MACRO ECONOMICS ASSIGNMENT 2022

ECONOMY OF PHILIPPINES

NAME: KARAN KUMAR

CLASS: BBA ‘A’
CLASS ROLL: 2013
EXAM ROLL: 20PBBA046682
0
 CONTENTS
Serial Topic Page No.
No.
1.  ACKNOWLEDGMENT 02
2.  INTRODUCTION 03

3.  GROWTH RELATED ISSUES IN PHILIPPINES 05

4.  THE ISSUES OF BUSINESS CYCLES 11

5.  THE ISSUE OF INFLATION 16

6.  THE ISSUE OF UNEMPLOYEMENT AND 23

POVERTY IN PHILIPPINES

7.  THE ISSUE OF BUDGETARY DEFICITS 25

8.  THE INTERNATIONAL ECONOMIC ISSUE 28

9.  BIBLIOGRAPHY 31

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my

teacher Mr. Anurag Denis Tete, as well as our Head of
Department Mr. Abhijit Dey, who gave me the excellent
opportunity to do this wonderful assignment on the topic “THE
ECONOMY OF PHILIPPHINES”.

They have helped me in doing a lot of Research and I came to

know about so many new things.

Secondly, I would also like to thank my family and my friends

for constantly encouraging me during the course of this
assignment, which I could not have completed without their
support and continuous encouragements.

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 INTRODUCTION
•The Economy of the Philippines is the world's 32nd largest

economy by nominal GDP according to the International

Monetary Fund 2021 and the 12th largest economy in Asia, and
the 3rd largest economy in the ASEAN after Indonesia and
Thailand. The Philippines is one of the fastest-growing
emerging markets, and the 3rd highest economy in Southeast
Asia by nominal GDP, following Thailand and Indonesia.

•The Philippines is primarily considered a newly industrialized

country, which has an economy in transition from one based on
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agriculture to one based more on services and manufacturing.
As of 2021, GDP by purchasing power parity was estimated to
be at $1.47 trillion, the 18th in the world.

•The country's primary exports include semiconductors and

electronic products, transport equipment, garments, copper
products, petroleum products, coconut oil, and fruits. It is
currently one of Asia's fastest growing economies. However,
major problems remain, mainly having to do with alleviating
the wide income and growth disparities between the country's
different regions and socioeconomic classes, reducing
corruption, and investing in the infrastructure necessary to
ensure future growth.

•The Filipino economy is projected to be the 4th largest in Asia

and 19th biggest in the world by 2050. By 2035, the Filipino
economy is predicted to be the 25th largest in the world.

GDP nominal: $433.2 billion (2021 est.)

GDP per capita: $3,853 (2021 est.)

GDP – composition by sector:

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Economy by Sector (2018)

Agriculture: 7.4%

Industry: 34%

Services: 58.6%

•Exchange rates: Philippine pesos (PHP) per US dollar – 50.4

(2017 Est)

 GROWTH RELATED ISSUES

•In the present decade, the Philippines emerged as one
of the fastest growing economies in the world with a GDP
growth rate of 7.3% which was achieved by a drastic
expansion in the business of outsourcing market. As the
economy develops, there will be a reduction in the
poverty rate. Employment and business opportunities
are growing in terms of both number and quality. The
industrial sector took a hit with a growth of 7.2% at the
end of 2017, and it is responsible for the contribution of
34.8% to the total GDP of the Philippines in 2018. With
the increase in the number of employment
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opportunities, the poverty rate declined to 21.7% in
2018-19 from being 27% in the year 2015, and the quality
of human resource developed accordingly. It is estimated
that every year almost a million Filipinos are crossing out
of poverty with employment opportunities in the best
business sectors. The industry sector is responsible for
the employment of 16% of Philippine’s workforce. The
country has always been welcoming with the foreigners
and their business setup in the Philippines. The
government is focusing more on the foreign direct
investment to expand the market territory to even
further distance. Agriculture and manufacturing are
leading business in the industrial sector. Among the
pharmaceutical manufacturers, the Philippines is one of
the largest markets in the Asian continent. The country is
home to a lot of metallic resources so, it exports,
construction purposes, mining, electronics for
shipbuilding. With more than 7000 islands in the region,
the Philippines is ranked 4th among the most significant
shipping countries in the world. With more foreign
investors in their land, the shipbuilding business has
been growing.
NATURAL RESOURCES: CHALLENGES
Deforestation and Indigenous Rights Conflicts
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Small-scale gold and copper mining efforts have drawn
criticism from biologists and ecologists due to the fact
that the mining has promoted deforestation. In 2021, gold
mining on Mt. Busa on the island of Mindanao has caused
outcry from Filipino scientists, who fear that this region,
with 53 endemic Filipino species and 15 species found
only on Mindanao, will lose its biodiversity due to habitat
loss (Sarmiento 2021).
Indigenous communities, whose cultures persisted
through colonialism, have tangled with the government
due to land disputes, fighting for tribal access to the
natural resources being harvested (Fabro 2021).

