Template-Type: ReDIF-Article 1.0 Author-Name: Robert H. Nelson Author-Workplace-Name: School of Public Policy, University of Maryland, USA Title: The Philippine economic mystery Abstract: The poor economic performance of the Philippines over the long term is a puzzle and an apparent anomaly for the region. The decline in the Philippines' global position from the first part of the 20th century is particularly striking when viewed against the backrdrop of rapid income gains in countries of East and Southeast Asia, countries the Philippines used to surpass in terms of physical and human capital. While there have been a number of attempts to explain the puzzle—difficult geography, macroeconomic policy failures, and corruption—none are completely convincing either because there are counterexamples or the factors cited are endogenous and derivative. On the other hand, the long-term economic record of the Philippines is strikingly similar to those of some Latin American countries, such as Argentina, Mexico, and Peru. This paper advances the hypothesis that the political and economic experience in the Philippines stands in closer proximity to those of countries in Latin America than in Southeast Asia, and that this is rooted in their deep similarity of histories and cultures. In particular, the common Spanish and Catholic colonial history may have given rise to cultural attitudes that now stand in the way of freer markets and a more successful political democracy. Classification-JEL: O10, O53 Keywords: Philippines, economic development, institutions, Catholic church Journal: Philippine Review of Economics Pages: 1-32 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/217/626 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:1-32 Template-Type: ReDIF-Article 1.0 Author-Name: Ma. Rowena M. Cham Author-Workplace-Name: Asian Development Bank Title: The Philippine power sector : issues and solutions Abstract: The Philippine government acknowledges that reliable and affordable power is important to achieve economic development and reduce poverty. In fact, it has been at the forefront for a long time, providing generation and transmission services through the National Power Corporation (NPC). However, NPC failed to deliver and live up to its mandate of providing reliable and affordable electricity. The power crisis in the 1990s, the higher the cost of electricity, and NPC's financial difficulties led to the restructuring of the sector to save this ailing industry. This paper traces the evolution of the power sector, explores the events that brought it to insolvency, and discusses the issues that need to be addressed to restore operational and financial viability. Classification-JEL: L94, L32 Keywords: electric utilities, public enterprises, regulation Journal: Philippine Review of Economics Pages: 33-63 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/218/631 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:33-63 Template-Type: ReDIF-Article 1.0 Author-Name: Wondielyn Q. Manalo-Macua Author-Workplace-Name: Power Sector Assets and Liabilities Management Corporation Title: Distributional implications of power sector reforms in the Philippines Abstract: This paper seeks to assess the distributional implications of the power sector reforms in the Philippines to residential consumers of electricity. First, we estimate the demand for electricity, taking into consideration the difficulties that arise from block pricing of electricity. Second, we simulate the impact of power reforms in terms of increasing the prices of electricity, assuming a linear budget set, and using the elasticities from the demand equation. This exercise draws heavily from the duality in consumer theory, which allows us to recover the utility function of individuals and to assess welfare in terms of compensating variation. This paper concludes that an increase in price of electricity will result in higher welfare loss as income increases. However, welfare loss of the poorest is highest among the lower-income groups. Classification-JEL: I38 Keywords: power sector reform, electricity demand, welfare analysis Journal: Philippine Review of Economics Pages: 65-97 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/219/628 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:65-97 Template-Type: ReDIF-Article 1.0 Author-Name: Rj Angeles Author-Name: Margot Aissa Tan Author-Workplace-Name: University of the Philippines School of Economics Title: The contribution of the output gap to the conduct of inflation targeting in the Philippines Abstract: This paper evaluates whether the inclusion of the output gap in the central bank's estimated reaction function would improve the conduct of inflation targeting in the Philippines. A reduced-form vector autoregression model was constructed using exchange rate, output gap, inflation, and interest rate as the relevant variables. The authors use two measures for the short-term interest rate: the reverse repurchase rate and the T-bill rate. Results from counterfactual simulations show that the adoption of a Taylor-type rule, which involves the use of the output gap, minimizes the deviations of inflation from its target. Based on the empirical results of this study, the inclusion of the output gap is significant in terms of its contribution to maintaining inflation at a level that is nearer to the desired target. It is recommended that further studies consider the use of output gap estimates derived from other procedures, especially those that employ Markov-regime switching techniques, which could account for shocks in the economy. In addition, the use of alternative model-representations for the Philippine economy within which counterfactual simulations may be performed is recommended as an area for future research. Classification-JEL: E58 Keywords: inflation, inflation targeting, monetary policy Journal: Philippine Review of Economics Pages: 99-123 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/220/637 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:99-123 Template-Type: ReDIF-Article 1.0 Author-Name: Chee-Keong Choong Author-Workplace-Name: Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Malaysia Author-Name: Zulkornain Yusop Author-Name: Siong-Hook Law Author-Workplace-Name: Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia