A STRUCTURAL ANALYSIS OFTHE 1985 PHILIPPINE ECONOMY: ITS IMPLICATION ON A MULTI-SECTORAL ECONOMIC DEVELOPMENT STRATEGY

HENRYONG EMMA CECELIE LIGOT WILFREDO RACAZA, JR.

P hilippine economic development through the years has ~n characterized by dle growth of different domestic

indusuies which gave rise to increased outpur, income and employment. TheslrUctural interdependence of these indus­tries has been regarded as the most vital part of economic development since the possible linkages that it could develop are potential contributors to growth. It is recognized that the government as an economic agent has a role to play in reallocating industries that are dynamic instruments fur industrialization by sening and implementing industrial investment priorities efficiently. Such interdependent reallo­cation can give rise to the so-called backward and forward linkages that could be profitably exploited when business enterprises and enuepeneurs are ~iIling to coordinate their various investment activities. Indeed, interdependency among . sectors is a significant feature of modem production. The panern of these linkages indicates a given sector's ability to stimulate other ~ors. Key sectors are those dlat have the most linkages. Due to these interdependencies and multiplier effects, a strategy for development based on investment in key sectors should promote generalized economic development. Hence, this study anempts to analyze the industrial structure of the Philippine economy in terms of total factor inpur requirements, sectoral multiplier effects and industrial total percentage shares of domestic aggregate demand.

" RATIONALE AND STATEMENT OF PROBLEM

any research studies ma~e oil rhe factor input rcquire­M ments of individual industries neglect dle fact that the

materials and intermediate products used in the production of each industry and supplied by other industries may have specific input requirements such as labor or capital. Sudl

accounting of requirements can only be taken by means of interindustry analysis of which input-output is one operational form. In order to measure the effect of an alteration in the sectoral final demand bill, this study takes into account both direct linkages as well as indirect impact.

Given the present slrUcture, which sectors should be prioritized in terms of resource allocation in pursuit of economic goals?

OBJECTIVES

1. To describe the structural compostnon of Philippine economy for the year 1985 from the point of view of production and final demand side.

2. To analyze the overall cost structure of the Philippine economy in terms of primary input content and intermediate · input content.

3. To evaluate the Investment Priorities Plan fur 1985 and 1991 in terms of slrUctural interde­pendence of industries.

4. To pinpoint appropriate sectors to be tapped and developed by government policy makers in pur­suit of economic goals.

THEORETICAL FRAMEWORK

A ccordingto Hirsdunan(1958), interdepcndenceamong . different sectots of the economy is an essential charac­

teristic of modem production by which the pattern of production and the measurement of these linkages indicate a given industry's capacity to stimulate omersectoIS. 111ere are two induced investment mechanisrnswhichare believed tobe at work within the different sectors of the economy that must be considered in a development strategy. 111ese are the backward and forward linkage effects. The backward linkage effects, also known as inpur provisions or derived demand, are caused by every nonprimary activity which induces attempts

61

H. ONG, E.C. UGOT & W. RACAZA, JR.

to supply inputs needed in that activity through domestic production. This lil'.kage corresponds to a derived intermedi­ate input demand effect and take place when a sector changes its output level. The forward linkage effects, also known as output utilization, on the other hand, are made by every activity that does not by nature cater exclusively to final demands which induce attempts to utilize its outputs as inputs in some new activities. This linkage corresponds to the sale of intermediate inpu ts and not to aderived effect since this occur when buyer sectors increase their production.

The backward linkage is important as a devdopment mechanism because it is said to be brought into play when there is an increaseindemand wherein the mechanism of the said linkage acrs as aprime mover. Supposethereisaspurtofmvestment rdarive to income that appears to characterize the growth process. The capacity of these domestic productions as backward linkage in a I:irge number ofitems can then be adjusted Far more gradually to increasing output. An industrial b~eofacountlywill then expand as capital growth gradually increases in final demand. Instead of how much Clpital fOrmation is triggered when final demand is specified in advance, devdopment strategy can maximize back­ward linkage effects and the roncomitant Clpital fOrmation by manipulating final demand with this end in view. Such manipu­lation may involve rariffi, excise taxes and subsidies if it can be demonstrated thata certain growth pattern is likdy to be developed in the absence of interference. Invesonent decisions are made much easier once chis is the case (Khake 1957).

Forward linkages could never occur without the ac­companiment of backward linkages. This relation, hence, emphasizes the existence or anticipation of demand as a condition for forward linkage effects to manifest themselves. While forward linkage cannot be regarded as an independent inducement mechanism, it acts as an important and powerful reinforcement to backward linkage. Key sectors that have quantitatively significant linkages are said to generate impor­tant externalities which would justify state intervention to give incentives to these sectors. These in turn become the rationale for key sector identification: a development which emphasizes the approach oflooking at the linkage related to employment and income instead of production.

However, since linkages are thought to be really "captur­able" on the basis ofhistorical and comparative industrial studies, acrording to Weiskoff and Weiff (1971), these linkages can be persistently neutralized by the leakages of imported inputs or by immediate export of the intermediate inputs. The conversion of such leakages into real linkages may oa:ur with development or may further be inhibited by segmentation of the international market, strategic considerations of the multinational firm or &om the sheer profitability derived &om specializing in one phase of an otherwise high linkage sector.

