CHAPTER 6: INDUSTRIALIZATION
Industrialization is one of the key factors of
economic growth and development
● Government, includes regulation of
economic activities of an institutional
framework
“Great Depression” in the United States of America
resulted in mass production minimizing the use of
resources (inputs).
Forerunners of Industrialization:
Asian Giants [ China ,India]
Asian Tigers [Singapore, South Korea, Taiwan,
Hongkong]
Asian Cub [Indonesia, Vietnam, Malaysia,
Thailand, Philippines]
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FIRST INDUSTRIAL REVOLUTION
Study of Crafts in 2010
● The ever-increasing demand of people for
more goods led the way to invent many
things that can be used in the production of
more products.
● In the mid-1700s, there had been a massive
transfer of materials and labor and
inventions of machines used to create
products from textiles
● factors of industrialization was to increase
food, and the more efficient way to produce
agricultural products.
● Agriculturists were very influential in terms
of producing new crops and breeding
animals.
● the demand to transport the goods and
labor led the way for railroads, steam
engine trains, and many machine tools.
● Iron and coal were the primary energy
resources and led the way to the
development of steam engines to be used
for more operations in factories.
● There was a requirement to advance the
knowledge and skill to extract and make use
of this material in the production processes.
● The first industrial revolution took place from
the 1700s to the mid-1800s.
SECOND INDUSTRIAL REVOLUTION
Learning-By-Producing and the Geographic Links
Between Invention and Production:
● so-called "modern life”, an immense sharing
of science and technology.
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Nature has been vastly studied and used for
the production of goods and services.
Entrepreneurship capitalism was
introduced as resources and finances had
been growing steadily.
Europe and the USA took the lead in the
second industrial revolution.
Steam, electricity, and engine-powered
boats, cars, and airplanes made
transportation of goods and services faster
Statistical process control (SPC) as a tool
was used to identify variability in processes,
introduced by Shewhart in 1924.
CHARACTERISTICs
● the notions of entrepreneurship
● international trade
● creation of a market unique for trading
shares of stocks.
The progress that was experienced by
industrialization paved the way for the rise of the
demand for more resources that are not afforded by
entrepreneurs.
● The impossible became possible,
● introducing the publishing industry, and
information was made available
everywhere.
● Meanwhile, in Asia, particularly in Japan,
there was a significant development in the
economy following the control of Korea and
Taiwan. This paved the way for more
exports, steel production, shipbuilding, and
factories.
● The second industrial revolution took place
from the mid-1800s to the mid-1900s.
THE THIRD INDUSTRIAL REVOLUTION
Post-Foundationalism, Social Transformation 2010
● This era revolved around computerization,
market competition, and globalization.
● At the beginning of this period, scientific
management continued to be developed,
and this was after the 2nd World War that
ended in 1945.
● Toyota Production System (on Lean
Production) was introduced by Eiji Toyoda
and Talichi Ohno,
● Japan took over the car manu- facturing
world market share in the 1960s and1970s
● Deming introduced his philosophy on the
"Fourteen Points" of quality management
and was adopted by many American
organizations.
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Motorola introduced a better total quality
management tool called the Six Sigma.
Total quality management was widely
taught and studied in a lot of U.S. colleges
and universities with the purpose of
educating young engineers and managers
to improve production and take back the
glory to the U.S.
Also led to the transfer of multinational
companies (MCs) to Asia because of
cheaper materials and labor.
This positively affected the GDP of the key
players in Asia like China, India, Hong
Kong, Taiwan, Singapore, and South Korea.
Toward the end of the third industrial
revolution, two countries were
predominantly leading, they were China and
India.
India changed their policies, paving the way
to ease up regulations for the production of
goods and services
China began dominating the globalized
economy by selling products at the
cheapest price imaginable.
The third industrial revolution took place
from the mid-1900s to the year 1999.
FOURTH AND FIFTH INDUSTRIAL REVOLUTION
● The management systems like Total Quality
Management, Lean Production, and Six
Sigma became widely practiced worldwide.
● This enabled more efficient production of
goods and services traded in a globalized
economy.
● the primary aim of industrialization is to
increase productivity, (improving the
standard of living of the people.)
● This period of industrialization, focuses on
biotechnology, additive manufacturing
telecommunications, and transportation.
The purpose of researching and developing
genetic engineering
● to develop a treatment for some congenital
diseases
● invent new materials as inputs to the
production of food or medicine
● analyze data for future advances in the field
of bio- tech
FOURTH INDUSTRIAL REVOLUTION
● from the year 2000 to the present time
known as the 21st century.
FIFTH INDUSTRIAL REVOLUTION
● Humanism, civility, inclusivity, creativity, and
purpose in a digitally enabled progressive
economy are the drivers.
● The Internet of things, devices, data, and
digitization have already come of age.
● Artificial Intelligence, mechatronics, and
robotics had been the focus of research in
most formal universities and laboratories in
the world.
● The fifth industrial revolution is
characterized mainly by three things: profits,
purpose, and people, prospering together.
THE MODES OF INDUSTRIALIZATION
Mercantilism.
● It was characterized by a strong emphasis
on the means to achieve national wealth
and power.
● In protecting the economy of one's country
or state, it is important to optimize net
exports or maximize exports.
Protectionism.
● increasing tariffs, import quotas, or more
regulations to products sourced from other
countries.
Laissez-faire
● An economic idea that means less
involvement by means of regulations of the
government
● French concept that literally means "let
alone."
Importation
● when there is a need for goods and
services, because of a shortage of a good
and/or service from another we buy from it.
Exportation
● When there is a surplus, or we want to gain
from sale to another country and increase
gross domestic product.
COSTS OF INDUSTRIALIZATION
● Industrialization, modernization,
urbanization, and capitalism are concepts
that are intertwined and cannot really be
separated.
● Businesses that produce goods and
services are basically motivated by selfinterest that is maximizing profit, which
means the least possible cost of production.
Capitalists and even governments tend to save for
future survival, and because of the idea of laissezfaire or let alone policy
● the government tends to give some level of
freedom to producers, which may lead to
abuse of land, labor, and other valuable
resources.
● More people are moving from rural to urban
areas, factories are multiplying to supply the
needs of the people.
● In effect, there are possibilities of long
hours for factory workers, with considerably
low wages. Children as young are forced to
work.
Sweatshops are thriving in countries that have
weak labor
DEINDUSTRIALIZATION
● Economic development of the past is mainly
characterized by countries that are into
export-oriented growth (employ thousands
and thousands of manufacturing jobs)
● The workforce is considered highly
trained, has acquired technical skills, is
receiving relatively higher wages, and is
very active in exportation.
● the model of economic development is
changing; a developed nation may not
necessarily be the one exporting to other
countries.
● automation in the manufacturing of goods
and services, an evident decrease in jobs in
manufacturing and increase in the servicesector jobs.
● leads to consumer-led growth, where
individuals are empowered in the production
and consumption of goods and services
with the use,
● and keep on networking and mobilization of
information and commerce.
"Next Generation Business Models in Ecommerce,"
2011
● e-commerce has opened new avenues with
the use of brokerage systems, in the stock
market, airlines, shipping, and the like.
