Decomposing the divergent post-pandemic productivity dynamics in Philippine manufacturing

This paper draws on the 2019 to 2022 Annual Survey of Philippine Business and Industry to document new stylized facts on the post-pandemic dynamics of total factor productivity (TFP) in Philippine manufacturing. The estimates confirm the severe but heterogeneous productivity impact of Coronavirus disease 2019 (COVID-19) across sectors and regions, with low-tech industries suffering steep TFP declines. Recovery patterns were uneven: large manufacturers rebounded quickly after significant 2020 losses, medium-sized firms showed surprising resilience, while small firms struggled to regain their pre-pandemic productivity. Fixed-effects regressions show the significant and positive relationship of total hours worked, human capital, and tangible investment with TFP. In contrast, the productivity premia from research and development spending, financial access, and intangible investment are not robust after controlling for selection bias. This suggests that highly productive manufacturers compensated their reduced production capacity primarily through efficient labor utilization, skilled manpower, and capital deepening, which enabled agile business adjustments amidst pandemic shocks. Decomposition analysis also reveals the widening TFP gap between small and mediumsized firms, which accelerated between 2020 and 2022 due to increasing differences in endowment and persistent underlying traits. These findings underscore the constraints facing small manufacturers and the growing marginalization of their contribution to post-pandemic productivity growth.