Institutions

4

Policies to Foster GVC Participation

The World Development Report 2020 is useful for understanding the role of the Philippines in the industrial, manufacturing, and transportation (IMT); technology, media, and telecommunication (TMT); and health and life sciences (HLS) clusters. Participation in global value chains (GVCs) is determined by fundamentals such as factor endowments, market size, geography, and institutional quality, differentiated by the level of development of each country (World Bank 2020b). These fundamentals can be grouped as institutions, infrastructure, and interventions. Institutions refer to cross-cutting policies and institutional reforms that could foster the Philippines’ participation in the targeted clusters.1 Infrastructure refers to connectivity infrastructure. Interventions refer to the targeted provision of infrastructure and services in special economic zones, upgrading strategies, and incentives, such as the Corporate Recovery and Tax Incentives for Enterprise (CREATE) Act, that could foster participation in the three targeted clusters. Choosing the right policies can shape each one of these fundamental areas and thus the Philippines’ participation in the IMT, TMT, and HLS clusters.

This chapter explores ways to mobilize key stakeholders (government, lead firms, and domestic suppliers) as the country moves toward a post-COVID-19 recovery that maximizes job creation,2 attracts foreign direct investment (FDI), and maximizes export revenue. Table 4.1 summarizes proposed high-priority cross-cutting and cluster-specific policy actions.

INSTITUTIONS

The Philippines has many policy and institutional constraints, but three must be addressed in the short term to increase the country’s participation in the IMT, TMT, and HLS clusters. These constraints are related to attractiveness to FDI, access to skills, and access to finance.

FDI attractiveness policies

To address FDI constraints, the Philippine Senate is examining legislation amending three laws: the Foreign Investments Act, the Retail Trade