● Majority of e-commerce is relying on two-tier
models, and now replaced by three-tier
architecture
URBANIZATION AND THE WORLD
The United Nations Department of Economic and
Social Affairs, Sustainable Development Goal 11
states, "make cities and human settlements
inclusive, safe, resilient, and sustainable."
In 2019, only about half of the world's urban
population has convenient access to public
transportation; air pollution, diseases, etc. Target
and indicators in relation to urbanization:
1. housing
2. transport systems
3. enhance inclusive and sustainable
urbanization and capacity for participatory
4. protect and safeguard the world's cultural
and natural heritage
5. reduce the number of deaths
6. reduce the adverse per capita
environmental impact of cities
7. provide universal access
There was a rise in global population, demand was
rising so fast, and evidence of under- production of
goods and services forced the economies to
industrialize and produce more in the most efficient
manner.
Today, we are experiencing the fifth industrial
revolution, where goods and services are available
that were considered impossible half a century
earlier.
CHAPTER 7 : LABOR MARKETS
Labor is the most important, and in fact, has the
largest share in almost all economies with the gross
national earnings.
Labor market operates by supplying a skill or
talent that someone else would need or demand.
● roles in a labor market;
1. seller of labor
2. buyer of labor
Wage a voluntary exchange of work, the buyer
agrees to the work and employs the seller of that
work.
● It follows the law of supply and demand.
● Wages are determined in the same way, it
starts with a skill or a talent. If it is abundant
and the demand is low, then the wage is
also low, and vice versa.
DEMAND FOR LABOR
● Demand is the link between the price of a
product and the quantity demanded for it.
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The basic rule all other things remain
constant, as the price increases, the
quantity demanded decreases
There is a negative relationship between the
price and the quantity.
A demand curve is a graphical
representation of the price and quantity
demanded and negatively sloped to the left.
Labor is the input to a factor of production.
Diminishing marginal productivity. The more
labor put into the production function shows that it
increases at a fast rate at the beginning and moves
slowly, flatter, toward the rightmost part of the
graph.
● The marginal product of labor will decline
and the wage of all workers will fall.
SUPPLY OF LABOR
● Supply is the link between the price of a
product and the quantity supplied for it.
● The basic rule all other things remain
constant, ceteris paribus, as the price
increases, the quantity supplied also
increases
● There is a positive relationship between the
price and the quantity.
● A supply curve is a graphical
representation of the price and quantity
supplied (positively sloped going to right of
the graph)
Reservation Wage is the minimum rate that a
worker is willing to accept for a specific job at a
given period of time.
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DEMAND AND SUPPLY OF LABOR
Demand for labor is downward sloping and
Supply is upward sloping.
The point where they meet is the equilibrium
wage and quantity.
The wage rate basically is the profitmaximizing level of an individual
employer,known as the marginal resource
cost (MRC).
As the price of a substitute service
increases, demand also increases.
There is an expectation that the price increases in
the future, then the demand for it also increases
(there is a direct relationship between the two.)
SHIFTING OF DEMAND AND SUPPLY
Factors affect the demand for a service:
● price of a substitute service,
● price of a complementary service,
● expected future prices,
● client's income or wealth,
● population growth,
● increase in the size of the market,
● change in the taste and preference of the
consumers.
There may be a shift in the supply curve, even if
there is no change in price when some factors
change.
Factors affect the change in supply:
● cost to acquire more skills for labor,
● the number of agencies
● businesses providing the same labor,
● expected future increase or decrease in
wages,
● technology,
● government subsidies
● taxes, and other special influences.
INDIVIDUAL EARNINGS AND WAGES
● Employers must fairly compensate these
with a reasonable wage
● Wage must cover the opportunity cost, the
value that is lost
● Derived demand. If the demand for a
certain good or service is booming, more of
it is produced and offered ultimately
increases wages.
● The demand for a factor of production
derived from the demand for its product
● Efficiency Wages. Businesses that provide
high wages to their employees, compared to
the market equilibrium, to motivate them to
work (among other reasons).
● Labor unions can affect wages
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Collective Bargaining Agreement (CBA),
- more common in the government sector
and is slowly declining in existence.
MINIMUM WAGE
A minimum wage is the price floor that ensures
employees receive this amount or more, and
employers are prevented from paying below this
amount.
● The quantity demanded will decrease, while
the quantity supplied will increase, by the
wage price difference with the existing wage
rate. unemployment.
● Wage taker point of view, a minimum wage,
a new marginal revenue cost is set, leaving
a decrease in the quantity of labor they
would want to hire up to the level when
MRP = MRC or the maximum level they
wish to employ.
● In a competitive market the wage is lower
than the minimum wage, businesses pay
more than the minimum wage.
● An increase in the wage means more
people have the capacity to buy goods and
services.
● It increases the demand for products and
stimulates employment and the economy.
Not all regions have a minimum wage, and for
those who have, the minimum wage is different
from one to another.
In the Philippines, the minimum wage in the
National Capital Region (NCR)
INTERNATIONAL IMMIGRATION
Immigration when people move between countries
and become part of the labor market of that
country.
The main economic benefits of immigration are the
following:
(1) increases the national output, the GDP
(2) enhances specialization especially with highly
skilled immigrants
(3) provides net economic benefit to the country.
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Immigration resulted in advancements in
technology and improved transportation in
terms of speed, cost, and access.
Two main arguments :
● low-skilled workers tend to add to the poor
and worsen inequality in the market.
● Highly skilled immigrants contribute to a
large employment surplus, as they innovate
and become entrepreneurs, adding to the
factors of production in the country.
LABOR MARKET DISCRIMINATION
● Wage discrimination when a certain race
or nationality is undermined and is given
less respect, dignity, and attention.
● Discrimination happens, favoring some
group of individuals according to gender,
age, ethnicity, nationality, and disability.
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In evaluating wage discrimination in the
labor market, we must clearly identify first
who among the workers are favored and
discriminated.
We assess the employer who offers low
wages to the discriminated group, thereby
causing lower labor supply and lower
productivity.
Wage discrimination happens considerably
when there is monopson
This may negatively impact the economy, as it
tends to effect inefficiency and may cause market
failure.
HUMAN DEVELOPMENT INDEX
● Human Development Index (HDI) indicates
the average well-being of people in a
country in a given period of time.
● It is a composite index combining life
expectancy
three main components
1. life expectancy
2. knowledge
3. standard of living
● The average life of the people in a country
according to various demographic factors,
such as age, gender, and so on is a part of
life expectancy.
● And the standard of living basically is the
GDP per capita plus all income by citizens
around the world.
● agreement to express the differences in
dollars for more accurate results.
CHAPTER 8 : FINANCIAL SYSTEMS
Most transactions use cash and near cash items as
they are considered a more efficient way to do
business compared to barter systems.
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For economists, Money is used as a
medium of exchange; it has value because
everyone thinks that it has value
also considered a legal tender, that
currently, it is the form, by law a debtor may
require a creditor to accept in payment of a
debt.
