Thirty-seven years ago, when this newspaper was reformed under its new name, the average Filipino earned less than one-tenth of the income of the average high-income person. Since then, the Philippine economy has experienced significant growth. Today, that same average Filipino earns almost one-third of the income of his peers in high-income countries — still a large gap but a narrowing one. The value Filipinos add at work has doubled in real terms since the late 1980s. However, this growth was not uniform over the 37 years. The past decade, even with the COVID-19 shock that wiped out 10% of the Philippines’ income in one year alone, showed as much growth as the other 27 years combined.
This recent growth has three distinct features: catching up, better use of resources, and an inward shift.
The first distinct feature is catching up. At the household level, incomes of the poorest families have grown faster than those of better-off families, reducing income disparities. To be sure, income disparities in the Philippines are still among the highest seen in East Asia, but they narrowed during the past decade. At the firm level, productivity improvements were most pronounced among mid-level firms, which grew about 30% faster than leading firms. Regionally, labor productivity gains were stronger in less developed areas — such as region XII in Mindanao or Eastern Visayas — than in the National Capital Region.
The second distinct feature of growth is a better use of resources. If Carlos Yulo had been forced to box and Nesthy Petecio and Aira Villegas to be gymnasts, the Philippines would not have secured its three medals in Paris. They excelled by focusing on their strongest fields. Similarly, over the past decade, many workers moved from informal self-employment activities to higher-productivity formal wage employment that increased by nearly ten percentage points over the past decade. While these job changes boosted overall productivity, many new jobs still offer unstable work conditions and few benefits.
The third distinctive feature was its inward focus. As sectors not exposed to international competition saw faster asset growth than those engaged in international trade, risks emerged. Vietnam grew on par with or slightly faster than the Philippines while becoming more outward-looking by promoting foreign direct investments and deepening global integration.
The Philippines saw its export-to-gross domestic product ratio decline from 34.7% in 2010 to 26.7% in 2023; exporting firms also fell from about 3,500 to 2,750 during this period. This inward shift could limit future growth since firms engaged in international trade are typically more productive.
Looking ahead, global economic challenges include falling productivity growth and geopolitical tensions driving protectionist policies; climate change requiring adaptation; and rapid technological advancements presenting both opportunities and risks.
To sustain growth amid these challenges requires enhancing competition and global integration through recent reforms; investing in skills to combat learning poverty; and strengthening institutions for efficient public administration.
Gonzalo J. Varela is World Bank lead economist and program leader for Equitable Growth, Finance and Institutions Practice Group for the Philippines based in Manila.
___