DISCUSSION PAPER SERIES NO. 2008-23
This paper reviews the current empirical literature on competition and market structure of Philippine industries. It shows that weak competition is one of the fundamental factors that explain limited growth, productivity, and employment in the economy. Philippine experience has shown that reforms such as trade liberalization, deregulation, and privatization, while necessary, are not sufficient to foster effective competition. The success of these reforms depends on the creation of a competitive domestic market environment; which is in turn determined by the interplay of behavioral, regulatory and structural constraints along with the broader aspects of competitive infrastructure. With the removal of many regulatory barriers, the economy is already substantially open. However, competition in many industries has remained limited due to structural factors such as large capital and economies of scale requirements, lack of middle and medium enterprises leading to a hollow industrial structure, and weak linkages of SMEs with large enterprises. In agriculture, regulatory barriers still exist while in infrastructure, the capacity and independence of our regulators are still evolving and need to be strengthened. Maintaining a competitive environment requires coordinated policies to implement continued liberalization and deregulation in tandem with the necessary support measures that will address the structural obstacles to the entry and growth of domestic enterprises. These efforts should be pursued jointly with well-functioning competition and regulatory agencies.