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For many Philippine provinces, decentralization and more autonomous local development planning did not lead to the desired outcomes. This article examines the experiences of the two provinces of Cebu and Leyte. While Cebu became a centre of trade and industry, Leyte is still struggling with its local economy oriented to natural resources. A main reason for the divergent development paths of the two islands can be found in the emergence of different elite structures, which resulted in different path-dependent patterns of economic specialization. Despite this different historical experience, both provinces today suffer from similar institutional infirmities in their planning system for promoting local development. Local planning capacity constraints, such as regional and local co-ordination and co-operation patterns, local finances, human capital and knowledge are analysed. The Cebuano elites used the room for manoeuvre provided by decentralization reforms more successfully than elites in Leyte. This created pockets of efficiency in Cebu leading to more development-friendly investment policies. In order to increase local and regional planning capacity, short-term interventions and policy reforms at the local, regional and national level are discussed. [ABSTRACT FROM AUTHOR]