62

OPERATIONAL FRAMEWORK

Backward Linkages

T he backward linkage effect is measured by the index of the power of dispersion. Ie is a measure of the impor­

tance of a particular sector as a purchaser of raw materials rdative to other sectors. The index in rnathematical notation is defined as

Uj = Dj I lin Lrij

where the rij's are the dements of the inverse matrix. The sum of the column elements of any j th sector is expressed as a ratio to the average of the whole system.

Forward Linkages Forward linkage is measured by the index of sensitivity.

This indicates the importance of a particular sector as a supplier of raw materials, relative to other sectors. The index of sensitivity is expressed as the ratio of the sum of the elements along ith row of the inverse of the technology matrix to the average for the entire system. In the mathematical notation, it is defined as:

Ui = Lrij I l/nLrij

where the rij's are the elements of the inverse of the technology matrix.

Total Percentage Shares in Output The total percentage shares in output represent the

direct and indirect effect of each secta"r's output for final demand components expressed in percentage terms. For example, the textile industry. produces goods to only two markets, o~e for the wearing apparel industry which uses its prpducts as intermediate inputs, and the other for private consumption. Wearing apparel, however, also produces for private consumption; thus the total amount of goods pro­duced by the textile industry for private consumption does not only include its direct sales but also its sales in the wearing appaid sector which indirectly sells textile goods in interme­diate form. The direct and indirect demands can be expressed as percentages of total output by the matrix,

where x is the diagonal matrix formed from the total output of each sector, I - A is the row to colum inverse matrix and D as the 59X5 matrix whose column represents the five final demand components distributed among the 59 sectors.

Composition of Total Primary Cost Content The total primary cost content is the direct and indirect

primary input effects of each sector's product per one peso of final demand. Such primarY input effects are subdivided as wage, indirect tax, depreciation, other value added and import· components. Deriving total primary cost content involves the use ofinverse matrix and technology matrix. The composition for every component of primary input of each

-sector is defined as:

P = q' I-A

where P represents the total primary input of jthsector, q' represents the technology row matrix of a jth sector's primary -coQ'lponent expressed in Column vector and I - A is the total requirement of each jth industry.

Cost Structure by Industry Thecoststructureofindustryenables us to see the effect

oT changes in income payments of one industry on the cost and the price of another industry. This 5'9X59 table of cost structure is constructed to give a detailed breakdown of cost content of each sector's production, enabli~g us to trace which sector contributed most in the production of another sector's output. The cost content in the structure is analyzed from the point of view of in come payments that includewage, other value added and depreciation. The mathematical notation is summarized as:

B'(1 _A)-l + m + t

where B' represents thesummation of wage, depreciation and · other value added coefficient column vector, I - A is the inverse matrix, m is the tot~ import content row vector, and t is .total indireCt tax content row vector.

Effects of Changes of Factor Prices The magnitude of effixts brought about by changes in

fuctorprices is made possible by thecoristruction of a table oftot3I fuctorinput oontent of each final demand good component. Final demandgocxk are classified as priv:u:e cOnsumption, government expenditures, investment, and ecports. For example, fuctor prices in the funn of wage inaease by lOOAl will have an effect, on export goods by 3% inaease in its prices ifsuch good c:on-tain a total wage content of300/o. The mathematical notation is defined as:

F = p' FOe ITfc

where-F is the total factor input content of each final demand compo~ent~p' is the rotal primary input content column

A STRUCfURAL ANALYSIS

vector, FOe is the final demand cOmponents column vector arid Tfc is the total final demand components column vector.

Output Multiplier The output multiplier gives the production effect per

one peso increase in final demand ef each sector'soutput. For example, thedectrical industrrhas a multiplier of I. 50. This means that iffinal demand fordectricalgoods is increased by one peso, the total prod~ction increased in the economy is not

-one peso but one peso and fifty centavos. 1he 6fiy cents represents the repurcussion effix:ts of thedectrical sector \\ith the other industries. The mathematical notation is expressed as:

where OJ is the value of the multiplier of each jth sector and I - A as the jth sector's inverse matrix.

Income Multiplier The income multiplier gives the total income effect per

one peso increase in final demand for each industry's output. Similar to output multiplier, income multiplier measures the magnitude of repercussion effects of an industry on the

-economy. However, this multiplier is' measured from the point ofview-ofincome payments to factors of production. The mathematical notation is summarized as:

Ij = Y'(I - A)l I yij

where Ij is the value ofincome multiplier, Y' thesummacion of wage and other value added coefficients column vector, I - A the inverse matrix column vector and yij is the direct income coefficient of jth sector.

Weighted Industry Index Theweighted indusnyindex ~dcvisai tosdectwhichseaor

~ouldbedevdopedaa:Otdingtothera:omrnendationofKrugman's repon. Krugman basically reoornmended thedevdq>ment oflaln­intensive indUStries fOr the Philippines and the ~ c:i those industries that have a high import CDntent and arc; apitd intensiveiifproduction. Theaiteria.used in the index ti bythe~ up points systems. Higher mark u~ are gMn todinxt wap and oc:hervalueaddedcontent, whilelowermark-uparegivenfurimport and depreciatiori inputs. The designatiOns of points fOreach direct primaIy input oontent is ~ fOllows: .

