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Overcoming InfrastructureConstraints to
Economic Growth in the
Philippines
Overcoming InfrastructureConstraints to
Economic Growth in the
Philippines
Gilberto M. Llanto
Philippine Institute for
Development Studies
Gilberto M. Llanto
Philippine Institute for
Development Studies
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What paper wants to undertakeWhat paper wants to undertake
Diagnose the Philippine economy andDiagnose the Philippine economy and
identify binding constraints to its economicidentify binding constraints to its economic
growth and poverty reduction efforts.growth and poverty reduction efforts.
An overall hypothesis is that poorAn overall hypothesis is that poor
infrastructure is a binding constraint toinfrastructure is a binding constraint toeconomic growth and poverty reduction.economic growth and poverty reduction.
Analyze factors responsible for the lack ofAnalyze factors responsible for the lack of
infrastructure.infrastructure.
Provide policy recommendations to helpProvide policy recommendations to help
overcome those constraining factors.overcome those constraining factors.
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Organization of the PaperOrganization of the Paper
Takes off from growth diagnostics paperTakes off from growth diagnostics paper
Part I: country analysis: relationshipPart I: country analysis: relationshipbetween growth and some growthbetween growth and some growth--
constraining factors, more specificallyconstraining factors, more specifically
weak or poor infrastructure.weak or poor infrastructure.
Part II: crossPart II: cross--country comparisonscountry comparisons
Part III: conclusions andPart III: conclusions andrecommendationsrecommendations
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Philippine Growth
Modest growth and slow povertyModest growth and slow povertyreductionreduction
Driven by overseas remittances andDriven by overseas remittances and
consumption rather than byconsumption rather than byinvestment or productivityinvestment or productivity
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Philippine Growth has been
below Potential
Philippine Growth has been
below Potential
Source: World Bank WDI
Per Capita GDP Growth Rates 1966-2004
5.77
7.00
4.03
4.79
1.28
3.95
4.77
0
1
2
3
4
5
6
7
8
EAP China Indonesia Thailand Philippines Malaysia Vietnam
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Rapid Population Growth and
Urbanization has Created Tremendous
Strain on Weak Infrastructure.
Rapid Population Growth and
Urbanization has Created Tremendous
Strain on Weak Infrastructure.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
0
20
40
60
80
PercentThousands
% of population residing
in urban areas% of
population
residing in
Metro Manila
Rural
Urban
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Why Infrastructure MattersWhy Infrastructure Matters
Survey of investment climate points to
weak infrastructure as a critical constraintto business and growth climate.
A recent joint study by the World Bank, the Asian Development Bank and the JapanBank for International Cooperation (2005)stresses the decisive role that
infrastructure has played in growth andpoverty reduction in East Asia and thePacific.
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Infrastructure Matters for
Poverty Reduction
Infrastructure Matters for
Poverty Reduction
0
20
40
60
80
100
Poorest Second Middle Fourth Richest
Quintile
Access to basic infrastructure
Percent of Population
Electricity
Telephone
Piped drinking water
Own flush toilet
Source: Gawtkin, Davidson R. Shea Rustein, Kiersten Johnson, Rohini Pande, and Adam Wagstaff. 2000. Socio-
economic Differences in Health, Nutrition, and Population in the Philippines. World Bank, Washington D.C.
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State of Infrastructure
in the Country
State of Infrastructure
in the Country
Some decent achievements: overall
access to electricity (80%); water supply(86%); telephones (31%)
Total road network length: 2.6 kilometers
per 1,000 persons BUT there is still a large scope for
improving access and more importantly, in
improving the quality of infrastructure. Bad maintenance has resulted to
deteriorating quality of infrastructure.
