The role of power prices in structural transformation: evidence from the Philippines

Majah-Leah Ravago, Arlan Brucal, James Roumasset and Jan Carlo Punongbayan

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The Philippines provides a leading example of Rodrik’s rule that developing countries experience deindustrialization at lower levels of per-capita income than did developed countries. Previous studies point to the role of protectionist policies, financial crises, and exchange rate overvaluation as explanations for the shrinking share of industry sector. We complement this literature by examining the role of power prices in industry share across countries and across regions of the Philippines. We find that higher power prices tend to augment the Rodrik rule, causing industry share to turn downward at a lower GDP per capita, a lower industry share, and to decline more steeply than otherwise. In a two-country comparison, we find a tendency for power intensive manufacturing subsectors to expand more rapidly in Indonesia while the composition in the Philippines changes towards less power-intensive and more labor intensive subsectors. The results suggest that that structural transformation is not independent of power prices, particularly in the Philippines.

Keywords: power prices; structural transformation; industrialization (search for similar items in EconPapers)
JEL-codes: O10 O14 Q40 Q41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-12-12
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