Comments on Trade, Inclusive Growth and Inclusive Policy Making by P. S. Intal, Jr. Josef T. Yap Philippine Institute for Development Studies (PIDS) 9 December 2008

Record of Trade Liberalization

Development Has Lagged

Poverty Record is Disappointing Poverty and Inequality in East Asia Population in Poverty (in percent) Proportion of Population Below $1 (PPP) a Day (%) Gini Coefficient China Indonesia Malaysia Philippines Thailand Viet Nam Source: Asian Development Bank Key Indicators, 2007

Why Has Trade Liberalization Failed in Many Aspects? EXCHANGE RATE POLICY NOT SUPPORTIVE Rodrik, D. (2008): “The Real Exchange Rate and Economic Growth”. Downloaded from ER%20and%20growth.pdf (October).

Why Has Trade Liberalization Failed in Many Aspects? Lack of a Strategic and Coherent Industrial Policy Memiş, E. and M. F. Montes (2008): “Who’s Afraid of Industrial Policy?” Discussion Paper, Asia Pacific Trade and Investment Initiative, UNDP Regional Centre in Colombo (May).

Why Has Trade Liberalization Failed in Many Aspects? Poor physical infrastructure  Roots in the country’s external debt policy and weak tax effort Weak institutions and poor governance

Why Has Trade Liberalization Not Been Inclusive? Spotty record in improving human capital Lack of Safety Nets Labor market institutions, industrial relations

WHAT CAN BE DONE?

Main recommendation: Inclusive Policy Making “An approach to ensuring that policies and strategies take into clear consideration the impact of such policies on disadvantaged groups, operationalize social integration of previously marginalized groups, and to enhance citizen participation in governance” Q: Isn’t this DEMOCRACY?

Main recommendation: Inclusive Policy Making Q: Why haven’t democratic institutions worked in the Philippines? Q: Why are institutions weak? Q: How does one strengthen institutions?

INDUSTRIAL POLICY Review our tariff rates vis-à-vis WTO bound rates Mining-Manufacturing Link Competitiveness of Firms

ASEAN’s COMPETITIVENESS GOAL Transform their economies from mass production-based ones relying on unskilled or semiskilled labor to knowledge-based ones. Knowledge- based economic activities comprise R&D, product and service design, high value-added skills processing and marketing for the domestic, regional and global market places (Ariff 2003 as cited by Yamazawa and Hiratsuka, 2003)

Strategic Industrial Policy: Main Areas Human Resource Development Technological Capability and Skill Development Physical Infrastructure

Enhancing Technological Capability through Regional Cooperation and Integration Fostering local firms/entrepreneurs: e.g. Local Industries Upgrading Program; New age economic agreements, e.g. JPEPA Focus on SMEs

Main Elements of Fragmentation and Agglomeration

 Emphasis should be at the sub- national level  Involve local governments  Islands of excellence should lead the way

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