An Emprical Analysis On The Determinants of FDI in The PH - Template

UNIVERSITY OF SANTO TOMAS FACULTY OF ARTS AND LETTERS 1
An Empirical Analysis on the Determinants of Foreign Direct Investments in

the Philippines

A Thesis presented to the
Faculty of Arts and Letters
University of Santo Tomas

In Partial Fulfilment of the
Requirement for the
Bachelor of Arts Major in Economics

By:
Montero, Paul Gian I.
Ramos, Mary Louise M.
February 2014


ACKNOWLEDGEMENT

The researchers would like to thank first and foremost God, for guiding us
through this statistical journey; to our thesis adviser Dr. Carlos L. Manapat; to
our defense panel, Dr. Alvin P. Ang and Dr. Emmanuel Lopez for guiding us
through the necessary changes of our thesis paper, and to our supportive family
and friends who never fail to encourage us to move forward.


ABSTRACT
Most developing countries consider foreign direct investment (FDI) as a vital
source of satiating the resource gaps that hinder their economys development.
This brings them to improve or develop their countrys assets in order to attract
investments. The Philippines is not an exception in having this goal of
encouraging FDI, but there are issues regarding four of the countrys resources
that are used in the study: the unsteady spending for infrastructure development,
the annual increase of the countrys population, the instability and volatility of
both interest rates and total custom duties. All of these four factors were examined
as indicators of foreign direct investments, and if they each have a significant
relationship with FDI. The first part of the paper provides an in-depth discussion
of the issues, followed by theories and supporting studies. The second part is
about empirical findings and results, to which the researchers used linear
regression analysis in order to find the relationships using data from 1990-2012,
duration of 23 years. The empirical findings are: (i) infrastructure spending is
statistically insignificant and directly related to FDI inflows; (ii) interest rate is
statistically insignificant and negatively related to FDI inflows; (iii) total custom
duties collected is statistically significant and negatively related to FDI inflows;
and (iv) population is statistically significant and directly related to FDI inflows.

Keywords: Increasing Foreign Investments, Infrastructure Spending,
Population, Interest Rate Volatility, Total Customs Duties Collected, Horizontal
and Vertical FDI, Public Goods

Table of Contents
CHAPTER 1: INTRODUCTION ............................................................................................ 6
Background of the Study ..................................................................................................... 6
Theoretical Framework ........................................................................................................ 8
Conceptual Framework ...................................................................................................... 11
Scope and Limitations ....................................................................................................... 14
Significance of the Study ................................................................................................... 14
Definition of Terms ........................................................................................................... 15
CHAPTER 2: REVIEW OF RELATED LITERATURE .................................................. 19
CHAPTER 3: METHODOLOGY ......................................................................................... 27
3.1 Overview ..................................................................................................................... 27
3.2 Research Design .......................................................................................................... 27
3.3 Data Gathering Procedures .......................................................................................... 28
3.3.1 Secondary Data Collection ................................................................................... 28
3.4 Treatment of Data ........................................................................................................ 29
CHAPTER 4: DATA PRESENTATION AND ANALYSIS ................................................ 34
Data Results and Analysis ................................................................................................. 34
CHAPTER 5: SUMMARY, CONCLUSIONS, RECOMMENDATION ............................. 43
APPENDIX A ........................................................................................................................ 47
Figure 1: Linear Regression of FDI and Infrastructure Spending ..................................... 47
Figure 2: Linear Regression of FDI and Interest Rate ....................................................... 48
Figure 3: Linear Regression of FDI and Total Customs Duties ........................................ 49
Figure 4: Linear Regression of FDI and Population .......................................................... 50
Figure 5: Mulitple Regressions (Original Data) ................................................................ 51
Figure 6: Multicollinearity Test ......................................................................................... 52
Figure 7: Heteroskedasticity ESS1 .................................................................................... 53
Figure 8: Heteroskedasticity ESS2 .................................................................................... 54
Figure 9: Autocorrelation Test ........................................................................................... 55
APPENDIX B ........................................................................................................................ 56
Table 1. Data of Dependent Variable: Foreign Direct Investment .................................... 56
Table 2. Data of Independent Variable: Infrastructure Spending ...................................... 57
Table 3. Data of Independent Variable: Interest Rate........................................................ 58
Table 4. Data of Independent Variable: Total Customs Duties ......................................... 59
Table 5. Data of Independent Variable: Population........................................................... 60
Table 6. Multiple Regression Data (Original) ................................................................... 61
Table 7. Multiple Regression Data (Transformed) ............................................................ 62
Table 8. Heteroskedasticity Data (Arranged) .................................................................... 63
Bibliography .......................................................................................................................... 64

