1

INSTITUTIONS AND MARKETS IN THE PHILIPPINES –

EVIDENCE FROM GLOBAL INDICATORS

Lino Briguglio and Carmen Saliba

University of Malta

ABSTRACT

The objective of this paper is to assess the administrative, economic and social institutions in

the Philippines. For this purpose, the paper utilises seven indicators relating to administrative,

economic and social governance to assess the scores and the rankings assigned to the

Philippines and compares them to scores and rankings pertaining to (i) other ASEAN

member countries and (ii) other countries globally. The indices utilised in the study are also

tested for correlation, using a one-to-one comparison, to (a) GDP per capita (b) economic

growth and (c) macroeconomic stability, so as to assess how these macroeconomic

aggregates relate to the scores of the indices. The results indicate that the Philippines

registered relatively low scores with regard to its institutional set-ups when compared to other

countries in the region and globally.

JEL: Classification: O43 - Institutions and Growth; D02 - Institutions: Design, Formation, and

Operations N2 - Financial Markets and Institutions

CONTENTS

1. INTRODUCTION........................................................................................................... 3

2. LITERATURE ON INSTITUTIONS AND MARKETS ............................................ 3

2.1 Institutions and Economic Growth .......................................................................... 3

2.2 Institutions and Competitiveness ............................................................................. 4

2.3 Institutions and Corruption ..................................................................................... 4

2.4 Institutions and Social Cohesion .............................................................................. 5

2.5 Market Efficiency, Institutions and Growth........................................................... 5

3. GLOBAL INDICATORS AND THE PHILIPPINES’ SCORES ............................... 5

3.1 The Worldwide Governance Indicators (WGI) ..................................................... 5

3.1.1 The WGI: Regional Comparisons................................................................. 6

3.1.2 The WGI: Global Comparisons .................................................................... 7

3.1.3 The WGI: Correlation with other economic variables ................................. 7

3.2 The Rule of Law Index ............................................................................................. 9

3.2.1 The RLI: Regional Comparisons .................................................................. 9

3.2.2 The RLI: Global Comparisons ................................................................... 10

3.2.3 The RLI: Correlation with economic changes in the region ...................... 10

3.3 The Corruption Perception Index ......................................................................... 11

3.3.1 The CPI: Regional Comparisons ................................................................ 11

3.3.2 CPI: Global Comparisons .......................................................................... 12

2

3.3.3 The CPI: Correlation with economic changes in the region ...................... 12

3.4 The Economic Freedom of the World Index ........................................................ 13

3.4.1 The EWFI: Regional Comparisons............................................................. 13

3.4.2 The EWFI: Global Comparisons ................................................................ 14

3.4.3 The EFWI: Correlation with economic changes in the region ................... 14

3.5 The Global Competitiveness Index ........................................................................ 14

3.5.1 The GCI: Regional Comparisons ............................................................... 15

3.5.2 The GCI: Global Comparisons................................................................... 16

3.5.3 The GCI: Correlation with economic aggregates ...................................... 17

3.6 The Doing Business Index....................................................................................... 18

3.6.1 The DBI: Regional Comparisons ............................................................... 19

3.6.2 The DBI: Global Comparisons ................................................................... 19

3.6.3 The DBI: Correlation with economic aggregates ...................................... 20

3.7 The Human Development Index ............................................................................ 20

3.7.1 The HDI: Regional Comparisons ............................................................... 21

3.7.2 The HDI: Global Comparisons .................................................................. 21

3.7.3 The HDI: Correlation with economic aggregates ...................................... 21

4. MAIN IMPLICATIONS OF THE FINDINGS .......................................................... 22

4.1.1 Institutions and Markets in the Philippines ................................................ 22

4.1.2 Institutions, market efficiency and Growth................................................. 22

4.1.3 Institutions, market efficiency and GDP per capita. .................................. 23

4.1.4 Institutions, market efficiency and macroeconomic stability ..................... 23

4.1.5 Institutions, market efficiency and corruption ............................................ 24

5. CONCLUSION ............................................................................................................. 24

REFERENCES ....................................................................................................................... 24

APPENDIX 1: DEFINITIONS OF THE COMPONENTS OF THE 7 INDICES ........... 27

APPENDIX 2: THE SCORES OF THE PHILIPPINES SINCE 2005 ............................. 32

3

INSTITUTIONS AND MARKETS IN THE PHILIPPINES –

EVIDENCE FROM GLOBAL INDICATORS

Lino Briguglio and Carmen Saliba

University of Malta

1. INTRODUCTION

The objective of this paper is to assess the administrative, economic and social institutions in

the Philippines. For this purpose, the paper utilises seven indicators to assess the scores and

the rankings assigned to the Philippines and compares them to (i) scores in other ASEAN

member countries and (ii) scores in other countries globally. The indices utilised in the study

are the following:

1. Worldwide Governance Indicators,

2. Rule of Law Index

3. Corruption Perception Index and

4. Economic Freedom of the World Index,

5. Global Competitiveness Indicators,

6. Doing Business Index, and

7. Human Development Index.

The first three indicators (the Worldwide Governance Indicators, the Rule of Law Index, and

the Corruption Perception Index) mostly relate to legal and administrative institutions. The

next three indicators (the Economic Freedom of the World Index, the Global Competitiveness

Indicators and the Doing Business Index) mostly relate to economic governance, and are

therefore associated with economic and business institutions and with the workings of

markets. The seventh indicator (the Human Development Index) mostly relates to social

governance, and is therefore associated with social institutions. It should be stated, however,

that there is some overlap between the first six indicators, with some of them drawing on

similar sources, although they all have a degree of distinctiveness.

The scores of the mentioned indices are also tested for correlation, using a one-to-one

comparison, to (a) GDP per capita (b) economic growth and (c) macroeconomic stability, so

as to assess how these macroeconomic aggregates relate to the scores of the indices.

The paper is organised in five sections. Following this introductory section, a brief literature

review is presented focussing on the connection between institutions and a number of

economic variables. The section that follows will examine each of the seven indicators

mentioned above, focussing on the relative scores of the Philippines within the region and

globally. Section 4 summarises the main tendencies derived from the previous seven sections.

Section 5 concludes the study and proposes a number of implications that emerge from the

analysis.

2. LITERATURE ON INSTITUTIONS AND MARKETS

2.1 Institutions and Economic Growth

Several publications associate institutional capacity with growth and development. (North

1990; Rodrik,1999; Aron, 2000; Commission on Growth and Development, 2008).

4

Institutions form one of the pillars of the Global Competitiveness Index of the World

Economic Forum (2012).

Jutting (2003), in an extensive literature review on the subject, concluded that ―most of the

studies suggest a strong and robust relationship between institutional quality and growth and

development outcomes‖.

A similar conclusion was reached by Rodrik et al. (2002) due to the direct and indirect

effects of institutions on growth and development, with the indirect effects including

increases in investment attractiveness, better policies, better management of conflict and an

increase in the social capital stock of a community – factors which are known to influence

economic growth and development.

The direction of causation of economic growth and institutions are discussed in some studies.

Some authors prefer the theory of growth first and institutions later, (e.g. Glaeser et al., 2004)

while others take the opposite view (e.g. Acemoglu et al.,2005).

2.2 Institutions and Competitiveness

There are several indicators that link institutions with competitiveness‘ - perhaps the most

famous being the WEF‘s Global Competitiveness Indicators (Schwab, 2012). It is argued that

the quality of institutions influences investment decisions and the organization of production

and plays a key role in the ways in which societies distribute the benefits and bear the costs of

development strategies and policies

2.3 Institutions and Corruption

Institutions are formed by legal and administrative arrangements. Sometimes institutions are

associated with excessive bureaucracy and red tape, overregulation, corruption, and lack of

transparency and political patronage.

The relationship between corruption and institutions is considered in de Vaal and Ebben

(2011) who present a model that shows that for corruption to have a positive effect on

growth, institutional quality has to be sufficiently low.

Some studies indicate that corruption is extensive in developing countries (Svensson, 2005).

Corruption may be beneficial to the persons who bribe and those bribed, but it creates various

economic downsides, including additional costs to firms and negative effects on the provision

of goods and services by the government (Olken and Pande, 2011). Corruption also generates

an atmosphere of uncertainty and dishonesty.

There are studies (e.g. Huntington, 1968), that suggest that corruption can be beneficial, when

governments are autocratic and remain in power by hook or by crook. In this case, graft may

provide an opportunity for entrepreneurs to influence the decision-making process and enable

them to generate business and innovative activities). However, as Easterly (2006) argued,

claims that corruption ―greases the wheels‖ of growth simply do not stand up to empirical

scrutiny.

5

2.4 Institutions and Social Cohesion

Institutions may be conducive to enhancing social cohesion in a country, which is necessary

to support the effective functioning of the economic apparatus, without the hindrance of civil

unrest. Social cohesion is also associated with effective social dialogue which, in turn, would

enable collaborative approaches towards the undertaking of corrective measures in the face of

adverse economic shocks (Briguglio et al., 2009). Easterly (2006) argues that good

institutions can unify fractionalized peoples, and defeat the average tendency to divide and

rule. This line of arguments supports the contention in Easterly (2001) that formal institutions

contribute to the ―social glue‖ that tends to be in short supply when there are ethno-linguistic

divisions.

2.5 Market Efficiency, Institutions and Growth

The science of economics views markets and their efficient operation through the price

mechanism as the best way to allocate resources in the economy. If a market adjusts rapidly

to achieve equilibrium following an external shock, the risk of being negatively affected by

such a shock will be lower than if the market remains in disequilibrium. Indeed, with very

slow or non-existent market adjustment, resources will not be efficiently allocated in the

economy, resulting in welfare costs, manifested, for instance, in unemployed resources and

waste or shortages in the goods markets.

It is often contended that when markets can operate it is better to let them operate without

government intervention in order to foster economic growth. Government intervention

however is generally justified in the case of merit goods (such as education, health and

pensions)1 which have relative high positive externalities.

