Republic of the Philippines

PANGASINAN STATE UNIVERSITY

Lingayen Campus
College of Teacher Education
Science Education Department
2nd Semester, SY. 2024-2025

INSTITUTIONAL COURSE 2 (IC 2)

Entrepreneurship

UNIT 2
ECONOMIC DEVELOPMENT AND ENTREPRENEURSHIP

At the end of this unit, you should be able to:

1. Discuss and explain the scope of economic development and entrepreneurship;
2. Identify the different roles of entrepreneurship in economic development;
3. Examine the theories for future entrepreneurial utilization; and
4. Determine the ways in which the government promote entrepreneurship.

The Philippine Economy

The Philippine economy has changed dramatically over time, starting with prosperous trade
networks in pre-colonial times. Agriculture and manufacturing, particularly food processing, textiles
and apparel, electronics, and car components, are significant economic sectors in the Philippines.
There is also a lot of promise for mining in the Philippines, which has large reserves of copper,
nickel, and chromite. Significant discoveries of natural gas off the coast of Palawan have increased
the nation's enormous coal, hydro, and geothermal energy reserves.
The country used to be among the richest nations in Asia (next to Japan), but over time it
has fallen into poverty. The economy shrank by more than 10% in 1984–1985 as a result of a severe
recession. The largely closed Philippine economy was opened by the Aquino and Ramos
administrations, which also strengthened the foundation for long-term, steady economic growth.
President Ramos implemented a wide range of economic reforms and programs throughout his
administration with the goal of promoting corporate expansion and international investment. The
Philippines saw a period of faster growth as a result, but the Asian financial crisis that started in
1997 once again hindered the country's economic growth.
Some of the Ramos administration's measures were carried out by President Estrada.
President Estrada and his government carried out and enhanced market-oriented policies and
reforms. Despite this, the business sector and investors lost faith in President Estrada as a result of
scandals involving the Philippine Stock Exchange and his personal relationships to certain
businessmen. This finally led to successful attempts to impeach and remove President Estrada.
With the assistance of a highly acclaimed economic team, President Arroyo has made
significant progress in restoring macroeconomic stability despite sporadic challenges to her
leadership. In 2003, the economy proved to be resilient, growing by 4.5% GDP despite significant
global and domestic shocks, such as the Iraq War, SARS and downgrades of national credit ratings.
The GDP reached a 15-year high of 6% in 2004, but due to high oil prices, poor export growth, and
crop damage from the drought, it was predicted to grow by less than 5% in 2005. Thanks in part to
remittances from Filipino workers abroad, which topped $10 billion in 2005, the Philippines
escaped the worst effects of the Asian financial crisis better than its neighboring countries.
The Business Process Outsourcing (BPO) industries got started during the presidency of
Gloria Macapagal Arroyo. Alongside OFW remittances, earnings from the expanding BPO industries
provided a flow of income to stimulate consumption expenditures. OFW remittances have grown
from $20 billion in 2010 to almost $30 billion by 2015 during the presidency of Aquino III. BPO
profits increased dramatically, levelling OFW remittances. The nation became a top supplier of this
service to the global economy. The first quarter of 2013 saw an extraordinary 7.8%, exceeding the
rates for China and Indonesia over the same period. The Philippines' continuous ascent in the World
Economic Forum's (WEF) Global Competitiveness Report, which gauges investment attractiveness,
ease of doing business, and other aspects of a country's merit as an investment destination, is one
glaring example of Aquino's economic success.
Building infrastructure and increasing investment was former President Rodrigo Duterte's
stated economic vision for the Philippines when he took office as president in 2016. The foundation
of this strategy was the "Build, Build, Build" initiative, under which public and private finance from
both domestic and foreign sources were combined. The amount of investment approvals increased
quickly, from 686 billion Philippine pesos in 2016 to 1.3 trillion in 2019 -- a 3-year growth of 90%.
The economy underwent increased investment and development like new airports and industrial
zone projects, expanding toll road networks, upgrading the nation's urban and commuter rail
systems in and around Manila, and significantly increasing the nation's energy generating capacity.
While he was able to maintain the high-growth trend through the first half of his term, the
global COVID-19 pandemic that struck negated much of the economic gains. Millions of families
were forced back into poverty, the economy went into recession, tax revenues were curtailed, and
the health crisis resulted in unanticipated expenses that the administration had to cover with
borrowings. Nevertheless, Duterte's administration generally supported the notion that there was a
notable rise in investment and development.
In 2022, the Philippines' economy expanded at a 7.6% annual rate, which was the highest
growth rate since 1976. Strong increases in both gross capital formation and consumer spending
propelled the economy's quick expansion. This GDP growth rate was on par with some of the fastest
growing large emerging markets globally, such as Saudi Arabia and the United Arab Emirates, two
countries that export oil to the Gulf Cooperation Council. In addition, strong remittance inflows
from overseas workers, rapidly expanding exports from the IT-BPO sector, and the rebounding
travel and tourist industry bolstered economic growth momentum in 2023.
It is predicted that the Philippines would join mainland China, Japan, India, South Korea,
Australia, Taiwan, and Indonesia as one of the largest economies in the Asia-Pacific area, valued at
one trillion dollars, by 2034. It is anticipated that the Philippines' economy would continue to grow
strongly, with per capita GDP forecast to rise quickly from USD 3,500 in 2021 to USD 6,400 by 2031.
This will support the expansion of the domestic consumer market in the Philippines and encourage
both local and foreign investment in a number of the country's economic sectors.

