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Consumption, Remittances, Service Economy Drive Philippines' Growth Rate | A Presentation

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This piece is an excerpt from a slightly longer presentation by Dr. Antoinette Raquiza, originally titled "Now and Then: The Philippines and Thailand from a Comparative Perspective," and was delivered at the “The Philippines and Thailand: A Reversal of Fortune” Public Forum held last 8 April 2016 at the Seminar Room, UP Asian Center. Photo by Hans Olav Lien/Wikimedia Commons  


For this forum, I have been asked to revisit the work that I did for my book, State Structure, Policy Formation, and Economic Development in Southeast Asia: the Political Economy of the Philippines and Thailand (Routledge 2012). When I began the study in 2005, the Philippines was struggling to catch up with other Southeast Asian market economies while industrializing Thailand had recovered from the 1997-98 financial crisis and seemed on track to reclaiming its place as an economic leader among Southeast Asian countries.

Fast forward to 2014 and we have the Philippines overtaking Thailand in terms of economic growth. In 2014, GDP growth for the Philippines was 6.1% while that of Thailand was a shocking 0.9%. More telling are the figures, comparing the two countries’ annual average GDP growth rates for the period 2004-14. During this 10-year period, the Philippines grew an annual average of 6% while Thailand could muster only 4%.

The questions that this reversal of economic fortune raises are many. My specific interest in this forum is to examine how reality catches up with theory.

To start, allow me to provide a brief background on the work I did, comparing the Philippines and Thailand. The study sought to identify factors for the differences in economic performance among late developing countries that are vulnerable to crony capitalism, external shocks, and political instability. The work focused on the Philippines and Thailand because both countries shared in these three attributes, but differed the most in the variable I sought to explain: economic performance.

From this study, I forwarded an analytical framework that linked differences in economic performance to variations in governing elites’ institutional settings. Concretely, I argued that variations in the institutional character of the political
leadership and economic technocracy account for differences in the countries’ economic performance.

Comparative historical analysis shows that the Thai political leadership and economic managers came from state institutions, notably the military and civilian bureaucracy, while their Philippine counterparts emerged from social networks, notably, political families. That the Thai governing elites were embedded in relatively strong state organizations meant that power struggles among them were internalized and so did not seriously disrupt economic activities. For the most part of Thailand’s modern history, its bureaucratic elites were able to provide policy continuity and stability and, in so doing, fostered industrial development.

In the Philippines where public authority merges with private power, incumbents have been known to use the state to go after political-cum-economic rivals. In a setting where political turnovers could signal a change in economic policies and the regime’s business allies, commercial interests, which usually involve the quick turnover of capital, goods, and other assets, are better able to thrive than industrial concerns that require longer gestation period to turn a profit.

The findings suggest that there is a correspondence between institutional settings of governing elites and the policy environment required by specific economic sectors to grow. In fact, one key finding from the study is that while taking into account the role that institutional settings had on growth rates, its long-term impact on the economy was most apparent in the distinct development of agriculture, manufacturing, and services.

How does this analysis then line up with current reality?

For this forum, I will mainly address the dominant narrative on Philippine rapid growth. In the Philippines, the Aquino administration has been quick to attribute the economy’s rapid growth to its “Daang Matuwid” program that largely consists of anti-corruption measures aimed at raising investors’ confidence. Yet, going by the specific measures I used in examining state configuration, the nature and organization of the political leadership and economic technocracy remain fundamentally the same. The political and policy arenas continue to be dominated by members of political families while the top economic managers come from the incumbent’s personal pool of advisers drawn from business and academic sectors.

What has changed, accounting for the economy’s dynamism today, is the configuration of the global economy partly due to the digital revolution that has further disaggregated global production and services processes. Thus, while the original study can account for the growth of the service sector despite the Philippines’s weak state institutions, it did not anticipate the impact of external factors in consolidating this pattern of growth.

In previous studies examining the bases of the Philippines’s rapid growth since mid-2000s, I have argued that rapid growth has come from linking the country’s services industries to global markets. Thus, while foreign direct investments have indeed increased under the Aquino administration, the main draw has less to do with the good governance rhetoric. Rather, the rapid growth of the economy stems from the country’s international trade in services (notably, export labor, the MNC-dominated business process outsourcing, and tourism industries). For instance, the export labor industry has grown so dramatically since the mid-2000s that the flow of overseas workers remittances in a month equals the amount the country receives in foreign direct investments in a year! Private consumption, fueled largely by remittances, accounts for about 70% of the country’s growth.

Thus, I have argued that this pattern of development, which derives its strength from global labor markets, has worked to delink the Philippine economy from structural constraints that held back the country in the past. In contrast, productive activities, which would be most affected by institutional settings of governing elites,
have progressed more timidly.

The Thailand case is much more complex and I will mainly defer to my esteemed colleagues, Drs. Thanet Aphornsuvan and Coeli Barry, to respond to the question posed by the forum. I will however say that the Thai case poses the most difficulty for the analytical framework that I developed. Immediately, my state configuration framework does not take into account non-state actors........


The UP Asian Center offers M.A. degrees in Asian Studies with four fields of specialization: Northeast Asia, Southeast Asia, South Asia, and West Asia. The Center also has an M.A. program in Philippine Studies that allows students to major in Philippine society and culture, Philippine foreign relations, or Philippine development studies. The Center offers a Ph.D. program in Philippine Studies in conjunction with the College of Arts and Letters and the College of Social Sciences and Philosophy. Get an overview of these programs. The Asian Center also houses a peer-reviewed, open-access journal, Asian Studies: Journal of Critical Perspectives on Asia. It has published several books and monographs, and hosts or organizes various lectures and conferences

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