The paper uses an array for the period 2000-2017 to analyze the situation and determine some factors affecting the export performance in the Philippines by Gravity Model.
ISSN 1859-3666 journal of Trade Science 6:4 (2018) 15 - 24 TMU’S JTS Pham Minh Dat Thuong Mai University Email: minhdat@tmu.edu.vn Ngo Thi My Thai Nguyen University of Economics Email: ngomy2008@gmail.com Riceived: 27th August 2018 Rivised: 12th September 2018 Approved: 18th September 2018 he paper uses an array for the period 2000-2017 to analyze the situation and determine some factors affecting the export performance in the Philippines by Gravity Model The findings of this study showed that factors influencing the Philippines 'exportincluding GDP's Philippines and trading partners, its population, economic openness of Philippines and trading partners, Philippines' FDI inflow, the geographical distance between Philippines and it counterparts, Philippines' inflation rate, Philippines and its partners as members within APEC or using a common language Key words: Export, factors influencing export, gravity model, Philippines Introduction market Some goods of Philippines such as elec- In the context of globalization, trading process- tronic devices, processing products or agricultural es in general and exporting activities of other coun- products were relatively popular not only in tries in particular have increasingly developed ASEAN market but also other markets including Over the years, the Philippines' economy has sig- Asia, Europe, etc.However, according to some eco- nificantly been successfulthanks to great reforms of nomic experts of ASEAN, Philippines' exports are government and appropriatedevelopment poli- not appropriate to its potential Thus, determining cies.Annual Economic Growth Rate in Philippines and analyzing some factors influencing export averaged 8.26% from 2000 until 2017 In addition, under the circumstances is extremely essential in exporting activities of Philippines have made a Philippines great success in territorial market and international JOURNAL OF TRADE SCIENCE " 15 ISSN 1859-3666 Journal of Trade Science TMU’S JTS Literature reviewand Methods ditions of Philippines in recent years, the 2.1 Analytical Framework researchersestablish an analytical framework that Exports and Imports are some activities associat- identifies factors affecting the export performance ed with each other to establish the international as follows: trade flows Therefore, factors influencing exports 2.2 Analytical Model are investigated not only within thecountry but also The analytical framework (Figure 01) shows that its importing partners Based on a study by Dao a variety of factors affect the export performance of Ngoc Tien (2008) and some researcherssuch as Philippines Therefore, qualitative analysis or tradi- Aitken (1973), Thai Tri Do (2006), Yang and tional quantitative methods such as descriptive or Zarzoso (2014) and combined with practical con- comparative statistics for evaluating factors are not GDP Population Open Economy World Situation (Economic, Political, Export, Import) The gap in the Level of Economic Development Geographic Distance The Importing Country of the Philippines GDP Foreign Investement Capital Export Turnover of goods of the Philippines Population Open Economy Inflationary Goods Quality Factors such as State policy, Trade barriers Infrastructure, Science and Technology Common Language Join International Organizations (WTO, APEC, ASEAN, ) Direct effect Indirect effect Figure 1: An analytical framework identifies factors affecting Philippines' export performance 16 JOURNAL OF TRADE SCIENCE " ISSN 1859-3666 journal of Trade Science TMU’S JTS still effective in the current situation With the aim to Where determine various qualitative and quantitative factors EXPORTyij: Philippines'export turnovers of goods affecting the export performances, the modeling to country j in year t approach can be considered as a great solution Therefore, we use the gravity model to analyze fac- GDPit; Popit; OPENIT: GDP, population and economic openness of the Philippines at year t tors that affect the Philippines exports in the period