Rebalancing for the future: Why the Philippines needs a tradables revival

OVER the past 15 years, the Philippines has been one of East Asia's most dynamic economies. Growth was fast, inclusive, and spatially balanced. Public investment in infrastructure surged, and reforms attracted private capital. As highlighted in the Philippines Growth and Jobs Report launched by the World Bank earlier in July, investment (or capital accumulation) accounted for nine out of every 10 dollars of GDP growth.

- By Gonzalo Varela and Kevin Cruz

But the pattern of structural transformation that accompanied this expansion brings important questions for the future. Growth has leaned increasingly inward. Domestic, non-tradable sectors — construction, retail, and local services — boomed. In contrast, the tradable sector — those activities that compete internationally or could — has shrunk in relative terms and now contributes less than in many peer countries with similar endowments.

Three out of every four new jobs since 2010 were created in non-tradables. Manufacturing employment stagnated at around 8% — the lowest among major East Asian economies, and just one-third the share seen in Vietnam. Credit and asset growth were also faster among non-tradables than tradable sectors. The number of merchandise-exporting firms fell, and merchandise exports as a share of GDP declined. These trends matter because tradables — such as manufacturing, agribusiness, tourism, and digital exports — typically drive long-term productivity growth.

WHY TRADABLES MATTER

Tradables are sectors that either compete in global or regional markets or face potential exposure to international competition. They include industries where performance is shaped by international prices, standards, and technologies. These sectors matter not only because they help countries expand exports and grow faster, but because they're typically more dynamic and innovative.