The ESIA/WID Micro Component Project by Ronald Yacat

.... 'Bibs VOLUME III

D[V[LOPM[NT

IV, NO. 4

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THE ESIA/WID MCRO ,, , ,, , Introduction

1986 III

ISSN 0115-9097 I

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COMPONENT PROJECT =, , , ,, ,

EDITOR'S NOTE: The development of indicators for measuring the progress and impact of development projects is best couched in a profect-spec(fic or micro-analysis framework, provided that the micro indicators so developed can be linked systematically to the more aggregative indicators. In the May-June issue of the DRN, we presented the MACRO COMPONENT of the ECONOMIC AND SOCIAL IMPACT ANAL YSIS/ WOMEN IN DEVELOPMENT (ESIA/WID) PROJECT, a five-year research program (1978-1983} designed to establish impact flTdicators to monitor economic' progress and social change. After featuring the MACRO COMPONENT, We deem it a fitting exercise to make a follow-up account, this time on the MICRO COMPONENT of the same pro]ect. Our guest writer, Dr. Florian A. Alburo, Deputy Director-General of the National Economic and Development Authority (NEDA) and Associate Professor at the U.P. School of Economics, discusses the economic and social impact of a set of selected projects (see Table 1) that served as prototype models o[ a broad range of project categories. Moreover, the indicators developed were addressed to development concerns as set out in the Philippine Development Plan.

A country's development plan is an expression of the economic direction it wants to go within a specified time period, It spells out broad sectors or particular product groups that are seen as essential to a desired path. More importantly, the plan reflects the areas of economic and social concerns that the government regards as important goals of developLment, For a developing country such as the Philippines, a predominantly private enterprise system characterizes its economy. Its development plan is therefore indicative of directions for resource allocation rather than a decree for ,the eventual location of investments. In a real sense, non-economic matters including social and political factors play a critical role in actually influencing allocation, and are thus important environmental parameters, This is not to say that a development plan cannot achieve economic and social goals. Its instrumentsofinflttenceinclude the broad macro-policy regime and the array of development programs and projects that partly shape the physical,

economic and social infrastructures for private economic agents to operate in. In a more neutral policy regime, development projects take on a significant role of achieving economic anct social objectives. Since their implementations are at micro-levels, are location- and sector-specific, and beneficiaryoriented, the measurement of their impacts becomes more circumscribed, Development projects, in another sense, tend to have a narrower focus given their attributes. Thus, they are

not easily comparable in terms of effects since they have varying impacts. The kind of project being considered and implemented dictates the manner of its evaluation. Agricultural projects are assessed in terms of effects on usual agricultural aims (e.g., productivity, cropping intensities, tenure system, etc.; education projects are viewed in terms of numbers of trained people, facilities built or books produced; infrastructure projects, in terms of physical output). Yet it is equally true that "alldevelopment projects

CONTENTS:

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TIlE ESIA/WID

blICRO

COMPONENT

PROJECT

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UPDATE: NEW PUBLICATIONS .......................................................... COMPLETED PROJECTS .......................................................

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ON-GOING PROJECTS ......................................................... SEMINARS ................... "............................................... PII)S REGULAR PUBLICATIONS ................................................ _PIE(2IAL PUBLICATIONS ...................................................... I

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PIDS DEVELOPMENT

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impact on all areas of concern directly or indirectly and thus have both positive and negative effects. Since projects are

degree of completion, sectoral representativeness, implementing agency and relative importance to the government's

tire indicators to reflect an area o_ concern. Another was the use of variot_ analytical methods of impact assessment.

not e_aluated on common concerns, they do not become comparable especially for policy formulation purposes. it is with this broad view that the Philippine government launched a 5-year research program on "Economic and Social Impact of Development Projects/ Women in Development" (ESIA/WlD)in 1978 with partial support from the U.S. Agency for International Development. The purpose of this article is to summarize, in general terms, the micro component of this research. What we want is an appreciation of the importance of impact analysis on common concerns as a basis for planning. After describing the micro component of the ESIA/WlD project, the results of the research in terms of the relative effects of projects are given some detail. A section is also devoted to a discussion of some policy implications of the exercise. Finally, we conclude with a few remarks to

development plan. Individual research investigators (coming from several disciplines)all had a similar approach in conceptualization (i.e., to view a development project as affecting areas of concern through specific channels). The areas of concern included economic (income, income distribution, production/productivity, employment), social (popu_._tion/ fertility, health/nutrition, education/ literacy) and other related aspects (environment, energy, participation), Although individual projects may have other concerns (e.g., foreign exhange stability, peace and order), all studies examined the projects' impact on at least the 10 areas, Moreover, a range of indicators were used to measure each area of concern with the ultimate interest of recommending, for continual use, only those found to be stable, Various alternative analytical methods

A final one concerned the examination of available data, data collection schemes and changes in the statistical system. Like all evaluation research work, the ESIA/WID (Micro Component)research also had its own limitations. The first pertains to the issue of causality. Whether or not measured effects are due to the project always remains a valid question. What has been done in ESIA/WlD was to develop ways to minimize attribution elsewhere through a close study of sites and comparable "non-treatment" areas, and a refutable set of hypotheses, among others. The latter relates to the "generalizability" of results. While every result may tend to be unique in site and time, it does add to the cumulative knowledge about impact and improves the confidence one can place on policy directions especiaUy for consistent results. Finally, there is the question of how to take

improve planning,

were used in the impact analyses, from simple case studiesand cross-tabulationsto sophisticated econometric and path analysis (Alburo, 1981). The common purpose was to test the contribution of the development projects in achieving social and economic goals, or determining the extent to which impacts can be attributed to the projects concerned. The degree of success of the research effort was in part a function of available data on the micro-sites and the ability to isolate the effects of one development project from the compounding effects of other projects. For these reasons, the research investigators worked with government officials in choosing the study sites. Secondary as well as primary (through survey) data were used in giving profiles of the project sites, base information on random beneficiaries, and continuing economic and social characteristics throughout a two-year period. As a result, the studies not only were impact assessments but also monitoring instruments, at least for the duration of the ESIA/

account of management variations whicb_ would somehow influence project out-1 puts, and therefore impact. Again, the research used the process ofselectingmore "typical" environments and assumed output as given.

