreover, there will be – improved transport
systems such as sea ports, roads and railways that will connect these economic
zones to both local and global markets. In addition, redirection of economic
ventures can lead to the production of jobs in areas adjacent to people’s
residences thereby alleviating overpopulation in urban areas and enhancing the
living standards. Finally, while seeking to encourage regional growth in addition
to economic growth, regional development is also valuable for equity concerns in
the sense that it leads to reduction in regional income differentials.
3. What role does infrastructure play in the Philippines' economic growth?

- Improved infrastructure is accelerating productivity, improving connectivity, and
boosting foreign investment. The nation has understood the importance of
investing in physical capital such as roads, bridges, airports, and other big
projects to facilitate economic growth and competitiveness. Public capital
spending in the Philippines has been showing a consistent annual growth trend,
with spending increasing from the average 3% of GDP during the period
2011-2016 to more than 5% in 2018. Increased spending has acted as a catalyst
that assisted in economic growth, mainly in transportation and storage,
construction, and financial services. During the ‘Build Better More’ campaign of
the current administration, the government earmarked substantial resources
towards the improvement of both active and inactive transport systems in the
country, including roads, highways, railways, airports, harbors and seaports. The
major projects currently being undertaken include the Luzon Spine Expressway,
which is aimed at improving the inter-island connectivity, and the expansion of
the rail system in Metro Manila which includes the North-South Commuter
Railway as well as the Metro Manila Subway. There are also efforts to upgrade
and enhance the aerial and maritime entry points of the country, furthering the
aim of the country as a developing regional logistics hub.
4. How has the electronics industry impacted the broader Philippine economy?
- Alongside Malaysia and Vietnam, the Philippines is among the top electronics
producers in Southeast Asia. Over the course of four decades, several
noteworthy players in the industry have entered the country’s borders, Texas
Instruments, Toshiba, and ON Semiconductor Corporation included. The
Philippines ranks as one of the top electronics exporting countries in the world,
being very competitive in the area of semiconductors. It is also good in making
telecommunication electronics, industrial electronics, and consumer electronics.
The improvement of this sector has created employment opportunities, with
hundreds of thousands of Filipinos working in manufacturing plants and even
more in associated sectors such as logistics, transport and retail. It has also
promoted large inflows of foreign direct investment (FDI), which enables the
country to acquire state of the art technology and its diffusion to the local
economy and its people. The impact of the electronics industry is also felt in the
emergence of related sectors such as the packaging, testing and machinery
sectors, creating an enabling environment for the overall economy. The existence
of big international electronics companies has also stimulated the emergence of
small and medium enterprises (SME) that provide raw materials and services to
the companies, giving rise to further economic activity in the region.
5. What policy options are recommended for inducing structural transformation in the
Philippines?
● Industrial Policy and Economic Diversification - The Philippines needs targeted
industrial policies with high-potential sectors such as electronics, automotive,
pharmaceuticals, renewable energy, and agribusiness. This will involve tailored
incentives-through tax breaks, grants, or infrastructures in these sectors-to
develop these sectors. This should help the Philippines move away from its
dependence on very few industries, such as agriculture or services, and make the
economy more diversified and resilient to global economic shocks.
● Enhancing Agricultural Productivity - In several regions of the Philippines, the
agriculture industry can be described as both primitive and productive, with
practices that are very low and rarely innovative. It is suggested that the
government spends some money in introducing modern farming techniques,
construction of proper irrigation and provision of farm machinery to enhance
production. Offering access to improved seeds, fertilizers and tools to farmers
will assist them in competing in the global market and enhance their earnings.
● Digital Infrastructure - There is a need for the Philippines to lay more emphasis
on broadband internet infrastructure as one of the factors to enable economic
development through digital technologies. A digital infrastructure that covers the
country will encourage e-commerce, enable access to educational services, and
allow the businesses to incorporate modern technologies such as cloud storage
and automation into their operations. Besides, making available fast internet
services at competitive rates will encourage small firms to venture into the
international market.

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MUNOZ, ALYSSA NICOLE B.

AEC 401 - ECONOMIC DEVELOPMENT WRITTEN OUTPUT F2

3. What role does infrastructure play in the Philippines' economic growth?

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