Philippine Industrialization

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2 Industrial Agglomeration in the Philippines
Mari-Len Reyes-Macasaquit*
The Philippine Institute for Development Studies, the Philippines

Abstract The economic reform process in the Philippines was accelerated in the 1980s and 1990s. The reforms were found to have yielded positive results in terms of the nature of industrial agglomeration in the country as this was found to have occurred in the 1990s based on the results of the survey and econometrics analyses. The latter also identified the factors that influenced firms to agglomerate in the country, referring to economic fundamentals and deliberate policy and public action by government. However, industrial upgrading and innovation in the country was found to be weak. Expenditures on R&D are low and linkages between stakeholders are not strong. There are firms that have undergone upgrading in terms of introduction of new goods, upgrading of machineries, and opening of new markets but they tended to rely more on their in-house capabilities probably due to inadequate support from the government’s institutional infrastructure and financial system, which came out from the estimation results. The agglomeration strategies that are currently being pursued in the Philippines – establishment of economic zones and industry clustering – have the potential to address some of the issues and problems identified.

INTRODUCTION
Deepening international economic integration or globalization, started to gain impetus in the last two to three decades of the twentieth century. In fact, analysts point to the years between 1970 and 1995 as the period when greater economic harmonization among nations of the world economy became remarkable. They point to 1995 as the 64

year when the global economic system we now know has emerged, that is, via the World Trade Organization. Nevertheless, increasing economic relations between and among countries, primarily in the form of international trade and direct investments, were found to have accelerated throughout the 1970s and the 1980s (Sachs and Warner, 1995). Participation to this type of trade regime necessitated the institution of trade liberalization and investment reforms as key policy areas. Many developing countries adopted an outward orientation in order to participate in this prevailing global order and reap the benefits of economic integration. This is consistent with the hypothesis of endogenous growth models that claims, international trade and foreign investment are determinants of self-sustaining growth. These two factors bring about greater access to foreign markets and new technology. If successful in penetrating the international market and technology is absorbed, technological progress within a nation is assumed to accelerate leading to increased levels of productivity spawning economic growth (Yap, 2002). In recent years, an emerging body of ideas has pointed to the importance of selected regions as hubs of economic activities in influencing the economic development of the nation as a whole. In particular, the role of those regions, which serve as hosts to industries engaged in extensive international networks of production. Loosely termed “new economic geography,” scholars have and continue to explore the relationship between industrial agglomeration and economic performance, particularly in the developing world.i In the Asian context, a large body of work has been started by, among others, Fujita, Krugman and Venables (1999) in their book on spatial economy, Fujita and Thisse (2002) in their exploration of the economics of agglomeration, Kuchiki (2005) in relation to his development of a theory of a flowchart approach in industrial cluster policy, and Tsuji, et al (2007) in the most recent book they edited compiling relevant examples of industrial agglomeration in Asia, Italy and the Americas. Indeed, the pragmatic examples of the booming Information Technology (IT) industry concentration in Bangalore affecting the...
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