The ESIA/WID (Micro Component)Projeet Four components originally comprised the ESIA/WID Project: (a) Macro cornponent, (b) Micro component, (c) Women In Development component, and (d) Region VI component. A fifth one was added towards the latter part of the project implementation - Research Utflization component. The project involved several institutions, academic researchers, government officials and agency field personnel (Reyes, 1978). In the micro component, the rationale was to study the sites of the development projects, understand the mechanisms underlying their transmission and subject the studies to address common areas of concern. Researchers from a variety of disciplines participated in the selection of micro-sites, formulation of testable hypotheses, data collection and assessment of alternative methods of analysis, Eighteen

were

Infrastructure Cagayan de Oro Port Davao City Local Water Development Feeder Roads Small-Scale Irrigation

Economic Aquaculture

selected by the proponents of the ESIA/ WlD Project and the National Economic and Development Authority (NEDA) to

In summary, in addition to the basic task of the micro component to analyze the impact of development projects on

Cagayan Valley Integrated Development (CIAD) Electrification

compose the interventions which were to be studied and evaluated. The projects were chosen on the basis of the

common areas of concern, there were other interrelated side-objectives. One was the testing of the use of alterna-

Libmanan-Cabusao Integrated Area Development (LCIAD) Small-Scale Industry

III

projects

Irrespective of kind, the development projects were evaluated in terms of their impact on the 10 areas of concern. This allows comparability among them. This review is based on the results of the 14 studies classified as follows:

WID project.

development

Relative Effects of Projects

I IIIlib

III

â&#x20AC;˘

Area

III

PIDS:DEVELOPMENT ........

,,,,,,

RESEARC|

EWS ...........

,,,,

,, ,:__ .....................

JL LY-ALGUSI 11986 IIII1'111111]]1 I I''' AlE ....... '...... conditions of beneficiarie_ and so on, Again, the impact has been directly oi] social conditions and co, ceres rather than on economic concerns. These classifications are not mUma_lly: exclusive. Some infrastructure can be: considered as both. economic and social

Social:

[ ....... Clearly physical :_: : :..... :: facilities While: irrigation : and water :Agrod:ores'trv P:anav Unil?ed Smwlees: for Health development projects produce outputs (PUSH) ............ h't tl_e fomi 0f irrigated farm:lands and Population Planning ii (PP ii):[ : wate>connected households; Third Education L0ma (Third IDA)[ The direct: effect:s of infrastructure ..... ...... ..... " : ..... : projects can be well: focused in terms of

iii

...... AREAS OFCONCERNcf

iNFRASTRUCTURE

:: :

--'i

......

o0o,o0°oo,o °0o00 ..... ......, o,, oo00

....

[

hquocuit

::: ....... ..... ....

Ut'e Prvductiot_

SOCIAL :

......

.....

Aqro,:gore_try

i:ii

..... : ....

i [

rotJri_mPlOf?lOtlon : _

.....

:....

.0 _ °come Dst _

.....

H'_o f_/NtRrll'ion 7 Ed co, on/Lterocy . '

Productlo?_/ProductIv)ty

LEGFN£1." _1_" Posfflve _.

8 _ Porflr, lpotie°

_]-No

5 * POpulafi_)rl

..... "' ...... (: ::/:' //:)%:: "-'_"" '--""_ :)(:/:i :/:-:::/:/?.-:

........ :,:_-/:::::-/L ":/:

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E_fec_

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NegotNe Effer,_ Effoct(Or

Remot-e)

....

Not Considered} fl_the SttJcly

....

-_ _ _[__i __,_,,,,,,,,:

....

_ _-_

_i _ __i_/-_

_ _ _ _

The classification of tbe projects is bm'leficiaries (irrigatiOn mid roads for not cu'i:_and-dried sin:c° Some c_m validly [ farmers)th0ugh; agaln, not all the :time be: reClaSsified, Our purpose is[:simply (e.g._ ')orts). They appearto have impacts to understand the impact chara.cteristics on econoiniC c0ncems (income, income of three general classes 0f projects and[ diSnbution; : ::production/productivity, not to:draw out policy implications : Nor empl0ymeiit);[ envir0nment and energy' will reference be given:t0 s:>ecific studiesl wh l:e:[having:remot e effedtS on social The general:: directio]ls of the impact: coi_cems; :: :....

projects @4:; the physic°2 constluct.ion of electric transmission ]i'l?es provides: elect-city [to both households a:nd industries; classroom buiklings indirectly produce more literate children). Con= versely, Some economic and social projects m-e more ol:: infrastructure activities. For these reasonis, impact assessment

assessm:eiit Will be highlighted with illustrative results to:drive home certain:

of proiect:s, need 1:o be Comparable. The results of the studies can be

points,

:....... ........

.....

