USING ECONOMETRICS TO SOLVE QUANDARIES IN PUBLIC POLICY MAKING

USING ECONOMETRICS TO SOLVE QUANDARIES IN PUBLIC POLICY MAKING

Econometrics: The Hidden Tool Behind Smart Public Policies

Econometrics is a technical field that rarely makes headlines, yet its impact on public policy is undeniable. In the Philippines, only a handful of individuals are recognized experts in econometrics, but remarkably, several of them have held key positions in government. Names like Ernesto Pernia, Solita Monsod, Felipe Medalla, and the current National Economic and Development Authority (NEDA) Secretary, Arsenio Balisacan, are among the few who have used their expertise to shape national policies.

However, despite the presence of these experts in leadership roles, econometrics itself is rarely credited as a decision-making tool in public discourse. Why does Secretary Balisacan, with his deep econometric background, not openly advocate for its use in policy formulation at NEDA? The answer may lie in the technical complexity of econometrics, which often makes it inaccessible to the public and to policymakers who favor more straightforward approaches.

Why Econometrics Matters in Policy Making

Econometrics applies statistical and mathematical models to real-world economic data, allowing policymakers to make informed decisions based on empirical evidence rather than intuition or political pressure. It plays a crucial role in:

1.   Assessing Policy Effectiveness – Determining whether policies achieve their intended goals.

2.   Forecasting Economic Trends – Predicting the potential impact of new policies.

3.   Resource Allocation – Ensuring funds and efforts are directed where they yield the greatest benefit.

4.   Monitoring Economic Performance – Providing real-time assessments to adjust strategies as needed.

Two Cases Where Econometrics Can Provide Clear Answers

1. The Polymer vs. Abaca Fiber Debate in Currency Production

The Bangko Sentral ng Pilipinas (BSP) recently replaced abaca-based banknotes with polymer currency, citing durability and security. However, reports suggest polymer bills are still being counterfeited, raising questions about whether the switch was beneficial.

Econometrics can be used to analyze the total costs of both materials, factoring in production expenses, environmental impact, and economic benefits for abaca farmers. A rigorous cost-benefit analysis could determine which currency material is truly superior in the long run.

2. Asphalt vs. Cement for Road Construction

The Philippines produces large amounts of asphalt as a byproduct of oil refining, yet the government predominantly uses cement for roads. Cement production, however, requires extensive mining, thus harming the environment.

Econometric models could compare the long-term costs and benefits of using asphalt versus cement, incorporating factors such as durability, environmental impact, and economic effects on local industries. This data-driven approach would help policymakers make a more sustainable choice.

Real-World Success Stories in the Philippines

Econometrics has already played a role in shaping major policies, including:

  • Pantawid Pamilyang Pilipino Program (4Ps): Studies confirmed improved health and education outcomes for beneficiaries.
  • Tax Reforms (CREATE Act 2021): Forecast models supported corporate tax cuts, which encouraged foreign investments.
  • Bangko Sentral Monetary Policy: Inflation control measures were guided by econometric analysis.
  • Renewable Energy Policy: Data-driven studies justified opening the energy sector to foreign investors.

The Future of Econometrics in Policymaking

Despite its potential, econometrics faces challenges in public governance, including limited data availability, resistance from traditional policymakers, and the complexity of its models. However, greater transparency and investment in training government officials could help integrate econometric insights into mainstream policymaking.

By embracing more of econometrics, the Philippines can move towards more evidence-based governance, ensuring that policies are not just politically palatable but also economically sound. The question is: will our leaders take the step to make data-driven decision-making a norm rather than an exception?

Ramon Ike V. Seneres, www.facebook.com/ike.seneres
iseneres@yahoo.com, 09088877282, senseneres.blogspot.com

04-24-2025

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