products with the highest labor absorption capacity. Based on its policy priorities, the government can establish its own set of appropriate criteria.
Public and private dialogue. Once policymakers set targets, the next task is to uncover the reasons why entrepreneurs have not moved into the target products despite the relative ease of jumping into these products. There is no clear answer to this question. Probable reasons can be the lack of product-specific infrastructure, regulatory framework, certificates, property rights protection, and market information. However, compared with the private sector, the public sector has less information on the location and nature of market failures that impede investments. An effective solution is to set up institutions, or a “coordination and deliberation council,” where through interaction with the private sector, the public sector can identify significant obstacles in exporting new goods and develop interventions to address them. To avoid the possibility of these dialogues resulting in the establishment of constraints that may be counterproductive to business, the dialogues need to be conducted in the specific context of a product. Public sector support can be provided in different forms and does not necessarily mean only financial support such as subsidies to the target products.
This paper emphasizes the critical importance of establishing an institutional mechanism that will identify the constraints to discovering new products and determine the adequate public sector support to address the identified problems. The key is to conduct a diagnostics exercise at the product level, not at the aggregate level. Major constraints, which are identified in a variety of business surveys at the aggregate level can provide valuable information for designing a broad direction of policy reforms. Indeed, it is quite important to resolve standing issues such as inadequate infrastructure and poor business and investment climate. However, they cannot capture constraints specific to a product. Experiences in many countries show that despite a wide range of problems, the private sector could develop new “nearby” products and foreign investors can set up their production bases. Public sector intervention that focuses on specific products can help the country to find niches for industrial upgrading and diversification.
The success of targeted public sector support depends on strong political commitment. This will enable coordination among different ministries and agencies within the government in designing and implementing public sector support programs, and will help to effectively monitor and evaluate the programs. Despite the strong theoretical justifications, however, there remains much opposition to targeted interventions. But the conventional argument against target interventions does not rest on its use but on the practical difficulties of its implementation (“picking winners” and governance concerns). However, these pitfalls can be avoided by applying several design and implementation principles of successful interventions.
The key elements of successful interventions for targeted products are: first, with a strong political commitment, establishing an effective dialogue mechanism with the private sector to identify key constraints specific to the target products; second, to the extent possible, incorporating different market mechanisms, for instance, cofinancing, in designing public sector support; and third, setting up clear monitoring and evaluation mechanisms with performance indicators and benchmarks. Well-targeted interventions with careful monitoring and rigorous impact assessment will help foster the structural transformation that drives inclusive growth in the Philippines. The changing global and regional economic environment, such as tightening labor market and increasing wages in neighboring countries, the currency appreciation in Japan, and restructuring regional production network after natural disasters, have furnished wider opportunities for the Philippines. The government can be pragmatic enough to capture the opportunities afforded by the changing global and regional economic environment.
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