2 However, a functioning market

does not mean absence of institutions or the law of the jungle. As a matter of fact, most

countries, particularly those upholding the benefits of free markets, adopt competition law

and policy, with related competition authorities. It is contended that the recent global

financial turmoil might not have happened if the regulatory institutions appropriately oversaw

the excessive risks in the financial markets of the USA and the UK, among others (Ocampo,

2008).

3. GLOBAL INDICATORS AND THE PHILIPPINES’ SCORES

3.1 The Worldwide Governance Indicators (WGI)

The 2012 Worldwide Governance Indicators (WGI) 3

, with data updated to 2011, covers 215

countries and has six dimensions of governance, namely (1) voice and accountability (2)

political stability and absence of violence (3) government effectiveness (4) regulatory quality

(5) rule of law and (6) control of corruption (see Appendix 1 for the definition of these

indicators). The indicators are based on the views of persons involved in business, ordinary

citizens and expert surveys, with sources derived from various institutes, think tanks, non-

governmental organizations, international organizations, and private sector firms.

1 The extent to which government intervenes in subsiding merit goods depends on the philosophy upheld by the

nation, with left leaning governments generally being more prone to support merit goods. 2 It is also generally accepted that markets do not operate in the case of public goods, such as many

environmental assets, and externalities, such as pollution. 3 The Indicators‘ website URL is: http://info.worldbank.org/governance/wgi/index.asp

6

The data is first rescaled using the Min-Max approach4 to render the data comparable across

sources. The resulting estimates of governance are a weighted average of the data from each

source5 with scores assigned a value of approximately -2.5 to 2.5, with higher values

corresponding to better governance. The scores are accompanied by confidence intervals at

the 90% level of significance. A detailed description of the methodology is given in

Kaufmann et al. (2010).

3.1.1 The WGI: Regional Comparisons

It can be seen from Table 1 that there many negative WGI scores assigned to the 10 members

of the ASEAN, indicating that governance is, overall, rather weak in the region. The only two

countries with a predominance of plus values are Singapore and Brunei Darussalam, which

overall are ranked first and second respectively in the region. The worst performer in terms of

governance is Myanmar, where all the scores are negative. Loa PDR, Cambodia and Vietnam

also have predominantly negative scores.

Table 1

The Scores and Rankings of the Philippines compared to other ASEAN Member Countries

in terms of the Worldwide Governance Indicators*

V&A

PS&AV

GE

RQ

RL

CC

AVG

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Brunei D -0.63 6 1.12 2 0.88 3 1.17 2 0.88 2 0.84 2 0.71 2

Cambodia -0.91 7 -0.44 6 -0.75 8 -0.45 7 -1.03 9 -1.10 9 -0.78 8

Indonesia -0.08 2 -0.82 7 -0.24 6 -0.33 6 -0.66 7 -0.66 6 -0.46 5

Lao PDR -1.60 9 0.01 5 -0.91 9 -0.96 9 -0.92 8 -1.06 8 -0.91 9

Malaysia -0.44 4 0.16 4 1 2 0.66 3 0.52 3 0.00 3 0.32 3

Myanmar -1.86 10 -1.16 9 -1.64 10 -2.13 10 -1.42 10 -1.69 10 -1.65 10

Philippines -0.02 1 -1.39 10 0.00 5 -0.27 5 -0.51 6 -0.78 7 -0.49 6

Singapore -0.19 3 1.21 1 2.16 1 1.83 1 1.70 1 2.12 1 1.47 1

Thailand -0.45 5 -1.02 8 0.10 4 0.24 4 -0.24 4 -0.37 4 -0.29 4

Vietnam -1.48 8 0.17 3 -0.28 7 -0.61 8 -0.47 5 -0.59 5 -0.54 7

* Scores range from -2.5 to +2.5, with -2.5 representing the worst possible WGI score and +2.5 the highest possible score.

Key: V&A = voice and accountability; PS&AV = political stability and absence of violence; GE = government

effectiveness; RQ = regulatory quality; RL = rule of law; and CC = control of corruption; AVG = average scores of the six

indices.

The Philippines ranks 6th

overall in the region when all indices are considered together,

however its scores are particularly low in terms of Political Stability & Absence of Violence

and Control of Corruption.

4 This rescaling method is based on the formula (Xi-Xmin)/(Xmax-Xmin) where Xi is an ith observation in an

array of observations of a given variable. Xmin is the observation with the minimum value and Xmax is the

observation with the maximum value in the same array of observations. Thus the observation with the minimum

value will be rescaled to equal zero and the observation with the maximum value will be rescaled to equal 1. All

other observations will have a value between 0 and 1. This method is commonly used in composite indices. Its

main shortcoming is that outliers can give distorted results. 5 The weights reflect the pattern of correlation among data sources. The method adopted by the authors assigns

greater weight to data sources that tend to be more strongly correlated with each other. The authors argue that

while this weighting improves the statistical precision of the aggregate indicators, it typically does not affect

very much the ranking of countries on the aggregate indicators

7

It can be seen also that in terms of Voice and Accountability, all countries in the region were

assigned a negative score. However the least negative of them all was that assigned to the

Philippines. This indicator captures perceptions of the extent to which a country's citizens are

able to participate in selecting their government, as well as freedom of expression, freedom of

association, and a free media. Interestingly even Singapore, which has the highest scores

overall, received a negative score in terms of Voice and Accountability.

3.1.2 The WGI: Global Comparisons

Table 2 shows that globally, the Philippines again scored very badly in terms of Political

Stability and Absence of Violence, being ranked 194 out of 215 countries. It has also

received relatively bad rankings in terms of Control of Corruption and Rule of Law. Overall

the Philippines‘ WGI ranking is well below the average, being ranked 138 out of 215

countries. It should be noted however that in terms of Government Effectiveness, the

Philippines scores only slightly below the average, with the best ranking among the six

indicators assigned to this country. This indicator is the one which is the most associated with

public sector institutions.

Table 2

The Scores and Rankings of the Philippines compared to a set of 215 Countries and Territories

in terms of the Worldwide Governance Indicators*

V&A PS&AV GE RQ RL CC AVG

Philippines‘ Rank (out of 215) 110 194 94 120 140 164 138

Philippines‘ score -0.015 -1.386 -0.003 -0.265 -0.512 -0.784 -0.494

Best 10 scores (average) 1.566 1.475 1.951 1.834 1.861 2.196 1.747

Worst 10 scores (average) -1.958 -2.330 -1.744 -1.967 -1.662 -1.500 -1.630

Average of all scores 0.000 0.000 0.000 0.000 0.000 0.001 -0.002

* See notes under Table 1 for the key to the headers of each column

3.1.3 The WGI: Correlation with other economic variables

The components of the WGI of the ASEAN member countries were correlated with each

other and with three other variables, shown in Table 3, namely GDP per capita (GDPPC)6 in

2012, real GDP growth between 2003 and 20127, and an index of macroeconomic stability.

8

Table 4 shows the degree of correlation between the economic aggregates just described. It

can be seen that GDP per capita is negatively correlated with economic growth and positively

correlated with macroeconomic stability.9 The negative correlation between GDP per capita

and growth can be explained in terms of the possibility that a low-income country registers a

6 The data was sourced from the IMF Global Economic Outlook website, available at:

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx . 7 The data was sourced from the IMF Global Economic Outlook website, available at:

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx . 8 The index of stability was constructed on the basis of three variables, namely (1) Inflation, (2) Current

Account Deficit as a ratio of GDP and (3) Gross Debt as a ration of GDP. Each variable was rescaled using the

max-min formula and averaged to obtain a stability index, noting that while the maximum values of Inflation

and Debt/GDP and the lowest value of Current Account/GDP balance indicate the highest rates of instability.

The data pertained to the ten-year period 2003-2013, so as to span over the business cycle. The data was sourced

from the IMF Global Economic Outlook website, available at:

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx . 9 It should be noted that the same pattern of correlations was found to exist globally (180 countries), namely that

the GDPPC was negatively correlated with growth and positively correlated with macroeconomic stability.

8

higher growth rate in relative terms than a high-income country, given an equal increment,

and that growth possibilities for low income countries tend to have better possibilities for

growth in view of excess capacity and lower costs. The negative correlation between growth

and stability should not be construed as an indication that macroeconomic stability is not

conducive to growth.10

In fact a regression analysis between economic growth and

macroeconomic stability, keeping GDP per capita constant, carried out by the present author,

produced a positive sign on the stability variable, indicating that if the sample of countries is

segmented into higher-income and lower-income countries, the one-to-one correlation

between growth and stability would be positive.

Table 3

Aggregate Economic Variables in the ASEAN

GDP Per

capita US$

Growth (%)

2003-2012

Stability

2003-2012

Brunei D 38449 1.07 1.000

Cambodia 847 7.95 0.384

Indonesia 3363 5.69 0.369

Lao PDR 1290 7.63 0.111

Malaysia 9626 5.06 0.550

Myanmar 800 9.19 0.000

Philippines 2385 5.17 0.405

Singapore 48620 6.10 0.388

Thailand 5355 4.27 0.473

Vietnam 1358 6.96 0.214

Table 4

Correlation between the Aggregate Economic Variables in the ASEAN

GDP Per

capita

Growth

2003-2012

Stability

2003-2012

GDP Per Capita 1

Growth 2009-12 -0.47 1

Stability 0.57 -0.87 1

Table 5 correlates the components of the WGI with the economic aggregates shown in Table

3. It emerges that the components of the WGI are generally highly correlated with each other,

with the exception of the relation between Voice & Accountability and Political Stability.

The indices are also generally highly correlated with GDP per capita, indicating that higher-

income countries in general have better governance.

However there is no indication that growth and good governance move in the same direction,

if at all the opposite appears to be the case. In fact, the fastest growing countries in the region

were those with the lowest GDP scores, possibly due to the fact that they started from very

low levels, as explained above.

