Official Development Assistance and Middle-Income Trap in the Philippines: effects, challenges, and strategies

Abstract

The middle-income trap (MIT) states that middle-income economies have found it challenging to upgrade to reach the high-income stage over an extended period. Overcoming MIT has long been discussed as an essential social issue related to fewer job opportunities and unstable income, notably in Southeast Asia. Previous studies demonstrated several factors contributing to MIT, including governance, infrastructure, and the labor market. Official Development Assistance (ODA) has been employed to help developing countries accelerate further development as development cooperation. Despite the massive financial aid, the Philippines has the longest-running history of operating under LMIT. Much less research on the unclouded evidence on the relationship between the ODA and MIT in the developing world and on the strategic study relevant to ODA for overcoming the lower-middle-income trap (LMIT) in the Philippines was identified from the updated government development plans were identified in the existing research. Using secondary data compiled between 2002 and 2021, primarily from the World Development Indicators, UNCTAD, UNDP, and OECD database, and POLS modeling, the strength of the Japan ODA predicting the percentage change in R2 variance in the LMIT was evaluated in nine Southeast Asian economies. Using natural data, ODA was found to be a significant predictor (F [1, 130] = 26.553 p = .000) and is thus a substantial factor in escaping LMIT. Using the analytical approach of Murdoch School of critical political-economy, state actors’ wasteful procrastination and excessive dependency on the donor were found to be significant culprits. Also, a development strategy for overcoming LMIT through the ODA was suggested by conceptually integrating three processes of problem-setting, strategy, and tactics, into one concept. Development cooperation can be re-defined as “glocal” activities by state actors collaborating with non-state actors to maximize national capabilities. Building a further trustful relationship with ASEAN and Japan is desirable for the Philippines.