Abstract
This chapter constitutes a macroanalysis of the Philippine Information and Communications Technology (ICT) sector, which has come to be a critical part of the country’s economic development. It investigates the role of this sector in relation to the (lower) Middle Income Trap (MIT), which is considered as a major factor for the generally poor performance of the Philippines since the end of the world war. The analysis focuses on two structural phenomena that have been associated with the MIT: early deindustrialization and product trap. To this end, the ICT sector is divided into the soft portion corresponding to the services sector and the hard portion corresponding to the manufacturing sector. The soft portion analysis uses the three Kaldorian laws to investigate whether or not the early deindustrialization is premature (bad) or precocious (good). The hard portion analysis uses product space proximity and input-output tables to assess the nature of the product trap in the Philippines. The general conclusion is that there is a need for a strategic look at the ICT sector, especially with regards to the very real possibility that the ICT industry poses the risks of slowing down the growth of the Philippines through premature deindustrialization and a product trap.
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Notes
- 1.
Figure 7.3 of Chap. 7 is essentially the starting point of this chapter. While Chap. 7 concentrated on the left portion of Fig. 7.3 (i.e., the keiretsu features of satellite organization and redistributive interventionism), the current chapter concentrates on the right part of Fig. 7.3 (i.e., the ICT-related risks of the product trap and premature deindustrialization).
- 2.
In a review of their 2012 paper, Felipe et al. (2014) conclude that there is no Middle Income Trap and rephrases the “low-level equilibrium” issue as a matter of slow or fast transition from one income category. While using the same income categories, Felipe et al. (2014) redefine the threshold number of years in an income category by considering the East Asian Miracle countries as outliers, leading to the conclusion that the Philippines is not in a slow transition track. In this paper, we choose, however, to use Felipe et al. (2012) since it probes more deeply into the possible differences between countries in and out of the “trap” and does not, in our opinion, underestimate the severity of the economic problem of the Philippines.
- 3.
The Philippines is often said to be the only Latin American country in Asia, because of the similarity in economic problems.
- 4.
Tregenna (2011)gives a long list of recent studies that empirically support the Kaldorian/Structuralist assertion of manufacturing as a vital engine of growth: Atesoglu (1993), Bairam (1991), Behesti and Sadighnia (2006), Bernat (1996), Diaz Bautista (2003), Drakopoulos and Theodossiou (1991), Felipe (1998), Fingleton and McCombie (1998), Hansen and Zhang (1996), Harris and Lau (1998), Harris and Liu (1999), Knell (2004), Leon-Ledesma (2000), Necmi (2000), Pons-Novell and Viladecans-Marsal (1999), and Wells and Thirlwall (2003).
- 5.
For example, the technologies and endowments of weaving in the textile industry can be used to develop the automotive industry. In this case, the two industries have high proximity.
- 6.
The more detailed results are given in the Appendix. There is no attempt in our analysis to go into a structural analysis of the Kaldorian Laws. Our aim is simply to identify patterns in the variables that are indicated by the Kaldorian Laws.
- 7.
This relationship can be shown as follows. From the 1st Law, Y = a1 + a2 X. This implies that (1−a2) Y = a1 + a2 (X−Y) or Y = (a1 + a2 (X−Y))/(1−a2). If a2 < 1, then (1−a2) > 0. In which case, when X > Y, then Y > 0. On the other hand, if a2 > 1, then (1−a2) < 0. In this case, it becomes possible for Y to be negative when X−Y is positive.
- 8.
- 9.
Satellite organization refers to a corporate organization which branches out across different fields that need not be directly related to each other. The branch is similar to a satellite which has a degree of independence from the head office.
- 10.
Redistributive interventionism is part of the so-called convoy system of Japanese capitalism, wherein the stronger firms help out weaker affiliates. This would involve a wide variety of intervention, such as dispatching technical advisers, selective lending, and procurement at special prices, so as to assist an affiliate experiencing short-term difficulties.
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Appendix
Appendix
8.1.1 Kaldor Law Estimates (By Author) (Appendix Tables 8.8a, 8.8b, 8.8c, 8.8d, 8.8e, 8.8f, 8.8g, 8.8h, and 8.8i)
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Maquito, F.C. (2017). The Philippine ICT Industry and the Middle Income Trap. In: Hirakawa, H., Takahashi, N., Maquito, F., Tokumaru, N. (eds) Innovative ICT Industrial Architecture in East Asia. New Frontiers in Regional Science: Asian Perspectives, vol 17. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55630-5_8
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