Template-Type: ReDIF-Paper 1.0 Author-Name: Ernesto M. Pernia Author-Name-First: Ernesto Author-Name-Last: Pernia Author-Workplace-Name: School of Economics, University of the Philippines Diliman Author-Name: J.M. Ian S. Salas Author-Name-First: J.M. Ian Author-Name-Last: Salas Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Investment Climate and Regional Development in the Philippines Abstract: This paper examines the Philippines’ investment climate in its many dimensions, relating these to the performance of the economy at the national, regional, and provincial levels. The central thesis is that the economy’s slow growth over the past two decades or more can be attributed in large measure to its poor investment climate that constricted capital formation and hampered the productivity improvements and competitiveness of firms; by extension, the differential development of regional and provincial economies can be explained by, among other factors, differences in their investment climates. From a cross-country comparative perspective, the Philippines appears to rate quite poorly in terms of a number of investment climate dimensions, including entry and exit of firms, regulatory burden and corruption, and infrastructure. These macro-level observations are largely corroborated by the results of more rigorous analysis of micro (firm-level) and provincial and regional data. The paper concludes that addressing the deficiencies of the investment climate, complemented by other relevant policy reforms, at the national and local levels, would significantly contribute to enhancing the economy’s productivity and long-run growth, as well as raise the performance of the lagging regions towards the level of the leading regions. Length: 30 pages Creation-Date: 2005-03 Publication-Status: Published as UPSE Discussion Paper No. DP 2005-01, March 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/121/119 File-Format: Application/pdf Number: 200501 Handle: RePEc:phs:dpaper:200501 Template-Type: ReDIF-Paper 1.0 Author-Name: Benjamin E. Diokno Author-Name-First: Benjamin Author-Name-Last: Diokno Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Reforming the Philippine Tax System: Lessons from Two Tax Reform Programs Abstract: The most important role that fiscal policy can play with regard to growth is to ensure macroeconomic stability. But despite two highly visible tax reform programs in less than two decades, the Philippines is now in the midst of a fiscal crisis. This has been brought about by pressures on the spending side of the equation. But the biggest contributor to the present fiscal crisis is the deterioration of the tax system -- its declining tax effort and growing unresponsiveness to changes in economic activity. The paper aims to describe analytically the similarities and differences of the 1986 Tax Reform Program and the 1997 Comprehensive Tax Reform Program (CTRP). In assessing the effect of the reform programs, the following questions were raised: Has the revenue mobilization capability of the tax system improved? Has the tax system become responsive to changes in economic activity? Has the share of corrective taxes to total taxes increased? There are lessons learned in managing the reform: tax reforms should be done at the start of an administration; they should be presented as a critical component of a comprehensive public sector reform program; in an environment where timely, upward, adjustment in existing tax rates are difficult to legislate, ad valorem taxation should be preferred to specific taxation; successful reforms require broad political support; and most importantly, the President must have the political will to do what is best for his country. Given the seriousness of the country’s fiscal problem, the low-yielding, complicated and inflexible tax system needs a major overhaul, not minor tinkering. The next round of tax reforms should focus on broadening the tax base, increasing the tax yield, improving the system’s responsiveness to changes in economic activity, and simplifying tax administration. The focus of the reform program should be: (a) heavier reliance on corrective or Piguovian taxes; (b) higher rate and broader VAT base, (c) rationalization of fiscal incentives, and (d) flat and lower income taxes. Length: 27 pages Creation-Date: 2005-03 Publication-Status: Published as UPSE Discussion Paper No. 2005-02, March 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/122/120 File-Format: Application/pdf Number: 200502 Handle: RePEc:phs:dpaper:200502 Template-Type: ReDIF-Paper 1.0 Author-Name: Edita A. Tan Author-Name-First: Edita Author-Name-Last: Tan Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: The Wage Structure of Overseas Filipino Workers Abstract: Labor-importing countries adopt differing immigration policy on foreign workers. They all restrict the number allowed entry and many set wage ceilings at levels below the wage paid the native workers. The differing restrictive immigration policies result in the segmentation of the world labor market and large inequality in wage rates for any one occupation or skill. The paper presents a simple model of wage and employment determination for observable variants of immigration policy followed by the major destinations of OFWs, in particular North America, Asian tiger economies and the Middle East. It estimated wage functions by regression using individual overseas workers data with human capital (schooling and experience), sex, occupation and destination as arguments. Excepting for completed college, schooling is found not to be a significant explanatory variable. The other variables exerts their expected influence in a significant way but destination proves to have the strongest influence on foreign wage. The paper concludes that would-be OFWs are unable to choose the best destination partly because