THE IMPORTANCE OF DEVELOPMENT ECONOMICS IN THE

PHILIPPINE SETTING

DEVELOPMENT ECONOMICS

Development economics is a branch of economics that focuses on improving fiscal,

economic, and social conditions in developing countries. Development economics

considers factors such as health, education, working conditions, domestic and

international policies, and market conditions with a focus on improving conditions in

the world's poorest countries. It studies the transformation of emerging nations into

more prosperous nations. Strategies for transforming a developing economy tend to be

unique because the social and political backgrounds of countries can vary

dramatically. Not only that, but the cultural and economic frameworks of every nation

is different also, such as women's rights and child labor laws.

Some aspects of development economics include determining to what extent rapid

population growth helps or hinders development, the structural transformation of

economies, and the role of education and healthcare in development.

They also include international trade, globalization, sustainable development, the

effects of epidemics, such as HIV, and the impact of catastrophes on economic and

human development.

TYPES OF DEVELOPMENT ECONOMICS

Mercantilism. Mercantilism is thought to be one of the earliest forms of development

economics that created practices to promote the success of a nation. It was a dominant

economic theory practiced in Europe from the 16th to the 18th centuries. The theory

promoted augmenting state power by lowering exposure to rival national powers.

Like political absolutism and absolute monarchies, mercantilism promoted

government regulation by prohibiting colonies from transacting with other nations.

Mercantilism monopolized markets with staple ports and banned gold and silver

exports. It believed the higher the supply of gold and silver, the wealthier it would be.

In general, it sought a trade surplus (exports greater than imports), did not allow the

use of foreign ships for trade, and it optimized the use of domestic resources.

Economic Nationalism. Economic nationalism reflects policies that focus on

domestic control of capital formation, the economy, and labor, using tariffs or other

barriers. It restricts the movement of capital, goods, and labor.

Economic nationalists do not generally agree with the benefits of globalization and

unlimited free trade. They focus on a policy that is isolationist so that the industries

within a nation are able to grow without the threat of competition from established

companies in other countries.

The economy of the early United States is a prime example of economic nationalism.

As a new nation, it sought to develop itself without relying so much on outside

influences. It enacted measures, such as high tariffs, so its own industries would grow

unimpeded.

Linear Stages of Growth Model. The linear stages of growth model were used to

revitalize the European economy after World War II.

This model states that economic growth can only stem from industrialization. The

model also agrees that local institutions and social attitudes can restrict growth if

these factors influence people's savings rates and investments.

The linear stages of growth model portray an appropriately designed addition of

capital partnered with public intervention. This injection of capital and restrictions

from the public sector leads to economic development and industrialization.

Structural-Change Theory. The structural-change theory focuses on changing the

overall economic structure of a nation, which aims to shift society from being a

primarily agrarian one to a primarily industrial one.

For example, Russia before the communist revolution was an agrarian society. When

the communists overthrew the royal family and took power, they rapidly

industrialized the nation, allowing it to eventually become a superpower.

THE PHILIPPINE ECONOMY

The Philippines' economy is considered as one of the most dynamic economies in

East Asia and the Pacific. In 2020, however, GDP contracted by an estimated 9.5%,

due to the outbreak of COVID-19. Nevertheless, according to the IMF's April 2021

forecast, GDP growth is expected to pick up to 6.9% in 2021 and 6.5% in 2022,

subject to the post-pandemic global economic recovery. Key economic drivers

include solid fundamentals, a competitive workforce, a stable job market, steady

remittances, and investment in the construction sector (World Bank).

The Philippines' public deficit reached 4.8% of GDP in 2020 and it is expected to

increase to 7.3% in 2021 before falling to 5.5% in 2022. Public debt also significantly

increased, reaching 47.1% of GDP in 2020 and is expected to further increase in 2021

and 2022, to 51.9% and 54.4%, respectively. Inflation rate remained stable in 2020, at

2.6%, and respecting the central bank’s target (2-4%). However, according to the

IMF's latest World Economic Outlook, inflation is expected to rise to 3.4% in 2021

and 3% in 2022. Domestic consumption is expected to remain the main driver of the
economy, accounting for 70% of GDP. Institutional reforms are needed in business

freedom, investment freedom, and rule of law, according to the Heritage Foundation.

