THE PHILIPPINE ECONOMY:

How Does Economy Grow

 THE PHILIPPINE ECONOMY

 1. The national economy is compared of business, enterprises, household,

and the government.
 2. There are economic freedom, like free competition, free choice of
investment, and the prices, which are determined by the interaction between
and supply.
 3. In economic developments, knowledge, skills, values, and the quality of
people are the main determinants of economic growth.
 4. There were inhabitants in the Philippines about 250,000 to 300,000 years ago.
They arrived from other countries through the land bridges.
5. The Philippines was a slave of three colonial masters; the
United States, Japan, and Spain. Chines dominated the retail trade.
The Spanish rule introduced the tabacco monopoly and gallego trade
for the benefits of top-ranking Spanish citizens. Similarly the
Americans exploited our agricultural economy. Japsn completely
ruined our company.
6. The Philippine Government got it’s political independence in 1946,
but not economic independence from the US.
7. Under the Martial rule, the friends of Dictator controlled
Philippine business. Democracy was restored finally upon the
assumption of Corazon Aquino as president. The Ramos government
has sustained most of the good programs of the Aquino
administration.
8. The national government, in it’s effort to alleviate poverty, has been
promoting the growth of entrepreneurship.
 THE ROLE OF ENTREPRENEURSHIP IN ECONOMIC
DEVELOPMENT
 1. ENTREPRENEURSHIP offers an economical and faster method of distributing goods and
services.
 2. ENTREPRENEURSHIP is capable of generating more jobs, income, goods, services.
 3. ENTREPRENEURSHIP improves the quality of life.
 4. ENTREPRENEURSHIP contributes to more equitable distributions of income, and
therefore, eases social unrest.
 5. ENTREPRENEURSHIP utilizes and mobilizes resources to make the country productive.
 6. ENTREPRENEURSHIP brings social benefits through the government.
 7. ENTREPRENEURSHIP any persons who takes the risks and invest his resources to make
something new or better is engaged in entrepreneurship.
 8. ECONOMIC DEVELOPMENT is a process, while economic Economic growth is a
product of economic development.
DEVELOPMENT AND GROWTH
THEORIES
LAISSEZ – FAIRE THEORY
by ADAM SMITH
-Explains that the government should not
interfere in economic activities

-Laissez-faire is an economic philosophy of free-market capitalism that

opposes government intervention. The theory of laissez-faire was developed by
the French Physiocrats during the 18th century and believes that economic success
is more likely the less governments are involved in business.
 KEYNESIAN THEORY
by JOHN MAYNARD KEYNES

 Put so much emphasis on the role of the government in entrepreneurial

and economic development, most especially when the economy is experiencing
depression.

 Government must take a strong intervention in entrepreneurial role played by

private sector by pouring money to the economy and creating more jobs and
projects for communities
 RICARDIAN THEORY
by DAVID RICARDO

 This is the theory of David Ricardo focusing on agriculture playing

the major role in economic development.

 In the Ricardian model capitalist undertakes production, pays rent to the landlords and
wages to the workers employed for the production work and what remains is his profits.

 Ricardian equivalence is an economic theory that says that financing government spending

out of current taxes or future taxes (and current deficits) will have equivalent effects on
the overall economy.
 HARROD-DOMAR THEORY
by HENRY ROY FORBES HARROD
and EVSAY DOMAR
 Conceptualized by Sir Harrod of England and Prof. Domar of the U.S, claims that
more products can be produced through the use of machines.

 The Harrod–Domar model is a Keynesian model of economic growth. It is used

in development economics to explain an economy's growth rate in terms of the
level of saving and of capital. It suggests that there is no natural reason for an
economy to have balanced growth.
 KALDOR THEORY
by NICHOLAS KALDOR

 Maintains that the key factor is technology. This theory explains that the
application of modern technology in the production of goods and services
has been responsible for the economic success of the highly developed
countries.
 Kaldor postulates the "technical progress function", which shows a
relationship between the growth of capital and productivity, incorporating the
influence of both the factors. Where the capital-output ratio will depend upon
the relationship of the growth of capital and the growth of productivity.
INNOVATION THEORY
by JOSEPH SCHUMPETER

 Stresses the role innovators or entrepreneurs in economic

development.
 Schumpeter strongly believed that innovation is the force that will propel the
revolutionary change.
 Innovation will cause the creative destruction of the static mode of economy,
stir the entrepreneurial activity and encourage competition.
The contributions of entrepreneurship are:
1. Development of new markets- Market development is a growth strategy that identifies
and develops new market segments for current products.
2. Discovery of new sources of materials- a process that involves the discovery,
evaluation, and exploitation of opportunities to introduce new products, services,
processes, ways of organizing, or markets.
3. Mobilization of capital resources- Resource mobilization refers to all activities
involved in securing new and additional resources for your organization. It also involves
making better use of, and maximizing, existing resources.
4. Introduction of new technologies- new technology Any set of productive techniques
which offers a significant improvement (whether measured in terms of increased output or
savings in costs) over the established technology for a given process in a specific historical
context.
5. Creation of employment- the process of providing new jobs, especially for people who
are unemployed: the government's job creation strategy.
11. There is a needed for a Filipino entrepreneurial economy. This means our
productive resources should be in the hands of Filipinos for their own benefits. A
reasonable economic nationalism should dominate our business culture for our
own prosperity as a nation. Schools should stress the value of entrepreneurship
based on just economic nationalism.
12. The government can support entrepreneurs from the various assistance
programs on the following; Peace and Order, Political Stability, Taxes,
Infrastructure, Education and Training, Public Administration, Production
Technology, Marketing Assistance, and Financial Assistance.
13. We have seen that entrepreneurship directly affects the social and economic
development of people. The more society engages in entrepreneurial undertakings,
the more it is likely to develop economically and socially. Our country still has a
long way to go in order to catch up with more developed countries.
HOW DOES ECONOMIC GROW?
A. Theories of economic growth may be classified into three broad groups. One
group consist of theories viewing economic growth as a natural and
inevitable process. The second group of theories economic development as a
rational process brought about when men respond to opportunities in the
environment so as to promote their own self-interest or social welfare. The
last group of theories views economic development as a result of seemingly
economically irrational yet psychologically and sociologically satisfying
activities of enterprising men. We shall label these groups as a general,
economic, and socio-psychological theories.
GENERAL EXPLANATIONS OF ECONOMIC DEVELOPMENT

 Economic development proceeds according to a master plan or “Law of

Nature”.
 Economic development is brought about by an “Invisble Hand”.
 Economic development is brought by “Cultural Diffusion”.
 Racial heritage determines the economic development of people.
 Climatic conditions determine the energy levels of people and in turn it’s rate of
development.
 The challenge of the natural environment is responsible for the rise of
civilization.
ECONOMIC EXPLANATIONS OF ECONOMIC
DEVELOPMENT
 Technology improvements and division of labor lead to development.
 Population changes effect development.
 Entrepreneurship is an important factor in development.

SOCIO-PSYCHOLOGICAL EXPLANATIONS OF
ECONOMIC DEVELOPMENT
 According to the work of Talcott Parsons, individuals in modern.
a. Unemotional;
b. Intersted in themselves:
c. Able to relate to others in terms of their social role or their ability to do a job;
d. Known for their accomplishments; and
e. Able to relate to others in specific economic terms.
 In contrast, members of traditional societies tend to:
a. Be emotional;
b. Be more interested in the general welfare of the community;
c. Relate to others in terms of their unique qualities
d. Be known for who they are; and
e. Tie up economic relatonships with all sorts of other relationships involving
kinship and political, religious, and other social structures.