GDPjt; POPjt; OPENjt: GDP, population and economic openness of country j in year t 2000-2016 Based on gravitation law, the gravity model was developed by Tinbergen (1962) and Linnermann (1966) Until now, this model has been widely applied ininternational trade with empirical studies including Anderson (1979), Bergstrand (1985), Rahman (2007), CAPIT: Foreign direct investment (FDI) into the Philippines in year t INFIT: Philippines' inflation rate at year t DISij: geographical distance between Philippines and country j Eita (2008), Onaran and Stockhammer (2008)… By EDISijt: The economic gap between the Philippines inheriting some previous studies and combining with and country j in year t (measured by the difference in the Analytical Framework (Figure 1), the gravity is GDP per capita between countries - absolute value) aimed to evaluate the effect of factors on exporting APECijt: A dummy variable Get value if the goods in Philippines The model will be as follows: Philippines and Philippines' importing partnersare not E0 + E1lnGDPit + E2lnGDPjt+E3lnPOPit+ E4lnPOPjt + E5lnOPENit + E6lnOPENjt+ E7lnCAPit + E8lnDISij + E9lnEDISijt+ E10lnINFit+ E11APECijt + E12LANGij + uijt members of APEC in t; Get value if Philippines and LnEXPORTijt = Philippines'partnersare both members of APEC in year t LANGij: A dummy variable Get value if the Philippines and the Philippines' importing goods not share the same language as English; Get value if Table 1: Data of variables used in the gravity model Variable EXPORT (Export turnovers) GDP ( Gross Domestic Product) POP (Popular) CAP (Foreign Direct Investment) INF (Inflation) DIS (Geographical Distances ) EDIS (Economic Gap) OPEN (Economic Openness) APEC (Dummy variable) LANG (common language) Sources World Bank (2018a) World Bank (2018b) World Bank (2018b) Asian Development Bank www.imf.org www.freemaptools.com World Bank (2018b) Data in World Bank (2018b) www.apec.org https://cacnuoc.vn/ngon-ngu-cua-cac-nuoctren-the-gioi/ Source: Synthesis of the author JOURNAL OF TRADE SCIENCE " 17 ISSN 1859-3666 Journal of Trade Science TMU’S JTS Philippines and the Philippines importing goods are in domestic goods The economic growth hasdeveloped the same language as English quickly due to commitments of the government related Ei: is the coefficient representing the magnitude of the effect of factor i in the model to intra-trade liberalization and its strategies to improve export These results were shown in Table 2, uijt: random error as follows: This model analyses the effect of the 12 factors Although the change of Philippines' export on the Philippines' export in the 2000-2016 period turnovers hasbeen relatively complicated, the Data sources will be the mixed dataof 155 countries, annual growth rate averaged 3.03 % from 2000 as follows: until 2017 Based on the results in table 2, we can Table 2: Philippines' Export Fluctuations Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP (trillion USD) 81.03 76.26 81.36 83.91 91.37 103.07 122.21 149.36 174.20 168.33 199.59 224.14 250.09 271.84 284.58 292.77 304.91 Export Value (trillion USD) 38.08 32.15 35.21 36.23 39.68 41.25 47.41 50.47 49.08 38.44 51.50 48.04 52.00 56.70 61.81 58.65 56.31 Growth (%) -15.57 9.51 2.91 9.52 3.97 14.92 6.45 -2.75 -21.68 33.98 -6.71 8.23 9.04 9.02 -5.12 -3.98 Ratio Export/GDP (%) 46.99 42.16 43.28 43.18 43.43 40.03 38.79 33.79 28.17 22.83 25.80 21.43 20.79 20.86 21.72 20.03 18.47 Source: Data from World Bank, 2018 Results seethat Philippines' export turnovers fell sharply 3.1 Overview of Philippines' export performance and its GDP also declined dramatically in 2001 Export turnovers because of consequences of the financial crisis in Over the years, the government of the Philippines Southeast Asia in the 1998 - 2000 period In 2002- has concentrated on trade policies to boost exports of 2007, with the development and restoration of the 18 JOURNAL OF TRADE SCIENCE " ISSN 1859-3666 journal of Trade Science TMU’S JTS international economy, the export performance- 3) Thus, the goods can be divided into 10 groups, as made remarkable accomplishments In 2007, follows: Philippines' export turnovers reached 50.47 trillion