Wage = 1.5 points Depreciation =- 1.1 points Other Value Added = 1.25 points Indirect Tax . . = 1.1 points Import = 1.05 points .

63

H. ONG. E.c. UGOT & W. RACAZA. JR.

The mathematical notation for the index is defined as :

where w , d • 0 , i and m are total points derived of wage,

depreciation, other . value> added, indirect tax and import

respectively, whileXrepresents the value of weighted industry index.

REVIEW OF LITERATURE

T he industrial structure of an economy of a country does not necessarily assimilate with its neighboring econo­

mies. This is brought about by the fact that factor endow­

ments and technology of production differ from one economy

to another. It is interesting to know that industrial interde­pendence of different economies can give us some insights

about the strength of their linkages within the domestic

enVironment and abroad.

. According to Alauddin and Tisdell (1988). the Bang­

ladeshi industries were said to be directly based more on living resources such as agriculture. fisheries. and forestry, while service industries showed little rClarive dependence on other

industries for inputs in producing output. They concluded that agricultural · industries are the most appropriate to

Bangladesh in terms of capital to labor requirements.

Tyler (1977) made a study using the input-output system in resolving theeinployment problem through manu­

factured export promotion of the eight developing coun­. tries-Brazil, Mexico, Egypt, South Korea, Taiwan, Yugosla­

via and the Phiippines. He found that countries with more highly diversified and industrialized economies display the

greatest indirect labor requirements relarive to dir~ require­

ment per unit of output. According to him, for all the eight

countries, the fOod processing industry was foun~ to be one of the least labor intensive in terms of direct labor, but the

inclusion of the labor requirement in its backward linkage . industries, most notably agriculture, places it among the most

labor intensive manufacturing industries. The author con­

cluded that there is little reason to believe that manufactured

exports represent a solution to the unemployment problem. A study done by Meller and Martin (1981) focused on

the relevance of small and large industries dichotomy to the problems of employment-generation in Sierra Leone. Based on their findings using the input-output model, they found that manufacturing sectors with the highest backward link­

age were not the same as those having the highest forward linkages. They concluded that key sectors for large industries are food, beverages; textile, wood and paper while machinery and diverse manufacturing were key for small industries.

64

Using the input-output analysis, Weiskoff and

Wolff(1977) found that Puerto Rican industries, which are

fewer in number and of diminished importance, rely heavily

on imported inputs, but those sectors greater in number and

with increasing weight rely moderately on imports. They

related two general patterns based on their findings that those industries which originally exported continue to do so but are more integrated into the local economy and are still heavily

dependent on imports at somesrage. 1heotherpatteffiw.lS that rhosewhichhadearliersddprimarilytothedomesticmukttbut

had relied on imported inputs have since diversified their input

structure and depend more heavily on local supplias. From what can be gathered from this review oflitera­

ture, it is apparent that the use of Leontief input-output

analysis offers a variety of research opportunities on the different aspects of interdependence. We have chosen to

study the industrial structure of the . Philippine economy

using the input-output techniques.

SCOPE AND LIMITATIONS

T his study focused only on the 59 sectors of the economy

after it has agg1-egated from 426 sectors prepared by the

National Statistics Office. This paper abides by the assump­

tions oflnput -Output analysis as astatic model. Theassump­tions are first, fixed factor proportions and allow no substitu­tion among inputs. Second, they assume constant returns to

scale. Third, it is assumed that the amount of inputs pur­chased by each sector depends solely on the level of output of

that sector. And finally, it assumes that only current flows of

input and output are important, which tends to overlook the

problems of capacity and capital.

METHODOLOGY

T he data used in the study areall secondary statistical data and are taken from the recently published 1985 Philip­

pine Input-Output Accounts of the Philippines prepared by

the Research and Training Staff of the National Statistics Office and the Economic and Social Statistics Office of

National Statistical Coordination Board.

PRESENTATION AND ANALYSIS

T he economic structure of the Philippine economy is analyzed here using the input-output techniques to

identify key sectors from the point of view of both the production side and final demand side. From the production view, the local sectors are grouped into four main dassifica­rions according to degree of processing (CheneryandWatanabe

1958). The four categories are intermediate primary produc­tion, intermediate manufacturing, final manufacturing and final primary production. Most agricultural industries such as corn, palay, coconut and sugarcane are found in the first category while manufacturing industries such as textile, wood, paper and rubber produces are classified in the second category. Industries belonging to the former are said to have high forward linkages but low backward linkages. Such findings are found to be significant when the index of sensitivity of these sectors revealed that forest produces, palay, non-metallic minerals, and coconut rank among the top twenty high forward iinkages. Sectors found in the latter category are said to have both high backward and forward linkages. Industries which are found in the top twenty for both linkage indexes are textile, wood, paper, and basic metal produces. The final manufacturing category is a classification for industries that have low forward linkage but high back­ward linkage. Some industr.ies included in this category are food, tobacco, leather, beverage, and wearing apparel. To confirm its characteristic using index oflinkage, it was found that the above mentioned industries except · for food are ranked among the top twenty sectors having a high index of dispersion but are among the low~t in the index ofsensitivity. Food manufacturing madeit to the top ten for both backward and forward linkages index despite its category. The final primary production is the fourth classification indicating low linkages for both backward and forward. Some of these industries which are found to have low indexes for both linkages are government services, banana, ownership of dwellings, non-bank services and recreational services. Though some industries are properly fit for each category by determin-

