CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents various literature and studies,

both foreign and local, found to have some bearing or

relationship to the present study.

Local Literature

Political processes shape economic and social

outcomes. They can promote economic efficiency and

equity, ultimately leading to growth and poverty

reduction. However, politics often provides the

explanation for the absence of growth, particularly in

the context of weakly institutionalized states where

politically and economically powerful groups seek to

extract benefits for themselves and their supporters

by engaging in predation, rent-seeking and patronage.

Overcoming these problems and generating sustained

growth depends critically on the nature of political

incentives (Gareth,2009).
 Jorge V. Tigno (2004), Political decentralization shifts

decision-making powers to lower levels of government

thereby encouraging the participation of its citizens.

Political decentralization by way of promoting the

capacities of sub-national units for substantive self-

governance is desirable for a variety of reasons.

Administrative decentralization and the promotion of

subsidiary are desirable due to the political

advantages they provide to both the central and local

government units (LGUs). These bureaucratic benefits

can be in terms of (a) alleviating administrative

bottlenecks in the delivery of basic services often

caused by highly centralized and inflexible government

control and manipulation;(b) increasing government

sensitivity to local needs and conditions;(c) broadening

the administrative reach and effectiveness of the

national government; (d) allowing for the

representation and participation of diverse groups in

decision making.

Many people often times misunderstood economic growth as

economic development, they tend to understand it as only one thing, but

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actually they are different. They may be associated with each other but

they are different. Economic growth means an increase in real national

income and national output of one country or economy as a whole,

increases its goods and Services produced, income and expenditures.

While economic development was concerned with wider range than just

GDP per capita. There's a development when there is an improvement in

the quality of life and living standards of an individual that can be

measured when there are changes in measures of literacy, life-expectancy

and health care for a long period of time. It's concerned on how people

are actually affected. It looks at their actual living standards and the

freedom they have to enjoy a good standard of living.

There are many indicators of Development, such as HDI, Healthy

life expectancy and Green GNP that are all measurable. Healthy life

expectancy is the estimate in expected years of life in good health of a

person in a given time, excluding the years of being injured or illness.

Healthy life expectancy is an important factor that can actually

contribute to the development of one's economy. An increase in life

expectancy may have positive or negative effects on per capita income of

an individual. This is because, the longer the life a man can live, there is

more chance that they can provide for themselves and eventually help the

economy using the taxes that they will remit, thus, the government can

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use it in nation's spending that is inclined with improving individual's

quality of living. It may increase the productivity of available resources,

resulting to no scarce and wasted resources. By improving health of

workers, it may increase the incentives and long-term investments in

human capital. While the negative effect of longer life is that, it may

increase the population and results to decrease in the ability to support

and sustain the needs of every individual and make the economy worst

because of poverty and hunger.

One thing that I've learned in this chapter is that, the economy was

indeed in a cycle between the government and its people. The action of

one will affect another. The people work for the government and vice

versa, people build the economy and. the government will support them

in doing so, but it is when the government was doing their job of serving

the nation by sustaining the needs of people in the economy, and not the

selfish wants of those government officials.

Foreign Literature

Carlos Pereira (2011) Assessing the role of political

institutions in economic performance is not an easy task.

Long-standing, deep-rooted political and social challenges

have shaped each national institution and economy today.

Similar political institutions, set in two different countries,

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can affect their respective economy in different ways. And

at the same time, institutions that differ politically, set in

two different countries, can lead their countries to similar

economic performance.

Gerald Chimezie Nwadike (2019), the pride of any

government policy is the attainment of higher value level

of development, which can drive national economy to that

nation building level where the living standard of the

citizenry can be measured by per capita Gross Domestic

Product (GDP) growth that will not depreciate over time. It

is then that the citizens would derive natural attachment

to governance. Unfortunately, the attainment of this

ultimate goal has seriously threatened with instability in

government policies amongst many nations of the globe.

