41040 phi infrastructure

8/6/2019 41040 Phi Infrastructure

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Overcoming InfrastructureConstraints to

Economic Growth in the

Philippines

Overcoming InfrastructureConstraints to

Economic Growth in the

Philippines

Gilberto M. Llanto

Philippine Institute for

Development Studies

Gilberto M. Llanto

Philippine Institute for

Development Studies


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What paper wants to undertakeWhat paper wants to undertake

Diagnose the Philippine economy andDiagnose the Philippine economy and

identify binding constraints to its economicidentify binding constraints to its economic

growth and poverty reduction efforts.growth and poverty reduction efforts.

An overall hypothesis is that poorAn overall hypothesis is that poor

infrastructure is a binding constraint toinfrastructure is a binding constraint toeconomic growth and poverty reduction.economic growth and poverty reduction.

Analyze factors responsible for the lack ofAnalyze factors responsible for the lack of

infrastructure.infrastructure.

Provide policy recommendations to helpProvide policy recommendations to help

overcome those constraining factors.overcome those constraining factors.


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Organization of the PaperOrganization of the Paper

Takes off from growth diagnostics paperTakes off from growth diagnostics paper

Part I: country analysis: relationshipPart I: country analysis: relationshipbetween growth and some growthbetween growth and some growth--

constraining factors, more specificallyconstraining factors, more specifically

weak or poor infrastructure.weak or poor infrastructure.

Part II: crossPart II: cross--country comparisonscountry comparisons

Part III: conclusions andPart III: conclusions andrecommendationsrecommendations


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Philippine Growth

Modest growth and slow povertyModest growth and slow povertyreductionreduction

Driven by overseas remittances andDriven by overseas remittances and

consumption rather than byconsumption rather than byinvestment or productivityinvestment or productivity


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Philippine Growth has been

below Potential

Philippine Growth has been

below Potential

Source: World Bank WDI

Per Capita GDP Growth Rates 1966-2004

5.77

7.00

4.03

4.79

1.28

3.95

4.77

0

1

2

3

4

5

6

7

8

EAP China Indonesia Thailand Philippines Malaysia Vietnam


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Rapid Population Growth and

Urbanization has Created Tremendous

Strain on Weak Infrastructure.

Rapid Population Growth and

Urbanization has Created Tremendous

Strain on Weak Infrastructure.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

0

20

40

60

80

PercentThousands

% of population residing

in urban areas% of

population

residing in

Metro Manila

Rural

Urban


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Why Infrastructure MattersWhy Infrastructure Matters

Survey of investment climate points to

weak infrastructure as a critical constraintto business and growth climate.

A recent joint study by the World Bank, the Asian Development Bank and the JapanBank for International Cooperation (2005)stresses the decisive role that

infrastructure has played in growth andpoverty reduction in East Asia and thePacific.


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Infrastructure Matters for

Poverty Reduction

Infrastructure Matters for

Poverty Reduction

0

20

40

60

80

100

Poorest Second Middle Fourth Richest

Quintile

Access to basic infrastructure

Percent of Population

Electricity

Telephone

Piped drinking water

Own flush toilet

Source: Gawtkin, Davidson R. Shea Rustein, Kiersten Johnson, Rohini Pande, and Adam Wagstaff. 2000. Socio-

economic Differences in Health, Nutrition, and Population in the Philippines. World Bank, Washington D.C.


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State of Infrastructure

in the Country

State of Infrastructure

in the Country

Some decent achievements: overall

access to electricity (80%); water supply(86%); telephones (31%)

Total road network length: 2.6 kilometers

per 1,000 persons BUT there is still a large scope for

improving access and more importantly, in

improving the quality of infrastructure. Bad maintenance has resulted to

deteriorating quality of infrastructure.


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Fixed and Mobile Phone

Subscribers (per 1,000 people)

Fixed and Mobile Phone

Subscribers (per 1,000 people)

World Development Indicator (2006)World Development Indicator (2006)

