Differences in uses of rural financial markets in Taiwan and the Philippines

By the early 1990"s, however, rural people in Taiwan were much better off than their counterparts in the Philippines. The authors of this study argue that Taiwan used its formal rural financial market (FRFM) more effectively than the Philippines did, and that this accounts for a significant part of Taiwan"s superior economic performance. The Philippines often used its FRFM to transfer subsidies and to target loans at priority activities and groups, while Taiwan generally did not. As a result, the FRFM in the Philippines was far less effective in helping to allocate resources efficiently, and less able to fund major private investments in agriculture, than was Taiwan"s FRFM. After analyzing the performance of FRFM"s in both countries, the authors identify 10 policies that contributed to the superior performance of FRFM"s in Taiwan. They go on to conclude that lessons drawn from the Taiwan and Philippines cases might be applicable in other developing countries. (Author abstract)