A macroeconomic perspective on economic resilience and inclusive growth in the Philippines

Abstract

There are at least two distinct but not equally important ways to understand what economic resilience means: one is focused on minimizing deviations of output about its trend and the quick return of output to trend following shocks, while another emphasizes the invariance of the underlying trend of output growth itself to shocks, including the ability to raise potential output despite shocks. The Philippine economy cannot be regarded as resilient using either definition.

Anemic growth and the lack of economic resilience in the Philippines are primarily due to the inability of the government to make sufficient and quality investments in critical public goods such as climate change adaptation, health, education, and IT connectivity. The main reason for the lack of public (as well as private) investment is the presence of weak institutions and poor governance, characterized by a political economy process which provides many opportunities for rent-seeking behavior that benefit a narrow set of interests, and where adherence and sensitivity to the rule of law is lacking.

Overcoming the problem of weak institutions and poor governance requires a change in the incentive structure faced by key institutions, with clear criteria and targets set and performance tied to tenure in office, so as to make government officials more accountable to the people. It requires a populace that demands accountability, transparency in motives and processes, and timely delivery of intended outcomes from the government, and an unwillingness to accept and trade off short-term token benefits for necessary investments to make growth robust, sustainable, and more inclusive. A well-informed and vigilant populace that demands adequate provision of quality public goods and services from the government is key.

JEL classification: O4, O5