Bitcoins, gaining popularity in the digital
financial system; they are not regulated in
specific country, are considered a
speculative asset
Financial System is a network of
institutions, markets and contracts that bring
together lenders and borrowers
Lenders are those who believe that money
that they have now has potential of
snowballing in the future
Borrowers can be a household that needs
to buy a house or a car but does not have
enough money on hand to acquire
Lenders and the borrowers agree to fulfill their
goals through exchanges in 3 ways;
● the banking system where depositors are
considered lenders and those who loan
funds,
● the bond market, government may choose
to increase its funds by issuing an IOU,
promising to pay on a regular basis
● the stock market which is basically a place
where ownership in a company may be sold
and bought
Fluctuations in the stock market are not
dependable metrics of economic well-being
● Crowdsourcing of funds, raising capital from
investors and distributing the risk that is
attached to the investment are essentially a
financial system.
FINANCIAL INSTITUTIONS
● Investment means committing funds to one
or more assets, which can be a financial or
real asset.
● Most individuals and firms make this
decision to increase their wealth and secure
the future.
● Savings, on the other hand, may be
understood as part of wealth and that may
be used to fund the investment of another.
● Financial Asset Is someone else’s liability
● Real asset is something with intrinsic value.
Financial Assets
● “manufactured” by the stock market or any
financial institution.
● greatly affected by inflation or decreasing
purchasing power of money
● Manufactured the stock market creates
assets traded that are intangible
Investment Classes
Financial Asset:
Stocks
Bonds
Currencies
Real Assets:
Real estate
Commodity
Commodities like gold and silver may be
considered either financial assets or real assets,
depending on the behavior in the market (as it
changes according to inflation and how it is traded)
● Short-Term Instruments, mostly securities
that mature in less than one year
● Long -Term Instruments, those mature
more than a year are traded in the capital
market
● Financial Derivatives are forms of financial
stability instrument, a value if which is
derived from another instrument
The process of investment:
portfolio management, building the collection or
set of assets
allocation of assets, splitting of the portfolio in 5 or
less types of investment classes
construction decision, choosing from the topdown or bottom-up approaches in portfolio
management
Investment Management
● involves channeling of funds by means of
financial intermediaries, transferring and
scheduling of risks, appropriation of the
investment class, and managing ownership
of funds.
● ownership and management exist in a
separation concept and deal with agency
issues, of principal and agent roles.
● In order to mitigate the issues, there must
be good corporate governance in place and
regulated by the government or state.
● Corporate governance is the examination
of the control of a company as exercised by
its directors.
factors characterize a competitive market:
● how risk and return are optimized,
● how efficient is the investment market
● and how appropriate is the style of
investment
Assets are plotted by these players the businesses
issuing securities (debt and equity) or financial
instruments, the firm;
● the ones who lend and borrow from financial
intermediaries, the household;
● the one that never over funds and is
considered always in a shortage, the
government;
● and the one that positions between the
debtors and the creditors, the financial
intermediaries.
FINANCIAL SYSTEMS IN ECONOMIC
DEVELOPMENT
Flourish Savings & Investment Relationship
 The existence of a lively financial system in
one country provides facilities for individual
and firm savings. When there are more
savings and investments, there is more
production of goods and services.
● Firms may enjoy a suitable interest rate
(would optimize the bottom line) that would
entice them to borrow money and have
more production and distribution of goods
and services.
Develop Labor and Employment
● More manufacturing companies can boost
their working capital, thereby, they are able
to employ more individuals for their
production.
● Prospective venture capitalists are able
to fund a technology-based industry and
employ more workers.
Growth in Capital and Securities Markets
● Capital markets issue debentures and
shares to public and other fund institutions
that are expecting good returns from their
fixed capital or fixed assets like machinery
and equipment. Short-term loans are
available for daily business operations and
help in the continuity of the business and
trade. Foreign exchange markets help
address transactions that involve foreign
currencies, help raise funds for these
companies, and support the forex
requirement of some companies who are
dealing with other countries.
Trade Development
● Advance business, both domestically and
internationally along capital goods to be
sold through hire purchase and installment
schemes. For those firms that engage in
shipments, financial institutions allow
issuance of letters of credit, finance them,
and even offer to discount some financial
instruments like bills.
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Infrastructure and Technology Development
Countries that are not dependent on natural
resources such as oil and gas, financial
institutions allow financial prosperity by the
governments.
Economic liberalization is set as a policy
establishing development banks and
merchant banks to raise funding for
infrastructure buildings. In addition, venture
capitalists allow companies with investable
funds to invest in highly risky information
and technology businesses or promote
other new ventures.
Uphold Fiscal Policy
● The existence of a worthy financial system
in one country helps in the control of
inflation, recession, and even depression
through a sound policy on finance.
● The system is regulated by the Bangko
Sentral ng Pilipinas. Laws and other
legislation may be enforced to mitigate the
risks of unwanted and speculative
transactions.
Attract Foreign Investment
● Vigorous financial systems in one economy
entice potential investors in various sectors
and provide more production opportunities
and investment prospects that can lead to
economic growth and development.
Foster Economic Integration
● In the inevitable integration of countries in
proximal distances or regions, forming
economic integration tends to have a
common investment, trade practice, and
even legislation. In terms of markets having
one common currency is practiced, just like
the European Union.
Balance Regional Development
● Provide various concessions and stock
ownership plans (SOPs) that eventually
help avoid political risks in regions.
Equitable interest rates offered in various
places would discourage migration from
rural to urban areas.
● Sustain Macroeconomic Balance Having a
good financial system allows balance in the
industrial, agriculture, and service sectors,
ensuring that contributors to the national
income benefit from the financial resources.
Chapter 9 : FINANCE AND DEVELOPMENT
Financial systems are usually there to transform
short-term liabilities into long-term assets.
 For example, demand deposits can be
transformed into long-term loans.
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Finance is a driver of sustainability.
However, to achieve sustainability through
finance, it is necessary to rebuild and adapt
the financial system to the specifics of
sustainable development.
Modern financial systems can be
described as one-dimensional, focusing on
ensuring the economic security of
transactions.
ROLE OF FINANCE
Financial institutions such as banks, bond
markets, or stock markets link the savers and
borrowers of the economy. These are organizations
offering financial services, specifically, banks,
building society, finance company, or credit union.
 Supply of savings coming from "savers" like
households, firms, and other venture
capitalists save up or invest money that are
managed by these institutions to meet the
demand for such savings by borrowers such
as firms, entrepreneurs, or even
households.
The concept of venture capital basically benefits
start-up business entrepreneurs to develop new
products. Since it is a start-up business, this can be
a very risky investment to the point of losing the
entire investment.
Venture capitalists normally screen new ideas,
evaluate the viability of the business, and solicit
investments for these.
● Apart from screening function of finance, it
also monitors the daily activities of financial
assets that are traded in the market.
● In fact, we can check the movements of our
stocks and bonds on various financial
platforms like yahoo money.
Borrowing and saving help smoothen
consumption over a lifetime; it can be the savings
for retirement, or it can be a mortgage like a car
loan or education loan.
Financial systems help us borrow and save
money to acquire these assets without waiting for
many years to come.