Economic Growth and Economic Development

• Economic growth is the rise in the country's output or income relative to a previous period in
terms of goods and services. It typically refers to an increase in Gross Domestic Product
(GDP). The term GDP refers to the total monetary worth of all finished goods and services
produced (and sold) in a nation over a specific time period, usually one year. A healthy GDP
growth rate indicates higher production of goods and services compared to the previous year.
It doesn't explain who makes the money from making the items, how that additional money
from GDP growth is distributed among the populace, or whether it is just recognized as profit
by businesses.

• Economic development is a much wider concept that includes social, political, cultural
changes and overall development in literature, gender and other phenomena. The
improvement of human health, higher living standards, purchasing power parity, and other
factors are all related with economic development. While economic growth typically refers to
an increase in gross domestic product (GDP), economic development typically refers to a
structural transformation, mostly of the economy. The most common tool used to measure
economic development is the Human Development Index (HDI).
The HDI considers three key dimensions of human development:
1. Health- Measured by life expectancy at birth.
2. Education- Measured by mean years of schooling and expected years of schooling.
3. Standard of Living- Measured by Gross National Income (GNI) per capita, adjusted for
purchasing power parity.
• The Gross National Income (GNI) is a measure of the total income earned by a
country’s residents, including both domestically produced goods and services and
income received from abroad. The formula for calculating GNI is:
 • The Purchasing power parity (PPP) is the rate at which the currency of one country
would have to be converted into that of another country to buy the same amount of
goods and services in each country. It is based on the law of one price, which states
that identical goods will have the same price.
A high PPP indicates that the cost of living is relatively higher in that country compared to
others. While this might suggest a higher standard of living, it could also mean that goods and
services are more expensive. For businesses and investors, a high PPP may indicate higher costs of
production and operation in a particular country. This can affect investment decisions, as
companies may seek locations with lower costs to maximize profits. However, a high PPP can also
suggest a robust market with strong purchasing power, which could be attractive for certain types
of businesses.

