Bocchi, Alessandro Magnoli2012-05-292012-05-292008-01https://hdl.handle.net/10986/6523The economy of the Philippines is open to trade and capital inflows, and has grown rapidly since 2002. Over the last 10 years, however, domestic investment, while stagnant in real terms, has shrunk as a share of GDP. In an open and growing economy, why the decline? Three reasons explain the puzzle. First, the public sector cannot afford expanding its investment at GDP growth rates. Second, the capital-intensive private sector does not find it convenient to raise investment at the economy's pace. Third, fast-growing businesses in the service sector do not need to rapidly increase investment to enjoy rising profits. Yet, the economy keeps growing. On the demand-side, massive labor migration results in remittances that fuel consumption-led-growth. On the supply-side, free from rent-capturing regulations, a few non-capital-intensive manufactures and services boost exports. The economic system is in equilibrium at a low level of capital stock, where all economic agents have no incentive to unilaterally increase investment and the first mover bears short-term costs. As a consequence, growth is slower and less inclusive than it could be. To make it speedier and more sustainable, and to reduce unemployment and poverty, the economy needs to move to a "high-capital-stock" equilibrium. This would be attainable through better-performing eco-zones, a competitive exchange rate, greater government revenues, and fewer elite-capturing regulations.CC BY 3.0 IGOACCESS TO BANKACCOUNTINGADVERSE EFFECTSAGGREGATE DEMANDAGRICULTURAL COMMODITIESAGRICULTUREARREARSASSET HOLDINGSASSET QUALITYASSET RATIOSAVAILABILITY OF CREDITBALANCE SHEETSBANK BALANCE SHEETSBANK CREDITBANK LENDINGBANK POLICYBANKING SECTORBANKING SYSTEMBARRIERS TO ENTRYBENCHMARKSBENEFICIARYBOOK VALUEBROAD MONEYCAPITAL ACCOUNTCAPITAL INFLOWSCAPITAL STOCKCENTRAL BANKCENTRAL GOVERNMENT DEBTCOMMERCIAL BANKCOMPETITIVENESSCONFLICTS OF INTERESTSCONTRACT ENFORCEMENTCORPORATE PROFITSCORPORATE SAVINGSCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT SURPLUSCURRENT ACCOUNT SURPLUSESDEBTDEBT CRISISDEBT INTERESTDEBT OVERHANGDEBT SERVICEDECLINE IN INVESTMENTDEFICITSDEMAND CURVESDEMAND FOR CREDITDEPOSITDEREGULATIONDEVELOPING COUNTRIESDEVELOPMENT BANKDEVELOPMENT ECONOMICSDEVELOPMENT POLICIESDEVELOPMENT POLICYDEVELOPMENT STRATEGIESDOMESTIC CAPITALDOMESTIC CREDITDOMESTIC MARKETDURABLEDURABLE EQUIPMENTECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC HISTORYECONOMIC OUTLOOKECONOMIC PERFORMANCEECONOMIC POLICIESECONOMIC POWERECONOMIC RESEARCHECONOMIC SYSTEMECONOMIC THEORYEQUILIBRIUMEQUITY MARKETEXCHANGE RATEEXCISE TAXESEXPECTED RETURNSEXPENDITUREEXPENDITURESEXPORT GROWTHEXPORT PERFORMANCEEXPORTERSEXPORTSEXTERNAL DEBTEXTERNAL FINANCEFINANCIAL CRISISFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SECTORFISCAL BURDENFISCAL CONSTRAINTSFISCAL DEFICITFISCAL EFFORTSFISCAL POLICYFIXED CAPITALFIXED COSTSFIXED INVESTMENTFIXED INVESTMENTSFOREIGN BANKSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEFOREIGN INVESTMENTFOREIGN INVESTMENTSFOREIGN INVESTORSGDPGDP PER CAPITAGLOBAL ECONOMYGNPGOVERNMENT ASSETSGOVERNMENT BORROWINGGOVERNMENT POLICIESGOVERNMENT REVENUESGOVERNMENT SECURITIESGOVERNMENT SUPPORTGROSS FIXED CAPITAL FORMATIONGROWTH POTENTIALGROWTH RATEHOUSEHOLD SAVINGSHUMAN CAPITALINCOMEINCOME TAXESINDEXATIONINDUSTRIAL ECONOMIESINFLATIONINSURANCEINTEREST COSTSINTEREST PAYMENTSINTEREST RATEINTERNATIONAL BANKINTERNATIONAL INVESTMENTINTERNATIONAL STANDARDSINVESTINGINVESTMENT CLIMATEINVESTMENT DECISIONSINVESTMENT HORIZONINVESTMENT RATESINVESTMENT SPENDINGINVESTOR UNCERTAINTYLABOR MARKETLABOR MARKETSLACK OF CREDIBILITYLAND POLICIESLAND REFORMLENDING INTEREST RATELIQUIDITYLOCAL EXCHANGELOCAL MARKETM3MACROECONOMIC STABILITYMACROECONOMIC VOLATILITYMARGINAL COSTMARGINAL PRODUCTMARGINAL REVENUEMARKET COMPETITIONMARKET PARTICIPANTSMARKET SHAREMARKET STRUCTUREMATHEMATICAL ECONOMICSMOBILE PHONESMONOPOLIESMONOPOLYNASH EQUILIBRIUMNON-PERFORMING LOANSOLIGARCHYOLIGOPOLIESOLIGOPOLISTIC MARKETOLIGOPOLISTIC MARKETSOLIGOPOLYOWNERSHIP STRUCTUREPOLICY CREDIBILITYPOLITICAL ECONOMYPOLITICAL ECONOMY OF REFORMPOLITICAL RISKSPORTFOLIOPORTFOLIO INVESTMENTPOSITIVE ECONOMICSPOST-CRISIS PERIODPOTENTIAL INVESTORSPRICE INCREASESPRINCIPAL-AGENT PROBLEMSPRIVATE CAPITALPRIVATE CAPITAL INFLOWSPRIVATE INVESTMENTPRIVATE SECTORPRIVATE SECTOR CREDITPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC DEBTPUBLIC INVESTMENTPUBLIC INVESTMENTSPUBLIC SAVINGSPUBLIC SECTORPUBLIC SPENDINGREAL EXCHANGE RATEREAL EXCHANGE RATESREAL GDPREGULATORY CAPACITYREGULATORY CAPTUREREGULATORY FRAMEWORKREGULATORY POLICYREMITTANCEREMITTANCESRENT SEEKINGRESERVESRETURNRISK PREMIUMRISK SHARINGSTOCK MARKETSTOCKSSURPLUS LABORTAXTAX COLLECTIONTAX INCENTIVESTAX POLICYTAXATIONTELECOMMUNICATIONSTOTAL FACTOR PRODUCTIVITYTRADINGTRANSACTIONTRANSACTION COSTSTREASURYUNEMPLOYMENTUNEMPLOYMENT RATEWAGESWEALTHWorld Bank10.1596/1813-9450-4472