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THE PROTECTIONSTRUCI't._E,, RES_E

F_,._C_ AND THE

CAPITAL-LABORRATIO IN PHILIPPINEivP,_UFACTURING: A SI-IORT Fb4PIRICAL NOTE.

by

PAFER S_!F_S No. 85-01


THE PR_IGN

STRL_%ITRE, RES(_

CAPIT_LABOR

RATIO .INP}CfLIPPINEMANUPAC_K[NG_2%_'

The the

trade

Philippines

FIMPIR_ICAL

and

industrial

can

be

protecting

heavily

generally

penalyzing

been of

a conscious

Investment

However,

Reform

exports_

effects

Norma

uniform

degree

of

import

advent

of

the

of

Tan t 1979

(TRP),

which

level,

aims

was

the

the

).

Board

exports. been

In 1981,

launched

eno_&gh

the

down

crisic_ starting

at

Tariff tariffs

together

•However,

liberaliza_.ion

ha_;

protection

'to bring

liberalization.

economic

1983,

to promote

adverse

(See

there

through

not

looking

and

708,

have

by

inward

products

particularly

incentives,

adopted

as

in the

incentives

Program

of

consumer

export

to a more

half

final

(BOi)

the

structure

policies

characterized

effort,

these

to counter

_Z_WS AhD

in

with

some

the

the second

program_, became

inoperative. The

system

is perhaps

the

policies.

It

are

possibly

is,

production

thus,

very

effects

of

Trade

tariffs and

p_'otection

most• pervasive

the

employment. (e.g.

of

theory

& QRS)

among

by

all

the

affects

what

structure

that scarce the

country

to know

tariff

the

any

government

important

suggests

benefits

adversely

adopted

trade

restriction

factor

abundant

on

of factor.


2

In the the

case

of

abundant

expect

factor

that

the

Philippines some

mŠ_!,: LDCs_

the

is

including

laDor.

tariff

Thus,

First

to

all,

us u3e

of

evidence let

protection

rate

the

receives

from

this

co_Id

secto_

Specifically,

(EPB)

This

by

short

suppo:r._tthis the

to. indicate the be

we

the

paper

offers

conclusion.

concept

of

effective

overa].i

incentive

the

tariff

Philippines,

a pr_ozi,

st_:_uctv_.=:e adopted

ha_._s emplo_i,_nent_

empirical

the

and

r'epresented

tax .syste_. by

1 ]

a, !+T

....... I.+....._

,.

L

._|

_: .Pro_-ected domesnic value-added :- _,'reetrade _.'a.L '°_ ue-added .......... '

_here

ai j output

j

and

inp_t

It is usually flow

from

This

paper

of T.

i

log_cally

sectors

:input

i

per .

_,n do_-_.esticprices,

inclusive Ti

_t of "_a.._. _e

is the

with

tariffs

and

are

implicit

and

the

output

ass_ed .low EPR

olffers empirical

j

that

peso _

of

i.e.,

taxes,

and tariff

on

respectively.

resources

to those

evidence

-i

to

with

would high

support

EPRs.

this.


3

Using

the

input-o::_tput

Norma

Tan

computed

the

Using

her

implicit

tariffs

I-0

Table,

the

computed.

We

specifically and

1974

and

2.

EPR

by

not

except (I)

seem for

is

for

change

as

the

weights,

two

p_rcent

in

weights

the

31.4

percent

There

is

inherently

and be with

imports associated low

domestic in

as

the

imports. supply

estimates.

seem

the

weights

to

went

•36,2

1974. exports

would

high

upward

as

down

in

reason, an

supply

manufacturing

using

tariffs

opposite creates

in

and

relevant

imports

percent

J.mports

used.

more

1969

even

bias

tariff

were

for

and

1974

systems

domestic

tariff

26.2

to

exp ....... ts and

the

Using

1

tariffs

1969

systems

tariff

Tables

in_plicit

exports

higher For

as

average

low

1969

in

average

_ising

since

for

weighting

in

a downward

sector

from

peccent

to

1.969

_'eadily

I+T

32_7

1969

weights with

{2)

here

implicit

!974.

xmp_ icxt

two

implicit

fro_

in

presented

tariffs.,)

while

from

are

weighting

ave_rage

average

was

and

....the

e_her

for the

EPR

and

Table,

manufacturing

Using

(W 3)

implicit

1974,

sector

sectors

presented

slightl_

and

signifJ.cantly

weights

the

only

the

cases.

(two

1969

th_

Results

supply

averaging

rose

compare

a few

calculated

However,

as

to

(W4)

at

Transaction

.i-_0 sector:

for

individual

domestic

im_rts

by

].969 by

look

sector.

