Typically, sustained growth in a developing economy shifts employment from the agricultural sector to industrial and service sectors. In the Philippines, measures to discourage agriculture caused both the industrial and agricultural sectors to decline, as conglomerates (landed capitalists) made inefficient use of resources and exacerbated the already uneven distribution of income.
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 it and the agricultural sector to deteriorate.
Takeuchi and Hagino 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.
This paper—a product of the Development Research Group—is part of a larger effort in the department to. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Kari Labrie, room MC3-347, telephone 202-473-1001 fax 202-522-3518, Internet address klabrie@worldbank.org. (31 pages)
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