● Other roles of finance in development are
diversification and transformation of risk and
the management of payment systems, i.e.,
reducing transaction costs.
According to Pan and Fan, in view of the stability of
the banking system, considering shadow banking,
interbank lending, and complex relationships
between banks, there is a need for concentrated
interbank network structure that is easier to
increase the probability and degree of risk
contagion.
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In other words, financial development is
essential for reducing income inequality.
Moreover, there is no doubt that financial
development plays a key role in sustainable
economic growth and development.
FINANCE AND GOVERNANCE
There must be a sound legal system to generate
trust because this affects the borrowing and lending
behavior of individuals and firms.
The issue of insecure property rights in a firm
because of insiders creates weak trust for minority
shareholders.
Shadow banking is the credit intermediation of
channels funding from depositors to investors
through a range securitization and secured funding
techniques and may cause systematic financial
risks and arbitrage risks.
● Moreover, the management of payment
systems is getting easier with the use of
mobile devices.
In a study by Su-Chang et al. in 2019, due to
smartphones being more popular and the wireless
network infrastructure improving, it positively affects
customers' satisfaction in terms of mobile payment
usage intention.
Effective corporate governance is the
examination of the control of a company as
exercised by its directors.
 The directors of public companies are
accountable for their actions to the
company shareholders.
The separation of the chief executive officer and
chairman positions emphasizes the independence
of the chairman of a company.
The roles of finance in development are:
(1) link the savers and investors;
(2) screen and monitor investments;
(3) smoothen consumption;
(4) manage risks;
(5) manage payment systems.
Nevertheless, there are different views on the
adequate number of independent members across
countries.
● In Oman, the Philippines, and Thailand,
most members should be non-executive
with at least one-third being independent
according to their governance codes.
● With respect to the rights and equitable
treatment of shareholders and, key
ownership function, the Philippines goes
beyond the standard set by the
Organization for Economic Cooperation
and Development (OECD) Principles and
promotes a vote by proxy and use of
electronic means to facilitate shareholder
participation in general meetings.
Financial development has been considered an
efficient mechanism for sustainable economic
growth and development of emerging markets in
the past decades.
● The study by Thang et al. in 2019 published
in the Journal of Risk and Financial
Management, implied that income
inequality may rise at the early stage of
financial development and fall after a certain
level is achieved.
There is a shared recognition of the benefits of an
independent governing body, especially in
situations of conflict of interest.
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Like many developed countries, Brazil, the
Philippines, South Africa, Malaysia,
Taiwan, and Thailand have issued a standalone stewardship code dedicated entirely
to the issues of institutional investors, and
other intermediaries in detail.
The Philippine code encourages a
governance body to put in place policies,
programs, and procedures to encourage
employees to actively participate in the
realization of the company's goal and
management.
Furthermore, the country opted for the
predominant "comply or explain" approach
promoted by the OECD principles that
combine voluntary compliance with the
mandatory disclosure of the company
situation.
Companies thus do not have to comply with
all the code provisions necessarily but must
indicate and explain their reason for
noncompliance.
MICROFINANCE
Microfinance is defined as a range of financial
products (loans, savings/cheque accounts,
insurance, etc.) focused on low-income individuals
who have generally been overlooked by traditional
financial service providers.
● They have been neglected by or denied
access to mainstream financial institutions
because of the perceived risk or relatively
low balances/high transaction accounts to
maintain.
● The poor usually are subject to low,
irregular, and unpredictable income flows
and their needs vary from time to time. The
usual pecuniary (or in-kind) are sourced
from family, friends, or remittances.
Microfinance is available as well, like the rotating
savings and credit association (ROSCAs), micro
lenders, store credit, and money lenders.
Microfinancing has been directly related to the
economic growth of a country.
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In a study by Sainz-Fernandez in 2018, it
was found that the degree of economic
growth affects the relationship between the
financial sector development and
microfinance activity. When the economic
growth is high, the development of the
financial sector positively influences the
activity of microfinance sector.
MICROCREDIT
● One of the many financial tools today is
microcredit. These are ways of improving
access of the poor to a variety of financial
services, including microsavings and micro
insurance.
● Microcredit does not require collateral,
relatively because of the value of the loan. It
may be borrowed one time or on a recurring
basis, depending on when a need arises.
● Interests on microcredits are relatively
high, sometimes as much as 35% per
annum or higher, but these organizations,
especially the successful ones, do not allow
individuals to borrow more than they can
afford to repay.
● The proponent of microcredit is the Nobel
Prize winner and awardee of the Indira
Gandhi Prize for Peace, Disarmament and
Development, Muhammad Yunus, PhD,
believing that poor people will repay loans
given the opportunity to commercialize their
ideas, making microcredit a viable business
model.
MICROSAVINGS
● The idea of pooling resources is(not) new in
terms of savings for Filipinos. Group
cooperation among individuals is inevitable
as well as the desire to help one another in
times of need. One example of
microsavings that is prevalent today is the
rotating savings and credit associations
(ROSCAs).
●
They are informal financial institutions that
exist worldwide, in which all participants
contribute to a common fund and take turns
to receive a return.
ROSCAs are common in developing countries and
among migrant groups in developed countries.
In India, they call their version of ROSCAs as
chit funds
Susus in Nigeria and Ghana
Tontines in West Africa
Pasanaku in Bolivia
Hui in China
Arisan in Indonesia
Paluwagan in the Philippines.
There are two common types of ROSCAs:
 Random ROSCA
 Auction ROSCA
Random ROSCA
● The first ROSCA is familiar to the regular
paluwagan of Filipinos, wherein a fund is
formed by contributions of those who
agreed on the microsavings and every
agreed time, they would take the pooled
amount.
● For example, Estela, Adelaida, Luzviminda,
and Merlina agreed to contribute P5,000
each, and when brought together would
amount to P20,000 in the span of four
months (let us just say) each of them would
receive P20,000 every month, usually done
at random draw lots. They do not need to
wait for weeks to receive P20,000 except for
the last one in the paluwagan.
Auction ROSCA
● The second type of ROSCA is the auction
ROSCA, wherein a bid is tendered by those
who want to pool their money. The one who
bids the highest would be the first to receive
the total amount, and so on.
●
●
●
Auction ROSCA allows those with urgent
needs to receive funds earlier than those
with less urgent needs.
However, the bid amount will be deducted
from the total amount to be received by the
members of the ROSCA.
Using the same example in the previous
paragraph, Merlina bid P500 and Estela
P1,000. The highest bidder is Estela;
therefore, she will be the first one to receive
the total amount by ((P20,000-P1,000), i.e.,
P19,000 and Merlina would receive in the
next month, the amount of (P20,000- P500)
i.e., P19,500, the savings of P1,500 would
go to the one managing the collection and
Adelaida and Luzviminda would have to
draw lots for the third and fourth recipients
of the fund.
ISLAMIC FINANCE
● A well-functioning Islamic financial system
promotes economic growth. In a study
● made by Suseno et al. in 2018, it was found
that macroeconomic factors, the level of
employment, and GDP per capita have
the most significant influences on financial
inclusion in Islamic banking countries.
