Cedrick John L.

Mendoza

GED105_A1

Looking at both sides of the effects of

Globalization in the Philippines

WORD COUNT: 1635

Ever since the start of globalization, the Philippines has undeniably willingly

opened its doors to the global trade of products and services. As years go by, the

openness of the Philippines to open trade caused the country's GDP to improve by 13%

in a decade. It looked like globalization is a good thing for the Philippines' economy as

a whole, right? Well, what if I told you that some of the recurring problems in the country

(poverty and income inequality) became worse? I know, it's unbelievable. But I am here

to present to you some hard evidence as to why globalization as a whole did not really

benefit our country's economy (and political problems in that matter) by a large margin.

Trade transparency in the Philippines increased by 13% of the country's gross

domestic product throughout the 1990s and 2000s (GDP). The country's efforts that

aims to make more transparent trade policies in the 1980s aided this development.

Lower transportation costs and advances in information and communications

technology aided in the development of complex GVCs, particularly in electronics and

electrical materials, allowing companies to better control their yield (Dudley, 2017). The

Philippines has proved worthy of becoming Asia's two major BPO industry centers,
along with India. Because the Philippines' continues to be transparent to globalization,

overall commerce grew to 101.4 percent of GDP in the 2010. Globalization appears to

be helpful to the economy and employment generation in the country. Trade openness

and foreign portfolio movements have resulted in higher per capita GDP growth in the

Philippines as a result of undertaking FX liberalization initiatives. International

remittances have boosted consumer spending, investment, labor productivity, and

overall economic growth. OF remittances have helped the Philippine economy to rise in

both normal and disastrous situations in the past, and this will go on (Ang et al., 2009).

While the previous events point to the Philippines' sustained trade, migration,

and financial integration, an unexpected result is the country's internal economy's

growing vulnerability to migrant returns and volatility spillovers from other countries'

stock markets. On the other hand, the country's participation in global trade, finance,

and migration has yielded real results, such as low and stable inflation, a low

unemployment rate, ample gross international reserves, and a fundamentally sound

banking sector. The impact of increased globalization on poverty alleviation and

economic inequality has been a subject of worry for a long time. According to tentative

calculations, increasing trade transparency in the Philippines reduces income inequality

by 0.04 units for every 1 unit increase in the trade-to-GDP ratio. On the contrary, OF

remittances raise income inequality by 3.3 units for every 1 unit increase in the ratio of

OF remittances to GDP, according to the Gini coefficient. Estimates also show that

trade openness has no meaningful impact on poverty which is contradicting the fact that

OF remittances can help remediate poverty. While greater growth rates have been

found to reduce poverty (Dollar et al., 2013), poverty may worsen if GDP growth is
accompanied by an increase in inequality. Growth and changes in inequality, according

to Bourguignon (2004), are both important factors in producing changes in poverty. He

demonstrates that, over time, changes in distribution can lead to considerable changes

in poverty, and that, in some situations, these changes can even balance out the gains

of growth. This was backed by a study conducted in the Philippines by Reyes and

Tabuga (2011). They discovered that while growth is vital in reducing poverty, income

redistribution is also essential. This implies that the type of economic expansion is

required. Even if globalization has no direct impact on poverty, its effects on economic

growth and income disparity can have an indirect impact.

Globalization has developed gradually when it comes to financial openness. The

country's total capital flows grew from 3.1 percent of GDP in the 1990s to 3.4 percent in

the 2000s (Tetangco, 2005). In the 2010s, total capital flows climbed to 4.6 percent of

GDP. This could be attributed in part to the BSP's nine rounds of foreign exchange

liberalization policy implemented in 2007. Increased deregulation of foreign bank entry

was another key initiative boosting financial transparency in 2014. Even though the 4.6

percent average ratio of capital flows to GDP between 2010 and the first three quarters

of 2017, it would imply that the government has more room to work on. The growing

exposure of the economy's external debts to portfolio and direct investments shows

international investors' search for yield and increasing confidence in the country's

macroeconomic fundamentals. From end-December 1999 to end-September 2017, the

stock of foreign direct investments (FDI) increased by 816.9%. Foreign direct

investment contributed to the increase of GDP from 9.6 percent (1999) to 23.5 percent

(2017).
 Globalization increases economic sensitivity to destabilizing external influences

as a result of increased financial transparency. Financial openness mixed with

inadequate regulation may undermine financial stability unless proper safeguards are in

place (BIS, 2017c). A rapid shift in market expectations, according to a 2015 IMF

assessment, could expose the Philippines to a rate hike, badly hurting the economy.