Chinese Hegemony and Resources of the South China Sea

•China’s encroachment on Filipino fishing waters in the
South China Sea is also a point of conflict. Filipino
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President Duterte drew criticism for taking loans from
China to fund the nation’s “Build, Build, Build”
infrastructure program, using access to the Philippines’
marine resources as both a bargaining chip and collateral,
should the Philippines fail to meet its financial obligations
(Guzman 2021). Duterte’s relaxing of Filipino control
over the South China Sea has been met with controversy
by Filipinos who fear that autonomy is being sacrificed,
or will be sacrificed, in favor of Chinese influence and
dependency.
This map displays the location of resources in the South
China sea, and territorial claims to those areas.

INFRASTRUCTURAL CHALLENGES
Natural Disasters in the Philippines
•The Philippines’ vulnerability to the impact of natural
disasters is a risk for its economy. The Philippines is one
of the most natural disaster-prone regions in the world.
Situated on the Ring of Fire in the western Pacific, the
Philippines is at high risk of earthquakes, volcanic
eruptions, and mudslides and landslides. According to the
U.S. Embassy in Manila, the Philippines is one of the
“most storm-exposed countries on Earth,” experiencing
between 18 and 20 typhoons annually, though this
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number appears to be increasing over time (“Philippines
Disaster Preparedness” 2021). In 2020, the archipelago
experienced over twenty natural disasters, with over 60%
of its land mass and 70% of its total population impacted
by natural disasters (Mina 2021).
This image displays the aftermath of the destructive
Typhoon Vanco of 2020, one of the aforementioned
natural disasters common in the region.

Natural Disasters: Economic Impacts

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•Most disaster relief focuses on building critical
infrastructure and issuing relief payments through the
government’s natural disaster relief “Calamity Loan
Program.” However, limited funding for disaster relief,
paired with the large population percentage affected by
natural disasters and the particular vulnerability of
Filipinos’ agricultural livelihoods to natural disasters,
means that a significant number of Filipinos are still
waiting for relief. Average income in the Philippines is
low, with 57% of Filipinos claiming monthly household
incomes between 1,000 and 10,000 PHP ($20 and $200
USD, respectively) (Bollettino et. al 2018). Because of
low incomes, the vast majority of Filipinos do not have
savings allocated for natural disaster preparation, leaving
the population dependent on government disaster relief,
and vulnerable to its inadequacies (Bollettino et. al 2018).
•This means that with each major disaster, the
government is to some extent playing “catch up,” still
mitigating the impacts of the last disaster while dealing
with the next, which can stifle economic growth.
Furthermore, this vulnerability can be off putting to
investors, who may fear that their infrastructure or
workforce will be harmed and not properly protected by
current state precautions in the event of a force majeure.