10

In many studies, macroeconomic stability is thought to support economic growth. On this issue see for

example, Sirimaneetham and Temple (2009).

9

Table 5

Correlation of the WGI components with

Aggregate Economic Variables in the ASEAN*

V&A PS&AV GE RQ RL CC AVG

V&A 1

PS&AV 0.03 1

GE 0.68 0.68 1

RQ 0.70 0.69 0.97 1

RL 0.54 0.78 0.98 0.95 1

CC 0.53 0.79 0.96 0.94 0.98 1

AVG 0.63 0.77 0.99 0.98 0.99 0.98 1

GDPCC 0.37 0.81 0.83 0.83 0.91 0.94 0.89

Growth 03-12 -0.59 -0.37 -0.61 -0.71 -0.62 -0.56 -0.64

Growth 09-12 -0.41 -0.24 -0.46 -0.56 -0.50 -0.43 -0.48

Stability 0.58 0.47 0.62 0.75 0.64 0.57 0.67

* See notes under Table 1 for the key to the headers of each row.

There is an indication that, overall, the countries with the best WGI scores are the most

macro-economically stable.

3.2 The Rule of Law Index

The Rule of Law Index (RLI) measures adherence to the rule of law principles through a set

of eight indicators (called factors) which are further disaggregated into 48 sub-indicators

(sub-factors). The index covers 97 countries. The measureable components (factors) of the

RLI are the following: (1) limited government powers, (2) absence of corruption, (3)order

and security, (4) fundamental rights, (5) open government, (6) regulatory enforcement (7)

access to civil justice, and (8) effective criminal justice (see Appendix 1 for the definition of

these indicators). Most of the data related to 2012.

The authors use various methods to obtain the data including a general population poll (lay

persons) and qualified respondents‘ questionnaires (experts). Using primary data has two

advantages. The responses are codified so that all values fall between 0 and 1 and calculate,

for each country, the simple average of each variable from the responses. The variables are

rescaled using the Min-Max method. The methodology is explained in Botero and Ponce

(2011).

3.2.1 The RLI: Regional Comparisons

It can be seen from Table 6 that the RLI scores assigned to the Philippines are, on average,

low within the region, ranking the country fifth among seven countries.11

The Philippines

scores very badly in terms of the Order and Security, Access to Civil Justice and Open

Government factors. Its best score relates to Effectiveness of Criminal Justice. As in the case

of the Worldwide Governance Indicators, the best overall performer is Singapore, and the

country with the worst overall score is Cambodia.12

11

Data was not available for Brunei D., Lao PDR, and Myanmar. 12

Given that Lao PDR and Myanmar do not feature in this index.

10

Table 6

The Scores and Rankings of the Philippines compared to other ASEAN Member Countries

in terms of the Rule of Law Index*

LGP AC O&S FR OG RE ACJ ECJ AVG

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Cambodia 0.34 7 0.31 6 0.70 5 0.43 7 0.37 6 0.33 7 0.37 7 0.40 0.41 7

Indonesia 0.64 2 0.30 7 0.72 4 0.56 4 0.53 2 0.50 5 0.49 3 0.45 7 0.52 4

Malaysia 0.57 3 0.69 2 0.86 2 0.50 5 0.48 4 0.52 2 0.57 2 0.61 5 0.60 2

Philippines 0.56 4 0.41 4 0.60 7 0.57 3 0.46 5 0.51 3 0.43 6 0.42 2 0.49 5

Singapore 0.73 1 0.91 1 0.93 1 0.73 1 0.67 1 0.80 1 0.79 1 0.87 6 0.80 1

Thailand 0.53 5 0.41 5 0.63 6 0.66 2 0.50 3 0.51 4 0.43 5 0.59 1 0.53 3

Vietnam 0.40 6 0.43 3 0.82 3 0.48 6 0.35 7 0.39 6 0.43 4 0.57 3 0.49 6

* Scores range from 0 to 1, with 0 representing the worst Rule of Law score and 1 the best possible score.

Key: LGP = limited government powers; AC = absence of corruption; O&S = order and stability; FR = fundamental rights; OG = open governments; RE = regulatory enforcement; ACJ = Access to civil justice; ECJ = effective criminal justice; AVG = average of all

score.

3.2.2 The RLI: Global Comparisons

Globally, the RLI scores indicate that the Philippines scores badly in terms of Access to Civil

Justice, which is a similar result when only the ASEAN group was considered, as can be seen

from Table 7. Its best rankings are in Limited Government Powers and Regulatory Quality,

but the relative scores are still below the global average.

Table 7

The Scores and Rankings of the Philippines compared to a set of 97 Countries

in terms of the Rule of Law Index*

LGP AC O&S FR OG RE ACJ ECJ AVG

Philippines‘ rank (out of 97) 46 63 77 59 59 52 84 72 64

Philippines‘ score (out of 97) 0.564 0.414 0.603 0.569 0.455 0.509 0.427 0.419 0.495

Best 10 scores (average) 0.869 0.918 0.903 0.871 0.850 0.838 0.784 0.815 0.844

Worst 10 scores (average) 0.305 0.260 0.466 0.377 0.316 0.328 0.373 0.313 0.386

Average of all scores 0.572 0.534 0.713 0.618 0.523 0.542 0.557 0.533 0.574

* For the key to column headings see Table 6

3.2.3 The RLI: Correlation with economic changes in the region

It can be seen from Table 8 that with few exceptions, the components of the RLI are highly

positively correlated with each other. The components are also highly correlated to GDP per

capita, again indicating that the higher income countries in the region are better governed in

terms of rule of law. Again, there is no positive correlation with economic growth, and if at

all the connection seems to be negative, indicating that the fastest growing economies are the

relatively poorer ones.

In the case of the macroeconomic stability, it appears that, in general, the economies with the

best rule of law scores are also the most stable, although the correlation coefficients in this

regard are somewhat low.

11

Table 8

Correlation of the RLI components with

Aggregate Economic Variables in the ASEAN

LGP AC O&S FR OG RE CIJ CRJ AVG

LGP 1

AC 0.61 1

O&S 0.31 0.79 1

FR 0.80 0.55 0.14 1

OG 0.94 0.70 0.38 0.88 1

RE 0.90 0.84 0.50 0.87 0.95 1

CIJ 0.79 0.93 0.78 0.66 0.86 0.93 1

CRJ 0.58 0.91 0.76 0.70 0.72 0.83 0.89 1

AVG 0.82 0.93 0.69 0.77 0.90 0.97 0.98 0.92 1

GDPCC 0.69 0.89 0.69 0.73 0.84 0.92 0.95 0.89 0.95

Growth 03-12 -0.57 -0.17 0.26 -0.56 -0.45 -0.40 -0.16 -0.20 -0.30

Stability 0.32 0.27 -0.10 0.20 0.36 0.25 0.19 0.10 0.23

* For the key to column headings see Table 6

3.3 The Corruption Perception Index

The Corruption Perception Index, compiled by Transparency International, is based on

perceived levels of corruption, as determined by expert assessments and opinion surveys with

data expressed over a mapping scale of 0-100 where a 0 = highest level of perceived

corruption, and 100 = lowest. The 2012 CPI draws on 13 different surveys and assessments

from 12 different institutions. The methodology follows 4 basic steps: selection of source

data, rescaling source data, aggregating the rescaled data and then reporting a measure for

uncertainty. In all 176 countries and territories are covered. More detailed information is

available see Transparency international (2012).

3.3.1 The CPI: Regional Comparisons

It can be seen from Table 9 that Singapore is assigned the highest score in the region with

Brunei ranked second, indicating that perceived corruption in these countries is the lowest

among the ten ASEAN members. The lowest scores countries are Lao PDR and Myanmar,

indicating that perceived corruption in these countries is the highest among the ten ASEAN

members. The Philippines, together with Indonesia, are ranked in the middle of the group, 5th

and 6th

respectively. It can be noted that the ranking of the CPI are very similar to the

rankings of the Control of Corruption indicator of the WGI.

12

Table 9

The Score and Ranking of the Philippines Compared to other ASEAN Member Countries

in terms of the Corruption Perception Index*

Country Score Rank in the

region

Brunei 55 2

Cambodia 22 8

Indonesia 32 6

Laos 21 9

Malaysia 49 3

Myanmar 15 10

Philippines 34 5

Singapore 87 1

Thailand 37 4

Vietnam 31 7

* In case of the rank, the 1 represents the lowest level of perceived corruption in the ASEAN and 8 the highest. In the case of scores, the

lowest possible perceived corruption carries a score of 100 and the highest possible level of perceived corruption carries a score of 0.

3.3.2 CPI: Global Comparisons

Globally, the Philippines are ranked 105th

in the list of 215 economies, within the lower half

of the countries surveyed, although at the upper end of this half, as shown in Table 10. The

score assigned to the Philippines is however rather low at 34, and well under the average

score of 43, meaning that the Philippines are not perceived as the most corrupt globally, but

they can still be labelled as being perceived as highly corrupt.

Table 10

The Score and Ranking of the Philippines compared to a set of 176 Countries and Territories

in terms of the Corruption Perception Index

Country CPI

Philippines‘ rank (out of 176) 105

Philippines‘ score 34

Best 10 scores (average) 87

Worst 10 scores (average) 14

Average score globally 43

3.3.3 The CPI: Correlation with economic changes in the region

As was the case with the GWI and the RLI, the CPI scores are highly positively correlated

with income per capita, and tend to be negatively related to economic growth, as can be seen

from Table 11. The CPI scores would seem to be positively correlated with macroeconomic

stability.

