Philippine manufacturing performance: reinterpreting stylized facts in light of factor-market distortions
Date
1995-07
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Abstract
The standard two-sector, two-factor model of international trade is made to
accommodate distortions in the market for capital to explain why, despite output and input price interventions by government intended to favor manufacturing, the output of the sector as a percent of GDP has been declining.
To explain stylized facts of Philippine development, appeal is made to perverse price-output responses in the theory of factor market distortions owing to the non-correspondence of physical and value-factor intensities. Ultimately, the principle involved is traceable to the the Stolper-Samuelson theorem. A regression analysis offers econometric evidence of the pathologies for some years.
Besides distortions caused by price interventions, however, the operation of
the Rybczynski theorem may also be alluded to as an additional and parallel
explanation for poor manufacturing performance. A historical view suggests that these two core theorems of international trade theory must be present in any attempt to explain the stylized Philippine experience.