Productivity Growth: Key Driver of High and Sustained Business Growth

The Philippines should continue adopting an inclusive growth economic policy to increase its productivity and catch up with Asian neighbors that enjoy higher and sustained economic growth.

According to the study conducted by the Philippine Institute for Development Studies (PIDS), productivity growth was behind the spectacular economic performance of East Asian economies, namely Japan, Taiwan, Korea and China.

“Productivity growth is crucial to a country’s future economic prospects,” it said. “To catch up with its Southeast Asian Nations (ASEAN) and East Asian neighbors and improve the living standards of Filipinos, most especially the poor, the economy has to exploit productivity growth as a key driver of high and sustained growth.”

To achieve this, the Philippines needs to continue with market-oriented economic policy reforms that promote inclusive growth, particularly those that will strengthen the export markets.

“(These will also) lead to structural transformation toward the production and manufacture of higher-value products, thereby creating more employment opportunities,” the study said. “Development is for all people, not just for the elite, politicians, and the rich.”

The author of the study, PIDS senior research fellow Dr. Gilberto M. Llanto, identified external trade as among the significant determinants of total factor productivity (TFP) growth.

Others are educational attainment, inflation rate, foreign direct investments (FDI), expenditure in health and education, and population growth.

“An open economy will more likely have a high TFP,” he said. Openness is measured by the significance of trade or the ratio of exports to gross domestic product (GDP) and also by FDI/GDP.

Llanto also cited the need for the country to invest in education and human capital as well as in research and development (R&D).

It should likewise continue with policies that maintain macroeconomic stability, such as pursuing a fiscal balance and generating more revenues to strengthen its fiscal position.

“Making substantial investments in education, human capital and structural transformation will be impossible without a sufficiently large fiscal space,” he noted.
The study also underscored the more purposive and coordinative role for government in policy coordination and addressing information externalities and excesses of the market.  — Danielle Venz, PHILEXPORT News and Features

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