Improving the Investment Climate in the Philippines

During the 1990s, the more rapidly globalizing developing economies, in terms of higher trade to gross domestic product (GDP) ratios, grew annually at 5% per capita, while the rest of the developing world posted –1.1% per capita growth. The Philippines together with the People's Republic of China, India, and Thailand, are among the prominent globalizers in the region. However, compared to these countries, the Philippines' economic growth lags considerably behind. Hence, while openness to foreign trade and investment is important, it is not sufficient for sustained GDP growth.

The central thesis of this study is that the Philippine economy's anemic growth over the past 2 decades can be explained in no small measure by its poor investment climate that limited capital formation, productivity improvements and competitiveness of firms. Addressing the weaknesses of the investment climate, complemented by other appropriate policy reforms, will significantly contribute to enhancing the economy's productivity and long-term growth.

This study examines the factors and policies that make up the investment climate and productivity in the Philippines in three dimensions—at the macro level, at the regional level by comparing the Philippines' performance with neighboring countries and by probing, at the micro level, the stumbling blocks and constraints to private investment and productivity growth. This paper also includes general recommendations on what specific areas/measures need reform to improve competitiveness; and what would be the effect of easing the investment constraints on firm productivity and growth.