A World Bank study has stressed the need to improve the Philippine’s overall competitiveness to fully harness the role of exports as a tool for growth and development.
Titled “Export Competitiveness: Reversing the Logic”, the paper written by Christian Ketels details a growth strategy that recognizes exports as an intermediate indicator and enabler of competitiveness and aims to maximize the export-induced development gains.
The paper said that exports are signs of underlying competitiveness the more productive you are, the more you will be able to sell, all else equal.
Low level of exports is therefore suggestive of competitiveness conditions that either hamper the productivity of companies or negatively affect their ability to showcase their capabilities on global markets.
“They are also contributors to competitiveness the more you export, the more you are exposed to foreign competition and ideas which in turn will improve your capabilities.”
Based on the competitiveness framework discussed in the paper, a growth strategy must involve policies that create those conditions that enhance long-term productivity and not just private profitability to harness the role of export as an engine of growth and development.
Examples of these policies as cited in the paper are government efforts to upgrade workforce skills and subsidizing companies to upgrade technology.
While government efforts are expected to yield both productivity improvements and private profitability gains, wage-restraint is likely to boost private profitability without improving productivity, unless it effectively impels companies to invest in a more advanced capital stock.
The paper also mentioned that these policies must be targeted at improving the competitiveness of both the export-oriented and domestic-oriented sectors.
While exports are an integral component of the competitiveness-based growth strategy, it was cited in the paper that “without an efficient transmission system of local industries, their value generation does not translate into a high standard of living for the broader population”.
The study recognizes the gargantuan challenge of developing the export sector as companies in this sector compete head-on with foreign peers and have to adapt to different business environments.
In contrast, competition in the domestic market is only between firms that are all exposed to the same business environment conditions.
Having pointed out the marked difference between local and global competition, the paper emphasized that in making export-oriented policy choices, a country must take into account the policies adopted by its trading partners.