Intersectoral resource allocation and its impact on economic development in the Philippines

For sustained growth, a developing economy must provide productive employment opportunities in nonagricultural sectors. As the economy grows, employment shifts from the agricultural sector to industrial and service sectors. The move away from agriculture happens because of the decline in the income elasticity of food as incomes rise, the discovery of substitutes for agricultural products, and rapid technological changes in agriculture in response to shortages of land. The economic policies developing economies pursue are typically designed to accelerate this structural transformation by favoring the industrial sector. In the Philippines, however, the outcome of these policies was unique. Measures designed to discourage agriculture, rather than encourage the industrial sector, caused both the industrial sector and the agricultural sector to deteriorate. The authors criticize financial conglomerates for creating highly oligopolistic market structures that were responsible for the inefficient use of resources and unbalanced income distribution. Many of the conglomerates (dubbed"landed capitalists") channeled massive state resources into such traditional economic activities as sugar and coconut farming, limiting the country's industrial diversification.