Taking the Right Road to Inclusive Growth: Industrial Upgrading and Diversification in the Philippines

Publication | April 2012

The Philippines’ growth has mainly been led by services. Productivity of the services labor, however, has persistently been well below that of industry. This suggests that although services have made the greatest contribution to economic growth and job creation, it was not necessarily associated with a rise in productive employment on the aggregate. To achieve inclusive growth, the Philippines needs to develop a stronger industrial sector to create productive job opportunities for the growing labor force.

This report discusses key policy challenges that need to be addressed if the Philippines were to embark on sustainable and inclusive growth. We take the view that the main reason behind the Philippines' lagging growth and development outcomes in the regional context lies in a sluggish transformation of the economy - in particular, stagnant industrialization. Chronic problems of unemployment, poverty, and low investment are reflections of weak industrial development. The economy has been led by services, and it has been further shifting toward services with the growing business process outsourcing. Nevertheless, sole development of the services sectors is not sufficient to address the development challenges and lead to inclusive growth. We propose more targeted public sector support, which focuses on specific industries and products for industrial upgrading and diversification. This report shows a methodology of choosing products for targeted public sector support, and recommends effective dialogue between the public and private sectors to identify constraints specific to the target products and to develop adequate solutions. The Philippines needs to develop a stronger industrial base to enable the economy to "walk on two legs" of industry and modern services, to create productive job opportunities for the growing working-age population.

Contents 

  • Executive Summary
  • Introduction
  • Structural Transformation - Aggregate Productivity Growth
  • Structural Transformation - Evolution of Product Space
  • Service-Led Growth - Can Services Alone Drive Inclusive Growth?
  • Policy Options for Economic Diversification - Product Identification and Targeted Public Sector Support
  • Concluding Remarks
  • Road Map