The COVID-19 crisis has put the Philippines into recession and revealed long-

existing cracks in the country’ systems and institutions, as tough containment

measures have ground the economy to a halt. However, the government launched a 4-

pillar socioeconomic strategy against the effects of the pandemic, which includes

support to vulnerable groups and individuals, expanded resources for frontline

medical workers, as well as fiscal and monetary measures, such as a USD 12 billion

fiscal package for low-income households, vulnerable workers, small businesses, and

companies and workers in hard-hit industries, such as agriculture, transportation, and

tourism.

The unemployment rate was heavily affected by the negative economic impact of the

COVID-19 pandemic and nearly doubled in 2020, reaching 10.4%. Nevertheless, that

rate should decrease to 7.4% in 2021 and 6.3% in 2022. About a third of the

population lived below the poverty line in 2019. However, inequality in wealth

distribution and poverty rates are estimated to have worsened during the pandemic,

pushing around 2.7 million more Filipinos into poverty. Nevertheless, Duterte's

administration wants to reduce the poverty rate to 17% and expects the economy to

reach upper-middle income status by 2022.

MAIN SECTORS OF INDUSTRY

The Philippines' economy is based on food processing; production of cement, iron,

and steel; and telecommunications, among others. According to the latest rates by the

World Bank, the agricultural sector employed 22.5% of the labor force in 2020 but

contributed to 8.8% of GDP in 2019, a share that has been decreasing in recent years.
The Philippines is the second largest producer of coconuts in the world. However, the

agricultural sector suffers from low productivity, weak economies of scale and

inadequate infrastructure. Still, the government is working on restructuring and

modernizing the sector, and have been implementing policies such as converting

government lands to agriculture use. As for mining, the Philippines are one of the

richest countries of the world in terms of minerals with an unexploited mineral wealth

estimated at more than USD 840 billion (Inquirer). The Philippines reserves of

copper, gold and zinc are also among the largest in the world. In 2020, despite the

difficulties that resulted from the pandemic, agriculture was the only sector that

showed periods of growth.

The industry sector contributes 30.1% of GDP and employs 19.8% of the workforce.

Industrial food processing is one of the Philippines' main manufacturing activities.

The big industries are dominated by production of cement, glass, chemicals products

and fertilizers, iron, steel and refined oil products. However, the industry sector was

the hardest hit by the pandemic, especially the manufacturing, construction, and

transportation and storage sectors.

The tertiary sector - which represents 61% of GDP and employs 57.6% of the

country’s workforce - has developed substantially, particularly in

telecommunications, call centers and finance. Government goals for the sector include

attracting investments in human resource development, design, R&D, finance, and

infrastructure; bolstering manufacturing-derived services; and establishing new

ecosystems linked with manufacturing (Department of Trade and Industry and Board

of Investments). In 2020, the services sector was greatly impacted by the pandemic

and some the most heavily affected industries were tourism, accommodation, food

and beverages, and transportation.

SIGNIFICANCE OF DEVELOPMENT ECONOMICS

Development economics attempts to explore some of the economic challenges

peculiar to some of the poorest countries in the world. It will investigate the factors

that have led to this global inequality, and analyze some of the forms of market and

government failure that may have contributed to the situation.

Development economics can help the understanding of some of the major challenges

of the 21st century; to what extent does rapid population growth help or hinder

development, is it necessary for economies to go through a process of structural

transformation – and how does this take place, what is the role of education and health

care provision in contributing to the process of development, how important is it for

countries to engage in international trade in the context of a globalizing economy,

how can less-developed countries achieve sustainable development, and what effect

has the pandemic had on economic and human development. Development

economics faces up to these questions and shows how to apply economic analysis in a

variety of situations of global significance. Development economics can draw on

theory that may have encountered in both micro and macro modules, and combine this

with evidence from poorer countries. In studying development economics, one will

have the opportunity to apply the tools of economic analysis to the problems and

challenges facing less-developed countries, and to begin to understand why some

countries have been able to go through a process of economic and human

development whilst others have languished.

 REFERENCES

https://www.investopedia.com/terms/d/development-economics.asp

https://santandertrade.com/en/portal/analyse-markets/philippines/economic-political-
outline

http://www.studyingeconomics.ac.uk/module-options/development-economics/