Is the Philippines in an Agricultural Trap? Structural Change,Agricultural Productivity and Drivers of Transformation

Abstract

The Philippines’ prolonged spell as a lower middle-income country has been a longstanding mystery in economic development. This article argues that the ‘Agricultural Trap’ is a key piece of the puzzle. The agricultural trap is characterized by low levels of transformation of agriculture, as well as slow structural change of the economy. Historically, the Philippine economy has undergone considerable evolution; nonetheless, by some indicators, the Philippine economy and agriculture remain in a relatively backward state. In recent decades, the Philippines has been unusually slow in its ability to increase agricultural output while reallocating workers away from agriculture. This in turn is driven by slow rates of growth of total factor productivity and capital formation, persistent farmholding fragmentation, inability to diversify the structure of agricultural output, and significant producer support for food import substitutes. Escaping the agricultural trap requires the pursuit of a modern agro-industrial policy.