Spatial income inequality is an important feature of many developing countries that tends to increase with economic growth and development. At the same time, the vast majority of empirical evidence on the link between spatial inequality and economic development are based on high-income countries. This paper examines spatial inequality and convergence in the Philippines, a lower middle-income country with historically high inequality, and its course over the process of economic development. Combining higher-quality nighttime lights with gridded population data, I construct subnational measures of spatial inequality for the 17 administrative regions in the country in the period 2000-2020. Using this unique dataset, I first document the tremendous improvements that the Philippines has achieved in terms of narrowing income disparities over the last two decades. Then, I establish a U-shaped relationship between spatial inequality and economic development, which is robust across alternative measures of inequality, to the outlier effects of highly urbanized cities and municipality, across parametric and semiparametric specifications, as well as to business cycle effects. Finally, I show that structural transformation, that is, the gradual shift in economic activities from agriculture to industry and services, acts as a transmission channel of this U-shaped link.