Ec0nomic project:s:...... a_:ethose.... which are: viewed to have: directly economic bene _its..' are itaditimlally implemented

[

Impacts occttr upon project install°.; n.. ti0n directly (or indirectly) ff"ter imple,.: mentation, later in file lotlg r_u For this reaS:0m what can adequately" [ be: capttired;:by impact analysis are: short,run: ef:h',cts or those occurr ng ..... during: tit° :periOd. of the study.:ThJs contrasts ::wifla: the:traditi0nal benefit: [

by ilontinl_rastructure:agencies _?,f'govern, men-t_ and have as output targets, econ0rnic assistance project for small.scale enirepreneurs isan econo:

summarized

in two

Stages. The first

provides t.lie qua.lit°tire dh'ections of impact. Here, the interest is not so :milch

proiect :in th.e sense that its output would be the assisted entrepreneurs, TheSe: p;ojee[s would have direct ......

on the nu:merical magnitudes involved but onthe comparability of directions .... " among l?rqjects. The accompanying table shows the directi0i_ of impact of the projects according to I:he ten. areas

ef:fects and indirect ones agg"egate at/.,........ecortomic " unit (pesos)on soda] c0ncems: •.... at: the:loss bf tracing specific eft?cts: social[ projects ar_: those whic]i are infrastructure projects are principally: :me_mtto directly address socM coneerns_

of concern, Becauseonallthese the common projects have been examined concerns, it is possible to trace and: compare impactsm'_d projects: .... Rea.ding across colu:m_s tells Us the

mic

_ost: estimations whiclt" impaCts:int0 :a: Standard .....

physical transformations .hat :faciliate Thus,:: a project or[:: tea.chef traipsing direction of effects of different p'Ojects more:economic and social activities to affccts : education a: health service on a given area. of Concern. For instance : take :::place, be:enhanced or dimin shed ...... deliw;ry: scheme irifluences the health projects which improve population and ....... :'..... : IlllllI I II iii .............IIIII IIIIIII Illl] IIIIIlll II IIII1 ......IZZ.... ______L_:: A::2.1 :::

.......

........:

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fertility concerns (column 5) are the Davao City Local Water Development Project, the Electrification Project, Population Planning l.I, and the Panay Unified Services for Health (PUSH) Project. In another instance, projects which enhance participation (column 8) include Aquaculture Production, Electrificalion, AgroForestry, Population Planning and PUSH. What impacts negatively on income distribution (column 2) are Aquaculture production, Small-Scale Industry, and the Third Education Loan. The specific project reports trace the mechanisms by which they yield impact, Reading across rows tells us the contribution of individual projects to the ten areas of concern. Tourism promotion has negative effects on income distribution and participation withno(or remote) impact on the areas of production/ productivity, population/fertility, and health/nutrition, A second stage of the studies is the quantitative estimates of impact to allow comparability between projects. Suppose we want to compare value-added generation and employment creation between two projects (Small-Scale Irrigation and Small-Scale Industry). The analyses of Paris (1981) and of Pernia (1982) show that an irrigation project creates P1.73 of output for every peso of development costs. Assuming this output generates a 50 percent value-added, an impact ot: I_0.865 is created. This can be cornpared'with the I_0.68 value-added generated per peso cost of a smallscale industry project. This comparison implies that irrigation has a greater production impact than a smalbscale industry project, all other things being equal. Of course, there would expectedly be different results once finer variables are incorporated (such as the specific industry involved in the promotion), The incremental employment effect per year of irrigation was estimated to be 0.00069 hired labor per peso of development cost of 0.0010 total labor (hired and fa:mfly). When conrpared with the employment impact of small-

Using the previous table and the fact that exact computations can be made on the finer details, what is needed would be an explicit specification of social and economic objectives. There are various approaches for this purpose. One would be to put different weighting schemes to the various areas of concern. The country, for example, may put more weight to income distribution and employment generation relative to other concerns, Another is to put greater weight to negatire impacts which means that the more adverse the effects are, the less likely should the projects be pursued. Finally, it might be explicitly indicated that complenrentarity among them may help in the choice of projects, Such alternative specifications lead to a narrow choice of projects. For example, if income distribution is a major concern, a development plan should have less projects on aquaculture, snlall-scale industry, education, and tourism (all of similar kinds as the ones assessed in the ESIA/WID Project). On the other hand, if employment becomes a centerpie'ce in strategy, port projects would have little contribution to employment. In other words, under the column on areas of concern, we can simply plan on projects that have positive qualitative directions and determine some of the quantitative trade-offs,

scale industry, one finds t.hat a million peso of development cost creates one hundred equivalent ' full-time workers if the investment is in'smali-scale irrigation and 160 equivalent full-time workers in small-scale industry. The trade-off implied is that development of industry

The breakdown of impacts beyond standard peso measurements into specific areas has allowed some responsiveness to policy concerns. Indeed, what the impact studies have shown is that projects can be evaluated according to contributions to specific objectives. While there may

creates greater direct employment impact of irrigation but that the opposite effects are seen with respect to production, With. respect to income distribution, the qualitative directions show opposing effects for small-scale irrigation and small-scale industry. Pernia's study notes, however, that such deterioration is temporary and when viewed nationally, narrows income distribution across areas, These two stages of the results of impact assessment iUustrate in concrete terms how one can judge the relative effects of development projects, in the end, much depends on the policy regime, Policy Implications

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1986 II

be inherent weaknesses to them, (e.gj the need to put values on a common timq frame) the impacts may matter more in policy decisions. Impact assessment of the kind reviewed here are not meant to substitute for the traditional feasibility studies to determine economic, social, and financial viabilities. They serve to enrich the traditional benefit-cost analysis. In fact, the latter allows comparability between projects but on a.n aggregate level. Relarive and cross-effects imply that project development can become sharper in focus, richer in substance and clearer in direction towards identified concerns. What is needed therefore is a cumulatire knowledge of impact from a larger set. of projects than the ones reviewed here. The subsequent papers under the Research Utilization Component of the ESIA/WlD Project fills this need. Amore limited set of studies under a similar philosophy also illustrates how impacts can be measured under more stringent conditions (Alburo and Koppel, 1984). Given a development budget and a moreexplicit prioritization of economic and social concerns, it becomes feasible to choose an array of development projects which directly address them. Their selection would come from the results of impact assessments. What must be pointed out is that sucl_ findings (as bases for project choices) have temporal and. geographic dimensions which may not hold true for succeeding similar activities. This is the reason why impact assessment and benefit-cost analysis are not substitutes. By the continued use of evaluation studies that are comparable; policy and program choices become more meaningful and are likely tO achieve desired impacts. Improving Planning This paper has argued that while govermnent cannot directly control economic resources to achieve desired social and economic goals, it can exercise an influence in terms of the magnitude and scope of development projects that 1 it plans and implements. How ther_ does the economic and social impact analysis. improve planning? One is through the decomposition of effects into specific and real areas of concern like, for example, along the

