Which among the following pairs of countries would you consider to have a larger share of their exports in high-tech manufactures:
a. Korea or Japan
b. Philippines or Singapore
c. China or the United States
d. Mexico or Germany
The answers are found below:
a. Korea b. Philippines c. China d. Mexico
Surprised? Certainly these facts run counter to the commonly held beliefs about rich and poor countries. The most intriguing insight in all this is that the Philippines, the poorest of the four emerging countries just cited, long considered a laggard in its region as far as exports and investments are concerned, has emerged as a world leader in this regard, edging out Singapore, the former front-runner since 1996. See for yourself here.
Other interesting observations are: (1) China has been ahead of the US since 2005, (2) Korea has led Japan since 1997, and (3) Mexico has edged out Germany since 1994. Safe to say, the strong performance of these emerging economies over their richer peers cannot be considered a fluke or the result of luck. In economic terms, a “structural shift” has occurred in these economies which have traditionally been exporters of cheap, basic commodities.
What accounts for this increasing specialization in high-tech manufactures by emerging economies? More importantly, what does it say about their future prospects for growth? Is it a healthy sign or is too much specialization counter-productive?
Let us first define what high technology means in this context. According to the World Bank definition, these manufactures include “products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery” or in other words, products with a high innovation component.
In the Philippines, electronics is the biggest contributor to exports accounting for about 60%. They consist of a wide variety of products with different applications from consumer, auto, office, computer related, to telecommunication, medical and industrial uses. Data from the National Statistics Office for 2008 and 2009 show the value of electronics exports exceeding $20 billion per year, while imports are roughly 68-70% of their totals. This runs counter to the common perception that these domestic industries belong to the low value adding category.
According to Ricardo Hausmann from the Center for International Development at Harvard University, a professor of the Kennedy School of Government, the complexity of products made by a nation is a reflection of the capabilities that exist within it. Nations that produce highly elaborate products have exhibited the ability to grow and develop due to the fact that very few countries are able to replicate the same conditions required by such activities (here he is explaining his theory of development based on this notion).
It is more than a question of incomes or wealth. Sri Lankans have an average income slightly above Filipinos, yet their major exports are in textiles and garments. The lack of infrastructure, rule of law and good governance does not seem to deter the presence of high-technology industries in the Philippines. The abundance of engineers and highly skilled, flexible workers appears to be the main driving force.
The incoming head of the Bureau of Investments (or BoI) Cristino L. Panlilio has signaled a shift towards outward looking producers in its identification and attraction of investors as part of the rationalization of fiscal incentives used to attract them. This is a welcome move as it seeks to channel the resources of the state more efficiently at expanding activities that the country has exhibited the capacity to perform. This is only half of the equation though, as the other half involves monitoring and continuously rewarding winners and punishing losers or “a full audit of companies’ performance versus their commitments to enjoy incentives.”
For the country to build on its export capabilities, such a dual pronged approach will be needed, not the shot-gun method that has been applied in the past. The emphasis on improving education, rule of law and good governance are complementary to this, but a robust and well-targeted industry policy should be at the core of the overall strategy to attract investments and create jobs. It will be another fallacy to assume otherwise: that merely opening markets and instituting the rule of law will do the trick.