The role of productivity and the relative stagnation of the Philippines since the mid-twentieth century

Type of the article: Research ArticleAbstractThe relative stagnation of the Philippine economy since the mid-1900s has been widely debated. It is argued that the negative divergence can be explained by low productivity growth and a lack of foreign direct investments. However, one lacks standardized annual series of comparable GDP and productivity figures covering the entire period from 1950 to the present. This paper attempts to respond to this challenge by proposing new PPP calculations of annual GDP for the years 1950–2023 for nine East and South-Eastern Asian economies. By establishing these figures, one can explain the relative Philippine stagnation compared to neighboring countries. New calculations of labor, capital, and total factor productivity show that the Philippines lagged compared to the neighboring economies during the second half of the 20th century. Particularly, the lack of total factor productivity growth seems to largely explain the Philippines’ relative fallback. This conclusion is confirmed by growth accounting and counterfactual estimations, suggesting that the missing growth of total factor productivity can explain the bulk of the relative decline in the Philippines. However, from 2011, the relative growth pattern seems to change, as the island economy shows higher economic and productivity growth rates than its surrounding countries. The relatively weak economic growth and productivity development can be largely attributed to a dysfunctional and corrupt political system, which peaked during the last years of the Marcos dictatorship, 1965–1986. The predatory state system also contributed to bad infrastructure and an inefficient management culture, which discouraged domestic and foreign direct investments.