Table 11

Correlation of the CPI components with

Aggregate Economic Variables in the ASEAN

CPI

CPI 1

GDPPC 0.913

Growth 03-12 -0.514

Stability 0.525

13

3.4 The Economic Freedom of the World Index

This Economic Freedom of the World Index (EFWI) has five areas (sub-indices), namely (1)

size of government; (2) legal system & security of property rights; (3) access to sound

money; (4) freedom to trade internationally; and (5) regulation of credit, labour, and business

(see Appendix 1 for the definition of these indicators). The index is based on data sourced

from surveys, expert panels, and generic case studies including sources such as the

International Monetary Fund, World Bank, and World Economic Forum that provide data for

a large number of countries. Data provided directly from a source within a country are rarely

used, and only when the data are unavailable from international sources. Most of the scores

utilise the Min-Max formula to rescale the data (1 to 10). The 2010 index covers 144

countries and territories. The methodology is explained in the Explanatory Notes and Data

Sources Appendix in Gwartney et al. (2012).

3.4.1 The EWFI: Regional Comparisons

Table 12 presents the scores and ranks of the 8 ASEAN members13

in terms of the EFWI. It

can be seen that, overall, the best performer is again Singapore, and the worst Myanmar, with

the Philippines being ranked, overall, the top-half of the group.

Table 12

The Scores and Rankings of the Philippines Compared to Other ASEAN Member Countries

in terms of the Economic Freedom of the World Index*

SG LS&PR SM FTI RG AVG

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Cambodia 7.89 5 4.61 5 9.26 2 7.29 2 6.54 5 7.12 2

Indonesia 7.90 4 4.48 6 8.99 4 6.77 5 6.29 7 6.89 5

Malaysia 6.13 8 6.86 2 6.52 6 7.28 3 8.03 2 6.97 4

Myanmar 6.33 7 3.19 8 5.73 8 1.78 8 4.39 8 4.29 8

Philippines 8.31 1 4.37 7 9.29 1 6.68 6 6.92 4 7.11 3

Singapore 8.06 2 8.38 1 9.05 3 9.39 1 8.92 1 8.76 1

Thailand 7.43 6 5.35 4 7.06 5 6.81 4 7.05 3 6.74 6

Vietnam 8.04 3 5.88 3 5.93 7 6.29 7 6.46 6 6.52 7

* Scores range from 1 to 10, with 1 representing the worst EFW score and 7 the best possible score

Key: SG = size of government; LS&PR legal system & security of property rights; SM = access to sound money; (4) FTI = freedom to trade internationally; RG = regulation of credit, labour, and business; AVG = average of all areas.

In terms of these indicators, the Philippines performs very badly with regard to the Legal

System & Property Rights and Freedom to Trade Internationally. However, it receives

relatively high scores with regard to Sound Money and Size of Government. Overall, on the

EFWI the Philippines does relatively well, being ranked 3rd

in the region, even higher than

Malaysia.

Given that this index has three areas which focus on market efficiency, namely Sound

Money, Freedom to Trade Internationally, and Regulations, it is useful to see where the

Philippines finds itself with regard to these indicators. The results are a mixed bag of scores,

with a very high score with regard to Sound Money, a fairly good score with regard to

Regulations and a relatively bad score with regard to Freedom to Trade Internationally. If

13

Data was not available for Brunei Darussalam and Lao PDR.

14

these indicators are combined, the Philippines would be ranked 4th

among the eight ASEAN

countries in the region, being surpassed by Singapore and Cambodia. Surprisingly, the

second ranked country on this index is Cambodia, which registers relatively high scores with

regard to market efficiency.

3.4.2 The EWFI: Global Comparisons

From Table 13 it appears that the Philippines, compared to all countries of the World,

performed badly in terms of the Legal System and Property Rights, and in terms of Freedom

to Trade Internationally, but relatively well in terms of and Size of Government and Sound

Money. Overall, in terms of the EFWI the Philippines‘ was ranked 62nd

out of 144 countries

and territories, that is at the lower end of the top half, which is reflected in the overall score

which is nearer to the top ten scores than to the lower ten scores, as shown in Table 13.

Table 13

The Scores and Rankings of the Philippines compared to a set of 144 Countries and Territories

in terms of the Economic Freedom of the World Index

SG LS&PR SM FTI RG AVG

Philippines rank (out of 144) 9 110 39 96 74 62

Philippines score 8.31 4.37 9.29 6.68 6.92 7.11

Best ten scores (Average) 8.57 8.50 9.72 8.76 8.80 8.22

Worst ten scores (Average) 3.89 2.69 5.06 4.40 4.88 4.85

Average score globally 6.42 5.60 8.08 7.02 6.96 6.81

* For the key to column headings see Table 12

3.4.3 The EFWI: Correlation with economic changes in the region

Table 14 again replicates the findings of the previous correlation matrices that governance is

overall positively correlated to GDP per capita and macroeconomic, but not with economic

growth.

Table 14

Correlation of the EFW Components with

Aggregate Economic Variables in the ASEAN

SG LS&PR SM FTI RF AVG

SG 1

LS&PR -0.302 1

SM 0.541 -0.251 1

FTI 0.016 0.778 0.388 1

RG -0.324 0.901 0.020 0.857 1

AVG 0.211 0.692 0.514 0.969 0.803 1

GDP PC 0.068 0.860 0.236 0.952 0.881 0.945

Growth 03-12 0.380 -0.062 0.206 0.089 -0.258 0.089

Stability -0.726 0.142 0.042 0.215 0.448 0.105

3.5 The Global Competitiveness Index

The Global Competitiveness Index is published as part of the Global Competitiveness Report

2012–2013,14

with data pertaining mostly to 2011, although in some instances 2010 data was

14

This was the latest available version during the writing of this paper. It is available at:

http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf

15

used.15

The authors define competitiveness as ―the set of institutions, policies, and factors

that determine the level of productivity of a country.‖ The authors argue that ―the level of

productivity, in turn, sets the level of prosperity that can be earned by an economy. In other

words, a more competitive economy is one that is likely to sustain growth.‖ The GCI covers

144 countries. The scores are based on the Min-Max method, with scores ranging from 1 to7.

The methodology is explained in Chapter 1.3 of the Global Competitiveness Report.

The overall index is a weighted average of many different components, each measuring a

different aspect of competitiveness. These components are grouped into 3 sub-indices16

, with

12 pillars as follows: Sub-index 1: Basic requirements

Pillar 1: Macroeconomic environment

Pillar 2: Institutions

Pillar 3: Infrastructure

Pillar 4: Health and primary education

Sub-index 2: Efficiency enhancers

Pillar 5: Market size

Pillar 6: Financial market development

Pillar 7: Higher education and training

Pillar 8: Technological readiness

Pillar 9: Goods market efficiency

Pillar 10: Labour market efficiency

Sub-index 3: Innovation and sophistication factors

Pillar 11: Business sophistication

Pillar 12: Innovation

(see Appendix 1 for the definition of these indicator pillars).

3.5.1 The GCI: Regional Comparisons

Table 15 presents GCI the scores of the Philippines and other ASEAN member countries for

which data was available. Table 15

The Scores and Rankings of the Philippines compared to other ASEAN Member Countries

in terms of the Global Competitiveness Index

Country

BI

Sub-index

1

EF

Sub-

index 2

IS

Sub-

index 3

IN

Pillar 2

GM

Pillar 6

LM

Pillar 7

FM

Pillar 8

Overall

GCI

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Sco

re

Ra

nk

Brunei D 5.56 2 4.05 6 3.63 5 4.86 4 4.23 6 5.07 2 4.27 4 4.87 3

Cambodia 4.14 8 3.84 8 3.54 7 3.84 5 4.43 4 4.78 4 4.12 6 4.01 8

Indonesia 4.74 5 4.21 4 3.96 3 3.86 7 4.29 5 3.87 8 4.07 7 4.40 5

Malaysia 5.38 3 4.89 2 4.70 2 5.00 2 5.16 2 4.82 3 5.44 2 5.06 2

Philippines 4.35 6 4.17 5 3.60 6 3.57 8 4.17 7 4.01 7 4.25 5 4.23 6

Singapore 6.34 1 5.65 1 5.27 1 6.07 1 5.60 1 5.80 1 5.85 1 5.67 1

Thailand 4.89 4 4.38 3 3.72 4 3.82 6 4.56 3 4.32 6 4.46 3 4.52 4

Vietnam 4.22 7 4.03 7 3.32 8 4.94 3 4.13 8 4.52 5 3.85 8 4.11 7

* The lowest possible GCI score is 1 and the highest possible level of GCI score is 7.

Key: BI = basic requirements indicators, EF = efficiency enhancers; IS = innovation & sophistication; IN = Institutions; GM = goods market efficiency; LM = labour market efficiency; FM = financial market development; AVG = average of all indices.

15

In addition, some formulae for constructing 2011 data required information from other years. 16

The GCI utilise a somewhat arbitrary weighting procedure, depending on the stage of development of the

country being considered, as measured by the GDP per capita. See Schwab (2012: 9).

16

It can be seen from Table 15 that out of the eight countries17

represented in the Global

Competitiveness Index (last column), the Philippines ranked sixth, with Vietnam and

Cambodia scoring lower. As expected, in the region Singapore and Malaysia received the

highest GCI scores.

The Basic Requirements Indicator sub-index includes a pillar entitled Institutions (IN), in

which as can be seen in Table 13, the Philippines‘ score is the lowest in the eight countries

included in the table.

The indicators relating to market efficiency are part of the third sub-index entitle Efficiency

Enhancers (EF) with includes the goods and labour markets. It can be seen from Table 13,

that the Philippines‘‘ scores are relatively low with regard to Goods Market Efficiency (GM)

and the Labour Market Efficiency (LM), placing the country the one before the last in the

region, the last being Vietnam.

3.5.2 The GCI: Global Comparisons

Table 16 shows that the Philippines ranks 66th

out of 144 countries in the overall index

(AVG) which is a satisfactory score, placing the Philippines in the top half of the league,

albeit towards the lower end of this half. It an also be seen, however, that the Philippines

scores are rather low with regard to the Basic indicators sub-index again mostly due to the

Institutions Pillar.