The policies of government are so powerful that on daily

and weekly basis, it influences the national, regional and

global market economies. Economic growth and political

stability are deeply interconnected.

However, if the characteristics or even the identity of

the successor of the incumbent government are not

known with certainty, thus an increase of the propensity of

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a political change may lead to an increase in policy

uncertainty. In fact, it implies an increase of the propensity

of substituting a well-known (even though, possibly,

inefficient) government for a less known one.

On the one hand, the uncertainty associated with an

unstable political environment can reduce investment and

the speed of economic as well as national development.

On the other hand, poor economic performance may lead

to government collapse and political unrest. When

government policies promote favorable political economy,

there will be progressive economic growth that will lay the

foundation for development. Development is critical and

essential to the sustenance and growth of any nation.

However, for a nation to be in a phase of development

there must be some pre-requisites, which include socio-

political and economic stability (Ogwumike, 1995).

Londregan and Poole (1990), In their studies on the

economic determinants of unconstitutional transfers of

power. A related issue is whether democratic institutions

are harmful or conducive to economic growth. The popular

argument in response is that democratic institutions may

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be harmful to growth but the basic idea underlying this

view is that policy makers in democratic governments are

subject to the pressures of interest groups, and thus follow

opportunistic policies to enhance their chances of re-

election instead of policies that enhance long term growth.

One of the major factors responsible for political

instability is the failure of the political class to sufficiently

adhere to the basic tenets of democracy and

constitutionalism (Kew, 2006).

Good governance could be accomplished when the

operation of government is in line with the prevailing legal

and ethical principles of the political community. When this

is the situation, systemic positive effect will be high, and

the people would collectively aspire to participate in the

activities of the state, knowing that adherence to the rules

and procedures would serve the interest of the greatest

number of the population. Deprivation of benefits and

selective justice would not be encouraged, as individuals’

rights would be protected within the ambit of the law.

Political leaders should hold tenaciously to the

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watchwords: transparency, sustainability and

accountability in governance.

The reviewed literature collectively underscores the

complex interplay between political systems and

economic growth. By situating the current study within

this existing body of work, the research will not only build

on established theories and findings but also contribute

new insights regarding the contemporary implications of

political governance on economic outcomes. The

comparative analysis of different political systems will

provide a richer understanding of how governance shapes

economic realities in diverse global contexts.

The Distinction of Economic Growth and Economic Development

discuss that the Economic growth is the increase in goods & Services

produced by an economy or nation, considered for a specific period of

time. The rise in the country's output of goods and services is steady and

constant and may be caused by an improvement in the quality of

education, improvements in technology or in any way if there is a value

addition in goods and services which is produced by every sector of the

economy. While the Economic Development is the process focusing on

both qualitative and quantitative growth of the economy. It measures all

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the aspects which include people in a country become wealthier,

healthier, better educated, and have greater access to good quality

housing. Economic Development can create more opportunities in the

sectors of education, healthcare, employment and the conservation of the

environment. It indicates an increase in the per capita income of every

citizen. The standard of living includes various things like safe drinking

water, improve sanitation systems, medical facilities, the spread of

primary education to improve literacy rate, eradication of poverty,

balanced transport networks, increase in employment opportunities etc.

Quality of living standard is the major indicator of economic

development. Therefore, an increase in economic development is more

necessary for an economy to achieve the status of a Developed Nation.

Economic Development can be measured by the Human Development

Index, which considers the literacy rates & life expectancy which affect

productivity and could lead to Economic Growth. While Economic

Growth can be measured as a percentage increase in real gross domestic

product. Where a gross domestic product (GDP) is adjusted by inflation.

GDP is the market value of final goods & services which is produced in

an economy or nation.

Local; Study

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 The Philippines economic growth has been dissatisfying compared

with the ecicciomies of East Asian countries.