. ing its actual index linkage, there are also some sectors that are inappropriate ~hen their indirect effeces are taken into account. For instance, electrical machinery is supposed to have high bac~ard linkages based on classification but it ranks among the lowest ten in the index of dispersion. Another is the trade sector, which is supp~sed to have low forward linkage according to category but ranks number one in the index of sensitivity. Such differences can only be explained by the indirec'c linkages of these sectors. '

F rom the final demand side, the findings reveal that all 59 sectors produce 39% ofthiergross output for intermediate use, which is relatively fair when comparied with the 40 to 45% degree of interdependence of Japan and the United States (Bruno 1962). Consumption accounted for 36% of gross output while exports and investments accounted only for 13% and 8% respectively. It can be said that household sector is the most important user of most commodities produced as majority of gross production for 1985 went to consumption purposes.

A STRUcrURAL ANALYSIS

Most of agricultural production is distributed for private consumption purposes as some 70% to 90% of the total percentage shares in output are on the consumption side. It should be interesting to note that almost all agricul­tural sectors produce directly for consumption at a very minimal share but relatively large enough direct shares for intermediate'demand. However, when the direct and indirect effects are taken into account, almost all agriculture sectors are found to be producing mainly for consumption~ This means that average agricultural produces are destined to undergo processing before they are finally sold for consumption. Manufacturing industries such as food, beverage and tobacco share similar characteristics with agriculture, all having high indirect effects for consumption. For instance, food manufac­turing has a direct output in consumption at 65%, but it increased to 85% when its total percentage share was ac­counted. Industries that produce relatively large shares for government expenditures are paper, publishing, land trans­port, transport equipment, and government services. These

. sectors, however, are not producing directly.for government consumption but rather for government services. It is only through their intermediate output that production went to government demand. Copper, gold, chromium, forestry, sand and gravel, wOod, non-metallic, fabricated metal, and machinery are the top producers of investment goods in view of total percentages. Sand, stone and gravel, wood and cork , and basic metal industries, however, are only producing indirectly as some 88% of sand, 60% of wood, and 36% of metal production are already processed when catered to investment demand. In the export market, chromium, ba­nana, copper, textile, wearing apparel, basic metal, and electrical machinery goods have high total percentage shares . Chromium, which is second only to electrical machinery in the direct share of output at 55o/~ suddenly topped all sectors at 99% in the total percentage share; making this sector's production highly export oriented. Electrical machinery which produces semi-conductors ranks second"atan identical 76% for both total and direct shares. Some agricultural sectors are also worth noting with regard to export produc­tion. Palay, corn, coconut, sugarcane, livestock and poultry goods are not di rectly produced for exports as 0% is accounteCI for their direct share but because these goods are further processed in the manufacturing, they comprise some 10% to 19% of total export shares. .

The composition of direct and total primary input components of the different sectors shall be analysed to see the interdependence of these industries in the light of cost content per product. For all the production sectors, 39% is produced by proportion of all domestic inputs to total inputs. Approxi­mately 8% percent is accounted for imported inputs, 24% for

65

H. ONG, E.C. UGOT & W. RACAZA, JR.

other value added, 5% for depreciation, 4% for indirect taxes and 21% for wages and salaries. The results suggest that majority of all sectors' output have a higher labor and local

content compared to imported and depreciation compo­nents. Among the 59 sectors, government services tops the , total and direct wage ranking with 0.71 cents total ~ontent per peso of output. This is followed by services and agricultural industries. Only food manufacturing and publishing sectors

are included in the top twenty, ~ignif}ring that most manufac­turing sectors are capital intensive although they are found to have high linkages with labor intensive industries. An exam­ple is food manufacturing, which ranks nowhere in the top twenty direct ranking but suddenly jumps up to 17th place in the total ranking due to its wide linkage with the labor intensive agriculture. Such linkage is simply explained by the indirect wage effects of agricultural sectors. The nickel indus­try tops all sectors in total depreciation, making it the most capital intensive. Other sectors, primarily mining and manu­facturing, followed nickel in the top twenty. Others are electricity, non-metallic, sand,stone and gravel, wood, ma­

chinery, and land transport. Petroleum products, tobacco manufactures and beverage products have the highest indi­rect tax content per output while ownership of dwellings tops the other value added ranking with a 0.91 cents per peso worth of output. Coconut, poultry, communication, trade and food are some of the products that are included in the top ' twenty other value added sectors. For ownershi p of dwellings, coconut and copra sectors, the findings suggest that these sectors depend heavily on their own inputs such as land, making its cost for land rent payments very high. Food manufacturing ' again is interesting to observe here. This industry leaped from a low direct content of 0.19 to a high

total content of 0.47 that made it to the top ten group. The reason for this again is explained by its interdepedence with . agriculture. The semi-conductor producer electrical machin­ery sector is number one in the total import content ranking,

with 0.56 cents for every one peso value of good. Next in line are mostly manufacturipg sectors led by petroleum refineries, leather, rubber, wearing apparel, textile, paper and fabricated . metal products. Itshould be noted that dectrical machinery is' also a top export earner, but it has very poor inrerlinkage relations with the local industries as most of this sector's input requirements are imported, making its contribution to trade balance somewhat offiet by import purchases.