CHAPTER 1: INTRODUCTION

Background of the Study
It is recognized worldwide that growing inflows of foreign direct
investments can provide potential benefits and promotion of the economic
development of the host countries. In Asia alone, there is an ongoing competition
for FDI, as each economy strives to make their markets attractive for investors.
Although the region is seen to be attractive as a whole, developing countries still
try to increase inflows in their own territorial boundaries. China and Japan
dominate the FDI share in the region, followed by Singapore and Hong Kong. In
the years 2011-2012, Cambodia and Myanmar has overtaken the Philippines in
shares of FDI which provides a problem for the Philippine archipelago. This is the
kind of issue that the study aims to understand and provide a deeper analysis.
The Philippines has been open in welcoming investors in the country; with
their competitive labor workforce achieving a high education priority, a literacy
rate of 94.6%, and the flexibility of the Filipinos in speaking the universal
language. With the countrys wealth of natural resources, foreign businessmen
have always considered placing their money and make good business in the Asian
archipelago. But in spite of all these given qualities of the country, it is still of
question as to why the Philippines is being left behind in terms of foreign direct
investments. The country is increasingly facing competition from other FDI hosts
in the region including those from newly emerging markets. There is need for
continuous adjustments as all countries simultaneously outcompete each other to
attract limited FDI resources. With the limitations that now beset incentives
(which tend to be matched by a second country each time one country enacts
one), host countries will offer investment regimes that are dynamic and constantly
moving (Chia and Freeman, 1999). Research was done to see whats making the
other Asian countries grab more investments, and among these studies, four
common factors were found. First is infrastructure, investors see a country with
many stable building structures and ports (both aerial and marine) is a good area
for investments. This can be seen in the amount the government spends for
infrastructure development. Many available ports, buildings and accessible roads
would create more chances of FDI increase since they imply a convenience in
transportation. (OECD, 2000) In the Philippines, however, the amount of
infrastructure spending does not provide a steady annual increase despite the
countrys necessity.
The second factor is population. A high number of the countrys
population means a high number of consumers for any commodities a foreign
company may provide. Investors compare population as an indication of market
size and consider the countries with bigger numbers of residents. (Khan & Nawaz,
2010) It is only of question if the Philippines annual increase in population
would be significant in diverting the investors attention away from lesser
populated countries. Countries like China, Indonesia and Japan have greater
population than the Philippines, and at the same time attract higher numbers of
foreign direct investment inflows. This trend of whether or not a high population
automatically implies high investments would be discussed. Third factor is total
customs duties collected in a year. Customs duties are taxes collected from
imports sent to the country. Customs duties are used to represent the amount of
imports and levels of tax rates in this study. Investors, being profit-oriented
individuals, are more inclined to invest in countries with lower taxes need to be
collected as high taxes would mean a decrease in their total profits. Lastly, the
interest rate is also a common factor that makes an investor decide whether or not
to place his money on the country. Interest rate is a measure of the cost of the
capital. A higher interest rate implies more costly investment and, therefore, more
likely to defer FDI.

Theoretical Framework
There are many theories that attempt to explain the determinants of FDI.
These theories are significant steps towards the development of a systematic
framework for the emergence of FDI. In this study, the researchers will
incorporate macroeconomic theories that will aid in supporting the thesis. These
will be used to assess the behaviour of foreign investment inflows in the
Philippines with regards to its infrastructure spending, population, interest rates,
and total customs duties collected. It is also noted that according to Kindleberger
(1969), in a perfectly competitive economy, FDI wouldnt exist. The rise in FDI is
regarded by traditional theories as being motivated by the differences in the costs
of domestic versus foreign production or the internalization of transaction costs
involved in exporting or licensing a product to another country. However, it is
also noted that although there are many theories attempting to explain FDI, there
is still no single theory that offers a sufficient explanation for the determinants of
FDI. The difficulty in developing a general theory of FDI stem from two facts:
first is that the determinants of FDI are likely to differ between major sectors in
which foreign investors are engaged, and the second is that the relative
importance of supply factors is likely to differ between host countries with
relatively restrictive attitudes towards FDI and host countries that are more open
to FDI. (Agarwal, Gubitz, & Nunnemkamp, 1991)
Irving Fishers (1930) theory of investment stated that the optimum
condition for the firms investment decision is that marginal efficiency of
investment is equated with rate of interest and he added a condition that
investment in any time period yields output only in the next period. When the rate
of interest rises, to equate the marginal efficient of investment and interest rate, it
must be that investment declines, thus there is a negative relationship between
investment and interest rate. With regards to the customs duties as a
representation of tariffs of the host country, the institutional theory suggests that a
companys decision to invest would depend upon the institutional forces that have
an influence on it, especially on regulations and incentives. A number of authors
such as Bond and Samuelson (1986), have concluded that higher tariffs would
discourage FDI as this would decrease the profits on the investors side.
In principle, public infrastructure should have a significance influence on
foreign firms costs and revenues and hence on their investment decisions.
Infrastructure availability promotes both horizontal and vertical types of FDI.
Khadaroo and Seetananah (2008) claim that gains rendered by infrastructure
growth are associated with greater accessibility and reduction in transportation
costs. Furthermore, public goods reduce the cost of doing business for foreign
enterprises which leads towards maximization of profit, thereby increasing the
inward inflows of foreign direct investments. On the other hand, poor
infrastructure causes increase in transaction cost and limits access to both local
and global markets which ultimately discourages FDI in developing countries. A
greater efficiency can be achieved in extending infrastructure facilities, if not by
increasing government spending for infrastructures, then by considering
commercial principle and shifting liability for provisioning of infrastructure
liabilities through management contracts and leases. (Mlambo, 2006) Population,
on the other hand, is used as a proxy for market size. According to Chakrabarti
(2001), a large market is necessary for efficient utilization of resources and
exploitation of economies of scale. Therefore, it is expected that an increase in a
host countrys population would also lead to an increase in the FDI inflows.

