Philippine clothing exports : Overcoming domestic policy impediments and the multi-fibre arrangement

Abstract

The Philippines has a poor record of economic development. Yet it was one of the first east Asian economies to embark on a program of industrialization and in the 1950s outperformed its developing country neighbours. Overcommitment to protectionist import-substitution, however, resulted in declining exports, deteriorating external balances, capital shortages and serious domestic resource misallocations during the 1960s and 1970s. Financial misjudgments and political instability in the 1980s led to accelerated economic decline, serious bottlenecks and new uncertainties. Despite the lack of success of import substitution strategies and economic stagnation, there is little sign of redirection of Philippine economic policy. The economic success of neighbouring countries using outward-oriented strategies appears to have had no influence. In this study, the clothing industry has been used to illustrate how the economy was affected by inappropriate economic policies. But clothing has been the most successful export industry. The study thus demonstrates the problems created for even relatively efficient exporters by macroeconomic failures and, particularly by, the pursuit of highly protectionist import-substitution strategies. The uncompetitive textile industry forced Philippine clothing producers to look overseas for material inputs. The 'cost-raising' (taxing) effects of import protection raised production costs in clothing manufacture and reduced international competitiveness. Clothing exports have thus been below levels permitted by the MFA in some clothing categories. A simulation model of the effects of the MFA on world trade in clothing was constructed to establish the effects of the MFA on Philippine clothing exports. This enabled estimates of the effects of phasing out the MFA to be calculated. The simulations permitted comparisons to be made between Philippine export performance and that of competitive neighbouring countries. The simulations and analysis show that Philippine clothing export performance depends more on changes to domestic economic policies than on improved access to overseas markets. The main impediments to Philippine clothing exports are the penalties arising from inefficient import-substituting strategies. The conclusions are consistent with theoretical arguments for liberal, non-discriminatory economic policies in countries seeking rapid economic growth. Show more