Analysis of the effects of trade on the productivity of the Philippine manufacturing sub-sectors,1988-1998

• Main Authors: Cheng, Patricia, Choa, Kathleen, Mangilit, Karen, Reyes, Jose Antonio
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Free trade > Philippines; Industrial productivity > Philippines; Manufactures > Philippines; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14362
• Institution: De La Salle University

Trade liberalization has been lauded by many as a boon to all nations of the world, be it developed or developing ones, due to the various gains accumulated in its practice. With such an accolade, there is a need to accurately determine if such is the case of the Philippines. It is the purpose of this paper to answer this question, particularly from the production point of view, using panel data gathered on the manufacturing sector for the years 1988 to 1998, which are also the years wherein the country had taken major steps towards trade liberalization. In order to first determine the aspect of productivity affected by trade liberalization, the total factor productivity must be estimated using the growth accounting framework established by Robert Solow. After which, certain independent variables are chosen to determine the effects of trade liberalization, namely export orientation, imports, growth of tariff rates and number of establishments. The human capital index and the share of energy cost to the total costs are added in to provide greater analysis on the subject. These variables are regressed to the growth rates of total factor productivity estimated earlier. The results of the regression show that only export orientation has a positive relationship with total factor productivity. The rest exhibit an inverse relationship with the latter. However, except for the human capital index, the five independent variables are significantly related to the regressand. These results have paved the way for several conclusion as well as policy recommendations. The government should create policies that will stimulate more export activities as this has shown a positive effect to the productivity of the sector. Moreover, given that productivity seems to rise with the decline in tariff rates, the current trend of reducing rates should be continued albeit not to extremely as this has been known to be disastrous should it occur. On the other hand, the government should look over the types of imports entering the country as results show a negative relationship. And, small and medium enterprises must be protected to a certain degree since there is a trend of firms exiting as trade is liberalized. Lastly, less energy intensive firms should be focused on as they seem to have higher productivities relative to more intensive ones.