A few decades ago, the Philippines was among the wealthiest economies in Southeast Asia, with one of the highest GDP per capita in the region. According to the International Monetary Fund (IMF), in 1980, the Philippines’ GDP per capita was over 774 dollars. This was significantly higher than Vietnam’s 652 dollars, Indonesia’s 673 dollars, and Thailand’s 705 dollars. However, by the early 21st century, the Philippines had fallen behind both Indonesia and Thailand. While the Philippines’ GDP per capita grew slowly to just 1,090 dollars, Thailand’s surged to over 2,010 dollars, and Indonesia eventually surpassed the Philippines by 2003. Vietnam, although still behind at that time, eventually overtook the Philippines. In 2023, Vietnam’s GDP per capita reached 4,320 dollars, while the Philippines only managed to reach 3,870 dollars.
Vietnam’s rise is nothing short of an economic miracle. Despite being devastated by one of Southeast Asia’s worst wars, Vietnam managed to rebuild and grow its economy rapidly. On the other hand, the Philippines had a peaceful 20th century with support from the United States, including economic and military aid. The Philippines also adopted capitalist and democratic principles, while Vietnam embraced a socialist model aligned with the Soviet Union. Vietnam faced years of international isolation and economic hardship due to its political stance and the U.S. embargo.
So, how did Vietnam catch up to the Philippines, and can the Philippines catch up to Vietnam again? To understand this, we need to look at Vietnam’s economic transformation.
Vietnam’s economic success came from comprehensive reforms that changed its economic landscape. The Doi Moi (Renovation) policy, launched in 1986, opened Vietnam’s economy to market forces while retaining a socialist framework. This shift from a centrally planned economy to a more market-oriented one attracted foreign investment, boosted exports, and led to rapid industrialization.
One of the most significant milestones in Vietnam’s economic journey was joining the World Trade Organization (WTO) in 2007. This move opened Vietnam’s markets and attracted a surge of foreign direct investment (FDI), leading to a booming manufacturing sector. Samsung, for example, chose Vietnam as a key location after it joined the WTO, investing tens of billions of dollars and significantly contributing to Vietnam’s economy. Vietnam offered foreign investors favorable conditions, such as lower labor costs, a stable political environment, and strong government support.
In contrast, the Philippines struggled with attracting and retaining foreign investors. The government’s flagship tax reform law, TRAIN (Tax Reform for Acceleration and Inclusion), and the Comprehensive Automotive Resurgence Strategy (CARS) were meant to boost the economy, but they had unintended consequences. The TRAIN law, for example, imposed higher taxes on automobiles, which hurt the car market. The CARS program, while offering incentives, mainly benefited industry giants like Toyota and Mitsubishi, leaving smaller manufacturers like Honda unable to compete. Honda eventually closed its assembly plant in the Philippines due to these challenges.
Meanwhile, Vietnam continued to offer attractive incentives to foreign investors. For example, the Le Hi-tech park in Hanoi provides a 10 percent income tax rate for 30 years, reduced land rent, and simplified procedures for foreign employees. Vietnam is also positioning itself as a key player in the global chip supply chain, offering tax breaks and incentives to semiconductor companies and aiming to train 50,000 engineers by 2030.
Given these factors, it’s clear why Vietnam has outpaced the Philippines. Vietnam leveraged its strengths—cheaper labor, lower energy costs, a stable political environment, and a government eager to attract foreign investors.
So, can the Philippines catch up with Vietnam? While it’s hard to predict the future, recent efforts by the Philippines, under Presidents Rodrigo Duterte and Bongbong Marcos, to attract foreign investment have shown some promise. According to the World Bank, the Philippines’ net foreign direct investment inflows increased from 5.6 billion dollars in 2015 to over 11.98 billion by 2021. However, this is still lower than Vietnam’s inflows, which reached over 15 billion dollars in 2021.
Despite this, there is hope for the Philippine economy. The IMF data shows that by 2023, the Philippines’ GDP caught up to and slightly surpassed Vietnam’s. Projections for 2024 and beyond suggest that the Philippines may continue to stay ahead, but only by small margins.