How to conduct effective industrial policy: a comparison of automotive development in the Philippines and Indonesia

Abstract

Compared to the recent successes of Indonesia, Philippines vehicle production has faced severe problems of lack of economies of scale and a weak domestic supply base, as well as strong import competition, including from illegally imported used cars. Unlike Indonesia in recent years – whose automotive development up to the late 1990s was considered a failure – the Philippines has not succeeded in developing significant exports of vehicles. Although at first sight there have been early similarities in industrial policies towards the automotive industry in the two countries, we identify various key policy differences, including tax policy to promote particular types of vehicle. Although now the Philippines is starting to see the sort of growth in vehicle ownership that is currently well underway in Indonesia, it will have to struggle under its new CARS policy to stop the growth in the market simply being met by more imports.