Breaking Barriers: Unlocking the Philippines’ Path to High-Income Status by 2040

The World Bank’s Running Uphill: Growth, Jobs, and the Quest for Productivity offers a rigorous analysis of the Philippine economy’s progress over the past 15 years and presents a practical roadmap for the future. Backed by insights from top research institutions, including the University of the Philippines School of Economics, Philippine Center for Economic Development, Bangko Sentral ng Pilipinas Research Department, and international collaborators like the University of Reading and the University of Sussex, the report positions jobs at the center of development. It argues that sustained, inclusive growth is possible if the Philippines makes critical reforms across infrastructure, regulation, and capital mobilization. The report highlights a remarkable transformation, yet warns of looming challenges that threaten long-term prosperity if not addressed with urgency and coordination.

From Job Creation to Job Quality: A Decade of Momentum

Between 2010 and 2024, the Philippines saw its GDP more than double and unemployment drop to a record low of 3.8 percent. Employment outpaced working-age population growth, and wage-based jobs increasingly replaced informal and self-employment. Growth was spatially inclusive, as low- and middle-income regions outperformed high-income areas. The bottom 40 percent of the population saw faster income growth than the top 20 percent. Real wages increased by 24 percent, while labor productivity rose by 44 percent. Yet, these achievements were heavily driven by capital accumulation, which accounted for over 90 percent of GDP growth. Productivity, by contrast, contributed less than 10 percent, and the economy’s export orientation weakened. Without a shift to productivity-led development, the country risks stagnation and deeper inequality.

The Bottlenecks: Infrastructure Gaps, Skills Mismatch, and Costly Regulations

Despite increased public spending on infrastructure under the Build, Build, Build and Build Better More programs, major gaps remain in transport, energy, and digital connectivity. Energy and logistics costs are among the highest in Southeast Asia, while complex permitting processes continue to discourage investment. For example, launching an onshore wind project requires 373 separate interactions with government agencies, many of which are duplicative. Moreover, low human capital further limits growth. Alarmingly, 91 percent of 10-year-olds are unable to read or comprehend a simple text. Female labor force participation also remains low, despite women outperforming men in education. Structural labor market rigidities, such as the high cost of part-time work for employers, limit flexibility and leave talent underutilized.

The report also highlights a burdensome business environment. Foreign firms face a 106-day registration process, among the longest globally. In sectors like telecommunications, energy, and logistics, monopolistic market structures and regulatory capture suppress competition and innovation. Minimum wage structures, although well-intentioned, are misaligned with regional productivity levels, pushing many low-skilled workers into informality. These constraints hurt the competitiveness of tradable sectors like manufacturing, which now contribute less to employment and exports.

An Inward Shift: Why Non-Tradables Are Dominating the Labor Market

Three out of every four new jobs created since 2010 have been in non-tradable sectors like retail, construction, and domestic services. These sectors now dominate employment growth, while tradable sectors, especially manufacturing, have weakened. The number of merchandise exporters dropped by 23 percent over the past decade, and the export-to-GDP ratio declined from 33 to 27 percent. The rise of services exports, especially IT-BPO, has cushioned the blow, now representing 27 percent of total exports and employing 1.4 million Filipinos. However, many of these jobs are vulnerable to automation and artificial intelligence, underscoring the urgency to move up the value chain.

Contributing to this inward orientation is the appreciation of the real effective exchange rate (REER), driven by remittances and rising service exports. The stronger peso has made exports less competitive and shifted investment toward domestic sectors. High input costs, such as electricity, which averages 15 cents per kilowatt-hour in the Philippines versus 7–8 cents in regional peers, have further eroded manufacturing’s viability. The report argues that this trajectory is unsustainable and will suppress long-term wage growth and productivity unless aggressively reversed.

The Reform Blueprint: A Three-Pillar Strategy for 2040

To shift to a productivity-driven, innovation-oriented, and export-led economy, the report proposes reforms across three strategic pillars. First is foundational investment in infrastructure and human capital. This includes continued spending on transport and energy infrastructure, scaling up STEM and digital education, and rapidly operationalizing the Enterprise-Based Education and Training (EBET) Act. Second is improving regulations and governance, such as simplifying permits, liberalizing shipping, reforming land use laws, and enabling more inclusive wage policies. These measures aim to reduce business costs and attract more investment.

The third pillar is private capital mobilization. The report recommends launching supplier development programs to integrate small and medium enterprises (SMEs) into global value chains and linking them with multinational corporations. It also calls for expanding innovation hubs in high-readiness areas like Metro Manila and amending regulations to allow pension funds to invest in venture capital under strict oversight. These reforms will enhance access to finance, reduce risk, and stimulate entrepreneurship.

According to the dynamic modeling presented in the report, fully implementing this roadmap could raise GDP growth from 5.4 to 6.8 percent annually by 2040, create over 5 million additional jobs, and increase real wages by nearly 13 percent. In contrast, a business-as-usual scenario would leave the country short of its development goals, with living standards by 2050 remaining comparable to Brazil’s today rather than converging with high-income economies like Poland.

The Window of Opportunity Is Closing Fast

The Philippines has made commendable progress over the last 15 years, but the current global environment demands a bold and immediate shift. The country must move away from reliance on capital accumulation and non-tradables and pivot toward an economy driven by innovation, competition, and export integration. This will require tough reforms, but the alternative is a missed demographic window and a lost chance at high-income status. The World Bank’s report makes it clear: the decisions made now will define whether the Philippines climbs the next rung of the development ladder or remains stuck midway.