Table 16

The Scores and Rankings of the Philippines compared to a set of 144 Countries and Territories

in terms of the Global Competitiveness Index

BI

Sub-index

1

EF

Sub-index

2

IS

Sub-

index 3

IN

Pillar

2

GM

Pillar

6

LM

Pillar 7

FM

Pillar 8 GCI

Philippines rank (out of 144) 80 61 64 94 86 103 58 66

Philippines score 4.348 4.165 3.601 3.567 4.168 4.011 4.253 4.232

Best ten scores (Average) 6.056 5.446 5.505 5.792 5.331 5.434 5.525 5.518

Worst ten scores (Average) 3.092 2.917 2.582 2.730 3.235 3.248 2.699 3.033

Average score globally 4.529 4.086 3.711 4.044 4.278 4.330 4.087 4.201

* See Table 15 for key to column headings

The Philippines‘ Efficiency Enhancers sub-index receives a relatively high score (61st out or

144). However, the goods and labour market pillars, which form part of this sub-index

received very low scores and rankings (103rd

and 86th

out of 144 respectively). The average

score of the Efficiency Enhancers sub-index received a boost from the Market Size (Pillar

10), due to the large size of its domestic market, in which the Philippines was ranked 29th

out

of 144 countries.

A deeper look at the Institutions Pillar is given in Table 17, which indicates that the

Philippines scores markedly below average, globally, in many of the components of this

pillar.

17

Data was not available for Lao PDR and Myanmar, but these would probably be at a lower end of the table.

17

Table 17

Variables (Components) which are included in the Institutions Pillar

of the Global Competitiveness Indicators

Variables Score Global

Rank

Position*

Strength of auditing and reporting standards 5.1 41 MAA

Government services for improved business performance 3.9 51 AA

Efficacy of corporate boards 4.7 51 AA

Protection of minority shareholders‘ interests 4.3 57 AA

Property rights 4.1 74 AA

Wastefulness of government spending 3.0 86 BA

Intellectual property protection 3.2 87 BA

Favouritism in decisions of government officials 2.8 87 BA

Ethical behaviour of firms 3.7 87 BA

Public trust in politicians 2.4 95 BA

Transparency of government policymaking 4.0 97 BA

Organized crime 4.7 97 MBA

Judicial independence 3.0 99 MBA

Diversion of public funds 2.8 100 MBA

Reliability of police services 3.6 100 MBA

Efficiency of legal framework in challenging regulations 3.2 102 MBA

Efficiency of legal framework in settling disputes 3.2 107 MBA

Business costs of crime and violence 3.9 107 MBA

Irregular payments and bribes 3.2 108 MBA

Burden of government regulation 3.0 108 MBA

Strength of investor protection 4.0 110 MBA

Business costs of terrorism 4.4 126 VMBA * BA = below average; AA = above average; MBA = Markedly below average ; MAA = Markedly above average‘ VMBA = very markedly below average.

Another component of the Basic Indicators sub-index relates to the infrastructure, in which

the Philippines also receives a relatively low score and is ranked 94 among 144 countries.

The variables included under this pillar are shown in Table 18. It can be seen that the quality

of the air transport and the seaport infrastructure receive the lowest scores and particularly

bad ranking.

Table 18

Variables which are included in the Infrastructure Pillar

of the Global Competitiveness Indicators

Variables Score Global

Rank

Position*

Available airline seat kms/week, millions 0.2 26 VMAA

Quality of roads 3.4 87 BA

Quality of railroad infrastructure 1.9 94 MBA

Mobile telephone subscriptions/100 pop 2.0 95 MBA

Quality of overall infrastructure 3.6 98 MBA

Quality of electricity supply 3.7 98 MBA

Fixed telephone lines/100 pop. 7.2 103 MBA

Quality of air transport infrastructure 3.6 112 MBA

Quality of port infrastructure 3.3 120 VMBA * VMAA= Very markedly above average; BA = below average; AA = above average; MBA = Markedly below average ; MAA = Markedly

above average‘ VMBA = very markedly below average.

3.5.3 The GCI: Correlation with economic aggregates

18

Table 19 presents correlation coefficients of the GCI with the sub-indices and with the three

economic aggregate. It can be seen that the indicators chosen are generally highly correlated

with each other. They are also positively correlated with GDP per capita. Again, there is no

indication that the GCI indicators are correlated with growth, with the overall coefficient

relating to the summary index (AVG) showing a negative sign. The positive coefficients with

regard to growth on some of the indicators are very low. Overall, the indices would seem to

be positively correlated with macroeconomic stability, although the coefficients are very low

generally.

Table 19

Correlation of the GCI components with

Aggregate Economic Variables in the ASEAN*

BI EF IS IN GM LM FM AVG

BI 1

EF 0.831 1

IS 0.832 0.961 1

IN 0.952 0.843 0.872 1

GM 0.777 0.947 0.957 0.845 10

LM 0.752 0.646 0.634 0.880 0.715 1

FM 0.830 0.953 0.960 0.874 0.973 0.700 1

AVG 0.595 0.431 0.483 0.607 0.538 0.602 0.433 1

GDPPC 0.904 0.634 0.615 0.895 0.566 0.834 0.620 0.487

Growth 09-12 -0.355 0.111 0.116 -0.226 0.078 -

0.244

-

0.041

-

0.188

Stability 0.449 -0.073 0.003 0.352 -0.049 0.280 0.087 0.213

* See Table 15 for key to column headings

3.6 The Doing Business Index

The Doing Business Index (DBI) attempts to measure the country‘s efficiency in achieving

regulatory goals. It contains several dimensions of the regulatory environment as they apply

to local firms and provides quantitative measures of (1) regulations for starting a business,

(2) dealing with construction permits, (3) getting electricity, (4) registering property, (5)

getting credit, (6) protecting investors, (7) paying taxes, (8) trading across borders, (9)

enforcing contracts and (10) resolving insolvency (see Appendix 1 for the definition of these

indicators). The DBI is a simple average of these components.18

This index is based on two types of data, namely (a) reading of laws and regulations in each

economy, with the help of more than thousands of lawyers and other professionals, in which

local expert respondents play a vital role and (b) inputs into indicators on the complexity and

cost of regulatory processes.

The authors emphasise the point that the economies that rank highest on the ease of doing

business are not those where there is no regulation – but those where governments have

managed to create rules that facilitate interactions in the marketplace without needlessly

hindering the development of the private sector. The index ranks the 185 economies.

18

Doing Business also considers regulations on employing workers, but these were not included in the 2013

DBI. The data on labour regulations is however available on the Doing Business website

http://www.doingbusiness.org .

19

The authors of the DBI also present distance to frontier (DTF)19

scores, which measure the

distance of each economy from the highest performance observed on each of the topics across

all economies included in FBI. An economy‘s distance to frontier is indicated on a scale from

0 to 100, where 0 represents the lowest performance and 100 the frontier on that indicator

across all economies since 2005.20

3.6.1 The DBI: Regional Comparisons

Table 20 present the Distance to Frontier scores of the DBI. It can be seen that the Philippines

is ranked 8th

in the 9 ASEAN members included in the table (no data was available for

Myanmar). It performed badly in most sub-indices, particularly Paying Taxes and Resolving

Insolvency. Its best score was in Getting Electricity.

Table 20

The Scores and Rankings of the Philippines compared to other ASEAN Member Countries

in terms of the Doing Business Index (Distance to Frontier Scores)*

SB CP GE RP GC

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

Brunei D 52.6 9 72.4 5 81.1 4 45.6 9 43.8 6

Cambodia 54.9 8 45.4 9 59.7 7 66.4 6 68.8 4

Indonesia 71.3 5 79.0 4 67.7 6 62.2 8 43.8 6

Lao PDR 71.0 6 69.5 6 45.8 9 73.9 5 25.0 9

Malaysia 93.6 2 57.7 8 82.4 3 79.5 3 100.0 1

Philippines 65.3 7 62.4 7 78.9 5 64.1 7 43.8 6

Singapore 95.9 1 92.8 1 90.6 1 79.4 4 87.5 2

Thailand 87.5 3 87.0 2 90.5 2 85.6 1 62.5 5

Vietnam 75.9 4 85.8 3 52.9 8 82.7 2 75.0 3

Table 20 (cont) PI PT TB EC RI EDB

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

DT

F

Ra

nk

Brunei D 47.7 6 82.7 3 73.9 5 43.9 7 50.5 2 57.0 4

Cambodia 56.7 5 72.1 4 55.9 8 31.6 9 14.5 7 51.8 7

Indonesia 61.9 4 58.2 7 75.5 4 33.7 8 15.9 5 55.7 5

Lao PDR 17.0 9 62.9 6 38.1 9 54.4 5 0.0 9 45.8 9

Malaysia 90.0 2 88.3 2 83.4 2 71.9 2 47.9 3 79.1 2

Philippines 44.4 7 56.3 8 71.0 6 51.6 6 6.2 8 51.7 8

Singapore 96.7 1 95.0 1 91.5 1 89.6 1 96.8 1 91.7 1

Thailand 79.3 3 71.4 5 80.3 3 67.8 3 45.5 4 74.1 3

Vietnam 30.4 8 47.3 9 69.5 7 66.1 4 15.6 6 52.2 6

* The Distance to Frontier scores range from 0 to 100, with 100 being the best performer among all countries.

Key: SB = starting a business; CP = dealing with construction permits; GE = getting electricity; RP = registering property; GC = getting

credit; PI= protecting investors; PT = paying taxes; TB = trading across borders; EC = enforcing contracts; RI = resolving insolvency; EDB = ease of doing business rank.

3.6.2 The DBI: Global Comparisons

19

More information about TF is available at:

http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-

Reports/English/DB13-Chapters/Ease-of-doing-business-and-distance-to-frontier.pdf 20

For the tax rate the frontier is defined as the total tax rate corresponding to the 15th percentile based on the

overall distribution of total tax rates for all years

20

When comparing the Philippines with other countries globally, in terms of the DBI, it

emerges that the Philippines is ranked 138th

among 185 countries, as can be seen from Table

21. Again, the lowest rankings were in Resolving Insolvencies and Paying taxes, with the

best ranking obtained with regard to Getting Electricity.

