(DP 1987-02) Incentives and Protection Policies in Relation to Comparative Advantage and Labor-Intensity in Philippine Manufacturing: An Evaluation

Abstract

The paper evaluates the effectiveness of the country's system of incentives in promoting the objectives of efficient and employment expansion in manufacturing sector. For this purpose, it lays out a framework by which industries are ranked on the basis of their desirability in terms of their comparative advantage position or relative efficiency in production and of their labor-intensity indicating their employment-generating capacity. In then test the hypothesis suggested by the Hechscher-Ohlin-Samuelson factor proportions theory of trade that a labor-abundant country like the Philippines would have its comparative advantage in labor-intensive industries, and would, if it followed its comparative advantage, produce and export relatively more of labor-intensive products. The country's incentives system by introducing "market distortions" is raised to explain the divergence of the observed factor content of production and exports from what it is expected to be under efficient resource allocation conditions.