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Fixed and Mobile Phone
Subscribers (per 1,000 people)
Fixed and Mobile Phone
Subscribers (per 1,000 people)
World Development Indicator (2006)World Development Indicator (2006)
PHIPHI THAITHAI VIETNAMVIETNAM INDOINDO
20032003 322322 450450 8787 123123
20042004 445445 536536 183183 185185
20052005 459459 306306 270270
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Philippines,
Total Road Network, kilometers
Philippines,
Total Road Network, kilometers
0.00
50000.00
100000.00
150000.00
200000.00
250000.00
300000.00
350000.00
400000.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
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Road Network Coverage, 2003
Road Density: Length in km perRoad Density: Length in km per
CountryCountry Total roadTotal road
length (km)length (km)1000 vehicles1000 vehicles
(4(4--wheel)wheel)10001000
populationpopulationSq. km ofSq. km of
land arealand area
IndonesiaIndonesia 310,000310,000 65.865.8 1.41.4 0.160.16
ThailandThailand 209,800209,800 42.042.0 3.33.3 0.410.41
PhilippinesPhilippines 202,083202,083 91.391.3 2.42.4 0.670.67
MalaysiaMalaysia 72,00072,000 19.419.4 2.82.8 0.220.22
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Infrastructure Ranking
CountryCountryOverallOverall
InfrastructureInfrastructure RailroadRailroad PortPort AirAirElectriElectri--
citycityTeleTele--
comscoms
ChinaChina 3.53.5 3.73.7 3.73.7 3.93.9 4.24.2 5.45.4
IndiaIndia 2.92.9 4.74.7 3.23.2 4.84.8 3.03.0 6.06.0
IndonesiaIndonesia 3.73.7 3.23.2 3.73.7 4.14.1 3.63.6 3.93.9
KoreaKorea 5.25.2 5.45.4 5.35.3 5.75.7 6.16.1 6.56.5MalaysiaMalaysia 6.16.1 4.94.9 6.16.1 6.26.2 5.95.9 6.06.0
ThailandThailand 4.94.9 3.73.7 4.54.5 5.65.6 5.35.3 6.16.1
VietnamVietnam 2.72.7 2.82.8 3.13.1 3.93.9 3.43.4 4.94.9PhilippinesPhilippines 2.32.3 1.51.5 2.42.4 3.93.9 3.63.6 4.84.8
RankingRanking 8 of 88 of 8 8 of 88 of 8 8 of 88 of 8 6 of 86 of 8 5 of 85 of 8 7 of 87 of 8
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Infrastructure Quality: Quality ranking
World Competitiveness Report 2006-2007
Overall Infrastructure Quality
0 1 2 3 4 5 6 7
Japan
Taiwan
KoreaHong Kong
Singapore
Philippines
Vietnam
Indonesia
China
Thailand
Malaysia
Philippines: Low quality of services has emerged as a key impediPhilippines: Low quality of services has emerged as a key impediment to thement to theeconomic competitivenesseconomic competitiveness
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Overall Infrastructure QualityOverall Infrastructure Quality
YearYear PhilippinesPhilippines IndonesiaIndonesia MalaysiaMalaysia ThailandThailand
20062006 2.52.5 2.52.5 5.75.7 5.05.0
Source: WEC, World Competitiveness Report 2006-2007
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Infrastructure as a share of GDP
1985-2002
Infrastructure as a share of GDP
1985-2002
0
1
2
3
4
5
6
7
1985
1987
1989 19
9119
9319
9519
9719
9920
01
Private Public
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Infra Investment as share of GDPInfra Investment as share of GDP
0.0
2.0
4.0
6.0
8.0
10.0
Phili
ppines
Indo
nesia
Alba
niaRu
ssia
Cam
bodia
Kaza
khstan
China
%
age
Public Private
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Part I: Is Infrastructure a
Binding Constraint?
Empirical tests: hypothesesEmpirical tests: hypotheses
Returns to investment in infrastructureReturns to investment in infrastructure
Cost of doing businessCost of doing business
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Infra as an Investment
Constraint
Survey of 647 firms in the country
indicated the following as most importantconstraints:
a) macroeconomic instability
b) corruptionc) regulatory policy uncertainty
d) crime, theft and disorder,
e)
tax rates and tax administration, andf) INFRASTRUCTURE (electricity and transport).
ADB/WB investment climate survey, 2004
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Part I: HypothesesPart I: HypothesesPart I: Hypotheses
Poor or inadequate infrastructure is aPoor or inadequate infrastructure is a
binding constraint to economicbinding constraint to economicgrowth.growth.
Infrastructure leads to higherInfrastructure leads to highereconomic growth and productivity, oreconomic growth and productivity, or
more specifically, higher infrastructuremore specifically, higher infrastructure
investments (public capital) lead toinvestments (public capital) lead togrowth in economy output.growth in economy output.
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Road transport (energy, portRoad transport (energy, portservices) has a higher constrainingservices) has a higher constrainingeffect on economic growth than othereffect on economic growth than othertypes of infrastructure.types of infrastructure.
Public infrastructure (capital) isPublic infrastructure (capital) iscomplementary to private capitalcomplementary to private capital(production). This implies that(production). This implies thatinfrastructure can play a role ininfrastructure can play a role inreducing private sector costs, that isreducing private sector costs, that ispublic capital is cost reducing.public capital is cost reducing.
Part I: HypothesesPart I: Hypotheses
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Part I: HypothesesPart I: Hypotheses
Regions with high infrastructure investmentsRegions with high infrastructure investmentstend to have higher economic growth andtend to have higher economic growth and
regions with low infrastructure investmentsregions with low infrastructure investments
tend to have lower economic growth. Thistend to have lower economic growth. This
implies that infrastructure investment createsimplies that infrastructure investment creates
income divergence across regions.income divergence across regions.
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Thank You!Thank You!