● Other non-economic societal factors such
as information technological advancement
and corruption level do not significantly
influence financial inclusion.
● The Islamic finance model has its
foundation and origin in the Koran and in
the sunna (the sources of sharia, i.e., the
Islamic law). Its application (except for a few
cases) is bound by a conventional body of
rules and regulations as well as the
historical, social, and economic context of
the country (Muslim and otherwise) in which
the model has been implemented.
● In the Gulf Cooperating Countries (GCC),
there is a direct relationship between
adopting Islamic finance and the economic
growth of its member countries.
●
●
The performance of their banking
institutions has contributed to the economic
growth through induced financing activities.
Managers of the Islamic banks have an
understanding of how their institutions could
improve economic performance as it
reduces the severity of the financial crisis by
avoiding major weaknesses of the
conventional banking system.
The Philippines, as a predominantly Catholic
country, would contribute mainly to its Halal
industry to address the international system of
Islamic finance.
In a study made by Martin et al. published in 2020,
it showed that the knowledge of Halal concept
makes the respondents of the said study agree
more with the active role of Islamic finance. It
provided insights to the main stakeholders, and it
can be strategically used to foster adequate
synergy between Islamic finance and the
development of Halal tourist products to specialize
in a more sustainable tourism.
This would eventually contribute to the economic
growth and development of the country.
●
Halal means literally, that which is
permitted or prescribed, primarily refers to
dietary restrictions that Muslims are
expected to follow. Halal products are in
great demand by consumers all over the
world.
Chapter 10 : FOREIGN TRADE
Foreign trade is the exchange of goods and
services between countries.
 However, the dynamics of trade are highly
complicated as there are a lot of risks
involved, but of course, the reward to reap
when it is a success. This economic activity
started for centuries, even before history
was written.
 Early people exchange goods for a different
variety of products; we know it as barter,
which some of us are still doing nowadays,
especially during the time of pandemic,
2020 and 2021.
Greek civilization and the Roman Empires used
to trade with their nearby empires and so as the
Chinese (Middle Kingdom) to the world.
 Countries in Asia are aiming to increase
their exports and attract more foreign direct
investments (FDIs) to alleviate poverty,
improve social reforms, increase life
expectancy, and of course, improve the
quality of life.
Technological innovations led to globalization
and made the world seem borderless in terms of all
forms of trading. As believed, one country cannot
be self-sufficient, does not have everything in the
world, and must exchange for another product,
even for North Korea.
HISTORY OF FOREIGN TRADE
Mercantilism valued balance of trade, exports
given to a foreign country must, at any time, exceed
the imports, if not equal.
In the eighteenth century, Adam Smith wrote a
book, The Wealth of Nations, the time of
liberalism emphasized the role of specialized
production to supply the highly increasing demand
for consumption.
● This led to David Ricardo's theory of
comparative advantage, wherein each
country specializes in a particular product or
set of products and import for his theory on
wages and profit, everything else for
consumption.
 The main factor that pushes international
trade is a comparative advantage, a
concept by David Ricardo.
 A country has a comparative advantage in
the production of goods and services if that
particular country can produce the same at
a lower opportunity cost than other
countries.


In the year 1913, gold and other precious
metals were considered a medium of
exchange; a lot of countries considered it
valuable and made it possible to trade much
easier despite the borders.
David Ricardo (1772-1823)- a classical
economist best known for his theory on
wages and profit, the labor theory of value,
the theory of comparative advantage, and
the theory of rents.
The League of Nations organized the World
Economic Conference in 1927, masterminded the
multilateral trade agreement between nations, and
set the regulations to keep up with the everevolving international trade.
 Today, profitability is maximized through
efficient production and distribution, as well
as exchange, by the use of comparative
advantage and regulations that are in place
to ensure seamless business transactions
beyond borders.
 Governments always sought to manipulate
foreign exchange activities to favor their
own economy, which is just reasonable.
CONCEPTS OF FOREIGN TRADE
Households and firms around the world constantly
change their demand for goods and services that
may not be available in their country; hence, there
is a need to acquire these products in exchange for
its own capital, goods, and services.
 In fact, in the computation of the GDP, we
include a component of international trade
that is net exports, the difference between
exportation and importation, and the
balance of payments.
 Trade surplus- when a country exports
more than its imports.
 Trade deficit- when there are more imports
than exports.
The balance between all payments out of a country
within a given period and all payments into the
country is an outgrowth of the mercantilist
theory of balance of trade.


Balance of payments includes all
payments between a country and its trading
partners and is made up of the balance of
trade, private foreign loans and their
interest, loans and grants by governments
or international organizations, and
movements of gold.
For example, the Philippines is one of the
leading suppliers of business process
outsourcing services in the world. We may
have more skillful individuals who can do
the job in terms of language and technical
knowledge, specifically in voice-based
services, to example, call centers.
Another concept in international trade is where the
foreign currency is being traded and that is what we
call the foreign exchange market.
 Currency appreciation when a currency
increases in value compared to another
currency.
 Currency devaluation when a currency
decreases compared to another currency.
 "Dust exchange rate" refers to a situation
in which more than one exchange rate
applies between one currency and another.
 The term arises most often when a
country's authorities establish one
exchange rate for certain transactions
involving foreign exchange/currency and
second rate governing other transactions.
Many countries in Europe and the developing world
use a
 fixed exchange rate for commercial
(current account) transactions
 fixed or floating for other (financial
account) transactions.
World Price a prevailing price of a good in the
international market.
This can be the basis of the decision to import and
export when the domestic price of a good is higher
or lower than the world price, hence, maximizing
the cost to acquire the specific good.
GAINS FROM TRADE
It is undeniable that there are a lot of benefits to
international trade. We can use electronic devices,
wear imported clothes, eat fruits and vegetables
that are not locally grown, and so forth. These are
some of the perks of foreign trade.
Production Costs. Raw materials in certain
countries are cheaper than the others making the
production costs lower.
 For example, China is able to maximize the
economies of scale of the mining and light
industries thereby lowering the production
costs making the price that is passed on to
consumers comparatively low. It is true,
however, that not all industries in China are
able to optimize economies of scale, and, in
fact, it is currently going down, according to
the same study.
Competition. The liberalization of trade and
investment stimulates healthy competition.
 There are two main reasons for an
examination of the relationship between
trade and competition.
 Increasing recognition that the benefits of
international trade liberalization may be
negated by domestic measures inimical to
an open, competitive market environment.
 There are cases where the use of either
trade policy or competition policy could lead
to differing results, depending on which
policy was given priority.
 In a highly competitive open market,
prices are low because these business
entities tend to compete with each other's
prices and quality of products. In a
monopolistic market, however, prices are at
the discretion of the producer as the sole
seller of the product, which makes it more
expensive for the buyers.
 Moreover, production processes become
more efficient, always innovating on new
ways to produce the same products at a
much cheaper cost, thereby improving the

existing processes and achieving the
optimized result.
It may also be true that in the pursuit of
looking for more efficient ways to
produce the product, they may come up
with an eco-friendlier technique, for
example, lowering the consumption of nonrenewable energy.
