WHAT IS It talks about production, distribution and,

and trade as well as consumption of

ECONOMY? goods and services
WHAT IS AN
Someone who starts a business.
ENTREPRENEUR?
 It is the intent of this chapter to present and orient the reader
about the present status of the Philippine economy, the history behind
the development of our economy, and the factors that affect the
development and growth of the economy.

This chapter seeks to re-orient the school system to respond

more positively to the need for more entrepreneurs on whom
development depends. It aims to inculcate entrepreneurship into the
consciousness of our young people as prestigious, challenging, and
possibly more financially rewarding than law, medicine, engineering,
education, the arts, and other more conventional professions.
OBJECTIVES

• orient people on the status of Philippine Economy

• identify factors that greatly affect the business establishments in
our country
• explain how a specific economy grows
• discuss how entrepreneurship could help improve the quality of
life
THE PHILIPPINE ECONOMY: HOW
DOES AN ECONOMY GROW

The Philippine Economy

The Role of Entrepreneurship

in Economic Development

How does an economy grow?

THE PHILIPPINE ECONOMY: HOW
DOES AN ECONOMY GROW

8
Summary or key points of
The Philippine Economy and
its growth.
1. The national economy is composed of business enterprises,
household, and the government.

2. There are economic freedoms, like free competition, free choice of

investments, and prices, which are determined by the interaction
between demand and supply.

3. In economic development; knowledge, skills, values, and the quality of

people are the main determinants of economic growth.
4. There were inhabitants in the Philippines about 250,000 to 300,000
years ago. They arrived from other countries through the land bridges.
They had a primitive economic existence. More civilized migrants
came in later years.

5. The Philippines was a slave of three colonial masters, the United

States, Japan, and Spain. Nevertheless, the Chinese dominated the retail
trade even before the Spanish time. The Spanish rule introduced the
tobacco monopoly and galleon trade for the benefits of top-ranking
Spanish citizens. Similarly, the Americans exploited our agricultural
economy. Japan ruined our economy.
6. The Philippine government got its political independence in 1946, but
not economic independence from the US. The import control program
of President Carlos Garcia gave a breathing space for Filipino
entrepreneurs. However, this did not last because the US had its own
way of dominating the Philippine economy.

7. Under the Martial rule, the friends of the Dictator controlled Philippine
business. Democracy was restored finally upon the assumption of
Corazon Aquino as president. Under her administration, the engine of
economic development has been assigned to the private business sector.
The Ramos has sustained most of the good programs of the Aquino
administration.
8. The national government, in its effort to alleviate poverty, has promoting
the growth of entrepreneurship. It has several financial and technical
assistance programs for the poor who are interested in putting up their
micro businesses. Even some NGOs are involved in entrepreneurial
projects for the poor.
ROLES OF ENTREPRENEURSHIP IN
ECONOMIC DEVELOPMENT

13
Roles in Economic Development
1. Entrepreneurship offers an economical and faster method of
distributing goods and services that accelerates economic
development

2. Entrepreneurship is capable in generating more jobs, income, goods,

and services.

3. Entrepreneurship improves the quality of life.

4. Entrepreneurship contributes to a more equitable distribution of

income and therefore, eases social unrest.
5. Entrepreneurship utilizes and mobilizes resources to make the country
productive.

6. Entrepreneurship brings social benefits through government.

7. Entrepreneurship has several definitions. Any person who takes

risks and invests his resources to make something new or better is
engaged in entrepreneurship. This applies not only to business but also to
social services.
8. Economic development is a process, while economic growth is a
product of economic development. Both economic and non-economic
factors constitute the determinants of economic development. In less
developed countries, economic development refers to the progressive
process of improving human conditions by reducing or eliminating poverty,
disease, injustice, illiteracy, and exploitation.
9. Development and Growth Theories

A. Laissez-Faire Theory explains that the government should not

interfere in economic activities.

B. Keynesian Theory explains that the government should play a key role
in economic development.

C. Ricardian Theory. This is the theory of David Ricardo focusing on

agriculture playing a major role in economic development.
D. Harrod-Domar Theory, conceptualized by Sir Harrod of England and
Prof. Domar of the U.S., claims that more products can be produced
through the use of machines.

E. Kaldor Theory, by Nichols Kaldor, maintains that the key factor is

technology. This theory explains that the application of modern
technology in the production of goods and services has been
responsible for the economic success of the highly developed
countries.

