As recommended in the preceding study, this paper attempts to use the expanded gravity model to account for the possible impact that liberalization of trade in services may have on employment.  The model was also used because of its cross-country perspective and its consideration of social institutions, which is one of the rigidities that affect trade and consequently, employment.  The paper uses data from various countries to determine how liberalization has affected the economic structures of the rest of the world.

The results of the simulation exercise suggest that:

• In terms of exports and imports, relative GDP both lead to increased flows in merchandise in services; trade flows improved with greater relative GDP.

• The coefficients for capital asset variables suggest that merchandise goods are capital-intensive but services are labor-intensive.

• Relative to other countries in the APEC and the ASEAN organization, the country’s trade flows are smaller.  This means that the Philippine trade position has not been enhanced by its membership in these groups.

• Perceptions about institutions and policies are significant factors with regards to service flows. In this case, the country’s institutions could help the service flows if these do not cause any hindrance to the various operations in the services sector.

Meanwhile, the preliminary findings of the study pointed to the following conclusions:

• Trade liberalization did not result to any new job creation, but only led to inter-sectoral movements in the labor force.

• Because of inter-sectoral movements, an increase in relative GDP causes a reduction in the share of labor in agriculture and industry, and an increase in services.  The only way then to cause any significant structural change in the economy is to improve growth, and to expand the domestic economy.

• Shifting resources to services does not lead significantly to job creation.  A policy that will generate more jobs is one that attempts to induce growth in all sectors, particularly in agriculture and manufacturing.  Uneven development will bring about a reallocation of labor from one sector to another.

• Membership in APEC causes a lower labor share in agriculture and greater labor share in services.

• The perception of having an interventionist government has resulted to a lower labor share in agriculture, and higher share in services.  This finding further suggests that institutions that will create stability in the country are crucial for improving the services sector.