Product Variation. Some people in less developed
countries enjoy the benefits of electronic devices
and machines like computers, mobile phones,
home appliances, etc., even if they are not
producing them because of the foreign trading.
 This somehow makes life for them easier
and increases their standard of living.
 In addition, products that are available
depending on the season may be accessed
any time of the year as they can be supplied
by a country that is not affected by seasonal
changes.
Surplus Market. This benefit is particularly for
those producer countries of agricultural products or
other perishable goods that may have surpluses
and would be willing to exchange these for other
products that are useful to them.
 For example, a surplus of tomatoes in
Indonesia may supply the deficiency of the
same good in Mongolia, where tomatoes
are not grown year-round because of the
weather. There is almost always a country
that needs the surplus products of another
country.
Market Efficiency. Seasonal fluctuations of
products affect some companies that may lose the
opportunity to do business when their product is in
low demand.
 For example, the demand for winter clothes.
There must be at least one country that
needs this good, even if it is not winter in
the home country, like the weather seasons
of the United Kingdom and Australia or
South Africa. It may be summer in the UK

but winter for these countries and may be
demanding for warm clothing.
This manages the risks of losses of
seasonal fluctuations and enjoys profit
because of international trade.
RISKS OF FOREIGN TRADE
There are benefits and risks from foreign trade.
These are some of the risks that might be
encountered in foreign trading by private trading
firms:



Buyer Risks. It may be challenging to start
international trade with the first client; trust
will always be an issue as the possibility to
be scammed is great.
Seller Risks. Reputation may be
compromised as two factors must always be
met, the volume and the distance of
delivery. Hence, the quality as well as the
quantity of the products must always be
met, agreement to always be adhered upon.
Third-party Risks. Failure to honor buyerseller agreements is one of the risks in
foreign trade. In cases of losses of products
in transit, the believed insurance may not
cover all expenses.
EFFECTS OF FOREIGN TRADE
World price is the price of a product set to other
countries except for the price in own country.
 We tend to export goods and services with
domestic prices lower than the world price,
and import goods and services where the
local price is higher, than the world price.
In the imposition of a tax on import, known as tariff,
the world price increases by the amount of tariff.
 It changes the equilibrium demand and
supply.
 For the consumer side, as the price
increases, the quantity demanded after tariff
decreases
 For the domestic supplier side, as the
price increases because of tariff, the
quantity supplied also increases.


The importation is the difference between
the quantity demanded and the quantity
supplied after the imposition of the tax.
The shaded rectangle represents the tax
revenue that is collected by the government
that may be used to finance public goods
and services.
A tariff has implications that surely affect the
welfare, although it may not be true always that it
benefits both domestic consumers and suppliers.
 Tax basically increases prices to the
consumers, hence demand decreases and
this makes a deadweight loss, an
economic inefficiency as tariff creates a new
equilibrium point.
 It also diverts production from foreign
producers who may be using low-cost
production to domestic producers that may
be using high-cost production and this
wastes resources.
TRADING IN THE ASEAN
The Association of Southeast Asian Nations
(ASEAN) seems to be doing good in the net
exports of goods and services as it is in an
increasing trend before the pandemic.
 The services sector that is mainly traded
by the ASEAN worldwide is manufacturing
services, maintenance and repair, transport,
travel, construction, insurance, and other
financial services.
 In 2015, the ASEAN Germany-Economic
Community or the AEC was established to
allow free movement of goods and services
among its member countries.
 This has led to the growth of the trade bloc.
 The ASEAN Trade in Goods Agreement
(ATIGA) allows Brunei, Indonesia,
Malaysia, the Philippines, Singapore, and
Thailand to eliminate intra-ASEAN import
duties on almost all of their tariff lines, while
reducing import duties to 0-5% on almost
all tariff lines of Cambodia, Laos, Myanmar,
and Vietnam.


The ASEAN is composed of Brunei,
Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore,
Thailand, and Vietnam.
The three additional East Asian members of
the ASEAN plus three are China, Japan,
and South Korea, with the addition of some
Oceanian members of ASEAN plus six,
Australia and New Zealand.
ASIAN TRADING WITH THE PHILIPPINES
 In April 2021, bulk of the Philippines'
exports went to the Asia-Pacific Economic
Cooperation (APEC) member countries by
$4.84 billion, then East Asia at $2.88 billion,
and the ASEAN at $956.67 million.
 It is then followed by exports to the
European Union and the rest of the world by
economic bloc.
 At the same time by region, the top
geographic region is Eastern Asia,
followed by Southeastern Asia, North
America, Western Europe, and the rest of
the world.
China leads the countries in which the Philippines
exported products by $1,036.2 million, followed by
the USA, $1,026.8 million, Hong Kong by $875.2
million, Japan by $847.9 million, and then
Singapore, Thailand, Germany, Korea, Germany,
Taiwan, Netherlands, and other countries.
CHAPTER 11 : FOREIGN DIRECT INVESTMENT
FOREIGN DIRECT INVESTMENT
When a firm decides to invest in another country,
usually a Multinational Company (MC), either to
expand its reach or to merge with existing local
corporations, it is called foreign direct investment.

FDI is a long-term capital flow or investment
in which a nonresident entity has a
significant management control of voting
stock (10% or more) over an enterprise in a
foreign or host country.

Unlike short-term capital flows, FDI is not
immediately susceptible to reversibility.
 The relationship between the said countries
is investor to investment enterprise.
 There are a lot of MNCs that have foreign
direct investments in another country.
 The main goal is to optimize earning by
minimizing costs that may and may not be
advantageous to the investment enterprise
country.
 Some of the industries that have FDIs are
energy, pharmaceutical,
telecommunications, entertainment,
consumer products, computer, etc.
In the Philippines, we can easily name some of the
MNCs operating such as Google, Accenture,
Hewlett Packard, Proctor and Gamble; Palo Alto,
Viber, Regus, HSBC, Citibank, Thomson Reuters,
and many more
FORMS AND TYPES
There are two main forms of FDI
Greenfield Investment
 The Greenfield Investment is when an
investor MNC starts a new venture in a
foreign country by constructing new facilities
to operate from the ground and up.
 The purpose is to create a long-term
presence in the country
 For example, McDonald's and Starbucks.
Greenfield investments are undertaken by a
"start-up" (new) business and by existing
firms as a means of expanding their
activities.
 Establishing a new plant may be preferred
to inheriting existing plants through
takeovers and mergers because it gives the
firm greater flexibility in choosing an
appropriate location.
Brownfield investment
 The Brownfield investment is purchasing an
existing enterprise.
 For example, Tata Motors of India
purchasing Land Rover and Jaguar, where
there are already certain capacities and
infrastructure in the location.

This type of FDI provides an opportunity to
establish and test new sustainable
development practices.
We can categorize FDIs into three' types:
Horizontal FDI
 Is when the parent company carries out the
same activities in the enterprise.
Vertical or Forward FDI
 Is known for the parts of the production
chain that are done abroad
 For example, Toyota acquiring
distributorship in the USA.
