The Influence of Globalization on the Philippine Economy

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Globalisation entails the progressive breakdown of artificial barriers between economies, allowing for the effective flow and exchange of goods and services. Globalisation has extensively impacted the global economy and empowered nation states to strategically develop initiatives and policies to promote economic growth and development. The Philippines is a developing economy that has been profoundly influenced by globalisation and the increasing coordination of global regions and economies. Located in the East-Asia Pacific Region, the Philippines is recognised as an extremely dynamic economy that has strived to achieve consistent economic growth, as well as improved economic development and equality, ultimately demonstrating the positive influences of globalisation. This has been reflected through the Philippines’ 6.2% increase in GDP (World Bank, 2018) as well as their HDI increase from 0.59 to 0.699 from 1990 to 2018 (UNDP, 2019). However, the Philippines has also experienced a range of challenges pertaining to environmental sustainability and external stability, due to the forces of globalisation.

Economic Growth

Economic growth (EG) is a quantitative measure of an economy’s output and production of economic goods and services, compared from one period of time to another. EG can be measured in nominal or real (adjusted for inflation) terms but is commonly measured in terms of the increase in the aggregate market value of additional goods and services produced, using the estimate of Gross Domestic Product (GDP). Economic growth in the Philippines has consistently increased year on year in the Philippines, with the nation achieving GDP growth of more than 4.5% from 2015 to 2019.

Economic Reform Strategy

Economic reform strategy refers to the reduction in the size and regulation of government to remove distortions caused by regulations or increase regulations to reduce distortions caused by market failure. The Philippines has been grouped among the fastest growing economies globally and is rapidly approaching upper middle-income status. Since establishing its economic reform program in the early 1990s, the Philippine economy has transitioned from a secluded economy to one that is open and features increased privatization and industrialisation. As a result, this has increased competition and the efficiency of firms across many sectors, particularly the industrial sector, enabling the economy to continually thrive. The continual rise of foreign competition has also been evident, as the value of foreign imports in the Philippines increased from $6,736.97m USD in 1987 to $96,093.24m USD in 2017 (PSA, 2018). To complement this reform, the Philippine government also recently introduced the ‘Tobacco and Alcohol Excise Tax Reform Law’ (2012) collaborating with key organisations such as The Asia Foundation. Since its inception, the reform has generated government revenue from increased taxes on alcohol and tobacco products. As a result of this, citizens in the Philippines have been empowered to adopt new lifestyle behaviours that ultimately drive greater health outcomes. This was reflected through a 25% reduction of smokers by 2014, complemented by a 57.9% increase in the health budget over the past five years, as well as US$448 million administered to further attainable health services for 45 million Filipino people. Ultimately, economic reform has been imperative in driving growth and promoting development within the Philippine economy

International Trade

International trade entails the exchange of goods and services between countries, providing greater access to key resources. Trade allows countries to expand their markets for both goods and services that otherwise may not be available domestically. International trade for the Philippines has reflected the significant effects of globalisation on its economy. The key international mechanism for free trade in the Philippines is the World Trade Organisation (WTO), which endorses numerous trade agreements and has profoundly strengthened the relationships that the Philippines has with a variety of countries. Foreign trade contributed to 70.7% of the Philippines’ GDP in 2017 (WTO), with its main exports being electrical equipment, nuclear reactors and boilers, technical and medical apparatus, copper and ships with imports focusing on electronics and electrical equipment, petrochemicals, and machinery. Moreover, 80% of total exports in the Philippine’s are manufacturing related with its dominant WTO trading partners being Japan, US and Hong Kong, with more than 18% of its total imports sourced from China. The Philippines has also been recognised as a prolific economy in other major agreements such as ASEAN, which has had significant implications for enhancing the nation’s economic growth and development. ASEAN has been the cornerstone of trade policy in the Philippines, ensuring that the economy engages in harmonious relations and benefits its people through mechanisms for continual economic growth and development. Since joining ASEAN, GDP grew by 7.1% in 2012 and the number of university and college graduates in the Philippine’s has grown by more than 3% annually, as ASEAN has influenced the Philippines to pursue a strong and educated quality workforce. Thus, it is clear that pursuing international relations has been a highly effective strategy for promoting economic growth in the Philippines.