SITC 0: Food and animals USD, risingat 43.3% compared to 2002 However, SITC 1: Beverages and tobacco the GDP fromexports fell significantly, only at SITC 2: Raw materials, no food, except for fuels 33.79 % In the 2008-2009 period, the export SITC 3: Fuels, grease and related materials turnovers decreased sharply (21.68% in 2009) due SITC 4: Oil, grease, wax of plants or animals to the impact of the global economic crisis (the SITC 5: Chemicals and Related Products ratio of exports in GDP was at 22.83%) In 2010 - SITC 6: Processed goods are mainly classified by 2017, although GDP grew quickly, the transitionof materials export turnovers were quite complicate because of SITC 7: Machine, transportation, spare parts some factors such as the lower demand of the SITC 8: Other processed goods world and the domestic supply There is no doubt SITC 9: other categories that the ratio of Philippines' exports in GDP tended Table 03 shows the transitionsof export market to decrease in the 2000-2016 period and began to shares for each goods' group in the Philippines in the increase in 2017 2000-2017 period Table 3: Export market shares of the Philippines in 2000-2017 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SITC 0.40 0.38 0.39 0.37 0.33 0.31 0.31 0.30 0.29 0.28 0.26 0.30 0.31 0.39 0.09 0.10 0.10 0.17 0.22 0.24 0.21 0.18 0.21 0.24 0.28 0.31 0.22 0.25 0.27 0.23 0.22 0.21 0.21 0.21 0.24 0.30 0.22 0.21 0.22 0.23 0.25 0.43 0.08 0.05 0.07 0.08 0.05 0.06 0.07 0.08 0.06 0.04 0.05 0.05 0.04 0.07 2.50 2.33 1.56 1.75 1.66 1.85 1.41 1.28 1.23 0.96 1.63 1.35 1.10 1.40 0.06 0.06 0.06 0.05 0.05 0.05 0.06 0.07 0.07 0.07 0.10 0.10 0.10 0.12 0.17 0.16 0.14 0.13 0.13 0.13 0.23 0.20 0.19 0.18 0.18 0.21 0.23 0.28 1.16 1.02 1.10 0.97 0.92 0.87 0.80 0.74 0.65 0.68 0.48 0.37 0.57 0.57 0.62 0.60 0.57 0.49 0.41 0.39 0.40 0.32 0.27 0.26 0.15 0.16 0.32 0.27 0.06 0.03 0.03 0.04 0.02 0.01 0.10 0.04 0.06 0.03 2.03 1.23 0.05 0.04 Source: Data from World Bank, 2018 Export market shares Table shows that the market share of Philippines' To analyze Philippine export market shares in the exports in the global market is extremely small Apart world, the study uses the SITC classification (version from the SITC 4, the international market share of JOURNAL OF TRADE SCIENCE " 19 ISSN 1859-3666 Journal of Trade Science TMU’S JTS other groups is less than 1% In fact, SITC (oil, strength in manufactionand export (their market share grease, wax, plants) is a commodity that the is smallerforSITC 4) In the future, based on the Philippines has many advantages in exporting, its mar- change of the infrastructure investment policies, the ket share is the highest sharebelow 2% Some com- Philippines need to develop its available natural prior- modities have created a great position in the global ity and labor advantages with the aim to increase market, such as coconut oils, animal fats, etc These export market shares for some commodities such as commodities are produced from living creatures SITC and SITC (plants and animals) so it depends on natural conditions such as weather, climate, etc The fluctuation of 3.2 Analysis of factors affecting Philippines export turnover market share's SITC in the international market is quite complicated because of not only the influences of The regression result using the estimation method is REM with error of 2635 observations in Table some countries having the same commodity (including For the data set, the OLS model occurs autocorre- competitiveness, supply chain capability) but also the lation which causes the regression coefficients of the change of natural conditions over years Compared to explanatory variables to be inaccurate and the Wald other commodities, SITC and SITC have greater- test for P-value = 0.000 0.05 should be chosen for shows that the negative effect on export turnover is les REM This means that the random error and independ- than 1% It means that when POPjt increases 1%, the ent variables in the model are not correlated However, export turnover of the Philippines decreases 1,423% in the REM model, there was a variance of the change Compared to the previous studies, this result expresses error (P-value