Yap and Balboa (2008) differentiated the per capita GDP of the

Philippines from countries such as Thailand and Indonesia. It was said

that the per capita GDP of the Philippines was twice as large as Thailand's

per capita GDP and three times larger than Indonesia's per capita GDP

during the year 1960. However, Thailand's per capita GDP surpassed the

Philippines' progress by 2006, more than twice the Philippines per capita

GDP. This implied that the Philippete economy lagged or was not high

performing. Yet by 2015, the Philippines was notable for being the

second fastest growing economy in the world. It was shown that the

country's GDP developed when compared over the last decade (Pascual et

al, 2020). Despite the ups and downs of the Philippine economy, it

managed to grow throughout the years, Idris et al. (2016) considered

trade openness as one of the primary factors affecting economic growth

and that a lot of countries opened their economy for dirvelopment.

Furthermore, the studies have stated that these factors affect GDP either

in a positive or negative way.

In our own country, Philippines, there are many corrupt officials

that are the cause of poverty and lack of health support because the funds

that shall be allocated to the health. sector, are being magnetized directly

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through their own pockets, that leads to hunger and unhealthy living of

people that causes shorter life span of 71 years old this year, shorter than

those country in Asia that has 74-85 life expectancy. This is because of

lack in nourishment and health care that the body needs to work

efficiently and effectively. We all know that a person lives and work more

than just for the purpose. of providing their own necessities in life but

also for the purpose of helping the economy to grow. So how can we do

that if we can't work because of hunger and illness? Are we have to just

endure the pain and starve till our death because of those selfish people

that makes the economy worst, but I think that we can't do anything about

it, because it is already rooted in their blood? What else we can do?

Nothing, but to seat in the position or to educate the future officials. And

suggest to focus on higher proportion of total expenditure on health that

can increase the percentage of GDP because they can work more

efficiently and will provide their basic needs and also their wants that will

contribute on achieving a healthy life style and results in longer life span.

And the cycle will continue, the people will work and pay their taxes and

the government will provide on health needs of people, thus contribute to

higher standards and quality of living and by that we can say that we

achieved development in the economy.

Foreign Study

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 The study by Zarria (2021) examined the effect of FDI and Trade

Openness on economic growth. FDI flows to Morocco are expected to

contribute to economic growth, especially in the long term. The author

found that FDI has a positive effect on Morocco's economic growth with

the help of trade liberalization. In the case of Vietnam, a study conducted

by Su et al. (2019) investigated the significance of economic openness in

the growth of Vietnam's economy, wherein the main findings of the

researchers concluded the positive impact on the economic growth of FDI

and trade openness combined, in the research conducted by Nketiah et al.

(2020), FDI was reported to have a negative impact, but trade openness

affects economic growth positively.

Additionally, Khamphengvong, Srithilat, & Enjun (2017)

investigated the relationship between trade openness, FDI, and economic

development in Laos. The findings have mentioned that FDI and trade

resulted in a positive sign for economic growth in the distant future and

that trade liberalization promotes FDI in Lao PDR. A study by Ridzuan

A. R. et al. (2018) conducted in Malaysia focused on the effects of FDI

and trade openness. The research showed a positive correlation between

FDI and trade openness on economic growth and wealth distribution.

The study by Tahmad, A. M. I, & Adow, A. H. (2018) investigates

long-run equilibrium relationships between trade openness and FDI in the

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Sudanese economy by sector within the 1990-2017 period. The results

showed that FDI and trade openness have a positive relationship in

determining economic growth. (Saleem, H, Shabbir, M. S, & Bilal khan,

M, 2020) Found that FDI and trade openness are correlated in

contributing to economic growth. Similarly, according to Kakar, Z. K, &

Khilji, B. A. (2011), trade openness will continue to be viewed as a key

determinant of economic growth in Malaysia, Amna Intisar R et al.

(2020) found that a positive relationship between trade openness and

economic growth exists in Asian countries.

