Introduction

The economic collapse in 1983–1985 and periodic slowdowns and recessions thereafter led to the sharp decline in Philippine industry's share of gross domestic product (GDP) as well as that of investment from the early 1980s. The premature halt in the growth of the industrial and capital formation sector reduced the country's capacity to improve its technology and to scale up production, which would have brought the economy to much higher growth and development. As industry's share declined, services took over as the lead growth sector. This is unlike the experience of more developed countries such as Taipei, China, where the service sector and consumption share of GDP rose only after the highly industrialized stage and where industrial and manufacturing activities have reached maturity. Figure 5.1 shows the Philippines' drop and stagnation in the share of industry compared with that of its more successful East Asian neighbors.

Except for Taipei, China and the Philippines, all East Asian high-growth performers had increased their investment–GDP ratio until the 1997 Asian financial crisis (Figure 5.2). In fact, other Asian countries' investment–GDP ratios continued to exceed that of the Philippines by 2006 notwithstanding the decline in their investment–GDP ratios during the 1997 Asian financial crisis and thereafter. Investments in all countries in the figure, except Malaysia and the Philippines, had a mild recovery during 2000–2006.

While Philippine export and import shares in GDP rose sharply since the 1990s, the same was true for all countries due to globalization and the institution of World Trade Organization (WTO) and regional and bilateral trade agreements in the 1990s and 2000s.