Financial Flows and Currency

The profound effect of globalisation on the Philippines has been reflected through changes to financial flows and currency. From the early 1990s to the early 2000s, the Philippines experienced an uprising measure of foreign exchange reserves and rapidly appreciating currencies in nominal and real terms. However, with its increasing focus on driving growth and infrastructure, the Philippines’ currency (Peso) is now the weakest among the ASEAN economies. The main reason as to why Peso is weakening is the significant inflow of debt finance and overseas borrowings to fund building projects. In 2018, it was reported that the import of raw materials in the Philippines increased by 12%, capital goods 29% and imported consumer goods 30% under the leadership of Rodrigo Duterte (President). This dominant focus on growth and infrastructure through borrowing has presented challenges pertaining to external stability and the servicing of foreign debt (78959.57m USD in 2017), ultimately leading to a currency decrease. The increase in imports has also created negative implications for a widening trade deficit, as import volume has consistently exceeded export volume in the Philippine’s over the past two years.

Foreign Direct Investment (FDI)

FDI has also significantly declined in the Philippines over the past two years, particularly as the government has placed a strong priority on utilising sources of debt finance through overseas borrowing. The Philippine’s notably experienced a 45.1% drop in FDI (to USD 0.42 billion) in August 2019 and this has also been attributed to declining investor confidence and uncertainty over the government’s strong endorsement of tax incentives and lack of clarity with the current status of the reforms (Noble, 2019). Furthermore, many foreign investors and speculators have cited uncertainty over the US-China trade war and its implications for economies in the Asian region, thereby reducing FDI.

Economic Development

Economic development is a comprehensive term that refers to the structural changes that promote economic growth such as adoption of new technologies, the transition to an industry-based economy, as well as general improvements in living standards. In order to measure economic development, the factors that must be considered include Quality of Life (QOL) and HDI.

Quality of Life (QOL) and HDI

QOL is an economic term that subjectively measures the degree of happiness experienced by individuals and/or groups living within an economy. The QOL that individuals/groups experience profoundly impacts their degree of choice and freedoms with respect to financial decisions, employment and family life. Factors that help to determine the QOL include job satisfaction, family life, health and safety. In 2018, the UN Development Programme (UNDP) QOL Index for the Philippines measured at 87.24%, ranking the nation 97 out of 169 UN countries and reflecting a ‘moderate’ measure of QOL. Furthermore, the UNDP report in 2018 revealed that HDI has continued to improve and flourish, with profound increases in HDI (Rank 113), GNI Per Capita, Educational Standards and Life Expectancy from 1990-2017. Yet, the effectiveness of strategies in the Philippines must be critiqued as the economy continues to lag behind other nations such as Indonesia and Thailand with respect to education and GNI per capita.

Income and Wealth Distribution (Gini Coefficient and Lorenz Curve)

Income and wealth distribution across the Philippines population remains a significant challenge for government and requires further economic reform to promote equality. According to data from World Bank, the GINI Index for the Philippines was 40.10 in (2015). Since the mid 1980’s, the GINI Coefficient of the Philippines has remained relatively stable and ranged from 0.4-0.446. This suggests that nation leaders have been limited in their effectiveness and their capacity to lower the economy’s Gini coefficient to achieve greater equality among the various quintiles of the population. Furthermore, given the stable and consistent Gini coefficient measures, the Lorenz Curve for the Philippines would remain fairly similar if compared between 1985 and 2019, neither sloping to the left (line of perfect equality) nor to the right (perfect inequality).

Environmental Sustainability

Environmental sustainability is a key economic objective that has presented a plethora of challenges in the Philippines. Within the economy, climate change has proven to be a significant issue due to an increase in human activities and greenhouse gases. This stems from poor practices such as an unsophisticated waste management system and inaction towards garbage. According to the International Labour Organisation (ILO), excessive waste levels have contributed to the deaths of at least two persons every minute and also has detrimental impacts on agriculture and food security The decline and growing scarcity of natural resources is another important consideration within the Philippines, due to the suffering from degradation of the natural environment. Such factors have the potential to create negative ramifications for tourism in the Philippines, given that it is a popular tourist destination. This could in turn place future constraints on economic growth and hinder development as well as quality of life. The Philippines have shown their commitment to achieving intergenerational stability through ratifying the Kyoto Protocol alongside 84 other signatories in order to demonstrate their persistent effort towards reducing the effects of climate change. Another prolific response is the Metro Manilla Solid Waste Program, which complemented the Ecological Solid Waste Management Act (2000) to empower all levels of society to take corrective steps towards making the economy more sustainable and preserving key resources for future generations.

Conclusion

To conclude, it is evident that the Philippine economy has been highly effective in introducing policies, programs and strategies to drive economic growth and development throughout the nation. Globalisation has served as a key driver in the continual growth of the Philippines, impacting economic growth, financial flows and human development to a profound extent. However, the Philippines must continue to implement strategies that mitigate environmental sustainability issues as well as minimise its net foreign debt in order to ensure greater external stability.

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