Conceptual Framework

FDI
Population
Interest
Rate
Customs
Duties
Infrastructure
Spending
Problem Statement and Thesis Statement
Foreign investors are profit-oriented individuals who, more often than not,
place their money on countries where they could have great sources of revenue.
These areas are those that provide adequate infrastructure, high numbers of
population, low taxes on foreign products and low interest rates. In order to have a
deeper analysis regarding the countrys foreign investment inflows, this study
aims to answer the following questions:
1. Is there a relationship between foreign direct investments and
infrastructure expenditure?
2. Is there a relationship between foreign direct investments and population?
3. Is there a relationship between foreign direct investments and total
customs duties?
4. Is there a relationship between foreign direct investments and interest rate?
5. Is there a relationship between the four factors (infrastructure expenditure,
population, customs duties, and interest rate) and foreign direct
investments?
Hypothesis
1. Infrastructure Expenditure and FDI
H
0
: There is no significant relationship between infrastructure expenditure
and FDI.
H
1
: There is a significant relationship between infrastructure expenditure
and FDI.
2. Population and FDI
H
0
: There is no significant relationship between population and FDI.
H
1:
There is a significant relationship between population and FDI.
3. Total Customs Duties and FDI
H
0
: There is no significant relationship between total customs duties and
FDI.
H
1
: There is a significant relationship between total customs duties and
FDI.
4. Interest Rate and FDI
H
0
: There is no significant relationship between interest rate and FDI.
H
1
: There is a significant relationship between interest rate and FDI.
5. Infrastructure Expenditure, Population, Customs Duties, Interest Rate and
FDI
H
0
: There is no significant relationship between all the determinants
(infrastructure expenditure, population, customs duties, and interest rate)
and FDI.
H
1
: There is a significant relationship between all the determinants
(infrastructure expenditure, population, customs duties, and interest rate)
and FDI.

Scope and Limitations
The purpose of this study is to determine how infrastructure expenditures,
population, custom duties and interest rate relate to foreign direct investments.
Although there are many factors that can affect FDI, this study will only cover
four independent variables that are measured on how these affect the dependent
variable in the Philippine setting. The scope of the time is patterned on the years
1990-2012, a duration of 23 years using annual data of the variables. This study
takes FDI in general, no specific international corporations or country. It will also
only cover the macroeconomic perspective of FDI, and any political influence or
government control will not be taken into consideration aside from the
aforementioned variables.

Significance of the Study
Despite the governments attempts in encouraging foreign investors for
the country, the Philippines is still marginally behind in numbers as compared to
their neighboring Asian countries. Given the current situation of the country in the
global competitive market, this study will provide a significant contribution in
determining and evaluating the impact of infrastructure spending, population,
custom duties and interest rate to foreign direct investments. It will analyze how
each factor relates to investment, i.e. whether an increase in the population
automatically presents an increase of investment inflows too. Aside from that, it
will also be able to determine how each factor, in relation to other independent
variables, relates to FDI. It will also aid in seeing how the constant and annual
adjustment of the controllable variable, the budget for infrastructure spending,
affects the investment flows.
The study will also be beneficial in projecting if and when foreign direct
investment increases or decreases based on the results of the model. It will be able
to identify the role of each given determinant, which may support the government
in their decisions of controlling these factors in order to boost investments in the
country.

Definition of Terms
1. FDI
An investment made by a company or entity based in one country,
into a company or entity based in another country (Investopedia).
Foreign Direct Investment is the Dependent Variable in the study.
This research will test how the determinants will affect the inflow
of FDI in the Philippines. Before investing in a country, investors
consider many factors on investing in a country. This will trace the
pattern of foreign investments from 1990-2012. The importance of
this study is that it will make a model on determining on how the
factors will affect the inflow of foreign investments in the
Philippines having low investments in the past years.
2. Infrastructure Expenditures
Includes all government consumption and investments for
infrastructure construction and development. (Investopedia)
Infrastructure Expenditures is an Independent Variable in the
study. It is used to determine how the governments effort in
developing the countrys infrastructures would affect the FDI
inflows. It is also used to represent the quality and priority level for
infrastructure development in the Philippines since there is
insufficient data from other indicators to provide such knowledge
regarding infrastructure quality.
3. Population
The total number of persons inhabiting a country, city, or any
district or area. (Investopedia)
Population is an Independent Variable in the study. It is used to
represent the market size of an economy as it shows the number of
possible consumers that an investor considers. It is assumed that a
higher number of population would yield to an increase in
investment inflows.
4. Total Customs Duties Collected
Customs and other import duties are all levies collected on goods
that are entering the country or services delivered by nonresidents
to residents. They include levies imposed for revenue or protection
purposes and determined on a specific or ad valorem basis as long
as they are restricted to imported goods or services. (Investopedia)
Total Customs Duties Collected is an Independent Variable in the
study. It is used to represent both imports and tariff rates in the
country. It is assumed that a higher level of duties would lead to a
decrease in FDI inflows as this would discourage profit-oriented
investors in placing their money in the economy.
5. Interest Rate
The amount charged, expressed as a percentage of principal, by a
lender to a borrower for the use of assets. (Investopedia)
Interest Rate is an Independent Variable in the study. It is
considered to be one of the important factors of market stability. A
country with higher interest rates implies an unstable economy,
thereby aiding in assuming that it will reduce FDI.
6. Horizontal FDI
Foreign direct investment by a firm to establish manufacturing
facilities in multiple countries, all producing essentially the same
thing but for their respective domestic or nearby markets.
7. Vertical FDI
Foreign direct investment by a firm to establish manufacturing
facilities in multiple countries, each producing a different input to,
or stage of, the firms production process.
8. Public Good
A commodity or service that is provided without profit to all
members of a society, either by the government or a private
individual or organization. (Investopedia)
Public goods such as infrastructures are an important aspect in this
study. Investors look at the quality and accessibility of public
goods in the host country as this would help them in adjusting
costs due to the availability of said necessities.
CHAPTER 2: REVIEW OF RELATED LITERATURE
Imad A. Moosa (2002) defines foreign direct investment (FDI) as the
process whereby residents of one country (the investor country) acquire
ownership of assets for the purpose of controlling the production, distribution and
other activities of a firm in another country (the host country). It plays an
extraordinary and growing role in global business which involves an agreement
between both parties with regards to investing foreign assets into domestic
structures, equipment and organizations. The attraction of FDI constitutes a
fundamental element to support strategies that aim to achieve sustained economic
growth especially in developing countries like the Philippines. The outcomes of
foreign direct investments are far more important for developing countries
compared to developed countries as developing countries are mostly short of
capital, lack of access to modern technology, etc. FDI resolves these issues and at
the same time providing benefits to foreign investors. (Rehman, Ilyas, Alam, &
Akram, 2011)
Less developed countries, especially those classified as emerging
countries, have been keen in attracting investment to help with their development
in vital aspects. Initially, they took loans from international commercial banks.
But in the 1980s, the drying-up of commercial bank lending due to the debt crisis,
forced many countries to reform their investment policies so as to attract more
stable forms of foreign capital, and FDI appeared to be one of the easiest way to
get foreign capital without undertaking any risks linked to the debt. Thus, it
became an attractive alternative to bank loans as a source of capital inflows.
(Erdal Demirhan, 2008) Larrain, et al., (2000) adds that the high demand for FDI
is due to a rise in competition in the global market requiring an increase in
financial resources and technology, which would be difficult to obtain under an
independent policy.
A country with a great market size and high income that has market oriented
policies and steady government is the most likely to interest foreign investments.
Market-seeking investors will be attracted to a country with a large and fast
growing local market. Resource-seeking investors will look for a country with
abundant natural resources. Efficiency-seeking investors will weigh more of
geographical proximity to the home country to minimize transportation costs and
optimize for locations with lower labor costs. (Hoang, 2006)

