Debt, Dictatorship, and Decline: The Enduring Economic Impact of the Philippines' 1980s Crisis

Abstract

One of the enduring economic puzzles in East Asia is the Philippines' lagging economic performance since the late 20th century. This paper examines the long-run consequences of the country's sovereign debt crisis in the early 1980s—a unique event in East Asia at the time, triggered by a combination of adverse global shocks and domestic policy failures under the dictatorship of Ferdinand E. Marcos (1972–1986). We test the hypothesis that this crisis caused a lasting negative shock to the Philippines' growth trajectory. Using the synthetic control method, we find that from 1981 to 2019, annual synthetic GDP exceeded actual GDP by an average of 110%, suggesting a permanent downward shift in economic trajectory. We validate these findings with a range of placebo tests. Overall, the results highlight the extreme extent to which a severe debt crisis—caused and amplified by authoritarian economic mismanagement—can cast a long shadow over a developing country's subsequent growth trajectory.