PIDS study finds mixed gains as ASEAN integration deepens

By Francis Allan L. Angelo

As the Philippines prepares to chair the 2026 Association of Southeast Asian Nations (ASEAN) meetings, a new Philippine Institute for Development Studies (PIDS) study finds the country’s integration into the ASEAN Economic Community has delivered gains, but unevenly, with gaps that could limit broader benefits for Filipinos.

The discussion paper, “ASEAN Economic Community through the Years: Benchmarking, Emerging Trends, and Future Pathways,” was authored by Francis Mark A. Quimba, Mark Anthony A. Barral, and Alliah Mae C. Salazar, and benchmarks the Philippines against ASEAN peers on trade, investment, innovation, digital economy, connectivity, and sustainability indicators.

“The progress toward ASEAN Economic Community (AEC) integration reveals a mixed landscape for the Philippines,” the authors note, citing advances in trade liberalization and regional cooperation alongside persistent weaknesses in competitiveness, digital readiness, and inclusive growth.

BENEFITS AND PHILIPPINE CHALLENGES

A more integrated ASEAN economy is expected to benefit Filipino workers, consumers, and businesses through expanded markets, stronger investment flows, and more efficient supply chains, but the paper finds implementation gaps persist between regional commitments and domestic outcomes.

Using indicators aligned with the AEC Blueprint 2025, the authors estimate about 46percent  of targets under the Philippine Development Plan 2023–2028 are unlikely to be met, particularly in agriculture, infrastructure, peace and security, and social protection.

The paper says these “missed” areas matter because they underpin competitiveness, resilience, and inclusion, which in turn shape whether regional integration translates into productivity and opportunity at home.

At the same time, the study flags “bright spots” where performance is more likely to meet targets, including services, competition, and science and technology, which it says could be leveraged to support weaker sectors through cross-sector policy coherence.

“There is no clear ownership or champion for ‘A Global ASEAN’ — a missed opportunity to frame global competitiveness, diplomacy, and sustainability under one coherent agenda,” the authors observe.

MIXED RESULTS

The study shows Philippine trade and investment outcomes within ASEAN have fluctuated, with exports falling in 2020, rebounding in 2022, then declining again in 2023.

That volatility reduced the Philippines’ share of intra-ASEAN trade from 29 percent to 22 percent, placing the country sixth among member states, the press release said.

Imports accounted for nearly 78 percent of the Philippines’ total trade, the highest share in the region, underscoring reliance on external supply chains, the release added.

In the discussion paper’s trade benchmarks, the Philippines’ share of intra-ASEAN trade fell to 22.03 percent in 2023 from 28.88 percent in 2019, while its import share reached 77.97 percent in 2023, the highest among reporting ASEAN peers in that table.

The study argues the constraint is no longer tariffs, which are “near zero” across most ASEAN trade in goods compliance, but non-tariff barriers and measures that raise costs through inconsistent implementation and limited transparency.

It ties this to trade facilitation priorities such as modernizing border processes, using digital tools, and improving interoperability across agencies to reduce compliance burdens and friction at the border.

On investment flows, the paper notes the Philippines’ intra-ASEAN inward foreign direct investment peaked at USD 3,845 million in 2021, then fell 74.76 percent to USD 971 million in 2022 before increasing to USD 3,323 million in 2023, an improvement of 242.24 percent.

It also reports intra-ASEAN outward investment from the Philippines averaged USD 329.82 million in 2019–2023, with a spike to USD 1,470 million in 2023 after negative USD 548 million in 2022, which the authors describe as volatile and comparatively low in scale.

LAGGING PRODUCTIVITY, INNOVATION CAPACITY

In competitiveness measures, the study places labor productivity as a core vulnerability, with the Philippines trailing regional leaders and falling in rank in recent years on the paper’s output-per-worker comparisons.

The paper reports the Philippines ranked sixth among member states in 2020 and 2021, then dropped to eighth in 2022, with output per worker at about USD 23,000 versus about USD 317,000 in Singapore and about USD 72,000 in Malaysia.

The authors link productivity constraints to low innovation inputs, noting research and development spending was 0.32 percent of gross domestic product in 2018, and that the Philippines lags peers in research intensity and intellectual property outputs in the ASEAN comparison set used in the study.

They also point to uneven performance in governance-related indicators across sectors, describing systemic bottlenecks in procurement, regulation, program delivery, and interagency collaboration that repeatedly appear in “low” likelihood categories in their PDP alignment assessment.

CONNECTIVITY AND INFRA GAPS

On digital connectivity, the study reports the Philippines’ proportion of population covered by a 4G network rose to 95.5 percent in 2023, up from 15.7 percent in 2015, narrowing but not closing the gap with higher-coverage peers.

At the same time, it flags fixed broadband subscriptions per 100 people as an area of slippage after a 2021 peak, contrasting this with continued growth in countries such as Vietnam and Brunei cited in the study’s connectivity section.

