A critical goal of the Philippine economy has been an expansion of its product manufacturing base to take advantage of its labor surplus and position itself favorably in the regional economy. The Philippines is a labor-surplus country, and the government has traditionally encouraged the development of labor-intensive industries, such as textile production and the assembly of electrical and electronic equipment. However, manufacturing has made only a relatively small contribution to employment. So far, the Philippine manufacturing industry has not exhibited the same structural changes as have neighboring countries.
The roots of modern manufacturing in the Philippines can be found in the closing years of Spanish rule in the last decades of the nineteenth century. Few industrial establishments began operations in the 1880s, and most of those that did produced food, tobacco, and beverages. Over the first four decades of the twentieth century, manufacturing developed slowly and irregularly. Industrial expansion was primarily directed to the processing of agricultural products (sugarcane and coconuts), the manufacture of apparel, and the production of ceramics, cement, glassware, and wooden and rattan furniture. During the period immediately following World War II, industrial production was geared to the domestic market, and manufacturing was assisted by high levels of protection. Protection depended initially on import quotas and foreign exchange control. Later, in the 1970s, the main forms of protection became tariffs and foreign-exchange controls administered by the Central Bank.
Much industrial growth took place in the 1950s. By 1960 manufacturing accounted for 20 percent of the gross domestic product (GDP), whereas the range in the other member countries that would later join the Association of Southeast Asian Nations (ASEAN) was 9 to 13 percent. However, growth rates dropped appreciably after the late...