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PIDS DEVELOPMENT RESEAR('"NEWS I II .I TARIFF

COMMISSION-PIDS

JOINT

_STUDY A joint study was recently undertaken by the Tariff Commission and the Philippine Institute for Development Studies (PIDS) in order to provide support and guidance to the improvement in trade policy. Specifically, the

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while the third part deals with the imple-

tariff rates and effective protection rates

lnentation aspects of fu'ture trade liberalization measures and their likely consequences,

(EPRs). The main portion of the paper discusses the tariff reform program while the second deals with non-tariff barriers, particularly the liberalization of import licensing. Its main findings show that the TRP has significantly reduced EPRs, and, to some extent, the EPR variation. This signifies a movement towards the ul-

TARIFFS AND ECONOMIC DEVELOPMENT: THE RATIONALE FOR PHILIPPINE TARIFF REFORM by: John H. Power

project aims to assess the effects of the current tariff reform program and to look into additional measures that may be necessary to complement the program, How these reforms will be implemented, including their respective timetables, are given some attention in specific papers, The Tariff Commission-PIDS Joint Research Project conducted several studies focusing on: a) the theoretical rationale for tariff reform; 2)program assessment; 3) the role of import restrio tions; 4)the impact of liberalization on income, employment, the trade balance and government revenues; 5) the prospects for integrating tariff reform with multi-

The paper discusses the important role of tariff policy in economic development, namely: a) to provide a major source of revenue to finance infrastructure investments and other essential government expenditures; b) to promote doinestic industry by making foreign goods more expensive in the domestic market; and c) to promote self-sufficiency in the supply of certain goods. Moreover, tariff policy may be directed towards employment creation and more egahtarian income distribution. After discussing the features of the Philippine tariff protection structure in

national trade negotiations; 6) timing and phasing of trade liberalization; and 7) complementary indirect tax measures, Inaddiiion, 4 industry studies were undertaken to evaluate their prospects under liberalization and the effects of tariffs

detail, arguments are raised as to the appropriateness of tariff protection in its various assigned roles. It has been noted that tariffs have unfortunate side effects resulting from the distortion of relative prices. The resulting

The objective of the study is to analyze how domestic indirect taxes interact with the tariff system to affect

and import restrictions on the firms. The industries chosen are textiles, pulp and paper, home appliances, and flour and flour-based products. Two technical papers on methodology are also included. The following 14 titles are the cornpleted papers of this project,

penalty on all exports and many coinparatively advantageous import substitutes has entailed a higher cost of balancing the foreign exchange budget, Despite these arguments, however, tariff represents the only acceptable trade intervention policy for promoting industry under the General Agreement on Trade and Tariffs (GATT). Thus, the inability to use alternative measures makes it ,,ill the more important to rationalize the tariff" structure in order

the market for particular goods, and consequently, their effective protection rates (EPRs). After describing tile main features of the indirect tax system, the protective effects of these taxes (e.g. sales and specific taxes) are identified. Revenue and equity inrplications of altelnative indirect tax schemes are also discussed. From the point of view of improving the progressivity of the indirect tax system as well as to discourage luxury

to minimize expected negative effects, Accordingly, specific guidelines for reform are drawn towards this end. " ASSESSMENT OF THE TARIFF REFORM PROGRAM AND TRADE LIBERALIZATION by: ErlindaMedalla --

consumption, "alternative sales tax rates are proposed for essentials, semi-essentials, non-essentials and other articles.

TRADE LIBERALIZATION IN THE PHILIPPINES: ASSESSMENT OF PROGRESS AND AGENDA FOR FUTURE REFORM by." John H. Power and Erlinda M. Medalla Visiting .Research Fellow and Research Fellow, respectively, Philippine Institute for Development Studies of

This paper serves as a general report the above-mentioned project, The

timate goal of a more uniform EPR structure. The paper also strongly suggests the implementation of importin liberalization as soon as feasible order to prevent the created market distortions from becoming too embedded in the system, thus inducing investment of resources to inefficient industries made commercially profitable by import restrictions. INDIRECT TAX PHILIPPINES by:

REFORM

IN THE

Rosario G. Manasan Research Fellow Philippine Institute for Development Studies

IMPACT EFFECTS OF THE TARIFF REFORM PROGRAM by.- Erlinda Medalla The concern of the studyis to evaluate

report is divided into 3 parts. The first

The .purpose of this study is to assess

the impact effects of the Tariff Reform

art presents a brief survey and a critique f 3 decades of Philippine protectionism (1950-11980); a summary of tile rationale for reform of protection policies and an assessment of trade liberMization since 1980. The second part summarizes findings from the 4 industry studies

how much has been achieved so far in the Tariff Reform Program (TRP) and import liberalization scheme. More concletely, the study notes tile progress in the initial import liberalization program as a complement to tariff reform, in efforts toward more uniform nominal

Program. This entails looking into the short- and long-run costs of the Program and estimating its magnitude, particularly as it affects output, employment, the trade balance and government revenue. A summarized methodology is presented and reference is made of the

PIDS DEVELOPMENT

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paper by Noli Mabida on "Impact

" IEWS

Ef-

A COMPARATIVE

fects of the Tariff Reform Program Methodology" for a fuller discussion of the framework adopted,

by:

OF THE

Elizabeth S. Tan Research Associate

I A

STUDY

by."