of immigration restrictions and partly because they do not meet the qualifications required. Examples are ICT and nursing occupations. There is a proliferation of academic programs for these occupations but their generally poor quality disables the country from responding to the foreign demand for these skills. Length: 38 pages Creation-Date: 2005-03 Publication-Status: Published as UPSE Discussion Paper No. 2005-03, March 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/22/17 File-Format: Application/pdf Number: 200503 Handle: RePEc:phs:dpaper:200503 Template-Type: ReDIF-Paper 1.0 Author-Name: Ramon L. Clarete Author-Name-First: Ramon Author-Name-Last: Clarete Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Ex-post Effects of Trade Liberalization in the Philippines Abstract: This paper examines the Philippine experience with trade liberalization policies and their impact on the economy. Although the relationship between trade liberalization and poverty is not straightforward, empirical evidence suggests that there are beneficial effects of freer trade on the poor in the long run. Since the 1980s the Philippines has considerably lowered import restrictions and expanded trade. An ex-post assessment of the effects of trade liberalization produces results that fall short of the net positive expectations produced by ex-ante studies. An ex-ante assessment of the impact of freer trade in the Philippines using models of the Philippine economy indicates net positive gains for the economy and for representative Filipino households. However, per capita income changed very little over the period 1980-2002. This study seeks to explain the divergence as being due to transaction costs. Length: 36 pages Creation-Date: 2005-03 Publication-Status: Published as UPSE Discussion Paper No. 2005-04, March 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/23/18 File-Format: Application/pdf Number: 200504 Handle: RePEc:phs:dpaper:200504 Template-Type: ReDIF-Paper 1.0 Author-Name: Emmanuel S. de Dios et al Author-Name-First: Emmanuel Author-Name-Last: de Dios Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: The economy on a cusp : the proposed VAT amendments and their larger significance Abstract: Debates on the revision of the value-added tax (VAT) are about to reach the penultimate stage. Once house and senate have passed their respective versions of the bill, congress – through a bicameral conference committee sometimes referred to as the “third chamber” – must then agree on the final form of the law. After all the media-posturing, the politicking, and horse-trading have subsided, politicians of both chambers are still left to confront the nation’s true interests – and their own consciences. It is vital that they finally pass a law that is right in form and adequate to the economy’s needs. Length: 18 pages Creation-Date: 2005-03 Publication-Status: Published as UPSE Discussion Paper No. 2005-05, March 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/123/121 File-Format: Application/pdf Number: 200505 Handle: RePEc:phs:dpaper:200505 Template-Type: ReDIF-Paper 1.0 Author-Name: Joseph J. Capuno Author-Name-First: Joseph Author-Name-Last: Capuno Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: The quality of local governance and development under decentralization in the Philippines Abstract: This paper attempts to trace and find evidence for the linkages between the quality of governance, and development at the local level since the adoption of the fiscal decentralization policy in the Philippines in 1991. The concern since then over the links has been prompted by the observed persistent imbalances in local development – across and within regions – which many believe is due to the less than prudent exercise of the devolved powers and responsibilities – hence, low quality of local governance. To be sure, the decentralization has led to not a few innovations in local service delivery and financing, and in increased people’s participation in local civic activities. However, the spread of innovation has been slow and there has been less than genuine participation in the mandated local special bodies. The uneven quality of local governance thus may have contributed to imbalanced regional growth. Evidence also indicate that the initial level of economic conditions determine the acceptable quality of local governance, which explains why certain poor areas remain in the vicious circle of penury and misgovernance. To help improve the quality of local governance, some policy inputs are suggested. Length: 40 pages Creation-Date: 2005-07 Publication-Status: Published as UPSE Discussion Paper No. 2005-06, July 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/124/122 File-Format: Application/pdf Number: 200506 Handle: RePEc:phs:dpaper:200506 Template-Type: ReDIF-Paper 1.0 Author-Name: Raul V. Fabella Author-Name-First: Raul Author-Name-Last: Fabella Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Globally Incentives-Compatible Contracts Under Weak Third Party Enforcement Abstract: We explore how the structure of incentives contracts adjusts to the creation of quasi-rents by the delivery of certain types of contract obligations under weak third party enforcement (TPE). The situation invites quasi-rent appropriation by some contractor. We focus on possible ex-post opportunism by the principal. We propose the concept of globally incentives compatible (GIC) contracts, where no contractor has the incentive to deviate ex-post from the obligations set ex-ante in the contract. We model optimal appropriation by the principal and the response of the agent when the contract is not GIC. The conditions that guarantee GIC for principal-agent the incentives contracts under weak TPE are investigated. Length: 15 pages Creation-Date: 2005-08 Publication-Status: Published as UPSE Discussion Paper