Table 21

The Scores and Rankings of the Philippines compared to a set of 185 Countries and Territories

in terms of the Doing Business Index*

SB CP GE RP GC PI PT TB EC RI EDB

Philippines‘ Rank (out of

185) 161 100 57 122 129 128 143 53 111 165 138

Philippines DTF** 65.3 62.4 78.9 64.1 43.8 44.4 56.3 71.0 51.6 6.2 51.7

Highest 10 ranks (average) 15.2 11.7 23.9 32.2 13.8 21.7 25.8 17.4 15.1 18.2 5.5

Lowest 10 ranks (average) 166.4 139.6 142.6 138.2 136.8 154.3 168.8 163.2 135 155.4 180.5

Average ranking 93 93 93 93 85 87 93 93 93 94 93

*See Table 20 for the key to column headings ** Distance to Frontier = see text

3.6.3 The DBI: Correlation with economic aggregates

Examining the correlation of the DBI with the three economic aggregates described above, it

can be seen from Table 22 that the indicators are generally positively correlated with each

other, although in some cases the coefficients have a very low value. As in the other indices,

the DBI and its components are positively correlated with GDP per capita (with the exception

of Registering Property). Again, the correlation with growth is generally negative. The

correlation with macroeconomic stability are also mostly positive.

Table 22

Correlation of the Distance from Frontier Scores of the DBI Components

With Aggregate Economic Variables in the ASEAN

SB CP GE RP GC PI PT TB EC RI EDB

SB 1

CP 0.50 1

GE 0.44 0.27 1

RP 0.80 0.35 0.02 1

GC 0.63 0.04 0.41 0.53 1

PI 0.65 0.17 0.82 0.29 0.72 1

PT 0.37 -0.01 0.65 -0.02 0.51 0.74 1

TB 0.57 0.45 0.85 0.16 0.64 0.82 0.48 1

EC 0.86 0.56 0.45 0.70 0.60 0.49 0.43 0.53 1

RI 0.57 0.47 0.76 0.17 0.60 0.79 0.84 0.77 0.68 1

EDB 0.81 0.41 0.78 0.45 0.73 0.92 0.78 0.81 0.77 0.91 1

GDP PC 0.19 0.41 0.58 -0.24 0.25 0.46 0.75 0.54 0.44 0.87 0.61

Growth 03-12 0.13 -0.19 -0.64 0.51 0.10 -0.22 -0.35 -0.48 0.00 -0.39 -0.21

Stability -0.27 -0.09 0.60 -0.62 0.07 0.31 0.52 0.44 -0.13 0.43 0.22

*See Table 13 for the key to column headings

3.7 The Human Development Index

The Human Development Index (HDI) measures the average achievements in a country in

three basic dimensions of human development, namely health (measured by life expectancy),

education (measured by the geometric average of years of schooling and expected years of

21

schooling)21

and the standard of living, measured by the log of GNI per capita (PPP $). All

variables were rescaled using the Min-Max formula. The HDI is the geometric mean of the

three dimensions. A description of the methodology is available at Klugman et al. (2011).

The most recent index covers 186 economies.

3.7.1 The HDI: Regional Comparisons

In this comparison, the Health and Education components of the HDI are used because the

focus of this section is on social institutions, assumed to be captured by these two indices.

Table 23

The Scores and Rankings of the Philippines compared to other ASEAN Member Countries

in terms of the Human Development Index

Health Education HDI

Score Rank Score Rank Score Rank

Brunei D 0.847 2 0.651 2 0.855 2

Cambodia 0.435 10 0.388 8 0.543 8

Indonesia 0.611 6 0.459 6 0.629 6

Lao PDR 0.556 8 0.321 9 0.543 8

Malaysia 0.743 4 0.608 3 0.769 3

Myanmar 0.495 9 0.267 10 0.498 10

Philippines 0.590 7 0.549 4 0.654 5

Singapore 0.935 1 0.694 1 0.895 1

Thailand 0.738 5 0.478 5 0.690 4

Viet Nam 0.769 3 0.417 7 0.617 7

* The scores range from 0 to 1 with 0 signifying the worst possible performer and 1 the best possible.

It can be seen from Table 23 that in terms of the HDI, the Philippines is ranked 5th

within the

region, the time slightly surpassing Indonesia. However it receives a relatively high rank with

regard to Education (4th

) and a lower rank with regard to Health (7th

). As in the other indices

described above, Singapore, the smallest member of the ASEAN, is ranked first in the region.

3.7.2 The HDI: Global Comparisons

Table 24, shows that the Philippines rank rather low globally (114th

out of 186 economies).

Again, the rank for Education is somewhat better and the rank for Health is somewhat worse.

Table 24

The Scores and Rankings of the Philippines compared to a set of 186 Countries and Territories

in terms of the Human Development Index

Health Education HDI

Philippines' rank (Out of 186) 122 102 114

Philippines' score .590 .549 .654

Average highest ten scores .935 .865 .925

Average lowest ten score .134 .100 .337

Average of all scores .614 .525 .675

3.7.3 The HDI: Correlation with economic aggregates

21

Mean of years of schooling for adults aged 25 years and expected years of schooling for children of school

entering age.

22

As can be seen from Table 25, the social components and the overall index are highly

correlated with each other. Again, the HDI and its social components are positively correlated

with GDP per capita, negatively correlated with growth and positively correlated with

macroeconomic stability. Table 25

Correlation of the HDI components with

Aggregate Economic Variables in the ASEAN

Health Education HDI

Health 1

Education 0.799 1

HDI 0.901 0.963 1

GDPPC 0.790 0.786 0.883

Growth 03-12 -0.628 -0.750 -0.747

Stability 0.533 0.765 0.740

4. MAIN IMPLICATIONS OF THE FINDINGS

4.1.1 Institutions and markets in the Philippines

The indicator presented above, which directly measures institutions, is the Institutions Pillar

of the Global Competitiveness Index, placing the Philippines last in the eight ASEAN

members (excluding Lao PDR and Myanmar for which data was not available). Globally the

Philippines also performs relatively badly in terms of this index, being placed 94th

in a list of

144 countries.

Two indicators directly related to market efficiency are Pillars 9 and 10 of the Global

Competitiveness Index, titled Goods Market Efficiency and Labour Market Efficiency. In

these indices the Philippines receives very low scores when compared to other ASEAN

member countries (7th

in a list of 8 countries in both indices) and to the rest of the World

(86th

and 103rd

respectively in a list of 144 countries).

Thus it would seem that, going by the GCI, the Philippines performs very badly in terms of

markets and institutions, regionally and globally.

The other indicators considered in this study may be viewed as manifestations of the

institutional development and of market efficiency. What emerges from the seven global

indices is that the Philippines generally performs just below the average regionally and

globally in these indicators.

4.1.2 Institutions, market efficiency and growth

As has been shown in the correlation tables, the mentioned indicators were not, in general,

positively correlated with economic growth – in fact most of the correlation coefficient in this

regard had a negative sign. This tendency is also evidenced globally. This would seem to

contradict the commonly held view that growth, institutional development and efficient

markets go hand-in-hand. This finding can be collaborated by the fact that countries with

relatively high good governance and market efficiency scores are generally high-income

countries which have tended to grow at a very slow rate in recent years. On the other hand,

countries with relatively low scores of governance and market efficiency are generally lower-

23

income countries which have tended to grow at a faster rate than high-income countries

during the decade 2003-2012.

One could argue that the connection between growth on the one hand, and institutional

development and market efficiency on the other, is not contemporaneous in that institutions

and market efficiency precede economic growth, and tests of the interrelationship of these

two variables should measure the institutions/market variables lagged a number of years,

given that institutions and markets take time to have an impact on growth. Conversely, it may

be assumed that the causality runs from economic growth to institutional development and

market efficiency in that countries that grow can afford to improve their institutions and their

markets.22

There may therefore be a two-way causation in this regard, as already explained in

Section 2 of this paper, with some authors preferring the theory of growth first and

institutions later, while other take the opposite view.

These arguments can be both valid, and the correlations between the indices and economic

growth presented in this study could therefore be interpreted in this light. The approach taken

in this study is too simple to explain the causation issue, however it certainly shows that in

the ASEAN and globally, there is no evidence that countries that currently have the highest

scores with regard to institutional/efficient markets scores are those that have grown fastest.

In the case of the Philippines, its rate of growth averaged 5.17% annually over the ten-year

period between 2003 and 2012, even though its institutions and market scores on the GCI

were relatively low globally and among the lowest in the ASEAN.

4.1.3 Institutions, market efficiency and GDP per capita.

The correlation results would seem to suggest that countries with the highest GDP per capita

have the highest degree of institutional development and market efficiency. This result is

plausible, in that institutional set-ups are costly and can best be afforded by rich countries,

most of which have been at the forefront of development for many decades. Extending the

arguments presented in the preceding section, one can argue that the idea of growth first and

institutions later may have some validity in that growth leads to prosperity and prosperity

renders the country more able to afford institutional development and to promote market

efficiency. In addition, the democratic institutions in most developed countries may have

fostered awareness of the need for institutional development and market efficiency.23

4.1.4 Institutions, market efficiency and macroeconomic stability

In this study, the correlations between institutions, market efficiency and macroeconomic

stability were found to be generally positive. Again here, the causal direction may be

disputed, in that it is difficult to establish whether stability leads to development of vice-

versa. However, economic stability is often associated with good economic governance

(Briguglio et al, 2009). The ranking of the Philippines in terms of macroeconomic stability

was satisfactory in the ASEAN (being ranked 4th

among 10 countries) and globally (being

ranked 54th

among 174 countries).24

Being a large economy, the Philippines may be relatively

more sheltered than smaller countries from external shocks, given that it is not highly

22

A related line of reasoning is that countries that currently enjoy a high standard of living and currently tend to

grow at a slower rate than poorer countries, have in the past promoted market efficiency and institutional

development and they are now reaping the benefits as a result of their high income per capita. 23

An interesting discussion is given in Seigle et al. (2004) and Chen 24

Author‘s calculations (see also footnote 6).