According to the study's findings, the performance of the industry (in terms of real output) as a response to the Tariff Reform Program was not strictly undesirable. In fact, there were positive output responses for about 60% of the firms. The negative output response in 1984 was primarily due tO the foreign exchange crisis and a 4% negative growth rate of real gross domestic product,

This paper aims to study the finnlevel effects of tariff reform and irn-

JULY-AUGUST OF

1986

THE EFFECTS

TARIFF REFORM AND IMPORT LI_ BERALIZATION ON THE TEXTILE INDUSTRY

The study surveys 6 product lines representing various home appliances produced by some 25 to 30 firms and then presents the tariff rates for these items. Average tariff rates on direct and indirect inputs are also noted,

Cecilia A. Mirabueno Senior Research Assistant Philippine Institute for Development Studies

in view of the programs. Moreover, the paper seeks to determine policy measures necessary to facilitate and ease adjustment. The performance indicators used include output, employment, input con-

STUDY

Philippine institute for Development Studies

come, employment, and exports and imports. Finally, an evaluation is made on the possible causes and consequences of the noticeable shifts in value of the variables mentioned before and after TRP. .. A STUDY OF THE EFFECTS OF TARIFF REFORM AND IMPORT LIBERALIZATION ON TIlE FLOUR AND FLOUR-BASED PRODUCTS INDUSTRY

port liberalization on the flour and flour_ based products industries (i.e., biscuits and noodles) in 1980-1985 and the resultant changes made by these firms

HOME APPLIANCE INDUSTRY

The empirical results show the potential effects of the Tariff Reform Program (TRP), on such variables as output, in-

by:

Rafaelita Mercado Senior Research Assistant Philippine lnstitute for Development Studies

The study is an application of effective protection rate (EPR) and domestic resource cost (DRC) analysis on the Philippine textile industry. The quantitative indicators usedapproximates protection (i.e., EPR) and measures comparative advantage (i.e., DRC). Star_ting from the observed facts of growth, and structural change within the industry during the past 5 years (1980-1984), an evaluation is made of the performance of, and the resultant adjustments made by, the textile industry under the tariff reform and liberalization plan. The effects of further tariff reform is also simulated to draw guidelines measures.

for policy

A STUDY OF THE EFFECTS OF TARIFF REFORM AND IMPORT LIBERALIZATION INDUSTRY by:

tent and factor intensity/productivity, as well as effective protection rates and domestic resource costs. A survey of firms was also conducted to supplement the quantitative analysis. Two sets of estimates for effective protection rates and domestic resource costs were done for 1980, 1982 and 1984. The first set of estimates used tariff and tax rates as deflator to get

THE PAPER

Virginia Pl'neda Senior Research Assistant Philippine Institute for Development Studies

THE IMPLEMENTATION OF IMPORT LIBERALIZATION AND TARIFF REFORM IN THE PHILIPPINES: PHASING AND COMPLEMENTARY MEASURES by:

The study is concerned with the analysis and evaluation of the effects of the Tariff Reform Program on the paper industry. The focus is mainly on paper miUs or manufacturers of paper and paperboard from pulp. It aims to

John H. Power

The issues in this paper are concerned with the timing and sequencing of trade liberalization, including a discussion on some complementary measures. The key questions raised on this concern are when to start, how rapidly to proceed, and in what order to introduce the

border prices while the second set used actual border prices based on Hongkong and NCSO statistics, The respondent firms point to excessive government control as the main problem of the industry. Because of government controls on import quantities, distribution and prices, including

identify the adjustment problems of firms and to provide guidelines on appropriate government policies towards the industry, For the present study, the effective protectio_l rate serves as an indicator of protection while domestic resource cost measures efficiency. Utilizing these co_-

principal components of liberahzation. The adjustments that are recommended fully recognize the current depressed state of the Philippine economy, which is characterized by widesplead excess capital capacity, and unemployment and underemployment of labor. The implb cation of these adjustments is that it

the right to approve or suspend mill operations, the industry has not been able to respond quickly to opportunities to buy wheat at. low prices. This has weakened the industry's capacity to adjust efficiently to changing business conditions,

cepts, an industry survey conducted in 1985 showed that protection is inversely related to efficiency. In addition, the bigger firms were found able to adjust to lower protection as shown by the iraprovement in their levels of output and capacity utilization after the program,

would be socially desirable to dela_ the removal of import restrictions and" tariff reductions until capacity utilizalion has recovered. While there are no existing adequate measures of capacity utilization over the whole economy, the recovery of GNP to the 1983 level

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â&#x20AC;˘night serve as mlmmum reqmrement . a this respect. The temporary delay in the implementation of liberalization would also serve to alert the business community and give it some time to prepare for a more competitive environment.

as developed by Chung Lee, makes use of the input-output table, particularly the derived sectoral effective protection rates (EPRs), before and after TRP. In the implementation phase, the 1979 and 1985 rates calculated from the 1979 l-Otable were utilized,

standing of the nature and significance of trade barriers facing exports of develop. ing member countries like the Philippines, and to provide more specific information on possible alternatives to trade policy. makers in the Philippines. Heading the research investigating team is Erlinda

The key is tocommitment make a strong wholly credible now and to phased import liberalization to commence once the 1983 level of real GNP

The impact effects of the TRP are illustrated in the changes of certain

Medalla.

important variables such as supply and demand, employment, income, trade and government revenues.