No. 2005-07, August 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/125/123 File-Format: Application/pdf Number: 200507 Keywords: global incentives compatibility, quasi-rent, third party enforcement incentives contract Handle: RePEc:phs:dpaper:200507 Template-Type: ReDIF-Paper 1.0 Author-Name: Maria Socorro Gochoco-Bautista Author-Name-First: Maria Socorro Author-Name-Last: Gochoco-Bautista Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: An Assessment of the Usefulness of Money for Policy in the Philippines Abstract: This study assesses the usefulness of money for policy in the Philippines. The basic idea behind the use of monetary aggregates for policy is that observed fluctuations in money anticipate movements in the ultimate objective of monetary policy, such as inflation control. The stability of key empirical relationships, including the behavior of velocity and the presence of cointegrating relationships among money and variables of interest to policymakers are examined. In general, results indicate that the stability of the behavior of velocity and the presence of cointegrating relationships involving money and other variables of interest do not do much damage to the potential usefulness of money for policy. The ability of money to predict inflation is examined using Granger causality tests and an unrestricted VAR that examined the relative contribution of innovations in money to the variance of the forecast errors in inflation. In general, money’s ability to predict inflation is less clear-cut and seems to be dependent on the ordering and lag lengths of the variables used in the VAR and the definition of money used. *The author wishes to thank the sponsors and participants of the Asian Economic Panel Meeting held in March 2005 in Tokyo, Japan and Carlos C. Bautista for research assistance. Length: 38 pages Creation-Date: 2005-09 Publication-Status: Published as UPSE Discussion Paper No. 2005-08, September 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/126/124 File-Format: Application/pdf Number: 200508 Handle: RePEc:phs:dpaper:200508 Template-Type: ReDIF-Paper 1.0 Author-Name: Rommel F. Rabanal Author-Name-First: Rommel Author-Name-Last: Rabanal Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Transparency, incentives and incumbent performance Abstract: An expected utility model is used to analyze the allocation decision of an incumbent politician in dividing public funds between expenditures on public goods and pure rents. Comparative statics analysis reveals that while the result for improvements in transparency is ambiguous in terms of simultaneously improving public goods provision and reducing rent-extraction, fixing the incentives scheme faced by the politician while in office yields unambiguously welfare-increasing outcomes. As in any contract under unobservable effort, it is not practicable to insist that the agent reveal his true effort level through increased transparency. Rather, the optimal contract must specify proper incentives and a minimum contractible level of information that accurately relates observed outcomes to the actual effort level exerted by the agent. The paper concludes with empirical results from a panel data set of 115 cities in the Philippines for the years 1996-2000 supporting the predictions of the theoretical model. Length: 31 pages Creation-Date: 2005-09 Publication-Status: Published as UPSE Discussion Paper No. 2005-09, September 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/127/125 File-Format: Application/pdf Number: 200509 Keywords: transparency, incumbent performance, rent-seeking Classification-JEL: D72, D80, H00 Handle: RePEc:phs:dpaper:200509 Template-Type: ReDIF-Paper 1.0 Author-Name: Gerardo P. Sicat Author-Name-First: Gerardo Author-Name-Last: Sicat Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: Reform of the Economic Provisions of the Constitution : Why National Progress Is at Stake Abstract: The Philippine Constitution contains many strong restrictions targeted against the flow of foreign capital in specific areas of economic activities. These restrictions were the same ones that were incorporated into the nationalistic provisions of the 1935 Constitution when its framers were anticipating future political independence. This paper discusses the beneficial aspects of lifting or liberalizing these restrictions on foreign capital in the Philippine context. Specifically, the restrictions relate to the prohibition of foreign individuals to engage in land ownership, in the exploitation of natural resources, and the ownership of public utilities. Corporations are allowed to participate in these activities only if they have equity ownership only to the maximum extent of 40 percent. In other words, foreign capital can only be a strict minority participation in corporate enterprises to be allowed in these economic activities. These provisions have hurt Philippine development over the years. Despite the liberalization of many aspects of the economy, including those in the area of trade, industry, and other aspects of the economy, these economic restrictions continue to hold because they are part of the Constitutional document. Some of these provisions of the Constitution could be relaxed through more liberal citizenship rules. But the basis of citizenship – jus sanguinis or blood relations– is also very restrictive. The need to improve the performance of the Philippine economy requires that these restrictions be examined and reformed. A direction of such reforms would be to place them out of the Constitutional framework – as is the case with most modernizing countries – and put them within the realm of ordinary legislation. In this way, they can be debated more openly and the policies could be suited up to changing conditions and the need for change of the economy. Length: 23 pages Creation-Date: 