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 THE ISSUE OF BUSINESS CYCLE
•The business cycle is the cyclical fluctuation in economic
activity that an economy experiences for a certain
period. Business cycles vary in duration from more than 1
year to 12 years, and contain a boom (or expansionary
phase) and a recession (or contractionary phase) (Leitner
2005). Expansions are characterized by economic growth
in real terms, which is evident in the increases in
employment, real income, industrial production, and
output. Inversely, recessions are characterized by
economic contraction, as measured by decreases in the
indicators. The expansion is measured from the trough
(or bottom) of the previous business cycle to the peak of
the current cycle, while a recession is measured from the
peak to the trough.
•Consequently, for the past few years, the international
economic community has developed a growing interest
on documenting stylized features of international
business cycles to explain these cycles. The empirical
literature on business cycles has rapidly expanded during
the last decade: Christodulakis, Dimelis, and Kollintzas
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(1995) studied the features of business cycles in the Euro
Zone countries and found out that there are similarities
in the business cycle dynamics across these countries.
Backus, Kehoe, and Kydland (1992, 1995) examined the
stylized characteristics of business cycles in the major
industrialized countries. Kose (1999a) examined the
cyclical regularities observed in several developing
countries in the context of a small open economy
Dynamic Stochastic General Equilibrium model and found
that the bulk of business cycle fluctuations in aggregate
output is explained by world price shocks. Similarly,
Aguiar and Gopinath (2007) and (Muñoz 2017) built a
Dynamic Stochastic General Equilibrium model with
shocks to trend growth to replicate the stylized facts of
business cycles in emerging market economies (EMEs).
Muñoz (2017) studied the interaction between short run
business cycle fluctuations and economic growth at the
empirical level and was able to identify a measure of
potential output with that rate of growth consistent with
a constant unemployment rate in 13 Latin American and
18 Organization for Economic Co-operation and
Development member countries.
•There are also studies focusing on the emerging
economies and Asian countries. In 1997, a study showed
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the sources of macroeconomic fluctuations in Asian
economies using a vector autoregressive model and
found that the domestic supply shocks account for a
significant fraction of the business cycle fluctuations in
aggregate output in the Asian countries. Ahmed and
Loung ani (1998) also examined the sources of
macroeconomic fluctuations in Asian economies using a
vector–error correction model. Their results suggested
that external shocks, foreign output shocks, and oil price
shocks play an important role in inducing cyclical
fluctuations in output in these countries. Selover (1999)
employed bivariate vector autoregressive models and
found partial evidence supporting transmission of
business cycles among member countries of the
Association of Southeast Asian Nations (ASEAN). A study
conducted by Calderon and Fuentes (2014) documented
the properties of business cycles of 65 countries—22
industrial countries and 43 emerging market economies
—using the Harding and Pagan (2002) dating algorithm
and found out that recessions are deeper, costlier, and
more pronounced; however, recovery for EMEs is swifter
and stronger compared to industrialized countries.
Duncan (2015) reformulated the model proposed by
Aguiar and Gopinath (2007) and employed the simplified
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model for qualitatively explaining facts such as the highly
counter-cyclicality of the trade balance and the higher
volatility of output and consumption of EMEs compared
with those observed in advanced countries.
•Literature in this area of research have primarily
focused on business cycle features of major developed
economies and a limited number of developing
countries. However, only a few studies have examined
the stylized features of business cycles of Asian
countries, especially the Philippines in which strong
growth performance over the last 3 decades has been
the subject of intensive research.
•Emerging market economies (EMEs) like the Philippines
are largely characterized by their macroeconomic
volatility in a sense that fluctuations in output, exchange
rates, and current account balances are normally more
recurrent, sharper, and abrupt compared to industrial
economies (Calderon and Fuentes 2014). Excess volatility
in output fluctuations in EMEs, as compared with
industrial countries, has typically been attributed to
country-specific factors that amplify external shocks and
have led to a higher incidence of banking, currency, and
external debt crisis (The World Bank 2007). These factors
include EMEs’ excessive dependence on few volatile

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sectors, a narrow tax base, fragile financial systems, weak
institutions, and poor economic policies (Calderon and
Fuentes 2014).
•Thus, business cycles in emerging markets are more
pronounced than in advanced economies. The average
decline in output during recessions is smaller in advanced
countries compared to emerging markets, while
recoveries in advanced countries are weaker compared to
those experienced in emerging markets (Kose, Prasad,
and Terrones 2006). However, there is no noticeable
difference between advanced and emerging market
countries in terms of duration of recessions.

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 THE ISSUE OF INFLATION
•Inflation rates rose sharply in 2018 in the Philippines.
Measured on a year-on-year (y/y) basis, headline
inflation rates were above the 2-4 percent inflation
target band from March 2018 (4.3 percent) to January
2019 (4.4 percent), peaking at 6.7 percent in September
and October 2018.

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•Many factors have likely contributed to the rise in
inflation in the Philippines in 2018, and they can be
largely divided between supply- and demand- driven.
Supply factors include the rise in international oil prices,
the disruptions to rice inventories, and the changes to
excise taxes on selected “sin” items imposed in the
Philippines. Demand factors are largely associated with
the “overheating” risks of the economy, partly fueled by
the lumpy public infrastructure investment (IMF (2018)).
Understanding the source of the inflation pressures is
important for monetary policy decisions. The common
view is that a tighter monetary policy stance is generally
suitable if the rise in inflation rates is demand-driven.
The case for tightening monetary policy would be less
certain, however, if inflation pressures are supply-driven.
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MONETARY POLICY FRAMEWORK IN THE
PHILIPPINES
•The Philippines moved to an IT regime in 2002.3 The
inflation target is defined in terms of the average change
in the consumer price index (CPI) or headline inflation
over the calendar year. In the initial setup period during
2002-2010, inflation targets were changed frequently.
The targets were subsequently set at 4 percent during
2011-14 and within a 3 percent +/- 1 tolerance band
during 2015-18 (Figure 2) by the National Government,
with the same targets imposed for 2018-2020. The
primary objective of the BSP’s monetary policy is “to
promote price stability conducive to a balanced and
sustainable growth of the economy. It also aims to
promote and preserve monetary stability and the
convertibility of the national currency.” The IT regime
successfully lowered the inflation rates and growth
volatility. Average annual inflation decreased from 8.7
percent in the 1990s to 5.1 percent and 3.3 percent
during 2002-09 and 2010-18 respectively. Episodes of
inflation outside the band have generally been short-
lived. Historically, inflation in the Philippines has been
highly affected by oil prices. Energy and