REGIONAL STUDY ON FINANCING PUBLIC SECTOR DEVELOPMENT EXPENDITURES IN SELECTED DEVELOPING MEMBER COUNTRIES: PHILIPPINE COUNTRY REPORT

is restored. This calls for setting goals, explaining the rationale, and setting a time table. EFFECTIVE PROTECTION blETItObOLOGY

RATE -

by." Maria Theresa Quinto Technical Staff Tariff Commission The effective protection rates cornputed here are primarily intended as inputs to the measurement of the impact effects of the Tariff Reform Program (TRP). Two sets of calculations were aaade using the 1979 79 x 79 I-O Table for 1979 and 1985, representing pre- and post-TRP effective protection rates, respectively, The usual assumptions apply to the calculation of the effective protection rates. These include fixed input coefficients and infinite elasticity of foreign supply of imports. Additional assumptions are made in this study, namely: a) taxes

The study also estimates the impact effects of a variable real exchange rate, assuming that income is unchanged even by fiscal policies that complement the TRP. Another set Of estimates assumed that a second round of the TRP narrows down further the range of tariffs from 10% to 50% to 30%. The implicit tariffs of the sectors affected are adjusted and projected EPRs are derived. From these rates, both 1985 and projected values, the process of estimating the impact effects on supply, demand, employment, trade and revenue, including the simulation, was repeated,

against the sales inputs tax on are the credited output; on intermediate b) drawbacks on tariff duties and taxes exporters; c) lower tariffs are imposed on intermediate inputs and d) effects on intermediate inputs are grantedFrom to of non-tariff barriers are excluded. the basic effective protection rate equation, the 1985 effective protection rates are thus derived.

IMPACT EFFECTS OF THE TARIFF REFORM PROGRAM - ESTIMATION METHODOLOGY by:

Manuelito MabMa Technical Staff Tariff Commission

The study discusses the methodology used in calculating estimates of the irapact effects of the Tariff Reform Program (TRP). The methodology adopted,

by:

Rosario Manasan, et al. Research Fellow Philippine institute for Development Studies

The study examines the nature and extent of domestic resource constraints facing the Philippine public sector, and is a part of a regional study of seven developing member countries of the Asian Development Bank. In particular, the study analyzes the uses and sources of funds of the central and provincial governments and of the public sector enterprises in the Philippines. Rosario Manasal2 is chief investigator of the country report while Mr. Gilbert Llanto and Juanita Amatong are senior investigators.

_----------ARS

ON-GOING PROJECTS REGIONAL STUDY ON FOREIGN TRADE BARRIERS TO DEVELOPING MEMBER COUNTRY EXPORTS: PHILIPPINE COUNTRY REPORT by:

FACTORS AFFECTING THE CHOICE OF LOCATION: A SURVEY OF

t_ÂĽlinda Medalla, et al. Research Fellow Philippine Institute for

FOREIGN AND LOCAL FIRMS IN THE PHILIPPINES

Development Studies

A seminar on 'Factors Affecting the Choice of Location: A Survey of Foreign and Local Firms in the Philippines" was held on July 24, 1986 at the Operations Room of the NEDA Makati Building. The

The study, under the joint sponsorship of the Asian Development Bank and the PIDS, seeks to promote a better under-

PIDS DEVELOPMENT

RESEARCI Ill

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1986

study presented was authored jointly by Dr. Alejandro N. Herrin, Professor at the

to improve the system of monitoring regional expenditures in order to increase

The Case of the Philippines, 1981-1985' was the second in the Institute's ealenda

U.P. School of Economics and Dr. Ernesto M. Pernia, Regional Adviser of the International Labour Organization. The seminar sought to highlight the findings of the study concerning the determinants of industry location, in general, and among specific firms, for both local and foreign industries. Adopting a micro framework, the study surveyed 100 finns belonging to the top 1000 corporations in the Philippines. From this survey, the study concluded that there are 7 factors, generally of the social overhead type, which are considered decisive by the majority of firms. These factors include closeness to

efficiency in resource allocation and the degree of local executive accountability. Participants to the seminar included representatives from the PIDS, the Ministry of Social Services and Development (MSSD), the Office of Budget and Management (OBM), U.P. School of Economics (UPSE) and the Social Services Staff and Regional Development Staff (RDS) of the National Economic and Development Authority (NEDA).

of seminars for the month of August Held on August 18, 1986, the seminar provided the forum for discussion of the paper done by MariaSocorro H. Gochoco, a V/siting Research Fellow of the Institute. The study explored how interest rates are determined once the Financial system has been liberalized in view of the proposed trade liberalization scheme. With due consideration given to both domestic and external factors, the degree of openness of the capital account is taken to play an important role in determining foreign exchange and interest rates.

DEMAND FOR ELECTRICITY IN THE PHILIPPINES: IMPLICATIONS FOR ALTERNATIVE ELECTRICITY PRIC-

demand markets, easy road access, reliable electric power, adequate cornmunication facilities, and the availability of suitable building/land for c_rrent as well as future space requirements. In terms of policy implications, it has been pointed out that it is better for government to concentrate on the provision of these basic infrastructure rather than on

A seminar on "Demand for Electricity in the Philippines: Implications for Alternative Pricing Policies" was held on August 11, 1986 at the NEDA Operations Room in Makati. Highlighting the findings of a study done by Dr. Clodualdo R. Francisco, Research Fellow of the

the drawing up of complex and expensive incentives and industrial dispersal prog-

Institute, the seminar's discussions focused on how to derive alternative

rams, as directgovernment intervention measures are generally not considered of major importance by firms,