On transport and sectoral cooperation, the paper says the COVID-19 pandemic sharply reduced intra-ASEAN tourist arrivals, air passengers, and sea passenger volumes, with recovery under way but 2023 passenger volumes still below 2019 levels in the indicators it tracks.

The authors also highlight an investment shift toward private participation in infrastructure, reporting the Philippines recorded the highest private partnership investment in information and communications technology infrastructure among ASEAN states in 2023 at USD 2.96 billion.

CHALLENGES IN INCLUSIVITY, RESILIENCE

A critical inclusion finding is youth participation in the labor market, which the study describes as the lowest in the region in recent years and a sign of difficulty integrating young workers into the productive economy despite broader regional growth.

In the data table cited by the paper, youth labor force participation in the Philippines fell from 49 percent in 2015 to 45 percent in 2024, while Cambodia remained above 66 percent and Lao PDR rose to 54.42 percent in 2024.

On financial inclusion, the study reports account ownership among the poorest 40 percent improved in some member states but remains uneven, and it highlights the Philippines as lagging leaders such as Singapore and Thailand on the metric set used in the comparison.

It also notes development gaps are narrowing between richer ASEAN-6 economies and the CLMV group—Cambodia, Lao PDR, Myanmar, and Vietnam—but argues the Philippines still faces challenges meeting its own domestic targets tied to inclusive growth and resilience.

RCEP, digital economy, and sustainability shape the next phase

The authors identify the Regional Comprehensive Economic Partnership as a potential driver of future gains through stronger regional value chains, especially if micro, small, and medium enterprises can use it effectively.

The discussion paper adds that RCEP’s benefits are not automatic, citing readiness gaps, limited domestic capacity, and the need for greater awareness and utilization by businesses, alongside coordination with AEC initiatives on e-commerce, digital transformation, and non-tariff measure reduction.

On digital integration, the paper points to the ASEAN Digital Economy Framework Agreement (DEFA) as a major growth lever, saying it is expected to triple ASEAN’s digital economy from an initial estimate of USD 300–400 billion to USD 1 trillion by 2030, and possibly USD 2 trillion under an aspirational scenario.

It says DEFA is designed to facilitate digital trade, promote data governance, and ensure interoperability of digital systems, while potentially delivering up to a 6.5-times uplift in the value of the digital economy relative to gross domestic product for lower-middle-income members such as Cambodia, Lao PDR, and Myanmar if gaps are addressed.

Sustainability is a central theme in the study’s “future pathways,” including closer alignment of trade and investment policies with climate goals and greater participation in ASEAN green finance initiatives, as highlighted in the press release summary.

In the paper’s green growth section, the authors report that the gap between ASEAN’s traditional gross domestic product and disaster-adjusted “Green GDP” is persistently negative as a share of GDP from 1970 to 2022, signaling that disaster and environmental losses can erode measured growth.

They also report intraregional environmental goods trade remains limited, peaking around 7 percent for the Philippines in 2017 but declining to about 2 percent by 2021, and they frame this as evidence of the distance between sustainability ambitions and current trade patterns.

For the Philippines specifically, the paper notes renewable energy investments have been steady but moderate at about USD 20 billion cumulatively from 2000 to 2023, compared with much larger recent totals in some peers, as the authors argue green investment can support “green jobs” and competitiveness if aligned with regional standards.

WHAT IS AT STAKE FOR 2026 AND BEYOND

The study warns that a “business-as-usual” approach could weaken the Philippines’ ability to meet ASEAN commitments amid climate risks, geopolitical uncertainty, and rapid technological change.

It also notes ASEAN’s deep trade and investment ties with China can bring economic benefits while exposing the region to spillover risks from geopolitical tensions, reinforcing the importance of diversification and regional frameworks such as RCEP to sustain investor confidence.

On the global integration side, the press release reports the Philippines reduced import tariffs from ASEAN Free Trade Agreement partners to 1.05 percent in 2022, and that foreign direct investment inflows totaled USD 9.4 billion in 2021, while outbound foreign direct investment surged in 2023.

 

POLICY RECOMMENDATIONS

To strengthen intra-ASEAN linkages, the discussion paper recommends reducing trade costs by harmonizing customs procedures, enabling mutual recognition of standards, and adopting real-time digital logistics tracking to address “fragmented border processes.”

It also calls for accelerating digital adoption among micro, small, and medium enterprises through skills programs, incentives, and interoperability across government systems, and it explicitly urges digital customs modernization and faster localization of DEFA-related rules on cross-border data flows, cybersecurity, and digital identity.

On sustainability, the paper recommends aligning trade and investment policies with climate and green standards, expanding investment in renewables and climate-smart agriculture, and engaging ASEAN-level climate finance mechanisms, including frameworks tied to green bonds and sustainability taxonomies.

The study also encourages the private sector to deepen participation in regional supply chains, foster innovation through collaboration, and prepare for environmental, social, and governance requirements to maintain access to export markets as global standards tighten.