The Role of Entrepreneurship in Economic Development

1. Creation of New Jobs- Entrepreneurs lower unemployment rates by generating work
opportunities both for themselves and other people.
2. Poverty Alleviation- Entrepreneurship offers people the chance to improve their financial
circumstances.
3. Community Development- Entrepreneurs support their communities' economic viability by
starting new firms. This may result in more money being invested in the neighborhood, which
could lead to better facilities, services, and infrastructure.
4. Benefits of New Start-Ups Entering the Market- New startups entering the market drive
innovation and competitiveness. Without new entrants, existing firms aren't motivated to
innovate and can increase prices due to building a large-scale monopoly in the industry.
5. Encourages Capital Investment- Capital investment is encouraged in both nations and
localities. Entrepreneurs draw in funding from domestic and international sources.
6. Optimal Use of Resources- Entrepreneurs frequently discover more efficient methods to use
resources when they spot possibilities and launch new companies.
7. Increase in Per Capita Income (PCI) and Gross National Product (GNP)- As ventures grow
and become more profitable, they contribute to overall economic prosperity, leading to an
increase in per capita income for individuals within a society. Additionally, these ventures
attract domestic and foreign investments and often lead to job creation, increased consumer
spending, and enhanced competitiveness in the global market, all of which contribute to the
GNP.

Development and Growth Theories

Different theoretical assumptions of entrepreneurship focus on three major aspects of
entrepreneurship: the nature of opportunities, the nature of entrepreneurs, and the
nature of decision-making framework within which an entrepreneur functions. These
three aspects give rise to two logical, consistent theories of entrepreneurship, namely, discovery
theory and creative theory:
A. Discovery Theory- consists of the Individual/Opportunity (I/O) connection perspective. It
emphasizes the recognition, presence, and utilization of opportunities as well as the impact
they have on people. This theory approaches three assumptions in entrepreneurship, which
are as follows:
1. Opportunities have an objective component;
2. Every individual is different from others; and
3. Risk bearing is an essential part of the entrepreneurial process.
Consider the situation below:

Maria, a young entrepreneur, notices a growing trend of health-conscious consumers

seeking organic and locally-sourced products. Recognizing this as an opportunity, Maria decides to
launch her own organic café. She conducts market research to understand the preferences and
needs of her target audience and tailors her menu and ambiance to appeal to health-conscious
 individuals. Despite the inherent risks involved, Maria embraces the challenge, securing financing
and assembling a dedicated team to bring her vision to life.

Maria’s situation aligns with the Discovery Theory in the following ways:
a. Opportunities have an objective component – The demand for organic and locally
sourced products is a real and observable trend in Maria’s urban neighborhood. This
opportunity exists independently of her.
b. Every individual is different from others – Maria’s ability to notice and act on this trend
sets her apart from others who may not recognize or pursue the same opportunity. Her
unique skills, perspective, and entrepreneurial mindset enable her to capitalize on it.
c. Risk-bearing is an essential part of entrepreneurship – Starting an organic café involves
financial, operational, and market risks. Maria embraces these challenges by securing
funding and assembling a team to turn her idea into a successful café.

B. Creation Theory- emphasizes the creation of enterprises. This theory approaches the
following assumptions:
1. Opportunities are subjective in nature;
2. Entrepreneurship does not require individual differences, but differences in their
decision making under uncertainty; and
3. Individuals bear uncertainty, not risk.
Consider the situation below:

John, a passionate food enthusiast, dreams of bringing a unique culinary experience to

his community. Inspired by his love for healthy, sustainable cuisine, he envisions creating an organic
café that offers wholesome dishes made from locally sourced ingredients. With his creative vision in
mind, John meticulously plans every aspect of his café, from the menu concepts to the interior
design, aiming to provide an inviting space where customers can savor delicious, nourishing meals.
Despite the uncertainties and challenges inherent in launching a new venture, John remains
persistent as he views the venture as a journey of creative exploration and innovation.

John’s situation aligns with the Creation Theory in the following ways:
a. Opportunities are subjective in nature – Unlike in Discovery Theory, where opportunities
exist independently, John creates the opportunity by envisioning a new organic café based
on his passion for healthy cuisine. The opportunity arises from his own creativity rather
than an objective market demand.
b. Entrepreneurship does not require individual differences, but differences in decision-
making under uncertainty - John's success is not about having a special ability to "see" an
opportunity but rather how he navigates uncertainty and builds his café from his vision.
Others with different backgrounds could do the same by making bold decisions despite
uncertainty.
c. Individuals bear uncertainty, not risk – Instead of taking on a pre-calculated risk, John
embraces uncertainty. There is no clear or pre-existing market demand he is responding to;
instead, he creates a new experience, hoping customers will appreciate it.