PES-PIDS SEMINAR ON THE 1986 WORLD DEVELOPMENT REPORT

EXPENDITURES FOR INFRASTRUCTURE AND SOCIAL SERVICES IN TWO REGIONS OF THE PHILIPPINES

pricing policies given some estimates of the demand elasticities for electricity by residential, commercial and industrial consumers. Reactions to the major recommendations were made by representatives from MERALCO, the National Power Corporation, the Ministry of

A seminar on "Expenditures for Infrastructure and Social Services in Two

Energy, the Asian Development Bank as well as staff members of the PIDS and

NEDA sa Makati Operations Room. Held under the auspices of the Philippine

Regions of the Philippines: Regions III (Central Luzon) and VII (Central Visa. yas)" was presented before social science practitioners and representatives from the government sector and the academe. Held last July 30, 1986, the seminar discussed the findings of a study done by Dr. Ledivina V. Carifio and Eleanor E. Nicolas, Professor and Researcher, respectively, at the U.P. College of Public Administration; Filoteo Delfin, Assistant Professor at the U.P. College in Cebu; and Carmen Flores-Borje, Research Associate at the U.P. Local Government Center.

NEDA. One of the basic points brought up in the seminar was the necessity of sending the correct price signals to the various consumers of electricity in order to efficiently allocate energy. Thus, any form of tariff structure for electricity must first consider the demand ]gehavior of specific types of consumers. Moreover, electricity pricing as a tool for income distribution is discouraged because it distorts the price signals of a commodity that has very strong linkages in the economy,

Economic Society (PES), with the sup. port of PIDS, the seminar's guest speaker was Dr. Anandarup Ray, Staff Director of the World Development Report 1986. On the whole, the World Development Report concludes that over the past several years, food trade balance had been in favor of developed countries, thus making the corresponding balances in developing countries negative. Moreover, noting that agriculture as an industry accounts for a large share of many developing countries' economies, Dr. Ray stressed that immediate policy reforms need to be implemented in both

Some of the issues brought forth in the seminar were the pattern of public expenditures and social services in Regions IIi and VII for the period 19791983 and the state of financial reporting in these regions. Proposals were explored III II

INGPOLICIES

FINANCIAL

LIBERALIZATION

AND

INTEREST RATE DETERMINATION: THE CASE OF THE PHILIPPINES, 1981.1985

The open forum proved to be very interesting as private bankers, researchers and representatives from the Central Bank and the NEDA exchanged views and opinions on the estimate of the degree of openness of the Philippine economy. Methodological improvements were given to refine the value estimates so as to better reflect Philippine conditions.

The 1986 World Development Report of the World Bank was the subject of a seminar held on August 20, 1986 at the

developed and developing countries in order to subvert the discriminatory effects of policies against agriculture.

A seminar on "Financial Liberalization and Interest Rate Determination: I

I IIII Illi

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PIDS REGULAR PIDS WORKING

W.P, #8301

Studies

the Wood-Based

Furniture,

Leather

S.P. #8302

On the Use of the DRC

$.P. #8303

Projects Erlinda M. Medalla. Monetary Aggregates and Economic Mario B. Lamberte,

S.P. #8304

Effective Protection Rates and Internal Indirect Taxes in the Philippine Settin_ Rosario G, Manasan.

10,

S.P, #8305

Response to Balance of Paymen Ps Crises in the 1970s Korea and the Philippines John H. Power.

Economic Incentives and Comparative Advantage in the Livestock Industry. Liborio S. Cabanilla. An Analysis of the Economic Policies Affecting The Philippine Coconut lndustry. Ramon Clarete and J. Roumassst.

11,

S.P. # 8401

12,

S,P. #8402

A Study of Philippine Real Property Taxation, Cayetano W. Paderanga, Jr. Public Enterprise in the Philippines in 1982: A Definitional and Taxonomical Exercise, Rosario G. Manasan,

13,

S.P. #8403

Estimating the Shadow Exchange Rata, the Shadow Wage Rate and the Social Rate of

14,

S_P. #8404

Discount for the Philippines Erlinda M, Medalla, Development Finance and State Banking: A

15,

S.P. #8405

Survey of Experience. Edita A. Tan. Derived Protection for Nontreded Produce Erlinda M. Medalla,

16.

$,P, #8406

Modelling the Effects of Devaluation on Prices, Output and the Trade Balance: The Philippine Experience. Ma. Cecilia Gon_ales.

17,

8.P. #8407

The Development Bank of the Philippines and the Financial Crisis, A Descriptive AnalysiÂ˘

18.

5.P_#6501

Mario B_ Lamberte. The Protection Structure, Resource Flows and the Capital-Labor Ratio in Philippine Manufac-

19.

S.P. #8502

A Decomposition

W.P. #8304

W.P. #8305

The Impact of GovernmentPolicies on Philippine Sugar. Gerald Nelson and Mercedita Agcaoili. Comparative Advantage and Government Price Intervention Policies in Forestry. John H, Power and Teresita Tumaneng, Government Expenditures and Agricultural Policies in the Philippines 1955-1980. Manuel S_ J. de Leon.

W.P. #6307

W.P, #8308

W.P, #8309

Economic/ncentivasand ComparativeAdvantage in the Philippine Cotton industry. ArSenio Balisacan.

10.

W.P. #8401

InterseCtoral Capita/ Flows and Balanced AgroIndustrial Development in the Philippines Manual $. J. de leon,

11.

W.P, #8402

Forest Land Management in the Context tional Land Use. Adoifo V. Rsviila, Jr.

12.

W.P, #8403

13.

W.P0 #8404

Policy Issues on Commercial Forest Management C_renilla A. Cruz and Marian 8egura-delos Angeles. The Impact of Government Policies on Forest Resources Utilization. Gerald C. Nelson.

14.

W.P, #6405

of Na-

15.

W.P, #8406

16.