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energy-intensive items (electricity, gas, fuel) account for
about 15 percent of the consumption basket in the
Philippines. The oil-price hikes in 2005, 2008 and 2018
were all associated with notable pickups in inflation. This
also poses challenges to policymakers, especially when it
becomes difficult to disentangle the impact of oil prices
(a typical supply shock) with demand factors when both
oil prices and headline inflation move in the same
direction.
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THE RISE IN INFLATION IN 2018
Inflation dynamics
The Philippines experienced a sharp rise in inflation in
2018. Headline inflation increased from 2.9 percent (y/y)
on average in 2017 to 5.2 percent (y/y) in 2018, with
rates staying above the BSP’s inflation target of 2-4
percent, during March 2018-January 2019. Several
supply-side factors contributed to the rise in inflation in
2018 in the Philippines, including:

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(1) World oil prices. Brent oil price increased from US$46
per barrel in June 2017 to US$81 per barrel in October
2018. Oil prices are not subsidized in the Philippines, and
the increase in world oil prices have a direct impact on
domestic prices.
(2) Excise taxes. As part of the broader tax reform, excise
taxes on selected "sin" items and oil products were
raised in January 2018. The Department of Finance
estimates that the total impact of tax reform on inflation
is about +0.4 to +0.7 percent in 2018.
(3) Rice prices. The share of rice consumption in the CPI
basket is 9.6 percent in the Philippines. Rice prices rose
and peaked at 10.7 percent y/y in October 2018, owing
to domestic food supply issues with restrictive rice
import quotas.
As a result, energy and food, inflation increased for most
part of 2018

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 THE ISSUE OF UNEMPLOYMENT AND
POVERTY

UNEMPLOYMENT
•In 2012, 10 million Filipinos were either unemployed
(three million) or underemployed (seven million). In
October 2013, unemployment rate was 6.5% in
comparison to 6.8% in 2012. According to the Labor
Force Survey, the unemployment rate was 6% and 6.6%
in October 2014 and January 2015, respectively.

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•Only one-fourth of the Filipinos that enter the labor force
are able to find good jobs in the country, and the rest of
them find jobs overseas, leave the labor force, or end up
becoming unemployed/underemployed. Thus, three-
fourth of the workers are unemployed or informally
employed, with lack of opportunities to find good jobs.
Though jobs are being generated, there’s a need to
generate jobs at much faster rate, to be able to bring down
the unemployment rate. Many of the unemployed
individuals are college graduates. Many waits for job
opportunities abroad, and many families depend on
remittances from family members who are staying abroad.

POVERTY
•Despite the talk about economic growth, the poverty
rates have not changed significantly since 2006. As per
the National Statistical Coordination Board (NSCB),
poverty incidence of the population improved from 26.3
percent in 2009 to 25.2 percent in 2012.
•Even though Philippines is a fast-growing economy,
there’s been just a minor decline in the incidence of
poverty. Poverty is very much linked to unemployment.
Unfortunately, the growth is restricted to the BPO, retail,
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and real estate sector, and a large number of Filipinos
remain without jobs. On top of that, natural calamities
further push people below the poverty line. Thus,
economic disparity is a common feature. In general, the
gains from higher economic growth have not really
trickled down to the poor.
•Philippines was the third-highest recipient of migrant
remittances in 2013, after India and China. According to
the Philippine Central Bank, remittances from overseas
Filipino workers (OFWs) reached USD 25.1 billion in
2013. It was 7.6% higher than the remittances from the
last year, and accounted for 8.4 % of Philippine gross
domestic product (GDP) in 2013.

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THE ISSUE OF BUDGETARY DEFICIT
The budget deficit in 2021 is 21.8% higher than in 2020.
• The national government’s full-year budget deficit
reached P1.7 trillion, data from the Bureau of the
Treasury showed on Tuesday, March 1.
• The budget deficit in 2021 was 21.8% higher or P298.7
billion more than the figure posted in 2020, as expenses
jumped 10.6% amid the pandemic.

