Extensive and intensive margins of exports: the case of the Philippines^*

*Accepted by Hong Hwang upon recommendation by Ming-Jen Lin

Abstract

This study investigates the Philippines’ merchandise export patterns by empirically examining its performance of extensive and intensive margins at the product level over the sample period from 1975 to 2012. The main results suggest that the Philippines’ weak exports may be traced primarily from its poor performance at intensive margin, i.e. survival and deepening. In addition, our analysis indicates significant differences on the country’s export performance between its established markets (major trading partners, including Japan, the US, China, Hong Kong, and Korea, and ASEAN-5 members) and its relatively new export destinations (new ASEAN members).

Keywords:

• Philippine merchandise trade
• extensive and intensive margins

Notes

* Accepted by Hong Hwang upon recommendation by Ming-Jen Lin

1. Preliminary results from the 2013 Annual Survey of Philippine Business and Industry revealed that manufacturing establishments had a total employment of 978,430, among which semi-conductor devices and other electronic components industry employed the highest number of workers with 137,245 or about 14% of total employment.

2. As noted in the Asian Development Bank report, poor public infrastructure, expensive power cost, inefficient tax policies, and excessive red tape in government are some of the main culprits behind the slow growth of the Philippine merchandise exports.

3. One of the main reasons is the diversity of definitions used in empirical study. In particular, Eaton et al. (2008) define the extensive margin at the firm level, Evenett and Venables (2002) at the country-product level, Amiti and Freund (2010) work at the product level, while Helpman, Melitz, and Rubinstein (2008) and Felbermayr and Kohler (2006) consider data at the country level.

4. The results of Aldaba (2015) suggest that although the number of exported products to the region has been increasing as indicated by the extensive margin, strengthening competitiveness in semiconductor devices and electronic manufacturing services is crucial to deepen its position in the GVC.

5. Segura-Cayuela and Vilarrubia (2008) incorporate ‘uncertainty’ as the key new element into the basic Melitz (2003) model as it lacks sufficient explanation on the dynamic issues of trade activities as well as the persistence of trade flows. The presence of uncertainty on the per-period fixed cost of servicing an export market is an important factor in explaining trade relationships with variable durations.