F. Innovation Theory, developed by Joseph Schumpeter, stresses the

role of innovators or entrepreneurs in economic development.
10. The contributions of entrepreneurship are:

1) development of new markets

2) discovery of new sources of materials,
3) mobilization of capital resources,
4) introduction of new technologies, and
5) creation of employment.
A. Development of new markets
Example: Uber created a new market for ride-hailing services. Before
Uber, people primarily relied on traditional taxis. By leveraging smartphone
technology, Uber revolutionized transportation, creating a new, convenient
market for on-demand ridesharing.

B. Discovery of new sources of materials

Example: Tesla discovered new ways to use lithium for electric car
batteries. By sourcing lithium more efficiently and sustainably, Tesla has
helped increase the global demand for lithium-ion batteries, reducing the
reliance on traditional fossil fuels for cars.
C. Mobilization of capital resources
Example: Airbnb raised significant venture capital to build its global
platform, enabling people to rent out their homes or rooms to travelers.
This mobilized billions of dollars in capital into the tourism and hospitality
industry and gave individuals a way to monetize their unused spaces.

D. Introduction of new technologies

Example: Apple introduced the smartphone with its iPhone. This new
technology not only changed the way people communicate but also
created new industries, such as app development, digital media, and
mobile payments.
E. Creation of employment
Example: Alibaba created millions of jobs in China and worldwide through
its e-commerce platforms. It empowered small and medium-sized
businesses to reach a global audience, increasing employment
opportunities in logistics, technology, and retail sectors.
11. There is a need for a Filipino entrepreneurial economy. This means
our productive resources should be in the hands of Filipinos for their own
benefits. A reasonable economic nationalism should dominate our
business culture for our own prosperity as a nation. Schools should stress
the value of entrepreneurship based on just economic nationalism.
12. The government can support entrepreneurs from their various
assistance programs on the following: Peace and Order, Political
Stability, Price Stability, Taxes, Infrastructures, Education and Training,
Public Administration, Production Technology, Marketing Assistance,
and Financial Assistance.

13. We have seen that entrepreneurship directly affects the social and
economic development of people. The more society engages in
entrepreneurial undertakings, the more it is likely to develop economically
and socially. Our country still has a Long way to go in order to catch up
with more developed countries.
HOW DOES AN ECONOMY GROWS

ABCD
Theories of economic growth
General explanations of economic
development

Economic explanations of economic

development

Socio-psychological explanations of
economic development
A. Theories of economic growth may be classified into three broad
groups

One group consists of theories viewing economic growth as a

natural and inevitable process.
These theories view economic growth as a natural progression that
unfolds due to inherent factors in society, such as population growth,
technological advancements, and resource availability. Economic
expansion is seen as a self-sustaining process driven by natural laws like
the accumulation of capital, increased productivity, and demographic
changes. Examples include classical economic theories (e.g., those of
Adam Smith and David Ricardo) which argue that economies tend to grow
automatically when markets function freely, with minimal government
intervention.
The second group of theories explains economic development as a
rational process brought about when men respond to opportunities
in the environment so as to promote their own self-interest or social
welfare.

This group of theories explains growth as a rational response to

opportunities. Economic agents, like entrepreneurs and businesses, act in
their own self-interest to capitalize on these opportunities, making
decisions based on market incentives. This rational behavior drives
innovation, investment, and efficient resource allocation, promoting overall
economic growth. An example is neoclassical growth theory, where
decisions on savings, investment, and consumption optimize economic
outcomes and lead to growth over time.
The last group of theories views economic development as a result
of seemingly economically irrational yet psychologically and
sociologically satisfying activities of enterprising men. We shall label
these groups as general, economic and socio-psychological.

These theories suggest that economic development can stem from

psychologically or sociologically driven actions that might seem irrational
in pure economic terms but satisfy deeper social or personal motives.
Entrepreneurs may take risks or innovate not merely for profit but due to
factors like ambition, desire for status, or the need for societal change.
Schumpeter's theory of "creative destruction" is an example, where
entrepreneurial innovation disrupts existing markets, not necessarily out of
rational profit-maximizing motives but from a drive for creating something
new and socially transformative.
B. General explanations of economic development

1. Economic development proceeds according to a master plan or "Law

of Nature.“

Explanation: This perspective suggests that economic development

follows a natural, predetermined path or pattern, much like the laws of
nature that govern the physical world. According to this view, economic
progress is inevitable and follows a predictable course, such as stages of
development from agricultural to industrial to post-industrial societies. The
idea here is that certain economic forces are natural and unavoidable,
driving human societies in a specific direction.
2. Economic development is brought about by an "Invisible Hand.“

Explanation: This idea stems from Adam Smith's famous concept in

classical economics. The "Invisible Hand" refers to the self-regulating
nature of the market, where individuals, acting in their own self-interest,
unintentionally contribute to the overall economic good of society. In this
view, economic development occurs without a central plan but is driven by
the decentralized actions of individuals and firms. The market’s supply and
demand forces guide this development naturally, leading to prosperity and
growth.
3. Economic Development is brought about by "Cultural Diffusion."