The cost structure by industry prepared in this study is a way oflooking at the contributions of sectors in terms of

factor income payments on the output of a producing

industry. From the results, livestock and poultry appear as high purchasers of palay, corn, coconut and other crops. Mining sectors are relatively large purchasers of petroleum

66

refineries, forestry, electricity, and land transport services

output which are used in production. Manufacturingsectors reveal high dependence on agriculture, particularly food manufacturing. The food sector has high linkages with palay, corn, coconut, sugarcane, other crops, livestock and poultry.

Wood, furniture, paper and publishing, construction sectors are large users of forestry products. The only sector that is highly interlinked with all the sectors is the trade industry. This sector accounts for wage, depreciation, and other value added relatively high in almost all industries in the economy.

All produ~ion for consumption consists highlyof30% content of wage and 45% of other value added. Such figures reveal that most consumption goods produced are mainly manufactured from primary and labor intensive industries­which can be attributed to agriculture based products. I nvestment goods contain 36% of wage content and 29% of other value added, though it may be observed that it also contains 14% depreciation. Government expenditure goods

consist of the largest w~e content at 72% and only 13% of other value added. Exporting commodities contain relatively fair share at 30% wage and 34% other value added but it also has high import content at 20%. This result again confirms the import dependence of most export industries in the

country. The magnitude of changes in factor prices on these final demand goods can simply be explained by the amount of its primary input content.

The multiplier analysis, together with the construction of a weighted industry index, are used as bases for selecting appropriate industries for development. In the output mul­tiplier ranking, the furnitures sector tops all sectors with a value of2.13, immediately followed by beverage andwood with a value of2.00 each. Most of the sectors included in the

high multiplier group are manufacturing industries, with

almost 50% of the proportion of output produced by other sectors. Air transport services is first among the high income multiplier sectors with an unusual value of 4.37. This means that income generation in the eronomywill more than quadruple per peso increase in air transport demand. Wood, fOOd, basic metal

. and fumitures are some top sectors composing the manufacturing groupin the high income muliplier ranking. The results from the weighted indusny indelC indicate services sectors and agrirultural seeton; as the most likely to be developed in line with Krugman's recommendation.

SUMMARY AND CONCLUSIONS

T he 1985 and 1991 Investments Priorities Plan prepared by the Board ofInvestments have been analysed in the

study of computed data using input-output techniques. Basically, both plans focus on the development of agro-

A STRUCTURAL ANALYSIS

Table 1.0

CLASSIFICATION OF MANUFACTURING SECTORS

Intermediate Manufacturing Wi>50 Ui <50 BL FL rank rank

19 14 Nickel 0.6084 0.6452 16 42 20 21 Textile, textile goods 0.6836 0.6643 21 9 21 23 Wood, cork and cane products 0.8149 0.7417 3 18 22 25 Paper and paper products 0.9305 0.6824 19 8 23 26 Publishing & printing services 0.8068 0.6075 11 32 24 28 Rubber products 0.5019 0.6572 35 35 25 29 Chemicals and chemical products 0.6122 0.6384 22 4 26 30 Products of petroleum and coal 0.8228 0.6655 58 2 27 31 Non-metallic mineral products 1.0364 0.6156 17 21 28 32 Basic metal products 0.5885 0.7404 4 7 29 33 Fabricated metal products 0.7776 0.0870 8 31 30 38 Electricity and gas 0.7477 0.5090 10 37

Final Manufacturing Wi<50 Ui > 50 BL FL rank rank

31 18 Food manufactu res 0.2535 0.6784 7 3 32 20 Tobacco manufactures 0.2349 0.6264 14 28 33 27 Leather and leather products 0.3076 0.6448 52 50 34 36 Transport equipment 0.4187 0.5673 20 43 35 59 Other private services 0.2280 0.5282 18 44 36 19 Beverage products 0.1445 0.6015 2 36 37 22 Wearing apparel and footwear 0.016 · 0.6064 27 56 38 24 Furniturea and fixtures 0.0181 0.7217 1 57 39 ,34 Machinery except electrical 0.1042 0.6142 13 46 40 35 Electrical machinery 0.043 0.7081 51 49 41 37 Miscellaneous manufactures 0.1199 0.5719 25 53 42 38 Construction 0.0661 0.5456 10 37 43 41 Land transport services 0.1568 0.5042 23 15 44 43 Air transport services 0.034 0.878 5 45 45 54 Private health services 0.0734 0.565 9 51 46 58 Restaurants and hotels 0.1075 0.6495 6 34 47