24

dependent on exports and imports. This may explain the finding that although economic

stability and institutional development and market efficiency were generally found to be

positively related to macroeconomic stability, in the case of the Philippines this correlation

does not apply.

4.1.5 Institutions, market efficiency and corruption

As indicated in the brief literature review presented in Section 2 of this paper, corruption is

shown to have various economic downsides. The Philippines received relatively bad scores

on at least three indices relating to corruption discussed above. In the CPI, the Philippines

ranked 5th

out of 10 countries in the region and 105th

out of 176 countries globally. In the

Absence of Corruption component of the RLI, the Philippines ranked 4th

out of 7 countries in

the region and 63rd

out of 97 countries globally. In the Control of Corruption component of

the WGI the Philippines ranked 7th

out of 10 countries regionally and 164th

or of 215

countries globally.25

These indicators indicate that there is a correlation between institutional

underdevelopment and inefficient markets with corruption. This is perhaps one of the most

worrying factors of the indicators discussed above with regard to the Philippines.26

5. CONCLUSION

What are the main implications of this study for the Philippines economy? As indicated in

this study, the Philippines registered a relatively high growth rates during the recent decade,

but it is still a lower-middle-income country, according to the World Bank‘s classification.

Typically, countries in that income bracket tend to have inferior institutional set-ups when

compared to richer countries. Likewise, many countries in the Philippines‘ income bracket

are characterised by gross market inefficiencies. The indicators described in this study

support this contention.

As argued above, it is not easy to prove conclusively as to the whether a lower-income

country, such as the Philippines, is in such a situation because its institutional set-up and its

markets are underdeveloped, or whether the causal relationship is the other way round,

namely that its institutions and markets are underdeveloped because the country does not

afford them.

Whatever the direction of the causality, there can be no doubt that institutions and

functioning markets remain important requisites for good economic governance, and the

indicators described above indicate that, in this regard, the situation of the Philippines leaves

much to be desired.

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countries. 26

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Critiques.‖ Human Development Research Paper 1. UNDP–HDRO, New York.

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Behavioral Scientist, Vol. 8 (3): 8-14.

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North, D.C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge:

Cambridge University Press.

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campo.pdf .

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Paper no. 17398. Available at: http://www.nber.org/papers/w17398 .

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Growth, Paper prepared for the International Monetary Fund Conference on Second-

Generation Reforms, Washington, D.C.: 8-9 November.

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content/uploads/2004/10/Why-Democracies-Ecxel.pdf .

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.pdf?sequence=1 .

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27

APPENDIX 1: DEFINITIONS OF THE COMPONENTS OF THE 7 INDICES

Definitions of the Components (Dimensions) of the Worldwide Governance Indicators

Dimension 1: Voice and accountability

Voice and accountability captures perceptions of the extent to which a country's citizens are

able to participate in selecting their government, as well as freedom of expression, freedom of

association, and a free media.

Dimension 2: Political stability and absence of violence

Political stability and absence of violence measures perceptions of the likelihood that the

government will be destabilized or overthrown by unconstitutional or violent means,

including politically-motivated violence and terrorism.

Dimension 3: Government effectiveness

Government effectiveness captures perceptions of the quality of public services, the quality

of the civil service and the degree of its independence from political pressures, the quality of

policy formulation and implementation, and the credibility of the government's commitment

to such policies.

Dimension 4: Regulatory quality

Regulatory quality captures perceptions of the ability of the government to formulate and

implement sound policies and regulations that permit and promote private sector

development.

Dimension 5: Rule of law

Rule of law captures perceptions of the extent to which agents have confidence in and abide

by the rules of society, and in particular the quality of contract enforcement, property rights,

the police, and the courts, as well as the likelihood of crime and violence.

Dimension 6: Control of corruption

Control of corruption captures perceptions of the extent to which public power is exercised

for private gain, including both petty and grand forms of corruption, as well as "capture" of

the state by elites and private interests.

Definitions of the Components (Factors) of the Rule of Law Index

Factor 1: Limited Government Powers

This factor measures the extent to which those who govern are subject to law. This factor

addresses the fundamental principle that the ruler is subject to legal restraints. It comprises

the means (checks and balances), both constitutional and institutional, by which the powers

of the government and its officials and agents are limited and by which they are held

accountable under the law. It also includes nongovernmental checks on the government‘s

power, such as a free and independent press.

Factor 2: Absence of Corruption

This factor measures the absence of corruption, conventionally defined as the use of public

power for private gain. Corruption is imperative to any assessment of the rule of law as it is a

manifestation of the extent to which government officials abuse their power or fulfil their

obligations under the law.

28

Factor 3: Order and Security

This factor measures how well the society assures the security of persons and property.

Human security is one of the defining aspects of any rule of law society and a fundamental

function of the state

Factor 4: Fundamental Rights

This factor encompasses adherence to the following rights: equal treatment and absence of

discrimination7; the right to life and security of the person; freedom of thought, religion, and

expression, including freedom of the media; freedom of association, including the right to

collective bargaining; the prohibition of forced and child labor8; the right to privacy; the

rights of the accused; and the retroactive application of the criminal laws.

Factor 5: Open Government

This factor measures the level of access, participation, and collaboration between

the government and its citizens, and plays a crucial role in the promotion of accountability.

Requesting information from public authorities is an important tool to empower citizens by

giving them a way to voice their concerns and demand accountability from their

governments.

Factor 6: Regulatory Enforcement

This factor measures the fairness and effectiveness in enforcing government regulations.

Public enforcement of government regulations is pervasive in modern societies as a method

to induce ‗good‘ conduct. A critical feature of the rule of law is that such rules are upheld and

properly enforced by authorities, particularly because public enforcement might raise the

scope for negligence and abuse by officials pursuing their own interest.

Factor 7: Access to Civil Justice

This factor is central to the rule of law. In a rule of law society, all people should be able to

obtain remedies in conformity with fundamental rights. Access to justice has both a ―thin‖

and a ―thick‖ meaning. In our framework, we favour an intermediate conception and address

access to justice in terms of access to dispute resolution mechanisms, mostly in terms of

access to counsel 14 and access to tribunals. This differs from other frameworks which

conceptualize access to justice in the ‗thicker‘ sense, in which access to justice encompasses

other aspects such as legitimacy of the courts or elements that contribute to enhance the legal

empowerment of the poor.

Factor 8: Effective Criminal Justice

This factor deals with the criminal justice system. An effective criminal justice system is a

key aspect of the rule of law, as it constitutes the natural mechanism to redress grievances

and bring action against individuals for offenses against society.

Definition of the Components (Areas) of the Economic Freedom of the World Index

Area 1. Size of Government: Expenditures, Taxes, and Enterprises

This area measures the extent to which countries rely on the political process to allocate

resources and goods and services. When government spending increases relative to spending

by individuals, households, and businesses, government decision-making is substituted for

personal choice and economic freedom is reduced. This area is measured in terms of

29

government consumption, transfers and subsidies, Government enterprises and investment,

top marginal tax rate.

Area 2.Legal Structure and Security of Property Rights

Protection of persons and their rightfully acquired property is a central element

of economic freedom and a civil society. Indeed, it is the most important function

of government. This area is measured in terms of judicial independence, impartial courts,

protection of property rights, military interference in rule of law and politics, integrity of the

legal system, legal enforcement of contracts, regulatory restrictions on sale of real property,

reliability of police and business costs of crime.

Area 3. Access to Sound Money

An absence of sound money undermines gains from trade and to protect property rights and,

thus, economic freedom. Inflation erodes the value of property held in monetary instruments.

When governments finance their expenditures by creating money, in effect, they are

expropriating the property and violating the economic freedom of their citizens. This area is

measured in terms of money growth, standard deviation of inflation, inflation: most recent

year, freedom to own foreign currency bank accounts.

Areas 4. Freedom to Trade Internationally

Freedom of exchange across national boundaries is a key ingredient of economic freedom.

Many goods and services are now either produced abroad or contain resources supplied from

abroad. Thus, freedom to trade internationally also contributes substantially to modern living

standards. This area is measured in terms of the existence of trade taxes and tariff rates,

regulatory trade barriers (non-tariff trade barriers and compliance cost of importing and

exporting), black-market exchange rates, controls of the movement of capital and people

Area 5. Regulation of Credit, Labour, and Business

When regulations restrict entry into markets and interfere with the freedom to engage in

voluntary exchange, they reduce economic freedom. This area is measured in terms of credit

market regulations (ownership of banks, private sector credit and interest rate

controls/negative real interest rates), Labour market regulations (minimum wage, hiring and

firing regulations, centralized collective bargaining, hours regulations, mandated cost of

worker dismissal, and conscription) and business regulations (administrative requirements,

bureaucracy costs, starting a business, extra payments/bribes/favouritism, licensing

restrictions and cost of tax compliance).

Definition of the Components (Pillars) Global Competitiveness Indicators

Pillar 1: Institutions

This pillar is composed of two-subdivisions namely (a) Public Institutions (with a weight of

75% and with 17 sub-indices as follows: Property Rights, Intellectual Property Protection,

Diversion of Public Funds, Public Trust in Politicians, Irregular Payments and Bribes,

Judicial Independence; Favouritism in Decisions of Government Officials,

Wastefulness of Government Spending, Burden of Government Regulation, Efficiency of

Legal Framework in Settling Disputes, Efficiency of Legal Framework in Challenging

Regulations, Transparency of Government Policymaking, Provision of Government Services

for Improved Business, Performance, Business Costs of Terrorism, Business Costs of Crime

and Violence, Organized Crime, Reliability of Police Services) and (b) Private Institutions

(with a weight of 25% and with 5 sub-indices as follows: Ethical Behaviour of Firms,

30

Strength of Auditing and Reporting Standards, Efficacy of Corporate Boards, Protection of

Minority Shareholders‘ Interests, Strength of Investor Protection).

