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The Philippine Economic Mystery

The Philippine Economic Mystery

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Article by Robert H. Nelson that asks why the Philippines has steadily declined, economically, while its neighbors have improved their economic standing. The answer, he suggests, is that the Philippines operates on a more Latin American framework.

Article by Robert H. Nelson that asks why the Philippines has steadily declined, economically, while its neighbors have improved their economic standing. The answer, he suggests, is that the Philippines operates on a more Latin American framework.

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Published by: Manuel L. Quezon III on Apr 16, 2009
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12/07/2012

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THE PHILIPPINE ECONOMIC MYSTERY
Robert H. NelsonJuly 2007A shorter version is forthcoming in
The Philippine Review of Economics
.
 
1 
Abstract
 The poor economic performance of the Philippines over the long term is a puzzle and anapparent anomaly for the region. The decline in the Philippines’ global position from thefirst part of the 20
th
century is particularly striking when viewed against the backdrop of rapid income gains in countries of East and Southeast Asia, countries the Philippines usedto surpass in terms of physical and human capital. While there have been a number of attempts to explain the puzzle – difficult geography, macroeconomic policy failures, andcorruption – none are completely convincing either because there are counterexamples orthe factors cited are endogenous and derivative. On the other hand, the long-termeconomic record of the Philippines is strikingly similar to some countries of LatinAmerica, such as Argentina, Mexico, and Peru. This paper advances the hypothesis thatthe political and economic experience in the Philippines stands in closer proximity tothose of countries in Latin America than to Southeast Asia, and that this is rooted in theirdeep similarity of histories and cultures. In particular, the common Spanish and Catholiccolonial history may have given rise to “cultural attitudes that now stand in the way of freer markets and a more successful political democracy”.
 
2Even for many of those who have studied the economic history of the Philippinesclosely, it remains a mystery. Two leading authorities on the Philippine economy,Arsenio Balisacan and Hal Hill, thus commented in 2003 that “the Philippines is one of the world’s major development puzzles.” At the time of its independence in 1946, thePhilippines met many of the requirements of a modern democratic state – its “civilinstitutions were comparatively well developed…. It possessed a reasonably democraticpolitical system…. Its judiciary and legal system were quite well developed andsomewhat independent. Its press was open and vigorous. Finally, while not especiallyresource-rich, the Philippines possessed ample agricultural land to sustain severaldecades of rapid agricultural growth.”
1
Yet, despite this promising beginning, Philippineeconomic growth over the course of the second half of the twentieth century was muchless than most other Asian nations and a major disappointment to most Filipinos.With the exceptions of Japan, Malaysia, Hong Kong and Singapore, thePhilippines in 1950 had a higher income per capita (based on the detailed world incomecalculations of Angus Maddison) than the other nations in East and Southeast Asia.
2
Bythe end of the twentieth century, however, Philippine income per capita exceeded onlyVietnam, Laos, Cambodia, North Korea and Myanmar (formerly Burma) – all of whichhad suffered severe national traumas in previous years. Vietnam, moreover, was rapidlyrecovering and promised soon to overtake the Philippines. From 1950 through the 1960s,the Philippine economy had grown steadily, although not enough to keep pace with itsfaster-growing Asian neighbors. Then, unexpectedly, matters became much worse. AsBalisican and Hill report, the Philippines “missed out almost completely on the Asianboom from the late 1970s until the mid-1990s.”
3
One Asian country after another movedpast the Philippines in income per capita. Even China, despite having suffered the majordislocations of the cultural revolution and other communist economic misfortunes, andthe need to raise the living standards collectively of more than 1 billion people, surpassedthe income per capita of the Philippines in 1992.There were some possible explanations for “the puzzles” of poor Philippineeconomic performance. One special factor was the island character of the Philippines,impeding road and railway transport, although facilitating water transport. The tropicalclimate might have negatively affected the work ethic – it was more difficult to functionoutdoors in the hot sun, even as the minimum requirements for survival were not assevere as in the colder and harsher climates of many other nations. In terms of economicvariables, the Philippines had been unable to attract the high levels of foreign directinvestment that had boosted the economies of many other Asian nations. Larger fiscaldeficits or more rapid inflation might have been a factor. To the extent, however, thatany such macroeconomic policy failures could be assigned a significant role, this beggedthe question of why the policy failures had occurred in the first place. It was difficult, inshort, to explain the relatively low economic performance of the Philippines in the secondhalf of the twentieth century. As Balisacan and Hill concluded, “we can assert withconfidence that a considerable part of the [Philippine economic] story remainsunexplained.”
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