67

H. ONG, E.e. LIGOT & W. RACAZA, JR.

Table 1.1

CLASSIFICATION OF PRIMARY PRODUCTION SECTORS

Intermediate Primary Production Wi >50 Ui < 50 BL FL rank rank

1 2 Corn 0.9471 0.1731 56 26 2 1 Palay 1.0044 0.2027 54 12 3 3 CoconuVcopra in farms 0.9418 0.0615 59 19 4 4 Sugarcane 0.9835 0.2533 49 33 5 10 Logs and other forest products 0.705 0.253 50 6 6 12 Gold and other precious metals 0.5831 0.3489 46 16 7 13 Chromium ores 0.7827 0.3308 45 55 8 16 Sand, stone and gravel 1.058 0.3911 . 37 41 9 17 Other non-metallic minerals 0.8609 0.34 . 43 27 10 45 Communication 0.5136 0.2244 55 23 11 49 Insurance services 0.5271 0.2635 42 24 12 50 Real estate services 0.5417 0.3956 34 13 13 7 Livestock 0.8322 0.499 15 17 14 8 Poultry 0.5681 0.4776 12 30 15 11 Copper 0.739 0.4432 38 20 16 15 Other metallics 0.8385 0.4587 32 54 17 40 Water services 0.5505 0.4032 29 40 18 55 Private business services 0.7672 0.4113 28 10

Final Primary Production Wi <50 Ui < 50 BL FL rank rank

48 5 Banana 0 .. 2767 0.2691 48 38 49 6 Other crops including services 0.3749 0.2339· 53 11 50 46 Trade 0.4135 0.2679 47 1 51 56 Recreation services 0.2078 0.2988 44 29

52 57 Personal and household services 0.4054 . 0.306 40 22

53 47 Banking services 0.4809 0.4207 36 14

54 42 Water transport services 0.1618 0.4815 24 47

55 53 Private education services 0.06 0.419 26 52

56 9 Fish and fishery products 0.1885 0.2895 41 25

57 48 Non-bank services 0.0022 0.3316 39 58

58 51 Ownership of dwellings 0 0.1122 57 53

59 52 Government services 0.0169 0.3749 31 48

68

A STRUCTURAL ANALYSIS

Table 2.0

Direct Destination of Output by Agricultural Sectors

\Comm PCF EXPORT Comm\ Industry Direct Total Direct Total

1 Palay 0.0025 0.844 0.00001 0.1395 2 -Com 0.0521 0.8378 0.0007 0.1378 3 CoconuVcopra 0.0167 0.779 0.04726 0.1881 4 Sugarcane 0.0164 0.8408 0 0.1362 5 Banana 0.3559 0.5147 0.36728 0.4572 6 Other crops 0.4421 0.7168 0.04879 0.1187 7 Livestock 0.1058 07974 0.00024 0.1123 8 Poultry 0.3016 0.7466 0.00017 0.0901

' 9 Fishery 0.7675 0.9012 0.04386 0.089 10 Forestry 0.0612 0.2338 0.05287 0.2435

Table 2.1

Direct Destination by Mining Sectors

\Comm Export Comm\ Industry 10 PCE GCE GFCF CI Direct Total

11 Copper 0.7390 0 0 0 0.0103 0.2506 0.6676 12 Gold 0.5830 0.0056 0 0 0.1336 0.2775 0.6081 -13 Chromium 0.7827 0 0 0 -0.340 ,0.5581 0.9998 14 Nickel 0.6083 0 0 0 0.1008 0.2907 0.634 15 Other metallics 0.8384 0 0 0 0.1461 0.0153 0.1792 16 Sand and Gravel 1.0580 0.0089 0 0 -0.117 0.0507 0.1323 17 Other non-'metallic 0,8608 0.0964 0 0 0.0417 0.0008 0.2832 '

Table 2.2

Total and Direct Destination of Output by Manufacturing Sectors

\Comm PCE Export Comm\ Industry 10 Direct Total GCE GFCF CI Direct Total

18 Food manufacturing 0.2535 0.6536 0.8457 o 0 0.0023 0.0904 0.1349 19 Beverage industries 0.1445 0.8500 0.9749 o 0 -0.001 0.0073 0.026 20 Tobacco manl!facture 0.2348 0.7555 0.9864 o 0 0.0057 0.0038 0.0057 21 Textile 0.6836 0.1539 0.468 o 0.0317 -0.031 0.1623 0.4954 22 Wearing Apparel 0.0159 0.3795 0.3871 o 0 -0.005 0.6105 0.6173 24 Furniture and fixtures 0.0180 0.2653 0.2701 o 0.4704 0.0013 0.2448 0.255 35 Electrical machinery 0.0430 0.0893 0.0985 o 0.1325 -0.022 0.7575 0.7645

69

H. ONG. E.e. LIGOT & W. RACAZA. JR.

Table 3.0

Total Factor Input Content of Final Demand Components

FINAL WAGE OTHER VALUE ADDED DEPRECIATION TAX IMPORT TOTAL DEMAND CONTENT CONTENT CONTENT CONTENT CONTENT

Consumption 0.3049 0.4517 0.0657 0.0672 0.1105 1 Investment 0.3560 0.2853 0.1455 0.0707 0.1425 1 Government 0.7189 0.1282 0.0414 0.0238 0.0877 1 Exports 0.3017 0.3379 0.0859 0.0718 0.2027 1