Hye, Q. M. A. (2016) shows that new evidence in their study was

discovered and shows a strong correlation between trade openness and

human capital in enhancing economic growth. Nepal, R et al. (2021) has

found that both FDI and Trade Openness influence economic growth in

India.

Sengupta & Puri (2018) attempted to explore the causality between

FDI and GDP by comparing india with its neighbor countries. The study

concluded that FDI enhances economic growth, excluding Pakistan,

proving also that correlation exists between FDI and GDP. The study by

Susilo (2018) examined the impact of FDI on economic growth in the

United States, concluding that growth in FDI explained the 90.4% real

GDP growth. This shows that an increase in FDI, together with GDP,

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affects economic growth positively. Pegkas (2015) found that FDI has a

positive and significant impact on economic growth, as economic theory

predicts. A study by Sokang, K. (2018) investigated the impact of FDI on

economic growth in Cambodia, with results showing that there is a

positive relationship between economic growth (GDP) and FDI. The

researcher noted that this could have been caused by Cambodia's

sufficient FDI fund investments, which caused the economy's growth.

According to Hansen and Rand (2006), FDI and Growth in

Developing Countries state that FDI promotes economic growth. The

research of Čičak & Sorić (2015) focuses on the correlation between the

GDP growth rate in Croatia and FDI; the study later on, found that GDP

growth is caused by FDI and provided evidence that FDI is caused by

GDP. Abbas et al. (2011) discussed in their paper the impact of FDI on

GDP Growth, resulting in a positive relationship between the two.

According to Agrawal, P. (2020), higher GDP growth and additional

credit availability are associated with increased foreign direct investment.

stated that the variables have a strongly positive effect on economic

growth. An empirical analysis of Bangladesh done by Hussain and Haque

(2016) showed a relationship between foreign direct investments, trade,

and the growth rate of per capita GDP. The study showed that the

variables had a significant impact on the country's GDP per capita growth

rate.

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 Sajilan et al. (2019) investigated 42 OIC countries to study the link

between FDI and its several determinants. The researchers found that FDI

is a valuable source of foreign capital and guarantees long-term economic

growth. A study by Suluk & Ozturk (2020) examined the relationship

between FDI and economic growth in the US. the results of the study

implied the importance of FDi and that it positively affects economic

growth in the US. Coban & Yussif (2019) studied the relationships of

FDI, economic growth, and inflation for the country of Ghana. The

authors concluded that FDI inflows and the economic growth of Ghana

are positively related. Furthermore, Hakizimana (2015) explored the

correlation between GDP per capita and FDI in Rwanda; his findings

showed a robust relation between GDP per capita and FDI that leads to

positive economic growth. It is. indicated in the concluding remarks of

Türkcan et al. (2008) that their findings suggest a positive correlation

between FDI and economic growth. Wherein FDI positively influences

economic growth and vice versa. The empirical evidence of Alfaro et al.

(2004) suggests the significant contribution of FDI to economic growth.

The analysis of Mun et al. (2008) shows a positive relationship between

economic growth and FDI. Trade openness boosts GDP growth once it

reaches a minimum threshold (Ramzan et al, 2019). In the study of Keho

(2017) and Malefane & Odhiambo (2018), trade openness was found to

have a significant effect on economic growth. Increasing trade openness

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contributes to GDP per capita, also lagged openness and openness

obtained from the past years affect economic growth positively (Ma et al.,

2019).

Relevance of Reviewed Literature and Studies to the Present Study

Our point of view as a student about the Economic Growth, We can

say that the economy of our country is economically growing in terms in

the increase in goods and services produced by our economy but we don't

still feel the Economic Development. We can only say that our country is

economically growing and economically developing if the poor would

both reduce the inequality and improve the total health of the population.

We can say that there is Economic Development when the people of the

country become wealthier, healthier, better educated and have a greater

access to good quality housing. But We don't feel the Development

because the people of the economy don't focus on both qualitative and

quantitative growth of the economy. We don't feel the development

because of inequality.

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