W HY POOR COUNTRIES REMAIN POOR?

Engr. Candido R. Talosig, Jr.

Generating the Wealth of Nations 2013 Class

QUESTION

: Why poor countries remain poor?

: Poor countries remain poor because they have poor institutions. And
even if they have good institutions, the people running these institutions are corrupt like in the
Philippines. Furthermore, because of their adverse geography, poor countries remain poor even
though they have rich resource endowments. In the case of the Philippines, it is composed of
and divided by 7,100 island.
MAIN CONTENTION

: If the institutions of the USA are the patterns of the institutions of the
Philippines, then, why does the Philippines did not develop and grow economically in the same
manner as the USA? However, because the institutions of the Philippines were patterned with
that of the US, a major global economy, therefore, whenever theres a financial crisis in the US,
it directly affects the Philippines. This disparity in economic development can be attributed to
the level of corruption in the institutions and the personal attitude of its people about
corruption. This is the reason why good institutions fail in promoting economic growth in the
Philippines. Corruption and the personal attitude of its people about corruption is the barrier to
the growth and development of trade in the Philippines and its economy.
A RGUMENT

Furthermore, even though the Philippines have a relatively rich resource

endowments, it remains poor because of the geography that keeps the country divided as a
nation and a barrier to a faster local trade aside from the fact that this rich resource
endowments is being mismanaged due to corruption thereby benefiting only a few people
instead of the entire nation.
: To answer the question raised in this paper, the paper will examine the
experiences of two countries, the Philippines and the USA.
E VIDENCE

We can observe that even though they have similar institutions in terms of the form of
government, trade, education and health, the rate of change of the GDP per capita of USA is
faster than the Philippines even though there were dips in the GDP per capita series of the USA.
Kindly refer to the Chart below whose data was taken from the Maddison Project Database.

If we look closely at the chart, 38 years after 1945 or in the year 1983, the year when Benigno S.
Aquino, the father of the present Philippine President, Noynoy Aquino, was assassinated and 3

years before the peaceful revolution in 1986, the GDP per capita of the Philippines was
decreasing while the GDP per capita of the USA was increasing. However, it is also noted that
immediately after 1945, the GDP per capita of the USA was decreasing while the GDP per capita
of the Philippines was slowly increasing and since then it steadily progresses in a steady snail
pace seemingly unaffected by sudden downturns nor upturns.
Henceforth, generally, we can describe that the economic performance of the Philippines after
1945 as very slow, lethargic and steady snail pace while the USA is active. And that 65 years
after 1945 or in the year 2010, there is only small or there is no improvement in the GDP per
capita of the Philippines compared to the USA because of its adverse geography being
composed of and divided by 7,100 islands, corruption and the personal attitude of its people
about corruption.
The GDP per capita Ratio of the Philippines to USA after 1945 is 1:14 and, in the year 2010, it is
1:10. This ratio has a minimal change and it has moved in approximately the same direction
with USA.
Based on the 2012 Corruption Perception Index by the Transparency International,
http://cpi.transparency.org/cpi2012/results/ , on a scale 0 to 100, where 0 means that a country is
perceived as highly corrupt and 100 means it is perceived as very clean, USA scored 73 while the
Philippines scored 34, having the same score with Mexico, Kosovo, Gambia, Bolivia, Armenia,
Algeria and Mali.
Based on the UN HDR, I have taken the following information about the Philippines compared
to USA to wit,
2012 HDI rank: 114 Philippines [Medium human development]
Human Development Index: 0.654
Life Expectancy at birth: 69
Mean Year of Schooling: 8.9
Expected Years of Schooling: 11.7
GNI per capita: 3,752
Nonincome HDI: 0.724
2012 HDI rank: 3 USA [Very high human development]
Human Development Index: 0.937
Life Expectancy at birth: 78.7
Mean Year of Schooling: 13.3
Expected Years of Schooling: 16.8
GNI per capita: 43,480
Nonincome HDI: 0.958

And I believe that the 3 useful indicators of the living standards in the Philippines are [1]
Command over Resources, [2] Health and [3] Education.
Based on the UN HDR, I gathered the following data for the Philippines,
Command over Resources in terms of total debt services: 6.5% of GDP
Health in terms of satisfaction with health care quality: 81% satisfied
Education in terms of satisfaction with education quality: 79.2% satisfied
Compared to USA,
Command over Resources in terms of total debt services: 0% of GDP
Health in terms of satisfaction with health care quality: 56% satisfied
Education in terms of satisfaction with education quality: 62.8% satisfied
Even if the Philippines scored relatively high in health and education, Its Command over
Resources is relatively poor because of corruption and adverse geography.
I have chosen the indicator Command over Resources because when you live in the Philippines
with corrupt government officials, the money coming from the national budget or from foreign
debts which will be paid by debt servicing in the future will go directly to the pockets of the
government officials rather than to the purpose it was intended for to improve our standard of
living which means it will directly affect me and my future generation when the debts are to be
paid and without benefiting from it.
The Health indicator is a very important aspect of our daily life and the Education indicator will
determine how well a person will live in the future. And the indicator that I consider very
important that is related to health and well-being as well as education is the Environment
because this will determine the quality of the air that I breathe, the quality of the water that I
drink, the climate that I live in and the natural disasters and calamities, whose magnitude and
intensity have changed due to global warming, that may come within my geographic location.
When people are only concerned of enriching themselves while in power any issue that
concerns about the environment is neglected which directly affects the local as well as the
international communities.
The only notable increase in the GDP per capita of the Philippines was only during after 1945
but beyond that it steadily increased and decreased in a small and snail pace due to corruption
and adverse geography. The peaceful revolution, in 1986 or 41 years after 1945, to topple a
dictator and to fight corruption in the government has brought no change in the performance of
the Philippine economy because corruption has continued beyond that peaceful revolution and
a concern that still pervades in the country which the son of that assassinated leader is still
fighting even today, 2013, as I write this paper.

The economy of the USA is an important influence in the Economic Development of the
Philippines since 1945 because all its institutions like the form of government, trade, education
and health were patterned with the institutions in the US. We can observe in the chart
presented above that the economy of the Philippines has moved approximately in the same
direction with the economy of the USA except in a small and snail pace manner answering the
question why poor countries like the Philippines remain poor and thereby supporting the main
contention of this paper that institutions and the people that run the institutions and geography
determines the economic development of a country and it can be further argued that the
factors of institution and the people that run the institutions and geography answers the
question why poor countries remain poor.

To conclude, bad institutions make poor countries to remain poor and in the case of the
Philippines, even if it has good institutions, if corrupt people run good institutions, a relatively
poor country like the Philippines remain relatively poor. Furthermore, adverse geography and
thereby relatively lesser resource endowment make poor countries remain poor. But in the case
of the Philippines, even though it has a relatively rich resource endowments, because of the
adverse geography of being composed of and divided by 7,100 islands posing as trade barrier
for an inter-island trade, relatively poor countries like the Philippines remain relatively poor.