Examining did

for

then and

EPR

(I_0)

normally

tariffs using bias


Table I_

We_i._hted Av_ag_

ImpLicit _!__,

1969 & 1974

I +T

-

Sugar Food except Sugar Be_aragss Knitting Weaving Textiles except rubber Wearing apparels Ply_x_ & Veneer Furnitures & Fixtures Wood Plr_ucts Paper & Paper Prcd_ict_ & Publ/_hing Lea_ _ Ruhbsr shoes " _,e_ _ Other Chemical products Industrial Chemicals Petroleum R_fi_sries & of Petrcdeum & Coal Glass _ & China Other ncmmetals & Steel non-_ Fabricated metals M_zhlnery except electrical machinery (_aiicatiun _quipm_nt F.,lectrL",_ ) Appliances Transport Equipment Plastic Products Pzofesaicr_l & Scientific All _in_

as

)

(w4)

ortsas

1969

1974

1969

1974

.960 i.194 3.ll0 2.]90 1.550 i.543

.940 i.219 2.692 1.290 1.590 i.530 i.250 !.062 .980 !.010 .996 i.819 1.290 1.565 2.170 1.860 I째501 1.220

.960 i.288 3.ll0 2.190 1.550 1.541

_940 I.217 2.996 1.290 1.590 i.538 1.250 I.084 .980 i.010 1.002 i.685 1.290 1.303 2.170 1.527 i.430 I.137

i.529 i.000 I.000 i.163 i.653 . 2_272 2.170 1.676 I.460 1.164 .1.308 1.510 1.740 ,3,_231. I.32(_ 1.260 1.541 1.235 I.270 1.270 1.644 1.530 i.760 i.489 1.327

!.61] L580 1.58_ Li02 1.3_0 1____, I_,5,'t.0 1.219 1.32? I_390 1._9_3 1.845 I_960 1.0_4 ' I_362 ........

i._24 i.000 i.000 i.046 I.582 2.381 2.170 1.556 I.464 1.147 I.299 1.510 1.740 1.577 I.320 1.260 1.520 1.236 1.270 1.270 1.594 1.502 ].. 760 I.376

1.613 -1.580 1.580 1.112 i.360 i.150 1.502 1.216 1;327 i.390 1.849 1.740 I.960 i.034

1,314

" " 1.262


5

Thus,

it seoms._very

average

impZicit

reasonable

tariff

to conclude

that

for manufacturing

did

the

not

change..significantly.

Looking tariff

at

structure

1974

EPR

using

these

Eesources

do

industries

with

or ,value of in 1974

use

production),

next

of capit_l

resources Hooley's. labor

from

Again,

value-added

(WI}째

i8 that

low

high

EPRs

EPR

in

to 1974

(whether. value-added!

industries

question

and

labor

are

low

EPRs of

the

weighting,

to

with

high

EPRs

is

how

the

relative

affected

in

the

shift

hlqh

c_pltal

Resul_ts

and

of

importa_t

by industry,

two

weights

(1) free

production

with the

1969

to ,1969_

estimate

is estimated.

since

the

from

indicate

industries

EPRs

same,

i.e.,

(2} domestic

to higher

relative

The

fr_n

high

--was clearly, due

system,

unambiguously

flow

the

the

substantially

weighting

(W2) or

results

although

basically

increased

either

trade, value-added What

2_ however,

remained

_ei_average to

Table

EPRs.

(netfixed.

average

presented

systems

are

use_

production.

Richard

assets)

capital-labor

are

domestic

Using

in

and

ratio

Table

---

of

3_..

(K/L)

free. trade


6

'Cable 2..

Weighted Aver_ Effective .1969 & 1974

m_/_c_

Protection

(EPR) in _d_a_c_i_,

_ value-aaaea Av_,_, asFree Trade weigh_ 1969

S-_r

.950

Food _ Beverages

Rate

sugar

1974

.eeo

Using A_rag6_._ _ as Weights 1969

.9_0

1974

._0

1.115 2,840

2.063 2,844

1.273 2.840

3.183 2.844

Knitting

4.890 i.600

.960 1.780

4.890 1.600

.960 1.780

Textiles

1°443

i.612

I.676 _

I.549

i_=ewe_exo_t n_ber

i.180

1.180

Weaving appare/s ply_Dods & Veneer Furniture.& Fixtures Wood _

.851 .920 ,940 i.007

,679 I.050 I.000 1,086

1.192 .920 .940 1.064

,722 i_050 I.000 1.082

_

1 752

2.327 i.19o 1.956 s.s40

1.809

2.4_ 1.190 1.770 s.s4o

i.069

i.049 .905

_ _>o_er _od=_ __u_ _ _o_

trial chsmicals Petroleum Be/ineries _rolegm and Coal _ & _%irm Other nommmtals & Steel Nsn-F_us

_

3.282

2.6s0 I,089 .888

2.650

1.550 .... 1.650 1.004 I.310 i.160

1.209 1.450 1.310 .7:,i 1.270 I.000

i.550 i.650 1.112 1.310 I,160

i.019 ,® i.209 i.450 1.310 .812 1.27_ i.000

1.17o

z._:,_

_._73

1.lOS

_lactz/cml mad%inezy ___icati_n ]_/_,tnment Electrical appliances _nsport ]_dpmmnt plastic Prod_',t_

I.210 io120 I.755 1.323 1.950

I. 229 I.310 2.218 2.072 2.940

1.210 i.120 I.821... 1.335 !.950

1.229 I.310 2.211 2.077 2.940

AlZ z,'an, d.ac'curi_

1.127 ......... 1;_S2_ ......