Backward FDI
 Is an international integration where
materials are sourced abroad, like acquiring
a rubber plantation to be used for the rubber
needs as materials for the MNC.
 It may also be known as a conglomerate
type for the business which is considered
not related to the business in the home
country.
ADVANTAGES AND DISADVANTAGES
There are many ways that an FDI fosters economic
development in a country. We can sum it up into
four main benefits.
 First, the effect of the transfer of
economic resources in terms of
capitalization, technology, both hardware
and software, and management skills in
terms of operating in a new environment.
 Second, the positive effect on
employment, whether directly or indirectly.
Hiring employees from the investment
enterprise country would certainly decrease the
unemployment rate, while it can also contribute to
the spending population and boost consumer
spending that is advantageous to the per capita
GDP. Moreover, the employment of other suppliers
in the country helps build both the MNC and the
economy
 Third, the stabilizing effect on the balance
of payments. FDI’s are considered
substitutes for imported goods and services.

Fourth, the constructive effect on
competition, more choices to the
consumers, which increases innovation and
generally decreases prices, more capable of
spending, thus, helps develop the economy.
If there are benefits of FDIs, there are also costs.
 A sudden withdrawal of the MNC from its
enterprise country, which may have been
too dependent on them, may be considered
a failure to its economy in terms of
employment and market balance.
 There are even more risks in operating
within multiple governments that may be
considered very risky, especially in sudden
changes in a political atmosphere.
 There are FDIs that target primarily the host
country's domestic market and thus do not
increase exports, a possibility to hinder local
firms to become exporters and even neglect
the host country's dynamic comparative
advantages by centralizing on cheap
labor and raw materials.
PRAGMATIC APPROACH TO FDI
Approaches toward FDI’s vary from country to
country.
 The focus, however, is the same, that is
optimized benefit to both the investor and
the investor enterprise.
 On the view of the investor enterprise,
they have the automatic inclination to
restraint ownership to locals, hence
providing a certain percentage of the
employees to be locals.
 Furthermore, performance requirements to
the MNC may take the form of restrictions to
product contents, technology transfer, and
even a condition to participating in top-level
management decisions.
 Today, China has been successful in their
FDI in other countries, for example, the
initiative, One Belt One Road (OBOR)
infrastructure projects to interconnect trade
in Africa, Asia, and some parts of Europe.
OBOR conforms to the trends of world
economic globalization, and also meets the
requirements of the development of a global
governance system.
According to the PSA in 2019, the vast majority of
FDIs in the Philippines is in the manufacturing,
real estate, tourism, transportation, financial/
banking, and a promising sector in e-commerce,
biotechnology, business process outsourcing,
education, energy, and retail.
 The industries that have a considerably
fewer opportunities are mass media,
advertising, public services, marine
resource management, and small-scale
mining.
 With a population of over 108 million
people, the Philippines has a large market
to attract FDIs.
 It includes a strong workforce that is
skilled and considers English as the second
language.
 Apart from these, the country effectively
assimilates with the customer service
management of MNCs through its BPOs.
On the other hand, comparing the Philippines with
its neighboring countries, there is an issue with
communications and transportation, mainly
because of its archipelagic nature.
 The country may have an unstable
partisan system, making the politics
insecure.
 According to some international reports, the
Philippines has a high level of corruption
in different aspects of governance, which
may be detrimental to foreign direct
investors.
 Moreover, there has been a long-time
inequality in economic development per
region and decades of security issues in the
southern part of the country.
The Philippine government recognizes the
importance of FDIs in the economic growth and
development, especially now that the ASEAN is
becoming more active in the global business
participation.




Liberalization of legislation leads to a
more open investment, granting investors
more incentives like more freedom of
establishment, freer acquisition of holdings,
and more economic free zones.
Furthermore, there is a commitment to
improving communication and
transportation by building roads, bridges,
railways, and a modern transport system,
introducing more competitions in
communication, thereby making the speed
of internet faster and cheaper.
Recently, the country allowed changes to
the Foreign Investment Negative List
(FINL), for foreign MNCs to have 100%
investment in Internet businesses.
Currently, the Philippines provides
incentives in the form of tax exemptions
and reliefs, as well as custom facilities and
administration. For example, export
businesses enjoy preferential tax treatments
that are situated in ecozones under the
Philippine Economic Zone Authority (PEZA).
ASEAN FDI
Inward FDI to ASEAN, most of the countries
increased the inward FDI from 2014 to 2019 data,
except for Thailand, Lao PDR, and Brunei
Darussalam.



The top three countries that received the
largest chunk are Singapore, Indonesia,
and Vietnam; the least three are Brunei
Darussalam, Lao PRD, and Myanmar.
The Philippines increased the inward FDI by
32% from the 2014-2018 data.
There has been a substantial increase in
manufacturing, financial and insurance,
construction, human health, and social
work, and a considerable decline in the
wholesale/retail, agriculture (AFF), and
mining and quarrying from the 2014-2019
data.
CHAPTER 12 : FOREIGN AID AND
REMITTANCES
INTRODUCTION
 The idea of foreign aid started after the
Second World War, especially in Europe.
 There was a need to rebuild a severely
devastated region that must be restored by
other countries like the United States of
America.
 Hence, international organizations were
formed to start taking back with what was
lost.
 In 1944, with the aim of rebuilding and
starting the reconstruction of Europe, the
World Bank was formed, followed by the
founding of the United Nations in 1945
with the intention to maintain and secure
peace among nations.
 In the same year, the International
Monetary Fund (IMF) started to stabilize
and oversee the international monetary
system.
 In 1944, an agreement was signed in
Bretton Woods, New Hampshire, USA that
created the IMF.
 It set the rules for exchange rate behavior
and created a pool of common currencies,
thereby making the IMF the world's
"lender of last resort."
Foreign Aid
 Foreign aid is the donation or transfer of
help in the form of money, goods, and
services to a country that needs it.
 This is regardless of the economic status,
depending on the purpose of the aid.
 In general, it aims to foster peace and
security among nations, assist in the growth
and development of one country, enhance
the health and education systems, share
technological advances, protect the
environment, adjust the effect of inflation,
and help in the time of disasters like
earthquakes, tsunamis, and wars.
 International aid, or official development
assistance (ODA), comprises a wide range
of financial and nonfinancial components.
These may take the form of cash transfers,
as well as grants of machinery technical
advice, and analysis and assistance in
capacity-building support.'
CONCEPTS OF FOREIGN AID
 Foreign aid is there to promote the Solow
Model
 Foreign Aid economic and social
development, as it tends to increase a
recipient bag of resources such as money,
food, medical supplies, etc.
There are two forms of foreign aid:
 one that is officially made in between
countries or more popularly known as the
official development assistance (ODA)
 one that is done usually through
nongovernmental associations (NGOs)
and unofficial aids.
 An example of foreign aid is humanitarian
aid. It helps in managing short-term
sufferings, providing assistance to those
who are affected from a recent typhoon or
hurricane, flooding, earthquake, and other
disasters.
 The more permanent aid is the
development aid, which is like long-term
loans provided to build infrastructure
programs.
 It was discussed previously on the
relationship of output and capital by the use
of the Solow Model.
