Rising Growth, Declining Investment : The Puzzle of the Philippines

The economy of the Philippines is open to trade and capital inflows, and has grown rapidly since 2002. Over the last 10 years, however, domestic investment, while stagnant in real terms, has shrunk as a share of GDP. In an open and growing economy, why the decline? Three reasons explain the puzzle. First, the public sector cannot afford expanding its investment at GDP growth rates. Second, the capital-intensive private sector does not find it convenient to raise investment at the economy's pace. Third, fast-growing businesses in the service sector do not need to rapidly increase investment to enjoy rising profits. Yet, the economy keeps growing. On the demand-side, massive labor migration results in remittances that fuel consumption-led-growth. On the supply-side, free from rent-capturing regulations, a few non-capital-intensive manufactures and services boost exports. The economic system is in equilibrium at a low level of capital stock, where all economic agents have no incentive to unilaterally increase investment and the first mover bears short-term costs. As a consequence, growth is slower and less inclusive than it could be. To make it speedier and more sustainable, and to reduce unemployment and poverty, the economy needs to move to a "high-capital-stock" equilibrium. This would be attainable through better-performing eco-zones, a competitive exchange rate, greater government revenues, and fewer elite-capturing regulations.

Bibliographic Details

Main Author:	Bocchi, Alessandro Magnoli
Language:	English
Published:	World Bank, Washington, DC 2008-01
Subjects:	ACCESS TO BANK, ACCOUNTING, ADVERSE EFFECTS, AGGREGATE DEMAND, AGRICULTURAL COMMODITIES, AGRICULTURE, ARREARS, ASSET HOLDINGS, ASSET QUALITY, ASSET RATIOS, AVAILABILITY OF CREDIT, BALANCE SHEETS, BANK BALANCE SHEETS, BANK CREDIT, BANK LENDING, BANK POLICY, BANKING SECTOR, BANKING SYSTEM, BARRIERS TO ENTRY, BENCHMARKS, BENEFICIARY, BOOK VALUE, BROAD MONEY, CAPITAL ACCOUNT, CAPITAL INFLOWS, CAPITAL STOCK, CENTRAL BANK, CENTRAL GOVERNMENT DEBT, COMMERCIAL BANK, COMPETITIVENESS, CONFLICTS OF INTERESTS, CONTRACT ENFORCEMENT, CORPORATE PROFITS, CORPORATE SAVINGS, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNT SURPLUS, CURRENT ACCOUNT SURPLUSES, DEBT, DEBT CRISIS, DEBT INTEREST, DEBT OVERHANG, DEBT SERVICE, DECLINE IN INVESTMENT, DEFICITS, DEMAND CURVES, DEMAND FOR CREDIT, DEPOSIT, DEREGULATION, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICIES, DEVELOPMENT POLICY, DEVELOPMENT STRATEGIES, DOMESTIC CAPITAL, DOMESTIC CREDIT, DOMESTIC MARKET, DURABLE, DURABLE EQUIPMENT, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC HISTORY, ECONOMIC OUTLOOK, ECONOMIC PERFORMANCE, ECONOMIC POLICIES, ECONOMIC POWER, ECONOMIC RESEARCH, ECONOMIC SYSTEM, ECONOMIC THEORY, EQUILIBRIUM, EQUITY MARKET, EXCHANGE RATE, EXCISE TAXES, EXPECTED RETURNS, EXPENDITURE, EXPENDITURES, EXPORT GROWTH, EXPORT PERFORMANCE, EXPORTERS, EXPORTS, EXTERNAL DEBT, EXTERNAL FINANCE, FINANCIAL CRISIS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL SECTOR, FISCAL BURDEN, FISCAL CONSTRAINTS, FISCAL DEFICIT, FISCAL EFFORTS, FISCAL POLICY, FIXED CAPITAL, FIXED COSTS, FIXED INVESTMENT, FIXED INVESTMENTS, FOREIGN BANKS, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN INVESTMENT, FOREIGN INVESTMENTS, FOREIGN INVESTORS, GDP, GDP PER CAPITA, GLOBAL ECONOMY, GNP, GOVERNMENT ASSETS, GOVERNMENT BORROWING, GOVERNMENT POLICIES, GOVERNMENT REVENUES, GOVERNMENT SECURITIES, GOVERNMENT SUPPORT, GROSS FIXED CAPITAL FORMATION, GROWTH POTENTIAL, GROWTH RATE, HOUSEHOLD SAVINGS, HUMAN CAPITAL, INCOME, INCOME TAXES, INDEXATION, INDUSTRIAL ECONOMIES, INFLATION, INSURANCE, INTEREST COSTS, INTEREST PAYMENTS, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL INVESTMENT, INTERNATIONAL STANDARDS, INVESTING, INVESTMENT CLIMATE, INVESTMENT DECISIONS, INVESTMENT HORIZON, INVESTMENT RATES, INVESTMENT SPENDING, INVESTOR UNCERTAINTY, LABOR MARKET, LABOR MARKETS, LACK OF CREDIBILITY, LAND POLICIES, LAND REFORM, LENDING INTEREST RATE, LIQUIDITY, LOCAL EXCHANGE, LOCAL MARKET, M3, MACROECONOMIC STABILITY, MACROECONOMIC VOLATILITY, MARGINAL COST, MARGINAL PRODUCT, MARGINAL REVENUE, MARKET COMPETITION, MARKET PARTICIPANTS, MARKET SHARE, MARKET STRUCTURE, MATHEMATICAL ECONOMICS, MOBILE PHONES, MONOPOLIES, MONOPOLY, NASH EQUILIBRIUM, NON-PERFORMING LOANS, OLIGARCHY, OLIGOPOLIES, OLIGOPOLISTIC MARKET, OLIGOPOLISTIC MARKETS, OLIGOPOLY, OWNERSHIP STRUCTURE, POLICY CREDIBILITY, POLITICAL ECONOMY, POLITICAL ECONOMY OF REFORM, POLITICAL RISKS, PORTFOLIO, PORTFOLIO INVESTMENT, POSITIVE ECONOMICS, POST-CRISIS PERIOD, POTENTIAL INVESTORS, PRICE INCREASES, PRINCIPAL-AGENT PROBLEMS, PRIVATE CAPITAL, PRIVATE CAPITAL INFLOWS, PRIVATE INVESTMENT, PRIVATE SECTOR, PRIVATE SECTOR CREDIT, PRODUCTIVITY, PRODUCTIVITY GROWTH, PUBLIC DEBT, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC SAVINGS, PUBLIC SECTOR, PUBLIC SPENDING, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL GDP, REGULATORY CAPACITY, REGULATORY CAPTURE, REGULATORY FRAMEWORK, REGULATORY POLICY, REMITTANCE, REMITTANCES, RENT SEEKING, RESERVES, RETURN, RISK PREMIUM, RISK SHARING, STOCK MARKET, STOCKS, SURPLUS LABOR, TAX, TAX COLLECTION, TAX INCENTIVES, TAX POLICY, TAXATION, TELECOMMUNICATIONS, TOTAL FACTOR PRODUCTIVITY, TRADING, TRANSACTION, TRANSACTION COSTS, TREASURY, UNEMPLOYMENT, UNEMPLOYMENT RATE, WAGES, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2008/01/9329050/rising-growth-declining-investment-puzzle-philippines https://hdl.handle.net/10986/6523
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