A. I nfrastructure Expenditure and Foreign Direct Investments
In many studies, infrastructure spending is considered as one of the
most common determinants of foreign direct investments as this provides
efficiency in transportation of goods and services that is vital to the
production system of said commodities. More FDI is likely to occur in
countries with good physical infrastructure such as bridges, ports,
highways, etc. Some countries with poor infrastructure may be
unattractive hosts for FDI for a variety of other reasons, and even
substantial investments in infrastructure might not bring FDI pouring in. A
country with more infrastructures would be expected to attract more FDI
as well as more domestic investment. (Glass) Kumars (2001) cross-
country study reports that infrastructure availability does contribute to the
relative attractiveness of a country as a location site for FDI inflows. In
terms of increasing profits for the profit-oriented investor, Haughwout
(2001) supports Glass and Kumars claim by saying that the availability
of many public goods do in fact lower the cost of private firms.
Empirical studies propose that public goods such as infrastructure have
vital impact on cost structure and productivity of private firms. Poor
infrastructures causes increase in transaction costs and limits access to
both local and global markets which ultimately discourages FDI.
(Mlambo, 2006) Erenberg (1993) said that if such kinds of infrastructure
were to not extend to local and multinational enterprises publicly, then
these enterprises would be operating less efficiently and they would be
forced to build their own infrastructure which results in duplication and
wastage of resources. In contrast to the positive relationships the previous
studies have provided, Shepotulylo (2006) and Bronzini (2004) were not
able to find any correlation between the measure of infrastructure stock
and FDI. Bae (2008) adds that investments in public goods do not pose
statistically substantial direct influence on production performance in
private business firms.

B. Population and Foreign Direct I nvestments
Billington (1999) is the first author to consider population as a
variable determinant to FDI. Population implies a more concentrated
consumer and labor market as well as a more integrated infrastructure. In
relation to this, Akins (2009) study shows that in developing countries,
population is a crucial indicator for market seeking investors. This
suggests that FDI takes into account the size of the market in terms of
aggregate size. The population of a country may not be important in itself,
but it has important implications for its economic growth. A large
population implies a great number of middle class citizens with spending
power and an appetite for goods and services offered by MNEs. This in
turn, becomes a good and attractive area for investors banking on market
size and purchasing capability. (Aziz & Makkawi, 2012) Economies of
scale is then possible because of a large population provides a large
domestic market without having to depend on exports.
There are also studies which say that population is negatively
related with foreign investment inflows. Thomas Robert Malthus theory
about population has been dangerously and generally accepted by most
people in the late 19
th
and early 20
th
century. (1992) This implied that
countries with large populations were not expected to experience high
levels of foreign investments, which eventually lead to thinking that they
were not expected to experience growth. With this fear in mind,
governments of many countries have passed laws that would try to avoid it
as much as possible: like Chinas one-child policy and Indias family
planning program.