Title: Export-led growth hypothesis : new evidence from Thirlwall's idea Abstract: This study reexamines the relationship between exports and economic growth in ten East Asian and Pacific economies by building upon Verdoorn's [1941] idea. The cointegration tests indicate the existence of long-run and stable relationships between economic growth, exports, imports, capital, and labor in each economy. Granger-causality tests indicate short-run in causality (either export-led growth or growth-driven exports) in most economies. Besides, among the long-run estimated coefficients between exports and imports, Fiji, Hong Kong, Japan, Malaysia, and the Philippines satisfy the intertemporal budget constraint—that is, these economies have an effective international trade policy to balance their trade position. The findings are in line with traditional trade theories and some recently developed endogenous growth theories. Classification-JEL: F1, O57 Keywords: exports, growth, cointegration, causality Journal: Philippine Review of Economics Pages: 125-150 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/221/636 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:125-150 Template-Type: ReDIF-Article 1.0 Author-Name: Hernan G. Roxas Author-Workplace-Name: School of Marketing and International Business (SMIB), Victoria University of Wellington, New Zealand Author-Name: Val Lindsay Author-Workplace-Name: School of Marketing and International Business (SMIB), Victoria University of Wellington, New Zealand Author-Name: Nicholas Ashill Author-Workplace-Name: School of Marketing and International Business (SMIB), Victoria University of Wellington, New Zealand Author-Name: Antong Victorio Author-Workplace-Name: School of Government, Victoria University of Wellington, New Zealand Title: Institutional analysis of strategic choice of micro, small, and medium enterprises : a conceptual framework Abstract: A conceptual framework is presented showing formal and informal institutions and their relationship with the strategic choice of micro, small and medium enterprises (MSMEs) in a developing-country setting. Emphasis is placed on how institutions at the subnational level (such as a region or city) influence the strategic orientations of MSMEs in the wake of decentralization, which grants subnational government authorities more political, economic, fiscal, and administrative powers. Furthermore, the paper sheds light on the environmental (institutional) determinism-organizational (strategic) choice nexus. It offers propositions, questions, and issues worth pursuing in future empirical investigations. Classification-JEL: L1, L2, O43 Keywords: MSMEs, strategic choice, institutional analysis, firm performance Journal: Philippine Review of Economics Pages: 151-186 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/222/638 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:151-186 Template-Type: ReDIF-Article 1.0 Author-Name: Chong Foo Lim Author-Workplace-Name: Department of Business Administration, International Islamic University of Malaysia Author-Name: Ahamed Kameel Mydin Meera Author-Workplace-Name: Department of Business Administration, International Islamic University of Malaysia Title: Managing foreign exchange risk : the Malaysian experience in the 1997 financial crisis Abstract: This paper gives an overview of some important factors that cause exchange-rate volatility and the key economic indicators that influence the probability of a crisis and its depth. It examines the Malaysian currency peg that has been in place since September 1998, using selected key economic indicators to examine whether the currency peg is a sustainable solution for managing foreign exchange risk. It also reviews the benefits and challenges of common currency and evaluates whether the implementation of a common currency could effectively reduce foreign exchange risk for Malaysia and ASEAN countries. There are three major findings presented. First, the volatility partners and competitors in the postcrisis period was against the Thai baht. Second, the currency peg is not a long-term solution for managing foreign exchange risk. Third and last, forming a synthetic common currency using data for the period 1996 to 2001, significant diversifiable risk—around 90 percent—is found in all individual currencies. Classification-JEL: E42, F31, F33, G15 Keywords: foreign exchange risk, currency union, currency peg Journal: Philippine Review of Economics Pages: 187-216 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/223/640 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:187-216 Template-Type: ReDIF-Article 1.0 Author-Name: M. Shabri Abd. Majid Author-Workplace-Name: International Islamic University of Malaysia Title: Inflation, financial development, and economic growth: the case of Malaysia and Thailand Abstract: By employing battery of time-series techniques, the paper empirically examines the short- and long-run finance-growth nexus after the 1997 financial crisis in Malaysia and Thailand. Based on autoregressive distributed lag (ARDL) models, the study documents a long-run equilibrium between economic growth, finance depth, and inflation. Granger causality tests reveals that there are (a) a unidirectional causality running from finance to growth in Malaysia, thus supporting the "finance-growth-led hypothesis" or the "supply-leading view"; and (b) a bidirectional causality between financial development and economic growth in Thailand, which accords with the "feedback hypothesis" or "bidirectional causality view". Based on the variance decompositions (VDCs) and the impulse-response functions (IRFs), the study discovers that the variations in the economic growth rely very much on their innovations. To promot growth in these countries, long-run policies—e.g., the enhancement of existing financial institutions both in the banking sector and the stock market—should be given priority. Classification-JEL: C32, O16 Keywords: foreign-growth nexus, autoregressive distributed lag models, multivariate causality Journal: Philippine Review of Economics Pages: 217-238 Volume: 44 Issue: 1 Year: 2007 Month: June File-URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/224/639 File-Format: Application/pdf Handle: RePEc:phs:prejrn:v:44:y:2007:i:1:p:217-238