2005-09 Publication-Status: Published as UPSE Discussion Paper No. 2005-10, September 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/128/126 File-Format: Application/pdf Number: 200510 Keywords: Philippine economy, Economics and Law, Constitutions, Economic development, Foreign direct investments, Economic restrictions Handle: RePEc:phs:dpaper:200510 Template-Type: ReDIF-Paper 1.0 Author-Name: Gerardo P. Sicat Author-Name-First: Gerardo Author-Name-Last: Sicat Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: A Federal Structure Is Costly and Does Not Guarantee Progress Abstract: The paper discusses the suitability of the federal form of government as a replacement for the centralized structure of government in the context of Philippine economic and political conditions. The answer is depicted in the title of the essay. In providing a review of the main question, different countries in East Asia and countries are assessed. In all of them, economic performance is not due to the form of their government but to the use of correct economic policies. The federalist program proposes seeks to divide the Philippines into separate states to form a federal union. This is contrary to the historical experience of modern and successful federal states where the separate states first evolved as self-governing regions before they decided to form a federation. There are many disadvantages of the federalist proposal in the context of existing Philippine conditions. Changing to a federal structure does not promote international competitiveness since the restrictions on the movement of specific factors of production – foreign direct investment in some sectors in this case – will continue to exist without an amendment of the economic provisions that is not in the federalist agenda. A federation will strengthen the power and political hold of local political dynasties and warlords and this can result in the incidence of monopolies. A federal form of government can create the basis for balkanization of an increasingly divided nation. The nature of central -local government sharing of burdens and resources is a continuing agenda whether in a unitary or federal government. Even in a federation, these problems will not go away. The condition of an impoverished central government is due to the inability to improve the economy’s performance. In the Philippine context, this is due to the restrictive economic provisions of the Philippine Constitution. Length: 29 pages Creation-Date: 2005-12 Publication-Status: Published as UPSE Discussion Paper No. 2005-11, December 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/129/127 File-Format: Application/pdf Number: 200511 Keywords: Federal government, Constitutional change, Economic Development, Philippine economy, Politics Handle: RePEc:phs:dpaper:200511 Template-Type: ReDIF-Paper 1.0 Author-Name: Gerardo P. Sicat Author-Name-First: Gerardo Author-Name-Last: Sicat Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: The Economic Argument for Constitutional Reform Abstract: The Philippines requires the revision of the economic provisions of the Constitution if it is to become a major recipient of foreign investment flows like other high growth economies in the East Asia. These economic provisions were adopted in 1935 and have helped to reduce the country's ability to achieve a strong economic development record for seven decades. Reforming these policies can be undertaken by making the specific policy issues the subject of ordinary legislation rather than through constitutional provisions that are hard to change. The most obvious benefits of such a constitutional reform are increased foreign investments, higher rate of economic growth and employment; rising incomes for the population; and sustaining the fight against poverty. The less obvious benefits affect the macroeconomic fundamentals of the country; reduction of the fiscal deficit; lessening of the external debt burden; imporvement of trade and payments and stabilization of the peso; increase of the saving rate; and improvement of the country's financial markets. Length: 22 pages Creation-Date: 2005-12 Publication-Status: Published as UPSE Discussion Paper No. 2005-12, December 2005 File-URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/24/19 File-Format: Application/pdf Number: 200512 Keywords: Constitutional change, foreign investments, economic development, Philippine economy, macroeconomic fundamentals Handle: RePEc:phs:dpaper:200512 Template-Type: ReDIF-Paper 1.0 Author-Name: Susan S. Navarro Author-Name-First: Susan Author-Name-Last: Navarro Author-Workplace-Name: School of Economics, University of the Philippines Diliman Title: An Intercountry Analysis of Homicide Abstract: Since the pioneering work of Gary Becker (1968) , economists have analyzed determinants of crime from the perspective of the offender's rational decision to participate in illegal activities. Pooled time series and cross section data for 1977 and 2000 were used in this paper to examine intercountry differences in effects of economic incentives and deterrence on homicide rates. Inequality of income or consumption was significant in all of the estimated equations. This is consistent with the findings of Fajnzylber et al., who claimed that income inequality has a significant and independent impact on intentional homicide rate and that "this conclusion is not only derived from studies based on official crime statistics but is also present in those based on victimization rates from household surveys." Per capita GNP and total police personnel per 100,000 inhabitants were found to have significant relationships with completed intentional homicide. Length: 30 pages Creation-Date: 2005-12 Publication-Status: Published as UPSE Discussion Paper No. 2005-13, December 2005 Number: 200513 Handle: RePEc:phs:dpaper:200513