Table 3.1

Primary Input Component of Total Input by All Sector

ALL SECTORS Domestically Produced

Wages and Imports Salaries

Other Indirect Value Depreciation Tax

Added

0.390731 0.079589 0.205991 0.047819 0.03998 0.235882

Table 3.2

Direct Destination of Output by All Sectors

ALL SECTORS ID PCE GeE GFCF CI E TOTAL

0.390731 0.367667 0.039337 0.077607 -0.0034 0.128063 ' 1

70

A STRUCfURAL ANALYSIS

Table 4.0

Top 10 Ranking of Total and Direct Wage Content

Order Sector Total Content Direct Content

Number and Name of sector 1 52 Government services 0.3887 0.6124 2 53 Private education services 0.5101 0.3887 3 2 Com 0,4666 -0.41 4 4 Sugarcane 0.4616 0.38 5 6 Other crops including agricultural seNices 0.4299 0.3511 6 59 Other private services 0.4236 0;2866 7 5 .Banana 0.4216 0.34 8 1 Palay 0.4197 0.3593 9 47 Banking services 0.4124 0.3131

10 7 Livestock 0.4033 0.2332

Table 4.1

Top 10 Ranking of Total and Direct Other Value Added Content

Order Sector Total Content Direct Content

1 51 Ownership of dwellings 0.9135 0.8878 2 3 CoconuVcopra in farms 0.6193 0.5885 :3 45 Communication 0.5572 0.4845 4 8 Poultry 0.5117 0.291 5 46 Trade 0.5076 0.4243 6 10· Logs and other forest products 0.4741 0.3805 7 6 Other crops including agricultural services 0.4716 0.3745 8 1 · Palay 0.4712 0.397 9 18 Food manufactures 0.4701 0.1669

10 4,8 Non-6Elnks services 0.4504 0.3505

Table 4.2·

Top 10 Ranking of Total and Direct tndirect Tax

Order Sector Total Content Direct Content

1 30 Products of petroleum and coal 0.2346 0.2249 2 20 Tobacco manufactures 0.2322 0.1569 3 19 Beverage products 0.1695 0.1167 4 47 Banking services 0.1636 0.1298 5 11 Copper 0.1609 0.1133 6 13 Chromium ores 0.1372 Q.0848 7 56 Recreational services 0.1068 0.08 8 41 Land Transport 0.1011 0.0329 9 10 Logs and other Forest Products 0.0974 0.0686

10 42 Water transport services 0.0958 0.0634 .

71

H. ONG. E.c. UGOT lie W. RA<:AZA.JR.

Table 4.3

Top 10 Ranking of Total and Dire~t Depreciation Content

Order Sector Total. Contei'lt Direct Content

1 14 Nickel 0.2169 0.1377 2 39 Electricity and gas 0.1984 ·0.1795 3 17 Other non-metallic minerals 0.1869 0.1684 4 38 Construction 0.1829 0.1234 5 16 Sand, stone and gravel 0.1765 0.1529 6 11 Copper 0.1496 0.1222 7 32 Basic metal products 0.1495 0.0664 8 23 Wood, cork and cane product 0.1448 0.0458 9 45 Comunication 0.1426 0.1233

10 10 Logs and other Forest products 0.1358 0.1177

Table 4.4

Top 1.0 Ranking of Total and Direct Import Content

Order Sector Total Content Direct Content

1 35 Electrical machinery 0.5550 0.5147 2 30 Products of petroleum and coal 0.5418 0.5242 3 27 Leather and leather products 0.5011 0.4598 4 28 Rubber products 0.3764 0.3013 5 22 Wearing apparel and footwear 0.3536 0.2479 6 21 Textile and textile goods 0.3377 0.2269 7 25 Paper and paper prodUcts 0.2991 0.1838 8 33 Fabricated metal products 0.2976 0.1851 9 43 Air transport services 0.2881 0.1269

10 29 Chemical and chemical products 0.2811 0.2051

72

A STRUCTURAL ANALYSIS

Table 5.0

HIGH OUTPl)T MULTIPLIER -SECTORS

1. High Multiplier OUTPUT PROD. PROD. (Mi )=.1.60) MULTIPLIER BY BY

SECTOR OWN OTH.ERS (%) (%)

1 24 Furniture 2.1346 42- 58 2 19 Beverage 2.0086 57 43 3 23 Wood and Cork 2.0049 52 48 4 32 Basic Metals 2.0024' 57 43 .

- 5 43 Air Transport 1.9989 50 50 6 58 Rest & hotels 1.9902 50 50 7 18 Food 1.9516 57 43 8 33 Fabric hetal 1.939 53 47 9 54 Private Health 1.9262 52 48

10 . 38 Construction 1.8922 59 41 11 26 Publishing 1.8830 53 47

\

42 12 8 Poultry 1.8745 58 13 34 Machinery 1.8617 54 46 14 20 Tobacco 1.8576 70 30 15 1 Livestock 1.8097 65 35 16 14 Nicket 1.7977 56 44 17 31 Non-metallic 1.7744 67 33 18 59 Other services 1.7707 58 42 19 25 Paper 1.7517 69 . 31 20 36 Trans. Equipt 1.7306 59 . 41 21 27 Textile 1.6784 77 23 22 29 Chemical 1.6721 ~7 43 23 41 Land Transport 1.6657 61 39 24 42 Water Transp. 1.6649 60 40 25 . 37 Misc.Manuf. 1.6261 61 31 26 53 Private Ed. 1.6192 64 36