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• A budget deficit occurs when a government’s expenses
exceed revenues. The gap is filled in by borrowing from
domestic and foreign sources.
• State economic managers program the deficit in relation
to gross domestic product (GDP) to maintain the
country’s fiscal health. Set the gap too wide or too narrow
and it may have negative impacts on the overall economy.
• For 2021, the programmed deficit was 9.3% of GDP,
while the actual figure stood at 8.6%.
Revenues
• Government revenues reached P3 trillion in 2021, an
improvement of 5.4% or P149.6 billion more than the
revenues posted in 2020.
• Revenues were also P124 billion better than the P2.9-
trillion program, as the economy gradually reopened.
• The government said 91% of revenues were from taxes,
while non-tax sources comprised the remaining 9%.
• The Bureau of Internal Revenue collected P2.1 trillion in
2021, a 6.5% improvement from 2020 and just 0.15%
short of its full-year target.
Expenditures

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• Full-year disbursements reached P4.7 trillion, 10.6%
higher due to infrastructure and other capital
expenditures, as well as pandemic-related expenses.
• Expenditures were still lower by 1.3% or P61.5 billion
compared to the full-year program, mainly due to lower-
than-programmed interest payments.
• Meanwhile, interest payments stood at P429.4 billion,
up by 12.9%. However, this is 19.2% lower compared to
the programmed P531.5 billion. This generated P102.1
billion in savings.

THE INTERNATIONAL ECONOMIC ISSUE

•Economic Problems of the Philippines Economic
problems of the Philippines are very similar to those
being battled by other underdeveloped and developing
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nations. After a long tryst with colonization, the nation is
now grappling with increased imports and a mixed
economy that is still to stabilize. The Republic of the
Philippines is located in Southeast Asia and Manila is its
capital city. The country comprises 7,107 islands and
ranks as the 12th most populous country in the world.
Like most other southeast Asian regions, the Philippines
too has a history of European colonization.
•It was a colony of Spain and the USA. The country is
now home to multiple cultures and traditional ethnicity. It
is also looked upon as a perfect example of a 'mixed
economy'. Industrialization is a new development in the
Philippines. Traditionally, the economy stabilized on the
agrarian contributions and the manufacture of garments,
pharmaceutical products and semiconductors. In the last
decade, electronic exports added to the exports, including
various products obtained by mining. The economy of the
nation also largely depends on the remittances from
Filipinos seeding overseas and investing in the homeland.
•However, exports are not evenly balanced by the imports
that include heavy electronics, garments, various raw
materials, intermediate goods and fuel. The influence of
the Manila galleon on the nation's economy during the
Spanish period, and bilateral trade when the country was a
colony of the United States has resulted in the preference
of a mixed economy over a centrally planned or market
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based one. It is very important to understand the shift
during the Ferdinand Marco's leadership, from a market
economy to a centrally landed economy, to relate to the
economic recession that the country is now facing.
•With adverse global trends and the world economy
entering a protracted depression, in 2011, the Philippines
faced another economic downturn. The country's lack of
internal economic strength due to the absence of core
manufacturing sector and an absence of firm and bold
domestic policy initiatives have led the economy to be
dependent on the state of the global economy. Thereby
making it vulnerable to external shocks. Here we try to
look at three possible challenges posed to growth and real
velveteen of the economy in 2012, based upon the
insights provided by the economic policy-making and
decisions by the Aquinas administration in 2011.
•Major Financial Problems of the Philippines Over-
dependence on Global Economy The growth of the
Philippines economy drastically slowed to Just 3. 6% in
the first three quarters of 2011, which is significantly less
than the 7%-8% growth targeted by administration's
Philippine Development Plan (Though the slowdown may
have been due to the ongoing global crisis, it was
markedly slower in comparison to other South-East Asian
neighbors. Economic performance figures indicated a
contraction in exports and a drop in FAD.
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•Though the remittances from overseas Filipinos to the
country grew in the first ten months of 2011, however the
compensation that overseas Filipinos received actually
fell, in peso terms, due to an appreciating peso. In 2011
the Aquinas administration sought a FAT (Free Trade
Agreement) with the EX. and Join the Trans-Pacific
Partnership (TAP). The administration further allowed the
US to even more directly influence Philippine economic
policy making in its self- interest, by entering in a
Partnership for Growth (Peg).

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 BIBLIOGRAPHY
The following sites have been used for the completion of
this assignment:

• Economy of the Philippines - Wikipedia

• Pinterest - India
• Global Times
• Investopedia: Sharper insight, better investing.
• And many more blogs and studied analysis.

THANK YOU

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