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Identifying Sectoral Vulnerabilities and Strengths for the Philippines: A Financial Social Accounting Matrix Approach


The recent global financial crisis has highlighted the greater integration of markets—between financial and real, and within and across national boundaries—and the part it played in propagating the impact of financial shocks. Understanding the nature and quantifying the extent of the integration of economic activities are crucial to clarifying our comprehension of the transmission mechanism of such shocks to the various sectors of the economy. In particular, it can be argued that models that take a richer view of the nature and extent of interrelationships and interdependencies among the various sectors of the economy can contribute significantly to the policy debate. Using the first financial social accounting matrix (FSAM) constructed for the Philippine economy, this paper introduces an alternative approach to identifying sectoral vulnerabilities and strengths for the economy. The paper presents an expanded multiplier analysis that incorporates three stages of interlinkages (direct, indirect and induced), backward and forward linkage indicators, and value added multipliers. The theoretical framework we introduce allows us, for any given changes in institutional and industrial structure as well as economic behaviors, to estimate multipliers quantifying both the sectoral and overall impact of such changes. We extend the multiplier analysis to estimate the impact of the global financial crisis on the productive sectors. Findings indicate that the trade, transportation, storage and communication sector has significant linkages with other productive sectors of the economy, thus, suggesting that infrastructure is a crucial ingredient to sustainable growth. On the other hand, the agriculture and manufacturing sectors have relatively weak linkages with other productive sectors of the Philippine economy. Meanwhile, a deeper analysis of the interlinkages between household consumption and the productive sectors of the economy finds the role of consumption in broadening and amplifying the transmission of shocks across sectors of the economy to be significant. The results have important implications for policy, clarifying, for example, our view on the capacity of Philippine industry, manufacturing in particular, to serve as the engine of economic growth, as well as on what factors underpin the observed resilience of the Philippine economy to external shocks. The findings also show the widespread linkages of the financial intermediation sector with other industries, thus underscoring the importance of efforts to safeguard financial stability.

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