PHIPHI THAITHAI VIETNAMVIETNAM INDOINDO

20032003 322322 450450 8787 123123

20042004 445445 536536 183183 185185

20052005 459459 306306 270270


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Philippines,

Total Road Network, kilometers

Philippines,

Total Road Network, kilometers

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

300000.00

350000.00

400000.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


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Road Network Coverage, 2003

Road Density: Length in km perRoad Density: Length in km per

CountryCountry Total roadTotal road

length (km)length (km)1000 vehicles1000 vehicles

(4(4--wheel)wheel)10001000

populationpopulationSq. km ofSq. km of

land arealand area

IndonesiaIndonesia 310,000310,000 65.865.8 1.41.4 0.160.16

ThailandThailand 209,800209,800 42.042.0 3.33.3 0.410.41

PhilippinesPhilippines 202,083202,083 91.391.3 2.42.4 0.670.67

MalaysiaMalaysia 72,00072,000 19.419.4 2.82.8 0.220.22


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Infrastructure Ranking

CountryCountryOverallOverall

InfrastructureInfrastructure RailroadRailroad PortPort AirAirElectriElectri--

citycityTeleTele--

comscoms

ChinaChina 3.53.5 3.73.7 3.73.7 3.93.9 4.24.2 5.45.4

IndiaIndia 2.92.9 4.74.7 3.23.2 4.84.8 3.03.0 6.06.0

IndonesiaIndonesia 3.73.7 3.23.2 3.73.7 4.14.1 3.63.6 3.93.9

KoreaKorea 5.25.2 5.45.4 5.35.3 5.75.7 6.16.1 6.56.5MalaysiaMalaysia 6.16.1 4.94.9 6.16.1 6.26.2 5.95.9 6.06.0

ThailandThailand 4.94.9 3.73.7 4.54.5 5.65.6 5.35.3 6.16.1

VietnamVietnam 2.72.7 2.82.8 3.13.1 3.93.9 3.43.4 4.94.9PhilippinesPhilippines 2.32.3 1.51.5 2.42.4 3.93.9 3.63.6 4.84.8

RankingRanking 8 of 88 of 8 8 of 88 of 8 8 of 88 of 8 6 of 86 of 8 5 of 85 of 8 7 of 87 of 8


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Infrastructure Quality: Quality ranking

World Competitiveness Report 2006-2007

Overall Infrastructure Quality

0 1 2 3 4 5 6 7

Japan

Taiwan

KoreaHong Kong

Singapore

Philippines

Vietnam

Indonesia

China

Thailand

Malaysia

Philippines: Low quality of services has emerged as a key impediPhilippines: Low quality of services has emerged as a key impediment to thement to theeconomic competitivenesseconomic competitiveness


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Overall Infrastructure QualityOverall Infrastructure Quality

YearYear PhilippinesPhilippines IndonesiaIndonesia MalaysiaMalaysia ThailandThailand

20062006 2.52.5 2.52.5 5.75.7 5.05.0

Source: WEC, World Competitiveness Report 2006-2007


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Infrastructure as a share of GDP

1985-2002

Infrastructure as a share of GDP

1985-2002

0

1

2

3

4

5

6

7

1985

1987

1989 19

9119

9319

9519

9719

9920

01

Private Public


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Infra Investment as share of GDPInfra Investment as share of GDP

0.0

2.0

4.0

6.0

8.0

10.0

Phili

ppines

Indo

nesia

Alba

niaRu

ssia

Cam

bodia

Kaza

khstan

China

%

age

Public Private


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Part I: Is Infrastructure a

Binding Constraint?

Empirical tests: hypothesesEmpirical tests: hypotheses

Returns to investment in infrastructureReturns to investment in infrastructure

Cost of doing businessCost of doing business


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Infra as an Investment

Constraint

Survey of 647 firms in the country

indicated the following as most importantconstraints:

a) macroeconomic instability

b) corruptionc) regulatory policy uncertainty

d) crime, theft and disorder,

e)

tax rates and tax administration, andf) INFRASTRUCTURE (electricity and transport).

ADB/WB investment climate survey, 2004


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Part I: HypothesesPart I: HypothesesPart I: Hypotheses

Poor or inadequate infrastructure is aPoor or inadequate infrastructure is a

binding constraint to economicbinding constraint to economicgrowth.growth.

Infrastructure leads to higherInfrastructure leads to highereconomic growth and productivity, oreconomic growth and productivity, or

more specifically, higher infrastructuremore specifically, higher infrastructure

investments (public capital) lead toinvestments (public capital) lead togrowth in economy output.growth in economy output.


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Road transport (energy, portRoad transport (energy, portservices) has a higher constrainingservices) has a higher constrainingeffect on economic growth than othereffect on economic growth than othertypes of infrastructure.types of infrastructure.

Public infrastructure (capital) isPublic infrastructure (capital) iscomplementary to private capitalcomplementary to private capital(production). This implies that(production). This implies thatinfrastructure can play a role ininfrastructure can play a role inreducing private sector costs, that isreducing private sector costs, that ispublic capital is cost reducing.public capital is cost reducing.

Part I: HypothesesPart I: Hypotheses


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Part I: HypothesesPart I: Hypotheses

Regions with high infrastructure investmentsRegions with high infrastructure investmentstend to have higher economic growth andtend to have higher economic growth and

regions with low infrastructure investmentsregions with low infrastructure investments

tend to have lower economic growth. Thistend to have lower economic growth. This

implies that infrastructure investment createsimplies that infrastructure investment creates

income divergence across regions.income divergence across regions.


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Thank You!Thank You!

41040 phi infrastructure

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