73

H. ONG. E.e. UGOT & W. RACAZA. JR.

Table 5.1

HIGH INCOME MULTIPLIER SECTORS

1. HIGH MUL TIPLtER SECTOR INCOME DIRECT TOTAL INCOME INDIRECT (Mi = 1.70) MULTIPLIER INCOME CHANGE INCOME

CHANGE (DIRECT + INDIRECT) CHANGE

1 43 Air Transport 4.3671 0.1247 0.5447 0.42 2 23WoodandCork 3.7490 0.1894 0.7101 0.5207 3 18 Food 2.9802 0.2785 0.8300 0.5515 4 32 Basic Metal 2.8941 0.1831 0.5298 0.3467 5 24 Fumitures 2.8613 0.2530 0.7238 0.4708 6 20 Tobacqo 2.6562 0;2058 0.5465 0.3407

\

7 . 58 Rest.& Hotels 2.6430 0.2178 0.7447 0.5269 8 19 Beverage 2 .. 1644 0.2565 . 0.6705 0.4140 9 14 Nickel .2.1844 0.2110 ·'0.4609 0.2499 10 25 Paper 2.1445 0.2511 0.5385 0.2874 11 33 Fabric. Metal 2.1082 0.2533 0.5340 0.2807 12 30 Petroleum 2.0671 0.0962 ,0.1989 0.1027 13 54 Private health 2.0636 0.3669 0.7571 0.3902 14 29 Chemical 2.0608 0.2921 0.4167 ,0.1246 15 38 Construction 2.0435 0.2963 0.6055 0.3092 16 21 Textile 2.0303 0.2562 0.5202 0.2640 17 31 Non-metallic 1.9524 0.2850 0.5565 0.2715 18 26 Publishing 1.9393 0.2431 0.6653 0.4222 19 ·28 Rubber products 1.9172 0.2565 0.4917 0.2352 20 ·34 Machinery 1.8481 0.3090 0.5711 0.2621 21 8 Poultry 1.8365 0.4602 0.8452 0.3850 22. ·7 Uvestock 1.8370 0.4594 0.8392 0.3798 23 36 Transp. Equipt. 1.7716 0.3439 0.6093 0.2654 24 . 59 Other Services. 1.7344 0.3208 0.7628 0.4420 25 37 Misc. Manuf. 1.7132 . 0.3589 0.6149 0.2560

74

industrial development industries where we found some industries in the studyclosdy linked to agriculture. Almost all areas in the plans from agriculture to services are found to be high output and income multipliers. For instance, some subsectors of the fOOd manufacturing industry are prioritized by the government, which is signifiCUlt since this would further improve agro-based industries. Such industries are fishery, livestock, palay, paper, leather, rubber, metals, and chemicals. There are some industries that we find to be high multipliers but are not included in the priority areas. Thesesectors are fumitures, the tq> output multiplier, and air transport, the top income multiplier. Fumitures' seeming disinterest in the plan may be due to the total log ban impose:l on this industry. Should this ban take effect, then the impact of such loss in production shall be fdt in the economy with the same magnitude its multiplier. Air tranSport services is likewise not included in the plan but we enrourage the servb be modernized so thar higher inoome · generation in the economy may be achieved.

It seems the problem with the Philippine economy is the import-dependence of industries. As.we found out in the previous analyses, · almost all the industries in the preferred areas are all high output and income multipliers. These findings are a good Indication that most local industries are highly integrated with each other, as most factor inputs required are manufactured domestically, except for some which are obviously high import dependent. But the problem seems to arise when it comes to total input content. Manyof the high multiplier manufacturing industries do not contain high total wage content but total import content. Thus, increases in demand on these products may have signifiCUlt repurcussions in the economy, but dae final content of its product will always have import and depreciation as major

. components. Economic effects could have been bigger if the content of its output had wage as a major factor. The manufacturing sectors are expected to absorb most unem­ployment problems arising in the economy, but it seems agricultural sectors and services are still the best employers.

RECOMMENDATIONS

I t has been saki by most economic policy makers thar there should be more investments in the oounoyside so as to

generate more employment, while it is also enoouraged that'an agro-industria1 development should be pursued. But what are the appropriaresectors that should beprioritized From theothervalue added point of view together with ,wage, we identiQr palay, com, sugarcane, a:>a:>nut, livestock; poultry, fishety and other crops sectors that should be given priority for modernization. Improve­ment in thesesectorswill benefitthosesectorsthatarehighlylinked to them such a'i fOOd, beverage, wood, and furniture. While there ,

A STRUCTURAL ANALYSIS

are also some industries !hac are noc: related [0 agriculture such as deccricalmachine1)', textile, wearing. rubber, and leatherwhichare basically import c,lependent, we suggest the encouragement of 'ancillary sectors to ~pport these indusaies by producing import­substitutes so that domestic oonrent of expolt goOds may be improved.Andlasdy,theserviassectorsshouldalsobeimp~ved,

especially those that interlink with other sectors. These are storage,

, government, privat~ business, trade and banking servias. This study has shown that need to interlink sectors in order to have a sustainedemnomic development.

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. HenryOng. EmmaCecelieLigotandWifndoRtuaza. ir. are AB Economics srudents at DLSU. They won the Best Thesis Award under the Economics Department for the first term of schoo/year 1992-1993.