C. Total Customs Duties and Foreign Direct I nvestments
Generally, taxes collected become part of the countrys revenue
that the government can use for improvement of public welfare. Taxes
collected from imported or foreign products, also known as tariffs, are part
of the tax revenue which is one of many factors when it comes to foreign
direct investments. Not only do they provide money for budget spending,
but they also serve a purpose of protecting the nations local goods by
levelling the competition field against the foreign items. In this study, the
total amount the country receives from customs duties serves a proxy
variable for both imports and tariff rates combined. Hence, literature
behind imports and tariff rates will also be applied in relation to its effects
on the inward inflow of FDI.
Many recent models highlight the effect of customs duties on FDI
within the context of horizontal and vertical specialization within MNEs.
Horizontal FDI is associated with the market seeking behavior of investors
and is motivated by lower trade costs. Hence, high tariff barriers induce
firms to transfer overseas production to countries with lower trade costs.
(Aqeel & Nishat, 2005) A study by Pervez and Malik (2013) concludes
that lower tariff structures increase the foreign direct investment in a
country. Tariff structures should be framed out in a way to provide
maximum tax incentives to foreign investors in order to promote FDI.
Although a developing country might need higher tax rates in order to
create more tax revenues, for Pervez and Malik, the funds generated
through higher tariffs may be highly insignificant against the overall
economic benefits that could come into the stream due to the increased
FDI over the long run. A careful investigation and analysis is required as
to what extent the tariff structures may be increased without adversely
affecting the FDI.
In this study, since total customs duties is used to represent the
tariff rates in the country, it is therefore safe to assume that it also has a
negative relationship with FDI. Imports, on the other hand, serve as an
indicator of the existing market for the exports of the home country firms.
Higher imports in the host economy encourage the TNCs to produce
locally for market-seeking ventures. (Culem, 1998) However, in contrast
to previous expectation, such ventures become more desirable when there
are high trade barriers (both tariff and non-tariff) on imports. Nevertheless,
due to the existence of import quotas in the Philippines as determined by
Republic Act No. 650, the volatility of the amount collected from duties is
therefore more affected by tariff rates. The researchers then expect that
FDI will react inversely with duties collected annually.
D. I nterest Rates and Foreign Direct I nvestments
Interest rate mainly measures the economic stability of an
economy. Many financial decisions involve a trade-off between present
and future consumption. A companys investment choices also involve
such choice. Owners may give priority to present consumption by taking
out dividends, or they can invest in the company and thereby lay the basis
for larger profits later. By placing capital at the disposal of others, ones
own consumption is postponed. Human beings require compensation for
this, and interest rates provide said compensation. The interest rate is a key
variable in a persons choice between consumption now or in the future.
(Bergo, 2003)
The use of the interest rate variable as the determinant of FDI has
not been quite common in many studies. But regardless of the absence of
strong theoretical reasons within the OLI framework about how it exactly
affects FDI, the researchers are still interested in using it. Cavallari and
DAddonas (2012) study found that with as regards to nominal
uncertainty, interest rate volatility in the host country has a negative effect
on FDI. A rise in domestic volatility, on the other hand, has no significant
impact on foreign investments. These results are compatible with the
predictions of recent models that explain the mode of foreign market
access in an environment with sticky prices. An increase in foreign interest
rate volatility is expected to reduce the profitability of multinational sales
relative to exports, leading to a drop in foreign investments. A rise in
domestic volatility, on the contrary, has only a minor effect on the relative
attractiveness of multinational sales. Although the relationship between
FDI and interest rates is not clear, in principle if the host country has
relatively higher rates this will deter firms from investing in expansions of
local capital markets and this may subsequently lead to an increase in FDI.
On the other hand, if the host country has much higher interest rates than
the international marketas this imply an unstable economy, this will
reduce FDI. (Mold, 2003) Although interest rate is expected to be
significantly related to FDI, Shylajans (2011) study shows that interest
rates are not important factors in explaining FDI inflows. The similar
result happened in the study made by Shahzad and Zahid. (Shahzad &
Zahid)

CHAPTER 3: METHODOLOGY
3.1 Overview
This chapter presents the methodology which is used to investigate
and analyse the effect of Infrastructure Spending, Interest Rate, Total
Custom Duties and Population to Foreign Direct Investments in the
Philippines. This will define the level of inflow of foreign direct
investments in the Philippines. It also describes the procedures that were
constructed to acquire the needed and most useful data information to the
study as well as details on how the accumulated data were analysed,
interpreted, and how the conclusion was drawn.
3.2 Research Design
The study uses a formal procedure where the research has
developed and there are already hypothesis to be tested that is the effect of
the determinants to FDI. The researchers have formulated its hypotheses
to answer the research questions. Formal study uses precise procedures for
the research to be answered and it begins with the hypothesis. The
research design is a quantitative study which will use numbers and
statistics on answering the research problems. Quantitative data are
important on the research as it deals with statistics such as Infrastructure
Spending, Interest Rate, Total Custom Duties, Population and Foreign
Direct Investments. Statistical method is very relevant in the study as it is
concerned on the findings of how the four variables (Infra Spending,
Interest Rate. Custom Duties, Population) affect Foreign Direct
Investments. It is ex post facto as the second hand data will be gathered on
the past studies. The study about the FDI determinants and its effect on
Foreign Direct Investments involve on the measured variable on the past
years of studies about the related variable. Libraries and online sources
will be the sources of the second hand data. Longitudinal will be the time
frame of the study which involves overtime data from 1990-2012. This
time frame is relevant to know the pattern on how the four variables affect
the inflow of foreign direct investments. The purpose of our study is to
know the relationship on our research problems.
3.3 Data Gathering Procedures
3.3.1 Secondary Data
Collection
The statistics and facts used in this study are from
secondary data collection. The statistics used will be from
1990-2012. For this research, a significant amount of publicly
published data pertaining to the five variables at the academic
level is required. Three methods of collecting secondary data
will be applied. This includes using online resources with
appropriate citation and critical analysis for the findings,
library search and indexing through written texts that have
already done similar works in line of the research topic, and
gathering data from newspapers, magazines, journals and other
similar periodicals. Most of the statistical data were obtained
from government agencies such as BSP, PIDS, ADB, DTI and
DBM. The data that will be collected are the foreign direct
investments, infrastructure spending, interest rate, total custom
duties, and population.
3.4 Treatment of Data

The important assumption of this research is and econometric model
which represents the determinants of FDI using variables: Infrastructure
Spending, Interest Rate, Total Custom Duties, and Population. Linear Regression
will be used to test the relationship of an individual determinant and Foreign
Direct Investments using Microsoft Excel and Multiple Regression to test the
effect of the collaborated independent variables to FDI. This will test if the
individual variables have significant effect to FDI. The data in millions and
billions are divided to have smaller values.

