Inclusive Growth at Last? Exploring the Philippines’ Recent Economic Expansion (2010-2019)
by Bella Suansing
Downing College (2019), MPhil in Development Studies, Department of Politics and International Studies
My MPhil dissertation explored the characteristics of the Philippine economy from 2010-2019 to determine whether the Philippines’ economic expansion during the last decade, when it averaged an annual growth rate of 6 percent, may represent progress in the country’s long-standing pursuit of inclusive growth. It primarily uses statistics and reports taken from international organizations (e.g. the World Bank, the ADB, the IMF) and from Philippine government agencies (e.g. the Philippine Statistics Authority, the Bureau of Treasury).
Reconciling the variant descriptions of the term “inclusive growth” offered by numerous development scholars and policymakers, it defines “inclusive growth” as growth that is rapid, sustained and propelled by dynamic national industries that foster productivity growth, and produces positive effects on employment opportunities and outcomes. It is growth that reduces the number of poor individuals in most (if not all) segments of society, mitigates the risks faced by poor communities through lifting incomes in sectors which the poor are employed, improving local health and education outcomes and establishing robust, diversified sources of local income and employment, and ultimately impacts a narrowing effect on existing income and social inequalities.
After describing the conditions which necessitate an inclusive economic expansion in the Philippines (e.g. slow and erratic economic growth since the 1980s, high employment insecurity, persistently high rural poverty rates, increasing income inequality, etc.) and using the defined parameters for the term “inclusive growth”, the study then found that the Philippines’ recent period of economic growth was characterized by notable progress in sectoral productivity growth, economic complexity, labour productivity growth and investment growth. Particularly, alongside robust growth from the Philippines’ services subsectors (i.e. the BPO, tourism, construction and finance sectors) and steady inflows in foreign investments and remittances, it was characterized by the resurgence of the Philippines’ manufacturing sector which, after falling into a 40-year period of stagnancy, has slowly begun its transition to higher-value industries in machinery, transport equipment building, chemicals and food & beverage production. Additionally, there have been marked improvements in fiscal management, revenue mobilization and tax productivity during the decade, unemployment and underemployment rates fell to their lowest levels in 25 years, and poverty rates were significantly reduced, both on the national level (from 25.7% in 2009 to 16.6% in 2018) and on the regional level. The regions which grew the fastest during this period were those outside Metropolitan Manila and its adjacent regions (i.e. Central and Southern Luzon), the country’s commercial and industrial centres.
However, several caveats exist alongside these welcomed developments which may present threats to sustainable economic growth moving forward. Risks relating to high production costs posed by underdeveloped infrastructural links between regions, the absence of strong intersectoral linkages between the country’s thriving services and industrial sectors and its lagging agricultural sector, the country’s recent mass accrual of public sector debt due to the “government-led” economic boom of the late 2010s (i.e. through the Duterte administration’s flagship infrastructure program, or Build, Build, Build), the consumption-driven (instead of investment-driven or export-driven growth) nature of the Philippine economy, the sluggish, backward-looking, volatile nature of the Philippine agricultural sector, and tepid progress in export production diversification into lucrative agricultural and industrial goods closely related to products in the Philippines’ still-unchanged export basket all temper the country’s potential for significant leaps in productivity growth and local capacity development in the medium term. Challenges in income and employment security for Filipino workers persist, as despite improvements in employment rates and wage gaps across sectors, the number of workers whose nature of employment are day-to-day, short-term, seasonal or casual has increased, especially in the booming industrial sector (from 26.5% in 2010 to 35.7% in 2017). Other issues regarding diversified income streams, scarcity in productive job opportunities and workers’ vulnerability to poverty due to increasing prices in urban centres have also continually afflicted Filipino workers.
Moreover, upon closer analysis of region-level growth during the last decade, the study determined that the regions with the fastest growth rates per year also experienced large year-on-year changes in growth rates (as much as 3% every year). The six regions who experienced such volatile trends of growth (i.e. Regions, II, IV-B, V, VIII, CAR, CARAGA) share three attributes: they each experienced the largest declines in region-level poverty rates since 2010, their agricultural employment rates are all above 36%, and they are all listed as the most climate-vulnerable areas in the country (by the World Bank’s Climate Risk and Adaptation Profile). The fact that Metro Manila, Central and Southern Luzon are also all listed in the same profile reveals that the absence of adequate local infrastructural support to mitigate the effects of climate shocks on sources of livelihood (e.g. flood control projects, irrigation systems) and of dynamic sources of income and employment outside of agriculture may account for these regions’ erratic growth rates. Without long-term plans for investments in climate-adapting agricultural infrastructural support and on local industries outside of agriculture, these regions’ growth momentum is at risk of taming and stopping altogether, with implications on communities’ socioeconomic outcomes in the long-term.
The study concludes by exploring the exacerbation of income and social inequalities during the Philippines’ economic expansion in the last decade. Growth in income and in local industries’ share of total gross value added (GVA) were more pronounced within Metro Manila, Central Luzon and Southern Luzon during the decade as investments continually flowed into these three regions annually, with 95.9% of total foreign investments funnelled into these regions in 2018. As a result, these regions alone contributed 62.8% of GDP in 2018 (from 53.1% of GDP in 2007), with Metro Manila and Southern Luzon growing in GDP share by 3.5% and 5.4%, respectively. Over the same period, the Philippines has fared more poorly in regional disparities in health indicators, education outcomes and income per capita, and the number of Filipino families deprived of access to health insurance, education ownership of assets and tenure security of dwelling increased during the decade. Furthermore, worsening urban poverty rates, which were previously discounted due to inherent problems in household surveys (i.e. the exclusion from household surveys of residents in informal settlements), further illustrates the increasing intraregional divide in the country’s most affluent parts, completely disproving any claim of progress in alleviating existing income and social inequalities in the country during the period of economic expansion in the last decade.
Indeed, the prevalence of these issues in the midst of the Philippines’ economic expansion reveals the distinction between achieving rapid, sustained growth and effectively impacting a more broad-based growth experience, and highlights that while pursuits of impacting local-level improvements on income, employment and social outcomes may necessitate the rapid, sustained expansion of national industries, the realization of the latter does not simultaneously and spontaneously result to the fulfilment of the former. Addressing these existing challenges then may necessitate the formulation and implementation of adroit, targeted, firm-handed policies in both the local and the national level. However, optimism for the eventual actualization of the promises of inclusive growth is still offered by the notable accomplishments in, among others, industrial growth, income and employment generation and poverty alleviation, and keeps alive the hope that one day, the country may emerge from its chronic pains and defects empowered to finally and fully institute growth and development for all.
Acknowledgements: Dr. Helena Perez Niño (Thesis Adviser)
Grade: High Pass (73%)
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