 Foreign aid is pushed back to a steady
state (S.S.) level of investment that is equal
to the capital if there is no improvement of
fundamental factors such as technological
advances.
 Foreign aid is not all the time "good" in the
real sense of the word, at least on behalf of
the recipient country to some cases.
 This may encourage more corruption, as
government officials in some countries tend
to use the funds for their gains, like for
reelection purposes.






Because of foreign aid, dependency
becomes more evident, and effort for
economic development tends to be
neglected.
Think of a person who is supplied with help;
his/her basic necessities are met, and in
effect, he/she would not want to find
employment.
Long-term loans may hinder the real
growth of the country because there is still a
promise to pay it back with interest, which
would have to be repaid in the future.
Lastly, there can be an underlying motive
in giving foreign aid; it can be used to
push for economic policies that may be
favorable to the donating country that may
negatively affect the recipient's own
people's benefit.
A study published in the African Journal of
Governance and Development in 2019
suggested that in general, foreign aid had
a negative impact on the African economy
that has weak governance.
Furthermore, foreign aid from the USA
has a detrimental, negative impact on the
African economy compared to that of
European Union (EU) countries.
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Marshall Plan
According to a 1947 speech made by George
Marshall, who is one of the recipients of the
prestigious Nobel Peace Prize, "It is logical that the
US should do whatever it is able to do to assist in
the return of normal economic health to the world,
without which there can be no political stability and
no assured peace. Our policy is not directed
against any country, but against hunger,
desperation, and chaos."
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The United States under the leadership of
then-President Harry Truman signed the
Marshall Plan, also known as the European
Recovery Program, which aimed to rebuild
Europe that was devastated by the war.
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Millions of people were killed or in famished
conditions, without food, clean drinking
water, basic clothing, and shelter simply
because the production of these necessities
slowed down and even stopped in a lot of
economies.
Many infrastructures, buildings, bridges,
roads, railways, and ports were in
unfortunate conditions if not totally
damaged. Europe was in dire need of help
from other countries, hence, the Marshall
Plan.
A substantial 5% of the US GDP was
allotted to this recovery program at that
time, mainly to restore production, boost
and expand trading, and of course, keep
communism from spreading in Europe.
It was believed that salvaging these big
countries will eventually be beneficial to
the US and the world.
But not all countries in Europe devastated
by war were recipients of the said foreign
aid. Those who fought with the Axis power,
such as Germany and Italy, as well as the
neutral Switzerland, received smaller
amounts as compared to the members of
the Allied Powers.
The European Recovery Program lasted
for four years, but there are some
economists who believed that the impact of
which was immaterial 'as the aid was
estimated only to be 3% or less of the
national incomes of the receiving countries.
Nonetheless, it can be noted that the foreign
aid helped in surpassing the severity of the
condition at that time.
PEACE AND SECURITY
There is a link between foreign aid in the form of
food security and peace, especially in some
countries in Africa and South Asia.
 A conflict-sensitive development aid
allows peacekeeping-activities and those
that reduce the inflation of an affected
nation, hence fostering peace among the
people.
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Focusing on the core issue of the conflict
like poverty, it may be addressed by a push
in the production of food by foreign aid,
thereby enforcing peace in that country.
Since the creation of the United Nations in
1945, it has been their objective to
maintain international peace and
security by deploying peacekeepers in
various areas that are susceptible to
conflicts.
The General Assembly complements the
UN Security Council to sustain peace and
security.
Foreign assistance awards by certain US
agencies have reported aid specifically
aimed for peace and security, counterterrorism, transnational crime, and
combating weapons of mass destruction.
It is said that big receivers of aid are
associated states to somehow relate to the
military despite that aid is not military in
nature.
PUBLIC HEALTH
One of the main goals of foreign aid is to
eradicate certain diseases that cause an economic
disruption, like HIV-AIDS, malaria, and dengue, to
name a few.
 "The United States and Southeast Asia in a
COVID 19 World: A New Start."
 As an active arm of the United Nations, the
World Health Organization (WHO)
promotes the attainment of the highest level
of health and safety.
 It is the organization that directly responds
to health emergencies worldwide, like what
we are experiencing: the COVID-19
pandemic.
 The World Health Assembly is the
decision-making body of the WHO led by
member states of the United Nations.
 They all unite to battle harmful diseases in a
scientific manner and come up with health
management solutions to finally eradicate
the illness.
REMITTANCES
 Remittance is the sum of money that is
sent by a worker to his/her own country,
predominantly developing countries such as
India, China, the Philippines, and Mexico,
among others.
 Some countries may even have remittance
as a huge chunk of their GDP like Nepal
and some countries in Eastern Europe.
 The advantages of remittances are quite
obvious, like contribution to the buying
capacity of the families left behind, allowing
them to participate in economic activities
like buying more goods and services.
 In the 2019 Survey on Overseas Filipinos,
the total remittance sent by Overseas
Filipino Workers (OFWs) during the period
April to September 2019 was estimated to
be P211.9 billion, sent as cash and in-kind,
P157.9 billion of which was cash and
remitted through banks, money transfers,
agency, local office, and door-to-door or
delivered by friends or co-workers.
 On average, the remittances of overseas
Filipinos amount to around 9% of the GDP
of the country, undeniably a material
amount to sustain economic activities of the
Philippines.
 However, some economists believe in the
negative impacts of remittances. They
say, it nurtures too much dependency on
outside money, dis-incentivizes growth in
the home country and recipient country, and
may negatively affect the vulnerability of the
country to the global economy.
 Another is the increasing cost of
transferring funds from one country to
another that causes billions of dollars’ loss
to the recipient country, although, of course,
the loss may be overcome by the income it
represents.
 A paradox like this is called The Dutch
Disease wherein something that is
generally beneficial becomes an opportunity
for negative exploitation and may harm the
larger part of the economy.
INTERGOVERNMENTAL NONPROFIT
ORGANIZATIONS
We may consider some nongovernmental
organizations (NGO's) and intergovernmental
organizations that foster the same aim in the
nature of foreign aid.
 These charitable institutions do similar
activities as foreign aid by the government,
but the funding comes from predominantly
private investors.
 The United Nations Children's Fund
(UNICEF) is a social welfare organization
present in 192 countries and territories
aiming to develop children in developing
and underdeveloped countries.
 Another example is the International Red
Cross and the Red Crescent Movement
with 97 million volunteers to address human
suffering and help improve the health
conditions of those who are sick.
 The World Food Program is an
organization under the United Nations that
is focused on hunger and food security.
They are also the biggest provider of school
meals in impoverished nations.
 Another example of a charitable institution is
the Doctors Without Borders, a Frenchbased organization in conflict zones that
treats the wounded in those territories with
endemic diseases.
 These organizations are tax exempt in
most countries around the world, and their
funding normally comes from a few
investors who believe in their goals that are
mostly aiming for human development.
 However, we are cautioned about the real
intent of some institutions as some may be
fraudulent or at least poorly managed,
which is such a waste of donation funds.
There are organizations like the charity navigator
that serve as an information guide to intelligent
donating.