Furthermore, global factors have a major impact on the country's local currency

government bond yields, according to the IMF. Meanwhile, given to its high level of

trade integration and critical participation in international migration, the Philippines is

likely to be affected by external noise, particularly through OF remittances,

offshoring/outsourcing, and trade routes. Assume that current complaints about US

globalization policies are taken into consideration, and the US adopts deglobalization

policies that result in a 1% reduction in US GDP growth. In that case, the first year's real

GDP growth rate will be 0.06 percentage points lower, and the second year's growth

rate will be 0.07 percentage points lower.

On the political side, the BSP has tried reforms to address further the problems

brought about by globalization. Conversely, if deglobalization policies push the US to

raise its Federal Funds rate, a one-percentage-point increase would have no effect on

Philippine economic growth in the first year but would result in a 0.02 percentage-point

loss in the second. The Philippine inflation rate, on the other hand, is predicted to rise

by 0.02 percentage points in the first year and 0.11 percentage points the year after. As

it tries to integrate more fully with the global economy and attract foreign investment, the

Philippines' internal political system is being pressed to comply to international practices

and standards. Critical reform efforts aimed at the bureaucracy, judiciary, and other
political institutions have been propelled into the public governance framework as a

result of globalization. Apart from anti-corruption, anti-ineffective governance, and anti-

corruption activities, efforts to open up the domestic economy and make local

companies more competitive have failed. To become a more accountable, policy-based,

and responsive political system, the Philippines must shed its conventional political

culture (Avila, 2011).

Amidst these problems, the BSP has been actively involved in programs to

promote financial inclusion, ensuring that the vast majority of the population has access

to adequate financial goods and services. In 2008, the BSP established the Credit

Surety Fund Program (CSF), which has helped micro, small, and medium-sized firms

(MSMEs) expand their operations. As of December 2017, the country had 51 operating

CSFs, with loans totaling PHP 4.6 billion granted. The BSP also proceeded with the

construction of micro banking offices (MBOs) in 2010, causing an increase (839) of

MBOs in unbanked areas in the 3 rd quarter of 2017. Microfinance loans, micro

agricultural loans, microfinance housing loans, micro-deposits, and micro-insurance

have also been pushed by the BSP. In the third quarter of 2017, 164 banks had

microfinance operations, serving over 1.8 million clients with a loan portfolio totaling

PHP 14.8 billion. In 2013, non-bank agents (such as pawnshops, grocery stores, and

drug stores) were given permission to perform electronic money (e-money) activities like

transfers and payments.

The National Financial Inclusion Strategy was established in July 2015,

highlighting the importance of technology in enabling fund transfers and expanding the

accessibility of financial institutions to unserved and underserved areas. At the end of

the end of December 2010. A countrywide Economic and Financial Learning Program

aims to teach OFs and their families about the significance of saving money from

remittances and investing it in financial products or entrepreneurial endeavors.

We have seen both sides of the effects of globalization; the good and the bad.

The Philippines, in its journey towards integrating itself into the global economy, has

been given access to easier trade through ease of communication and transport and

reduced costs in transportation, more OFs in almost all nations around the world

sending remittances to their respective families. However, we must remember that

higher growth rates in the economy result in the worsening of poverty. On the other

hand, BSP is on the verge of further understanding the effects of globalization in the

country and would continue to implement reforms to help businesses of any size in the

Philippines adjust to the demands of globalization.