Explanation: Cultural diffusion refers to the spread of cultural traits, ideas,

technology, and practices from one society to another. In terms of
economic development, this means that societies develop and grow
economically by adopting innovations, technologies, and ideas from other
cultures. Trade, migration, and communication are key channels through
which this diffusion happens. For example, the spread of industrial
techniques from Britain to other parts of the world in the 19th century is an
instance of cultural diffusion aiding economic development.
4. Racial heritage determines the economic development of people.

Explanation: This theory, now widely discredited and criticized, posits that
certain races or ethnic groups have inherent characteristics that make
them more or less likely to achieve economic development. This notion
was historically used to justify colonialism, slavery, and racial
discrimination, suggesting that some groups are "naturally" more capable
of economic progress than others. Modern social science rejects this idea,
emphasizing that historical, social, and economic factors, not racial
heritage, determine development outcomes.
5. Climatic conditions determine the energy levels of people and in turn its
rate of development.

Explanation: This theory suggests that the climate in which people live
affects their physical and mental energy, which in turn influences the pace
of economic development. For example, people in temperate climates are
thought to have more energy and productivity, leading to higher economic
development, while those in harsh or tropical climates may struggle with
the adverse effects of extreme weather, slowing development. While
climate does have some impact on agriculture and economic activities,
this explanation is too simplistic and ignores other critical factors like
governance, education, and technology.
6. The challenge of the natural environment is responsible for the rise of
civilization.

Explanation: This theory argues that economic development and the rise
of civilizations are driven by the need to adapt to and overcome
environmental challenges. Societies that face harsh natural environments
(such as deserts, mountains, or cold climates) develop new technologies,
social structures, and economies to survive and thrive. For example, the
development of irrigation in ancient Mesopotamia to manage water in a
challenging environment helped spur the rise of one of the world’s first
civilizations. The idea is that human ingenuity and progress are stimulated
by the demands of the natural world.
C. Economic explanations of economic development

1. Technology improvements and division of labor lead to development.

2. Population changes affect development.
3. Entrepreneurship is an important factor in development'
C. Economic explanations of economic development

1. Technology improvements and division of labor lead to development.

Explanation: Technological advancements improve productivity and

efficiency, allowing societies to produce more goods and services with
fewer resources. The division of labor, where work is divided into
specialized tasks, increases efficiency because workers become skilled in
specific areas. Together, these factors boost economic output, foster
innovation, and drive economic development. For example, the Industrial
Revolution saw technological improvements like the steam engine and the
division of labor in factories, which significantly increased production and
spurred development.
C. Economic explanations of economic development

2. Population changes affect development.

Explanation: Changes in population size, composition, and distribution can

significantly impact economic development. A growing population can
provide a larger workforce, boosting production and consumption.
However, if population growth exceeds the available resources or
infrastructure, it can strain the economy. On the other hand, a declining or
aging population may reduce the labor force, slowing economic progress.
Population dynamics, such as migration and urbanization, also influence
the distribution of skills and resources, shaping development.
C. Economic explanations of economic development

3. Entrepreneurship is an important factor in development

Explanation: Entrepreneurs play a crucial role in economic development

by creating new businesses, introducing innovations, and driving
competition. They take risks to develop new products, services, or
technologies, which can lead to job creation, increased productivity, and
economic growth. Successful entrepreneurship often leads to the
expansion of industries and the diversification of economies, making them
more resilient and dynamic. For example, Silicon Valley’s entrepreneurs
have driven the tech boom, significantly contributing to the U.S. economy
D. Socio-psychological explanations of economic development

1. According to the work of Talcott Parsons, individuals in modern societies

are:
a. unemotional;
b. interested in themselves;
c. able to relate to others in terms of their social roles or their ability to do a
job;
d. known for their accomplishments; and
e. able to relate to others in specific economic terms..
2. In contrast, members of traditional societies tend to:

a. be emotional;
b. be more interested in the general welfare of the community;
c. relate to others in terms of their unique qualities;
d. be known for who they are; and
e. tie up economic relationships with all sorts of other relationships
involving kinship and political, religious, and other social structures.
END.