A classic definition of economics that is attributed to British economist Lionel Robbins goes thus: “Economics is the study of the use of scarce resources that have alternative uses.” On the one hand, there is scarcity, which means that what everybody wants always adds up to more than what there is. On the other hand, to address scarcity, there is productivity, which deals with how land, labor, capital, and other resources are used to create goods and services.
Economics studies the consequences of decisions that are made about the use of scarce inputs that go into producing the volume of output that determines the standard of living of a country. It should be emphasized that those decisions and their consequences can be more important than the inputs themselves, for there are poor countries with rich natural resources and countries like South Korea and Singapore with relatively few natural resources but high standards of living.
An economy determines how much of each scarce input to allocate to each of its many uses. An economy can make such decisions, in one way or another, whether efficiently or inefficiently. Of course, doing so efficiently is precisely what economics aims to teach.
Sadly, however, the Philippines is often used as an illustration of the so-called “paradox of plenty” (“natural resource curse”), which is the commonly observed phenomenon whereby countries rich in natural resources tend to have less economic growth, less democracy, and worse development outcomes than countries far less endowed. Indeed, one key lesson in economics is that an abundance of resources does not automatically guarantee an abundance of goods and services. What is really important is how well a country uses whatever gifts that it has.
Now, perhaps, aside from natural resources, the Philippines runs the risk of squandering its other gifts, most notably the remittances from its overseas Filipino workers (OFWs). As reported by the Bangko Sentral ng Pilipinas just three months ago, personal remittances from Filipinos abroad reached an all-time high in 2023, on the back of the increased deployment of overseas workers. Personal remittances amounted to $37.2 billion, up by three percent from the $36.1 billion in 2022. The full-year 2023 remittances accounted for about 8.5 percent and 7.7 percent of gross domestic product and gross national income, respectively.
Cash remittances coursed through banks reached $33.5 billion in 2023, higher by 2.9 percent from the $32.5 billion in 2022. The growth in cash remittances from the United States, Saudi Arabia, and United Arab Emirates contributed mainly to the increase in remittances in 2023. The United States had the highest share of overall remittances during the period, followed by Singapore, Saudi Arabia, Japan, and the United Kingdom.
Although remittances have strengthened the current account, supported the peso, and fueled domestic consumption, a recent study by the Philippine Institute for Development Studies (“Long-Term Effects of Labor Migration in the Philippines: ‘Napakasakit, Kuya Eddie!’”) has urged policymakers to look beyond remittances and address the complex social and emotional implications of labor migration. Among other issues, the study warned of the overreliance on remittances, which could create dependency, discourage local labor participation, and even fuel inequality.
The study cited the high number of college-educated OFWs across all levels, even in service jobs, compared to the lower educational attainment of their domestic counterparts. It suggested a potential brain drain hindering Philippine workforce development. Many skilled workers with college degrees have opted to work abroad to get better-paying jobs, even in less-specialized fields.
The authors underscored the need to create more job opportunities in the Philippines to foster domestic development, invest in local skills, and strengthen support systems for both OFWs and their families to mitigate the potential negative consequences of overreliance.
On a more positive note, in a recent talk sponsored by the Ateneo Center for Economic Research and Development, Ms. Mishael Joy Barrera shared some interesting findings from her paper (“Do Non-Monetary Forms of Remittances Matter for Entrepreneurship Development? Evidence from Filipino Migrants in Japan”). Ms. Barrera notes that while monetary transfers are susceptible to being easily depleted and consumed by recipient households, tangible assets such as physical capital goods and intangible forms of support carry inherent and sustained value.
The findings of Ms. Barrera’s study emphasize the transformative potential of remittances, not merely as transient financial injections but as enduring contributors to entrepreneurship development. Her analysis reveals that financial backing from monetary remittances, when complemented by nonmonetary support, can reinforce households to meet immediate needs and provide opportunities to invest in business initiatives.
In sum, the Philippines cannot afford to be complacent with its remittances. Such gifts should be channeled toward investments to build a more robust domestic economy.