Theories of Entrepreneurship

1. Innovation Theory- was proposed by Joseph Schumpeter. Schumpeter asserts that an

entrepreneur is fundamentally an innovator, and an innovator is someone who creates novel
combinations. Schumpeter argues that an individual only qualifies as an entrepreneur when they
truly execute novel combinations; they stop being an entrepreneur as soon as they start managing
an existing business.
2. Need for Achievement Theory- was developed by David McClelland. According to McClelland,
the entrepreneur is concerned with the need for achievement. The need for achievement is called
 "A desire to do well, not so much for the sake of social recognition or prestige, but for the sake of
an inner feeling of personal accomplishment.”
3. Status Withdrawal Theory- was developed by Everett Hagen. This theory provides that a class
which lost its previous prestige, or a minority group tends to show aggressive
entrepreneurial drive.
4. Theory of Social Change- Max Weber was the first to assert that the ethical value system of the
society in question influenced the emergence of entrepreneurship. This theory states that
adopting religious beliefs that are supplied externally is what drives entrepreneurial impulses.
5. Theory of Social Behavior- was proposed by John Kunkel. According to this theory, Individuals
engage in a variety of activities, some of which are accepted by society and others of which are not.
Those who accept get rewarded and the rewarding behavior serves as a stimulus that reinforces
itself, making it more likely that the behavior will be repeated.
6. Theory of Model Personality- was proposed by Thomas Cochran. The theory highlights that the
primary factors influencing the availability of entrepreneurs are social sanctions, role
expectations, and cultural values. According to him, an entrepreneur is neither a super normal
individual nor a deviant person but represents a society’s model personality.

The Government and Entrepreneurship

Establishing and maintaining a business can be difficult. Entrepreneurs frequently encounter
difficulties obtaining capital, negotiating intricate rules, and developing the requisite expertise. This
is where government comes in. They are crucial in promoting entrepreneurship and building an
atmosphere that supports it. There are several ways that government can promote
entrepreneurship:
a) Provide access to funding- Obtaining funding is among the main obstacles that
entrepreneurs must overcome. Many business owners have brilliant ideas, but they lack the
funding necessary to make them a reality. Governments can assist by contributing money in
the form of loans, grants, and other financial rewards.
b) Reduce bureaucratic red tape- It can be difficult for entrepreneurs to deal with
complicated paperwork and laws. Governments can lessen this load by making the process
of establishing and operating a firm simpler and more efficient.
c) Invest in education and training- To be successful, entrepreneurs require a broad variety
of abilities, from product invention to business administration. Governments can fund
programs for education and training to assist business owners in gaining the necessary
skills.
d) Encourage innovation- Innovation and entrepreneurship go hand in hand. Governments
can encourage innovation by funding research and development and offering tax breaks to
businesses that invest in emerging technology. One example is the Small Enterprise
Technology Upgrading Program (SETUP) launched by the Department of Science and
Technology (DOST). Since its launch, thousands of small businesses have benefited from the
program, which increases the operations and production of micro, small, and medium-sized
enterprises (MSMEs) by offering collateral and interest-free loans for technological
advancements.
e) Create supportive legal framework- Through legal environment, governments can
facilitate business registration, safeguard intellectual property rights, and uphold contracts
to foster a business-friendly legal environment. Examples include RA 9178 or the Barangay
Micro Business Enterprise (BMBE) Act which was signed into law in 2002 and RA 10679 or
“An Act Promoting Entrepreneurship and Financing Education Among Filipino Youth.”
f) Foster a culture of entrepreneurship- through public awareness campaigns and by
recognizing and celebrating the contributions of entrepreneurs. In the Philippines, National
Entrepreneurship Month is observed every November.
g) Stimulate networking and collaboration- To be successful, entrepreneurs frequently need
to network and work together with investors, specialists, and other entrepreneurs. By giving
businesses a platform to connect and share ideas, governments may encourage networking
and teamwork
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