.

Pillar2: Infrastructure

This pillar has two sub-divisions, namely (a) Transport infrastructure (with 6sub-indices as

follows: Quality of Overall Infrastructure, Quality of Roads, Quality of Railroad

Infrastructure, Quality of Port Infrastructure, Quality of Air Transport Infrastructure,

Available Airline Seat Kilometres, and (b) Electricity and Telephony Infrastructure (with 3

sub-indices as follows: Quality of Electricity Supply, Mobile telephone subscriptions,

Fixed telephone lines). The sub-divisions have equal weights.

Pillar 3: Macroeconomic environment

This pillar has 5 sub-indices namely Government Budget Balance, Gross National Savings,

Inflation, Government Debt, and Country Credit Rating. with equal weights.

Pillar 4: Health and primary education

This pillar has two sub-divisions namely (a) Health (with 8 sub-indices as follows: 4.01

Business Impact of Malaria, Malaria Incidence, Business Impact of tuberculosis,

Tuberculosis Incidence, Business Impact of HIV/AIDS, HIV Prevalence, Infant Mortality,

Life Expectancy) and (b) Primary Education (with 2 sub-indices as follows: Quality of

Primary Education, Primary Education Enrolment Rate). They are assigned equal weights.

Pillar 5: Higher education and training

This pillar has three sub-divisions, namely (a) Quantity of Education (with 2 sub-indices as

follows: Secondary Education Enrolment Rate, Tertiary Education Enrolment Rate)

(b) Quality of Education (with 4 sub-indices as follows: Quality of the Educational System,

Quality of Math and Science Education, Quality of Management Schools, Internet Access in

Schools) and (c) On-the-job Training (with 2 sub-indices as follows: Local availability of

Specialized Research and Training Services, Extent of Staff Training). They are assigned

equal weights.

Pillar 6: Goods market efficiency

This pillar has two sub-divisions, namely (a) Domestic and Foreign Competition (66%

weight, with 14 sub-indices as follows: Intensity of local Competition, Extent of Market

Dominance, Effectiveness of Anti-Monopoly Policy, Extent and Effect of Taxation, Total

Tax Rate, Number of Procedures required to start a Business, Time required to Start a

Business, Agricultural Policy Costs, Prevalence of Trade Barriers, Trade Tariffs, Prevalence

of Foreign Ownership, Business Impact of Rules on FDI, Burden of Customs Procedures,

Imports as a Percentage of GDP) and (b) Quality of Demand Conditions (with 33% weight

with 3 sub-indices namely Degree of Customer Orientation, and Buyer Sophistication).

Pillar 7: Labour market efficiency

This pillar has two sub-divisions, namely (a) Flexibility (with 5 sub-indices as follows:

Cooperation in Labour-Employer Relations, Flexibility of Wage Determination, Hiring and

Firing Practices, Redundancy Costs, Extent and Effect of Taxation) and (b) Efficient Use of

Talent (with 4 sub-indices as follows: Pay and Productivity, Reliance on Professional

Management, Brain Drain, Female Participation in Labour Force), with equal weights.

Pillar 8: Financial market development

31

This pillar has two sub-divisions, namely (a) Efficiency (with 5 sub-indices as follows:

Availability of Financial Services, Affordability of Financial Services, Financing through

Local Equity, Market, Ease of Access to Loans, Venture Capital Availability) and (b)

Trustworthiness and Confidence (with 3 sub-indices as follows: Soundness of Banks,

Regulation of Securities Exchanges, Legal Rights Index) with equal weights.

Pillar 9: Technological readiness

This pillar is composed of two sub-divisions, namely (a) Technological Adoption (with 3

sub-indices as follows: Availability of Latest Technologies, Firm-level Technology

Absorption, FDI and Technology) and (b) Transfer and ICT Use (with 6 sub-indices as

follows: Internet Users, Broadband Internet Subscriptions, Internet Bandwidth, Mobile

Broadband Subscriptions, Mobile Telephone Subscriptions, Fixed Telephone Lines) with

equal weights.

Pillar 10: Market size

This pillar has two sub-divisions, namely (a) Domestic Market Size, with 75% and (b)

Foreign Market Size, with 25% weight.

Pillar 11: Business sophistication

This pillar has 10 sub-indices, namely Local Supplier Quantity, Local Supplier Quality, State

of Cluster Development, Nature of Competitive Advantage, Value Chain Breadth, Control of

International Distribution, Production Process Sophistication, Extent of Marketing,

Willingness to Delegate Authority, Reliance on Professional Management

Pillar 12: Innovation

This pillar has seven sub-indices, namely Capacity for Innovation, Quality of Scientific

Research Institutions, Company Spending on R&D, University-Industry Collaboration in

R&D, Government Procurement of Advanced Technology Products, Availability of

Scientists and Engineers, PCT Patent Applications, and Intellectual Property Protection.

Definition of the Components (Areas) of the Doing Business Index

Area 1.Starting a Business

Measures the procedures, time and cost for a small to medium-sized limited-liability

company to start up and operate formally

Area 2. Dealing with Construction Permits

Tracks the procedures, time and cost to build a warehouse – including obtaining necessary

licenses and permits, completing required notifications and inspections, and obtaining utility

connections

Area 3. Getting Electricity

Analyzes the procedures, time and cost required for a business to obtain a permanent

electricity connection for a newly constructed warehouse

Area 4. Registering Property

Examines the steps, time and cost involved in registering property, assuming a standardized

case of an entrepreneur who wants to purchase land and a building that is already registered

Area 5. Paying Taxes

32

Addresses the taxes and mandatory contributions that a medium-sized company must pay or

withhold in a given year, as well as measures of the administrative burden in paying taxes

Area 6. Trading Across Borders

Looks at the procedural requirements for exporting and importing a standardized cargo of

goods

Area 7. Getting Credit

Explores two sets of issues—credit information registries and the effectiveness of collateral

and bankruptcy laws in facilitating lending

Area 8. Protecting Investors

Measures the strength of legal protections of minority investors against the misuse of

corporate assets by company directors for their personal gain

Area 9. Enforcing Contracts

Assesses the efficiency of the judicial system by following the evolution of a commercial sale

dispute over the quality of goods and tracking the time, cost and number of procedures

involved from the moment the plaintiff files the lawsuit until payment is received

Area 10. Resolving Insolvency

Identifies weaknesses in existing bankruptcy law and the main procedural and administrative

bottlenecks in the bankruptcy process

Area 11. Employing Workers (not included in rankings)

Measures the regulation of employment, specifically as it affects the hiring and layoff of

workers and the rigidity of working hours

APPENDIX 2: THE SCORES OF THE PHILIPPINES SINCE 2005

The indicators presented in this study have been compiled in previous years, and many

countries, including the Philippines, featured in previous compilations of these indicators.

However, one has to be cautious in comparing the scores of a country in one year with those

of previous years. Changes over time in a country‘s score are affected by a combination of

many factors including (a) revision of data over the years for a particular country; (b) changes

in the methodology used in obtaining and processing the raw data and (c) changes in the

methodology, including the weighting procedure, used to aggregate the data. For these

reasons the changes over time reported below should be interpreted with caution.

The Philippines’ Worldwide Governance Indicators Scores since 2005

Looking at the WGI scores for the Philippines, it appears there was deterioration with regard

to Control of Corruption, Rule of Law and Regulatory Quality. Government Effectiveness

and Voice and accountability would seem to have improved slightly. PSAV deteriorated

sharply after 2005, but was practically at the same level as 2005 in 2011.

The Philippines’ Rule of Law Scores since 2005

33

It is not possible to meaningfully compare RLI scores for the Philippines over time. The

compilers of the report state explicitly that the 2012-2013 scores are not comparable with the

scores of prior years.

The Philippines’ Corruption Perception Index Scores since 2005

The methodology used for compiling the CPI was changed and as a result country scores of

the CPI 2012 cannot be compared against those of 2011 or previous editions. Year to year

comparisons will be possible

from 2012 onwards.

The Philippines’ Economic Freedom of the World Scores since 2005

The compilers of the index present a chain-linked index to as to render comparisons possible

over time. In the case of the Philippines it appears that overall, the EFWI did not change

markedly between 2005 and 2010 (from 7.00 to 7.06). Looking at the components of the

Index, it emerges that there was deterioration in Legal System and Property Rights (from 4.28

to 3.85), Freedom to Trade Internationally (from 7.11 to 6.95) and Size of Government (from

8.79 to 8.31). There was a marked improvement in Sound Money (from 7.94 to 9.29), and a

very slight improvement in regulation (from 6.75 to 6.80).

The Philippines’ Global Competitiveness Scores since 2005

The GCI contains a large number of Indicators, and it is difficult to meaningfully compared

the changes between 2005 and 2012 for the Philippines. However the report itself states that

the Philippines has improved considerably in its ranking since 2005, but many weaknesses

remain to be addressed. The country‘s infrastructure is still in a dire state, particularly with

respect to sea (120th) and air transport (112th), with little or no progress achieved to date.

Furthermore, various market inefficiencies and rigidities continue.

The Philippines’ Doing Business Index Scores since 2005

The DBI website presents Distance to Frontier scores over time (for the Philippines the data

covers 2006 to 2013. Overall the DBI DTF score increased slightly from 50.4 to 51.7, mostly

due to improvements in Starting a Business, Paying Taxes, Trading Across Borders and

Enforcing Contracts. The other components did not change or only registered slight

improvements.

The Philippines’ Human Development Index Scores since 2005

The Human Development Index score of the Philippines improved from .630 to .654 between

2005 and 2012 (adjusted for comparability between these years). However this was still

below the global average of .694 in 2012.