Dependent Variable
A. Foreign Direct Investments
Foreign Direct Investment is the Dependent Variable in the study. The
data are obtained from Asian Development Bank. This research will test
how the determinants will affect the inflow of FDI in the Philippines.
Before investing in a country, investors consider many factors on
investing in a country. This will trace the pattern of foreign investments
from 1990-2012. The importance of this study is that it will make a model
on determining on how the factors will affect the inflow of foreign
investments in the Philippines having low investments in the past years.
Independent Variables
1. Infrastructure Spending

The data are obtained from ADB. Infrastructure spending indicates that a
country with many stable building structures and ports is a good area for
investments. Since better infrastructure means low cost of transporting
goods or other necessary factors considered by investors and convenience,
this will test how this infrastructure spending in the Philippines will affect
the decision of investors.

2. Interest Rate
The data of Interest Rate are obtained from BSP. Interest Rate is a
common factor on that makes the decision of foreign investors on spending on
a specific country. It is believed that higher interest rate would actually
decrease the inflow of FDI because it will be more expensive on investing
in a country. This study will determine how interest rate in the Philippines affects
the inflow of its FDI.

3. Total Custom Duties
The data are obtained from DBM. Total Custom Duties are used as a
representation of the tariff rate, this tariffs collected by the government would test
on whether the tariff rate affects FDI directly or inversely. It is believed that lower
rates of taxes would actually increase the inflow of FDI but this study will test on
how do the total custom duties or tax rate would affect the FDI inflow in the
Philippines.

4. Population
The data of population are obtained from PIDS. Investors compare
population as an indication of market size and consider the countries with bigger
numbers of residents. This study will test on whether the size of the Philippine
population would affect its inflow of FDI.

Regression Analysis
Linear Regression
Simple Regression will be used on determining the effects of the Four
Variables to Foreign Direct Investment. This will define the relationship of the
variables to FDI on whether it will increase of decrease the inflow of FDI.
Infrastructure Spending and FDI
Infrastructure is one of the important factors considering on investing in a
country. Better infrastructure of a country would cost the investors less investing
in a country. Linear Regression will test whether the infrastructure spending in the
Philippines especially on transportation will increase or decrease the inflow of
FDI.
Y=a+b
1
X
1

Where: Y=Foreign Direct Investments
X
1
= Infrastructure Spending
Interest Rate and Foreign Direct Investments
Higher interest rates would cost more cost on investing in a country. This factor is
essential considering investing in a country. It will test on whether the Interest
rate affects the FDI positively or negatively.
Y=a+b
2
X
2
Where: Y= Foreign Direct Investments
X
2
= Interest Rate
Total Custom Duties and Foreign Direct Investments
Investors, being profit-oriented individuals, are more inclined to invest in
countries with lower rates of taxes need to be collected as high taxes would mean
a decrease in their total profits. Total Custom Duties will be the representation of
tax rates or the taxes collected from by the government. This study will define the
relationship on how the tax rate will affect the inflow of FDI.
Y=a+b
3
X
3

X
3
= Total Custom Duties
Population and Foreign Direct Investments
Investors compare population as an indication of market size and consider the
countries with bigger numbers of residents. This study will define the relationship
of the size of the Philippine population and the inflow of FDI.
Y=a+b
3
X
4

X
4
= Population
Multiple Regressions
Multiple Regressions will be used in this study to determine on how the
four determinants of FDI affect the inflow of Foreign Direct Investment in the
Philippines. This will serve as a framework on determining the inflow of FDI
using these four variables. This can trace the pattern on how the foreign investors
decide on investing in a country.
Y=a+b
1
X
1
+b
2
X
2
+b
3
X
3
+b
4
X
4
Where Y= FDI
X
1
= Infrastructure Spending
X
2
= Interest Rate
X
3
= Total Custom Duties
X
4
= Population
CHAPTER 4: DATA PRESENTATION AND ANALYSIS

The study will test the relationship of each independent variable to the
dependent variable using Linear Regression and Multiple Regression. In the study
of the relationships of the determinants of Foreign Direct Investments, this will
test if the determinants have relationship to the FDI in the Philippine setting.
In a study of Foreign Direct Investment (Y) for the Philippine setting,
three independent variables were considered: X
1
: Infrastructure Spending, X
2
:
Interest Rate, X
3
: Total Custom Duties, X
4
: Population

Data Results and Analysis
Question 1: I s there a relationship between the I nfrastructure Spending in the
Philippines and Foreign Direct I nvestments?
The study uses Linear Regression as its statistical tool to test the
relationship between two variables; Foreign Direct Investment (Y) and
Infrastructure Spending (X
1
).
Linear Regression Results
Multiple Regression 0.441772
R Square 0.195163

T Stat P-Value
Intercept 3.81 0.001014
Infra Spending 2.25 0.034817

Regression Equation Y=994.33+6.16X
1

The Independent Variable (X
1
) is statistically significant (because the
results are above the t table value 2.07 with 22 degrees of freedom at 5% level of
significance) so we will accept the alternative hypothesis and it proves that there
is a significant relationship between the two.
The r-square shows that the model can explain the variation 19% in FDI. Also the
data shows that there is a direct relationship between the two because of the
positive coefficient of Minimum Wage.

Question 2: I s there a relationship between the Philippines Interest Rate and
Foreign Direct I nvestments?
relationship between the two variables; FDI(Y) and Interest Rate (X
2
).
R Square 0.181477

T Stat P-Value
Intercept 6.58 1.6E-06
Interest Rate -2.15 0.046278

Regression Equation Y=2043.05-112.239X
2

2
is a significant relationship between the two.
The r-square shows that the model can explain the variation 18% in FDI. Also the
data shows that there is an inverse relationship between the two because of the
positive coefficient of GDP.

