Tuesday, June 20, 2017

Can a country undo its development stage?

This writing is inspired by an insightful presentation by Professor Hal Hill about his and Ramon Clarete, and Emmanuel Esguerra's upcoming book 'The Philippine economy: no longer the East Asian exception?'

Their book was about how the Philippine development was lagging compared to its neighbours accelerating growth. In the 1960s where GDP per capita in the Philippine was higher, but in the 2000s it became less than others. That political dynamics, bad regulation, and conflicts have made it 'an exception' compared to the other countries miraculous growth.

What intrigue me about Pak Hal's presentation is that he said that the Philippine has skip a development stage, from agriculture to manufacturing and to service. Instead, the main economic sector has transformed from agriculture directly to the service sector. He elaborated that this is mainly due to restrictive internasionalisation in its trade and FDI policies, crony capitalism, bad labor and industry regulation, and infrastructure deficit. Taking account these factors and benefit by its people English language proficiency, the Philippine excels on the service sector exporting semi-skilled and unskilled workers with minimum intervention from the government. As a result, its growth trend is on average the same with its counterparts in the region, but cannot accelerate as fast as South Korea or Taiwan and become the NIE.

South Korea, for instance, has remarkable growth because of its electronic industry which made it a high income country now. The development formula of having a solid manufacturing base before taking off to the service sector seems to be the narative of many successful countries. Manufacturing sector has a comparative advantage for the economy since it absorbs formal workers, it has high forward and backward linkages to other sectors, and it contributes foreign reserve if exported.

In the case of the Philippine, and also Indonesia which manufacturing was vaguely developed, can service sector do the same thing for the economy ? can a country undo its development stage from service, back to manufacturing again ? is there any case study who experience a backward development cycle ?