(DP 2012-18) Reforming Institutions and Building Trust To Achieve Sustained Economic Development

Abstract

The Philippines now appears well poised for an economic take off and sustained long-­run growth. It recently posted an impressive 6.4% growth in the first quarter of 2012, up from 4.9% in the same period last year, has experienced a surge in merchandise exports, and is on the brink of an investment boom, especially in infrastructure projects and in the services sector. It has also weathered the recent global economic crisis, with rising overseas remittances continuously fueling strong consumer demand. Most importantly, the current Administration has demonstrated its strong commitment towards institutional reform through its anti-­corruption strategies. The Philippines may thus finally be on the cusp of what Acemoglu and Robinson call a ‘critical juncture’ that can push its trajectory towards the development of more ‘inclusive’ institutions, enabling continued increases in productivity and sustaining economic growth. However, focusing solely on anti-corruption for its sake may also undermine lasting institutional reform if property rights, credibility and stability are weakened in the course of enforcing against anomalous transactions. What may be a optimal strategy is to treat anti-corruption as part of a larger overall framework of building trust in society.