Ten themes in development economics (and the Ruperto Alonzo lectures)
Economics is the study of the proper allocation of limited resources given unlimited wants. Development economics is a branch of economics that focuses on developing countries’ social, economic, and fiscal allocation of resources.
The University of the Philippines School of Economics (UPSE) has three academic programs — undergraduate, MA, and PhD — and the Program in Development Economics (PDE). The last was created in the mid-1960s and designed for mid-level technical staff of various government agencies. It is applied economics with theoretical background like marginal cost curves, production possibility frontier, etc.
After finishing my AB Economics in UPSE in the 1980s, I went back to the school in the ’90s to study PDE when I was still working at the House of Representatives. Here are among the important themes in the course that I can remember and our teachers then.
1. In macroeconomics: GDP and consumption formula. GDP or gross domestic product, is the sum of household consumption (C), Investment (I), and Government consumption (G) net of exports minus imports (X-M). In formula form: GDP = C + I + G + (X-M). C is the largest part of GDP — in the Philippines it is about 67% to 70% of GDP. It is the sum of autonomous consumer spending (a), marginal propensity to consume (b), and disposable income (Yd). Or C = a + bYd. I will discuss more of this when the full year 2022 GDP will be released by the Philippine Statistics Authority (PSA) on Jan. 26. My teacher was Prof. Ruperto P. Alonzo (RPA, RIP).
2. In microeconomics or household and firm level study: the role of marginal pricing. Profit is optimum when the marginal (or extra) revenue (MR) is equal to marginal cost (MC), or MR = MC. A basic application of this principle is when a firm employs only 15 workers, not 14 or 16 or more. Because having only 14 workers means MR can still be increased while having 16 workers or more means MC is higher than MR and the company can lose money. Government social spending and tax revenues are dependent on people having jobs and companies paying taxes and not losing money. My teacher was Prof. Manny Esguerra, a former National Economic and Development Authority (NEDA) Undersecretary.
3. In math economics: linear functions like C = a + bYd. Then integral calculus and differential calculus are used to derive marginal costs and pricing. There is lots of math and Greek equations in economics, really, part of mental exercises to prepare students for quantitative and objective analysis. My teacher was current UPSE Dean Joy Abrenica.
4. In econometrics: doing regression models to help predict something. Projections for future GDP, inflation rate, interest rate, international trade, etc. are often done via simple or complicated econometric models using many tools of statistics. My teacher was former UPSE Dean Orville Solon.
5. In development economics: the role of agriculture in rural modernization. There are many policies in this subject but among the prominent ones are agricultural lending and agrarian issues. My teacher was Prof. Arsenio Balisacan, now NEDA Secretary.
I want to use the recently published BusinessWorld Top 1000 Corporations in the Philippines 2022, looking at companies in Agriculture, Fishery and Forestry (AFF), and compare them with the overall AFF output in GDP. Companies in the AFF sector are doing well, and revenues were rising even during lockdowns of 2020 and 2021. But overall performance of AFF in GDP is low or negative (see Table 1).
This implies that the non-corporate AFF was doing badly, lacking economies of scale and the financial discipline to withstand big disruptions like the prolonged lockdown. There is a need to move towards land consolidation and more corporate farming.
6. In public finance economics: fiscal discipline to control the budget deficit and public debt. The most basic formula is Revenues (taxes, fees, privatization, etc.) less Expenditures equals Budget balance, surplus, or deficit. My teacher was Prof. Benjamin Diokno, now the Finance Secretary. The relevant numbers on the Debt/GDP ratio of many countries, the Philippines’ revenues, expenditures, deficit and borrowings were discussed in this column’s piece, “The Top 10 fiscal and monetary news stories of 2022” (Dec. 26, 2022).
7. In project evaluation economics: policies and strategies to improve success and positive impact of projects. Both public programs and private enterprises. My teacher was Prof. RPA.
I want to use data of the UN Conference on Trade and Development (UNCTAD) and World Investment Report (WIR) 2022 on non-finance multinational enterprises (MNEs). These companies are into manufacturing, real estate, energy, mining, etc. and use heavy computations on project finance and evaluation. There are no Philippine companies in the UNCTAD’s Top 100 MNEs in developing countries, so I inserted the top five Philippine companies from the BusinessWorld’s Top 1000 2021 report. To convert the Philippine Peso to the US Dollar, I used the average exchange rate of P49.62/$ in 2020 (see Table 2).
8. In monetary economics: the role of monetary policies in price stabilization. This is heavily used now in many countries, as central banks raise their interest rates to help discourage people from high spending and save more of their money, and hope to fight very high inflation that way. Our Dean that time was Prof. Felipe Medalla, now Central Bank Governor.
9. The role of public-private partnership (PPP) in infrastructure and economic development. This has an important role in controlling the budget deficit and public debt, which heavily uses tools and concepts in project finance and evaluation. And this is the topic of the first PDE Ruperto P. Alonzo (RPA) Lecture Series. The Executive Director of the PPP Center, an engineer-economist, PDE alumna, and student of RPA, Cynthia Hernandez, will be the speaker and she will discuss “29 years of BOT (build-operate-transfer) law and the way forward.” She will have three reactors, from government, a private infrastructure company, and an LGU official. This will be on Feb. 8, Wednesday, from 3-5 p.m., at the UPSE auditorium.
10. The role of a bright, friendly and warm teacher. Prime example is Prof. “Ruping” RPA. In the words of his loving wife, Zorayda Amelia “Mel” Alonzo, Sir Ruping “was a dedicated teacher, both to his children and students and even to me and other people he touched during his lifetime. He wanted people to excel to the best of their abilities not only for themselves but for the country, that they may be positive contributors to the welfare of the Filipino people especially those who have less in life. Shy and often silent in the company of new acquaintances, he lost this shyness in the classrooms and lecture halls while he imparted his knowledge, beliefs and advocacies to his students in the decades he spent as a teacher and professor at UPSE.”
So readers, I hope to see you at the lecture on Feb. 8 — which is also Sir Ruping’s 75th birthday — at the UPSE auditorium, UP Diliman, QC.
To get the latest edition of the Top 1000 Corporations in the Philippines, go to https://bworld-x.com/ or contact BusinessWorld’s Circulation department at 8527-7777 locals 2649 or 2650 or e-mail at circ@bworldonline.com.
Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.