Question 3: I s there a relationship between the Philippine Total Custom Duties
and Foreign Direct I nvestments?
relationship between the two variables FDI (Y) and Foreign Total Custom Duties
(X
3
).
R Square 0.23473

T Stat P-Value
Intercept 2.36 0.02776
Total Customs -2.53 0.019138

Regression Equation Y=754.2742+5.2338X
3

3
is a significant relationship between the two variables. The r-square shows that
the model can explain the variation 23% in FDI. Also the data shows that there is
an inverse relationship between the two because of the positive coefficient of the
Total Custom Duties.

Question 4: I s there a relationship between the Philippine Population and
Foreign Direct I nvestments?
relationship between the two variables FDI (Y) and Foreign Total Custom Duties
(X
4
).
R Square 0.232204

T Stat P-Value
Intercept -1.18807 0.248069
Population 2.520125 0.019893

Regression Equation Y=-1330.97+35.53482X
4

4
is a significant relationship between the two variables. The r-square shows that
the model can explain the variation 23% in FDI. Also the data shows that there is
a direct relationship between the two because of the positive coefficient of
Population.

` Question 5: Is there a relationship with the Philippines Infrastructure Spending,
I nterest Rate, Total Customs Duties and Population to FDI inflows in the Philippines?
Multiple Regression Results
The study uses Multiple Regression to test the relationship between all the
determinants and the Foreign Direct Investment. The Independent variables are
transformed by raising the variables to 12 using the Multicollinearity test. The
variables are transformed because some of the independent variables are
insignificant.

Multicollinearity Test
In case the variables are not significant or they have a very low or a very
high P-value, the data will be transformed. This Multicollinearity test will
transform the variables to be significant so the model will be accepted. But there
are instances that some of the variables are insignificant depending on the model
involved.
R Square 0.418273

T Stat P-Value
Intercept 5.72 1.97E-05
Infra Spending 0.66 0.515221
Interest Rate -1.58 0.130426
Total Custom -2.31 0.03267
Population 2.66 0.015935

Regression Equation Y=1216.707+1.05E-26X
1
-4.8E-10X
2
-1.9E-
26X
3
+4.66E-21X
4

The R-squared value means that 41.8% of the variation in FDI can be
explained by the regression on independent variables. There is a 1216.707 mean
response of FDI when all of the explanatory variables have a value of zero.
The t table value of the analysis is 2.07 with 22 degrees of freedom at 5%
level of significance. The results of the variables are as follows:
Infrastructure Spending (X
1
) is not statistically significant having a
t statistics of 0.66 but has a positive relationship with FDI base on
the model. Also the P-value
(Infrastructure Spending)
.515> 0.05 Critical
Value
Interest Rate (X
2
) is not statistically significant having a t statistics
of -1.58 and has a negative relationship with the FDI base on the
model. Also The P-value
(Interest Rate)
0.13> 0.05 Critical Value
Total Custom Duties (X
3
) is significant having a t statistics of -2.31
and has a negative relationship with FDI. Also the P value
(Total
Customs Duties)
0.03< 0.05 Critical Value
Population (X
4
) is statistically significant having a t statistics of
2.66 and has a positive relationship with the FDI base on the
model. Also The P-value
(Population)
0.015< 0.05 Critical Value
In this study, the Infrastructure Spending and Interest Rate are retained to
satisfy the determinants of FDI. It is because the primary consideration in
deciding an independent variable belongs in an equation is whether the variable is
essential to the regression on the basis of theory. If it is an ambiguous yes, then
the variable definitely should be included in the equation, even if it is lacking in
statistical significance. (Wuncsch, 2004)

F-Test for the Overall Fit of the Model
To test the statistical significance of the regression relation between FDI
(Y) and its Determinants Minimum Wage (X
1
), GDP (X
2
), Foreign Exchange
(X
3
), the study will use the F-Test. The hypotheses of the regression relation will
be:
H
0
: X
1
= X
2
= X
3
= 0
H
1
: not all X
i
(i=1, 2, 3) equal zero
Base on Figure 8 the F statistics is 3.24. The F critical value is 2.93 with
5% level of significance. Since F statistics 3.24 > 2.93 F critical Value, the null
hypothesis will be rejected. This means that the model can significantly determine
the FDI in terms of Infrastructure Spending, Interest Rate, Total Custom Duties
and Population. Therefore, the model Y=1216.707+1.05E-26X
1
-4.8E-10X
2
-1.9E-
26X
3
+4.66E-21X
4
is statistically significant.

Heteroscedasticity Test

H0: The model is Homoscedastic
H1: The model is Heteroscedastic

ESS1 6.82121E-13
ESS2 56857.65007
ESS2/ESS1 8.33

The data 8.33 is below the F critical value which is 8.85 with 5% level of
significance. Therefore, the null hypothesis will be accepted so this means that the
model is Homoscedastic.

Autocorrelation Test
Autocorrelation is used when the data are in time series to know whether
there is a correlation among the variables or it does not exist. To test the
correlation of the variables Durbin-Watson is used.
Durbin-Watson 1.58
dL 0.9861
dU 1.785

The Autocorrelation test will test the model if it is auto correlated or not.
Having 23 as the number of observation and 4 as the number of explanatory
variables, the value of dU and dL will test the autocorrelation of the model. Since
the Durbin-Watson value 0.9861(dL) < 1.61 < 1.785 (dU), this proves that the
model is inconclusive will accept the autocorrelation.