1.291

z._oe

_ sci_c

er_ee_a=_

sources

m_

3.252

of

basic

data:

1. _o4

Same

_. 2n,

as Table-l.

1.435

1.340


7_

Table

3j Average C_pital/Labor Ratio in Manufacturing, 1969 & 1974

:[_000/worker) 1969 1974

Indus try/Sector Sugar Food except sugar Beverages Knitting Weaving Textiles Footwear except rubber Wearing apparels Plywood & Veneer Furniture & Fixtures WoodProducts Paper & Paper Products Printing & Publishing _eather Products Rubber Shoes Rubber Products Other Chemical Products Industrial Chemlcals Petroleum refineries & products petroleum & coal Glass product8 Pottery & China Other nonmetals Iron & Steel non-ferrous Fabricated metals Machinery except Elect_ical Electrical Machinery C_muunication equipmen t Electrical Appliances Transport Equipment Plastic Products Professional & Scientific All

Manufacturing Mean using average value added as weighm Meanusing product

Source:

34.872 28.208 23.169

44..732 28.118 25.590

22.877

Ii.185

13.660

5째327

3.785 10.467 37.184

4.540 13.360 58.424

9.143

12.056

26.630 24.701 81.15

20.524 25.689 64.697

586.091 23. 802

874.769 31. 858

93.509 11.706 14.332 22.056 16.055

69.493 19.966 20.348 12.842 12.789

of

(W2)

_-

24.664 12.650

28. 200 10.957

46.48373

76.23664

domestic ..................... as weights (WL)..... 66.04689

128.45070

1)

Richard Hooley_ "Productivity Change in Philippine Manufacturing: Retrospect and Future Prospects." PIDS paper. 1984.

2)

1969

and

1974

I-0

Tables,

NCSO.

....


8

Looking

at

individual

that

the

sectors

such

as

food

excluding

sugar

wearing

apparel,

and

machinery

except

ratio

rose

products,

and

in sugar

system,

The by other tariff

the

rise

in the

a lower tariff

an

use,

in the

low

structure cheapened. current the

of

that

duty

foreign

so that

Moreover,

in the

account

deficitswith

world's even

minimal

in a real

paper

coal.

For

from

1969

to 1974.

could

have

keen

clearly

flows

from

protection

caused

that

or

goods

(in certain free),

below

equivalently

last

be

the

degree by the

of tariff

is artificially

decade

domestic

of

persistent

inflation

exchange

appreciation

can

the

cases

defendea

capital

the

low

Furthermore,

capital

all

industries

intensity,

foreign

while

either

exchange

(Tan 1979)

textiles,

using

process.

duties

is allowed

undervaluation

high

and

and

indicate

capital

with

importation

resulted

to

is such

very

ratio

in

electrical

ratio,

resource

structure

imported

than

induced

increased

labor

_/L

results

industries

entailing

refining,

paper

doubled

K/L

but

structure

protection

average

interesting

significantly

of petroleum

almost

factors

declined

refining,

products

manufacturing, weighting

ratio

it is

to note

the

K/L

sectors,

of

higher

adjustment the

peso.


9

In

sum,

the

exchange

induced

a capital

explain

in a large

which with

accompanied low

bias

the to

sector An

the

this

trade

policies

system

which

rise

resource

findings

manufacturing

and

in the

part

protection

These

employment

rate

failed

last

flows

industries shed

some

in the

with light

to grow

decade.

*****

from

have could

K/L

ratio

industries

high

protection.

as to why

the

as a generator

of


RBferences t Bautlsta, Romeo H., John H. Power and Associates. Industrial Promotion Policies in the PhiliDplnes. Manila_ Phil_Ipplne Institute for Development Studies, 1979_1%|4. Hooley, Richard, "Productivity Growth in Philippine Manufacturlng: Retrospect & Future Prospects". Paper presented in a sm-lnar sponsored by the PIDS on July 25, 1984 at the Opeu:ati_s Roan, NEDA sa Makatl Buildlng. Pante, Filologo, Jr. "Exchange Rate Flexibility and intervention Pollcy in the Philippines, 19731981." PIDS Staff PaPer Series No. 83-01, Feb. 1983. Power, John H,, "Response to Balance of Payments Crises in the 1970'sz Korea and the Philippines." PIDS Staff Paper Series No. 83w05. Tidalg0, Rosa Liras P. and Esmanuel F. EsguerEa, "Philippine Employment in the 1970s." PIDS Working Paper 82-02, July 1982.


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