W.P, #8407

17.

W.P, #8408

18.

W.P, #8409

19.

W.P, #8501

20.

W.P, #8502

21.

W.P, #8601

Population Pressure, Migration and Markets: implications for Upland Development. Ma. Concepcion Cruz. Tenure, Technology and Productivity of Agroforestry Schemes Ana Doris Capistrano and Sere Fujisaka. Environmental Effects of Watershed Modifications Wilfredo P. David. Management and Cost of Watershed Reforestat/on: The Pantebangan and Magat. Jose A. Galvez. Workshop Papers on "The Consequences of Small Rice Farm Mechanization in the Philippines': A Review of Welfare in the Coconut industry. Sylvia N. Guerrero. Financing the Budget Deficit in the Philippines. Eli M. Remolona. Trade Liberalization Experience in the Philip. pines, 1960,84. Florien AIburo and Geoffrey Shepherd. Integrated Summary Report: Populetion Pressure and Migration = Implications for Upland Deve/op. mont. Me. Concet3cion J. Cruz. Factors Affecting Survey of Foreign pines Alejandro Pernia. PIPS STAFF

the Choice of Location: A and Local Firms in the PhilipN. Herrin and Ernesto M.

and Import S. Intal, Jr. 20.

S.P. # 8503

21.

S.P, #8504

22.

S.P. #8505

23.

S.P. #8506

24.

$,P. #6507

25.

S,P. #6508

26.

S,P. #8509

25.

S.P, #8601

Short

An Analysis of Fertilizer in the Philippines Cristina C. David and Arssnio M. 8alisacan, (Printed aiso in J.P.D. 1981 )

S.P. #8202

Credit ant; Price Policies ture. Cristina C. David.

S,P. #8203

Government Policies and Farm Mechanization the Philippines Cristina C. David.

in Philippine

26.

S.P. #8602

Agriculin

Empirical Analysis

Performance,

Criterion

Note:

S.P. #8603

Activity,

Primary

Erlinda

of Philippine 1974-1982

Export Ponciano

pectives Robert E. Evenson. Financial Liberalization and the Internal Structure of the Capita/Markets: The Philippine Case. Mario 8. Lamberte. The Rural Banking System: Need for Reforms Mario B. Lamberte. Social Ad_Tuacy and Economic Effects of Social Security: The Philippine Case Mario B. Larnberte, Impact of BO/ Incentives on Rate of Return, Factor Prices and Relative Factor Uso: A Cornof incentives Under the OmCode of 1981 (P.D. 1789) and

the Investment Incentive Policy Act (B.P_ 391). RosarioG. Manasan. Financial Reforms and Balance-of-PaymenPs Crisis: The Case of the Philippines and Mario Lamberte.

27.

in Selecting

Phil_pine Export and Terms of Trade Instability, I965-1982. Ponciano S. Intal, Jr. Methodology for Measuring Protection and Cornparative Advantage. Erlinda M. Medalla and John H. Power. Food, Fuel and Urbanization in the Philippines Alejandro N. Herrin, Manuel F. Montes, Rodolfo F. Florentino. Rural Development Experience: Economic PerP

parative Analysis nibus Investments

S.P. #8201

Exchange Rate Flexibility and Intervention Policy in the Philippines, 1973-1981. Filologo Pants, Jr_

toting: A Medalla.

PAPERS

Shadow Prices of Goods and ResourCes in the Philippines An Assessemnt, EHinda M. Medatla. An Analysis of the Behavior of the Commercial Banks, Mario B. Lamberte.

IIIII

S.P, #8204

S.P, #8301

Changing Comparative Advantage in Philippine Rice Production. Laurian J. Unnevehr and Arsehid M. Balisacan,

W.P, #8603

W.P. #8303

23.

PUBLICATIONS

S,P, #8205

W.P, #8602

1986

W.P. #8302

22,

I-I

Soils, Roy YbaSez, and Bienvenido Aragon. Economic Policies and Philippine Agriculture Cristina C. David.

W.P. #8306

pAPERS

Product= and Footwear Manufacturing Industries in the Philippines Nfcsto Poblador, Adriano

JULY-AUGUST III

A Macroeconomic in the Philippines, san.

E. Remolona

Overview of Public Enterprises 1975-1984. Rosario G. Mane-

â&#x20AC;˘ I

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SPECIAL PUBLICATIONS 1. INDUSTRIAL PROMOTION POLICIES IN THE PHILIPPINES Romeo Beutista, John Power and Associates

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MONOGRAPH NO. VII: PUBLIC POLICY AND THE PHILIPPINE HOUSING MARKET Edna Angeles

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DEVELOPMENT RESEARCH NEWS (DRN) is a bi-monthly publication of the PHILIPPINE INSTITUTE FOR DE. VELOPMENT STUDIES (PIDS). It highlights findings and recommendations culled from PIDS-sponsored resear¢hes or related studies done by other institutions. PIDS seminars, publications, on-going and forthcoming projects whicl_ are' of interest to policymakers, planners, administrators, and researchers are also announced. PIDS is a non-stock, non.profit government research institution engaged in long.term policy-oriented research. This publication is part of the Institute's program to disseminate information in order to promote the utilization of _search findings. The views and opinions published here are those ot the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions to or comments on the DRN are welcome. Please address all related correspondence or inquiries to: RESEARCH INFORMATION DEPARTMENT (RID) PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS) ROOM 515, NEDA SA MAKATI BUILDING 106 AMORSOLO STREET, LEGASPI VILLAGE, MAKATI, METRO MANILA Entered as Second-Class Marl at the MIA Post Office on October 13, 1983. Private firms and individtmb are chn_ed for delivery and mailing services at an annual rate of P35.00 (local) or $5.00 (foreign). II

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