The Philippine economy’s chronic problems of high unemployment, slow poverty reduction, and low investment, are reflections of the sluggish industrialization, resulting in lagging growth performance and development outcomes in the regional context. Therefore, its biggest need is to develop stronger industrial base to enable the economy to “walk on two legs” of industry and modern services, as well as speeding its structural transformation. The primary objective of this report is to discuss key policy challenges that need to be addressed if the Philippines is to embark on sustainable and inclusive growth.

The report proposes more targeted public sector support, which focuses on specific industries and products, for industrial upgrading and diversification. The author argues that once the Philippines decides to develop a stronger industrial base for inclusive growth, policymakers face two practical challenges; identifying new industries in which the country may have comparative advantage in the future, and removing constraints that impede the emergence of such industries. Moreover, the author claims that the evolution of the Philippines’ product space shows that despite the increasing level of sophistication of the country’s export basket, the process of industrial diversification has stagnated over the years.

In conclusion, structural transformation is a long process by nature, however, the Philippines has a huge potential to become a key production base within the regional production network. The author explains that the first step toward effective industrial development is to undertake broad-based reforms to address the long-standing challenges such as under-provision of basic infrastructure. Besides, well-targeted interventions with careful monitoring and rigorous impact assessment will help foster the structural transformation that drives inclusive growth in the Philippines.  Finally, the author recommends that the government should be pragmatic enough to capture the opportunities afforded by the changing global and regional economic environment.