Econ 332 - State of the Philippines

Econ 332

Professor Xiao

Yi Chen

December 8, 2015

State of the Philippines

These days we often hear about the development in Asian economy, the world is witnessing Asia’s transformation that is expected to change the formation of global economic condition. As time goes by, with the development of Asia in terms of economy, technology and living conditions over the past half a century, more people have perceived its capability to be an economic stronghold. In respect to the surging development in Asia, the growth of Philippines is complicated. As one of the Tiger Cub Economies in Southeast Asia and has the second highest per capita GDP in the 1950s. Today, the overall economic and social development of Philippines is not that good while comparing with the other three Southeast Asian countries: Malaysia, Indonesia, and Thailand, but it still has been gradually raising. From 1994 to 2014, the GDP per capita has been increased from $967.75 to the highest in $1665.29. The imports and exports were at the highest value of $74.67 billion and $72.74 billion, comparing to $28.54 billion and $26.38 billion in 1994. The 4.1% of inflation rate and 2.1% of FDI net flows rate in 2014 were moderate. The life expectancy years has increased from 65.87 to 68.7 in 2014; More people have been using the internet as increased subscriptions of Fixed broadband; but the situation of education is not optimistic. This paper will focus on analyzing 4 economic variables and 3 non-economic measurements of the Philippines. First of all, describes the Philippine 4 economic variables in 20 years, try to identify the factors that slowing down the economic growth. Second, by comparing the data of 3 social indicators to figure out the Philippine social-wellness. Third, using the correlation test to find relations between trade and growth of the Philippines. Finally, the last part will give the conclusion and some suggestions.

There is no doubt, the economic performance of the Philippines is not that well. By comparing the GDP per capita between Indonesia, Malaysia and Thailand. The Philippines really has the lowest value among them in the past 20 years. The average GDP per capita of Malaysia is $5514.95; Thailand is $2656.34; Indonesia is $1322.301; Philippines is $1218.52. On the good side, Philippines gradually has been increasing since 1994 and jumped about $697.54 to 2014. Somehow there were two obvious decline in 1998 and 2009 mainly due to the Asian financial crisis from Thailand (1997) and 2008’s global financial crisis. In 1998, its GDP per capita downed to $1024.97 from the previous year of $1053.69; in 2009 was $1329.51, decreased from 2008’s $1334. In addition, major financial crisis has caused the total amount of imports declined in 1998, 1999 and 2009. The imports’ volume in 1998 ($37.42 billion) and 1999 ($38.05 billion) which fell after 1997 from $43.87 billion; dropped from $57.03 billion (2008) to $52.42 billion (2009). Such economic fluctuations have brought down the Philippines’ exporting as well. In 1997 was $39.96 billion, then dropped to $31.56 in next year and in 1999 to $34.76 billion. The volume from 2008 ($55.63) and 2009 ($51.27) cannot compare to the previous year 2007’s $57.16 billion. In addition, two major reasons may cause decreased exporting in 2001. One was the EDSA Revolution of 2001, the change of new presidency. The other one was the Abu Sayyaf terrorism, held the tourists as hostage, such crisis lasted 12 months and 22 hostages were killed. Moreover, inflation has been playing an important role and highly variable in Philippine economy. Despite the major finical crisis caused the relative high inflation in 1998 (9.23%) and 2008 (8.26%), 1994 has unexpectedly 10.39% and 1996 has 7.48% in inflation. I predict that earthquakes may cause such a hyper-inflation, because the Philippines has such low domestic productivity and depends so heavily on imports (Net export always has been negative in the past 20 years). Unstructured supply and demand for foreign goods that serve to drive up domestic prices, such natural disasters will exacerbate the situation which causing hyper-inflation. I will focus on the FDI net inflows in 2001(0.256%) and 2010 (0.536%), because these years have the lowest value. In my opinion, I think the issue of terrorists and Hostage-taking incident caused the decline for FDT net inflows. The Abu Sayyaf terrorists in 2001, and Hostage-taking incident in 2010 not only caused the tension between HK and the Philippines, but also damaged the Philippines’ reputation internationally as well. The 3 non-economic measurements depicted that Philippines has performed well in health and infrastructure. The life expectancy has been increasing, and average life expectancy is 67.29 years. Fixed broadband subscriptions (per 100 people) showed that more Philippines can access to the internet, numbers have been increasing dramatically to 2014 (34.17), especially during the period from 2011 (8.85) to 2014. I was wondering this due to the Philippine digital strategy in 2011 to 2016. On the other hand, the government has little effort in education, because the Pupil-teacher ratio in primary education always high, and the average value is 34.17. Higher value means the Philippines has low level of primary education. In general, the Philippines has performed ok in both economy and society. It has endured the economic shocks of two crisis contagion and gradually recover. The economic recession that started in 2001 did not affect the Philippines as much. The degree of openness is calculated as the ratio of country’s total trade (imports+exports) to the country’s gross domestic product. The higher the better, it not only indicates strong influence of trade on domestic activities, but also exhibits one country’s economic openness. In the past 20 years, The Philippines only has more than 1 of openness index in two years, either in 1997 and 2006. Before the Asian financial crisis, it has 1.089, and before the global crisis, it has 1.0023. However, despite the relative “higher” value in 1994(0.832), in 2009(0.851), in 2013(0.871) and in 2014(0.89), the Philippines has been slowing down its international trade, but increasing the gross domestic production and reaching to the highest in 2014($165.09 billion). The growth rates of GDP per capita were very unstable for the past 20 years, it tended to has a lower percentage (around average is 3%) in most time. The years after financial crisis were hit hard, because the values were negative. One was -0.027 in 1998, and another was -0.0035 in 2009. The correlation between degree of openness and growth in GDP means the relationship between trade openness and economic growth, and the Philippines has only around 0.2236. As a result may explain why this country has low economic growth. More importantly, there were always trade deficits happening in Philippines. The international trade surplus was only in 2007 that around $10.23 billion, others were all negative. As I mentioned before that the Philippines has a structural problem in domestic supply and heavily relied on imports. Sadly, it always has been suffering for natural disasters such as earthquakes, typhoon, flood and so on. Such bad conditions may explain why it has huge trade deficits in 1998, 2001 to 2005, and 2013. The lower trade openness index and large trade deficits can be considered as reasons to slow down its economic growth.