CHAPTER 5: SUMMARY, CONCLUSIONS, RECOMMENDATION
Given the increasing competition with regards to encouraging foreign
direct investments, the Philippines continues to struggle with this goal despite the
abundance of natural resources and competitive labor force. However, the
existence of the aforementioned general qualities is theorized to be insufficient in
attracting FDI; thus, four different variables were presented to have an effect with
FDI: infrastructure expenditures, interest rates, population and the total amount of
custom duties collected. The study used a timeline-based duration of 23 years,
from 1990-2012. The researchers find this thesis to be significant in determining
whether these given factors do affect FDI, specifically with the issues regarding
the governments control over the infrastructure budgets and tariff rates in the
country. The uncontrollable variablespopulation and interest ratesare also
being focused on as both demonstrate irregular patterns throughout the years. In
order to find the relationship of each factor to FDI, linear regression was used.
Infrastructure spending is found to be insignificant and directly related to
FDI. Kumars (2001) explains the positive relationship between the two variables
by reporting thru his study that infrastructure availability aids in contributing to
the relative attractiveness of a country, thereby increasing FDI inflows. Not only
that, in helps in lowering the costs of the private firms in budgeting for materials
needed. The insignificance of infrastructure expenditures is explained by many
different studies such as Shepotulyos (2006), Bronzinis (2004), and Baes
(2008). Their studies show no correlation between infrastructure and FDI, and add
that investments in public goods do not automatically pose substantial direct
influence on production performance of private firms.
Interest rate is found to be also insignificant but is inversely related to
FDI. The result is in line with the theoretical framework aforementioned and with
supporting studies available. Cavallari and DAddonas study (2012) justifies the
negative relationship by saying that with regards to nominal uncertainty, interest
rate volatility in the host country does have a negative impact on FDI. An increase
in foreign interest rate volatility is expected to reduce the profitability of
multinational sales relative to exports, leading to a drop in foreign investments.
The insignificance of the variable is thereby explained by Shylajan in relation to
his study with regards to interest rates implication. According to him, there is an
absence of strong theoretical reasons as to how interest rates could affect FDI,
therefore these [interest] rates are not important factors in explaining FDI inflows.
(Shylajan, 2011)
Total custom duties collected is found to be a significant variable and is
negatively related to FDI. The researchers found the result to be in line with the
expected outcome backed up by supporting theories and studies. Used as a proxy
variable for tariff rates (and due to present policies about import quotas), the
negative relationship is thereby logical and understandable. A study by Pervez
and Malik (2013) concludes that lower tariff structures increase the foreign direct
investment in a country. Tariff structures should be framed out in a way to
provide maximum tax incentives to foreign investors in order to promote FDI.
According to them, if the government would still push for higher tariff rates, a
careful investigation and analysis is required as to what extent the tariff structures
may be increased without adversely affecting the FDI. In this case, since there are
import quota policies in the Philippines, a high amount of custom duties collected
means a high rate of tariff. Therefore, the higher the amount of duties collected,
the less FDI would flow in the country.
Lastly, population is found to be significant and has a direct relationship
with FDI. Akins (2009) study shows that in developing countries, population is a
crucial indicator for market seeking investors. This suggests that FDI takes into
account the size of the market in terms of aggregate size. A high number of
population implies a great number of middle class citizens with spending power,
thereby being more attractive to investors who are profit oriented and market
seekers.
The researchers recommend a deeper analysis of the study using more
additional factors as determinants of foreign direct investments in the Philippines.
The addition of other variables that can measure the market size should also be
considered not only the population. It also recommends further studies that
consider non-quantifiable data such as the role of government to fully observe the
inflow of FDI. Also, it recommends that the data used will be quarterly to further
observe the effect of different factors of FDI to the investment decisions of
foreign investors. Using quarterly data and extending the scope of year will also
increase the r-square of each independent variable. Studying the FDI inflows from
a microeconomic perspective is also recommended with regards to the behavior of
foreign investors and multinational companies inside the country. The use of other
statistical tools and quantifying methods is also suggested to provide a more
profound examination of the study.

APPENDIX A
Figure 1: Linear Regression of FDI and Infrastructure Spending

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.441772129
R Square 0.195162614
Adjusted R Square 0.156837024
Standard Error 747.4305431
Observations 23
ANOVA
df SS MS F Significance F
Regression 1 2844785.076 2844785.076 5.092227279 0.034816738
Residual 21 11731700.75 558652.4167
Total 22 14576485.83
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 994.3301493 260.7565505 3.813250894 0.001014459 452.0572168 1536.603082 452.0572168 1536.603082
Infrastructure Spending 6.160803183 2.730130742 2.256596392 0.034816738 0.483185494 11.83842087 0.483185494 11.83842087
Figure 2: Linear Regression of FDI and Interest Rate

SUMMARY OUTPUT
R Square 0.18147741
Observations 23
ANOVA
Regression 1 2645302.898 2645302.898 4.655980986 0.042678285
Residual 21 11931182.93 568151.568
Total 22 14576485.83
Intercept 2043.051614 310.1598687 6.58709208 1.59722E-06 1398.038858 2688.064371 1398.038858 2688.064371
Interest Rate -112.2394602 52.01636149 -2.157772228 0.042678285 -220.4134057 -4.0655147 -220.4134057 -4.0655147
Figure 3: Linear Regression of FDI and Total Customs Duties

SUMMARY OUTPUT
R Square 0.234730177
Observations 23
ANOVA
Regression 1 3421541.101 3421541.101 6.441301583 0.019137542
Residual 21 11154944.73 531187.8441
Total 22 14576485.83
Intercept 754.2742042 318.9919115 2.364555893 0.027760449 90.8942086 1417.6542 90.8942086 1417.6542
Total Duties / 1BPHP 5.233800172 2.062197806 -2.53797194 0.019137542 0.945225064 9.522375279 0.945225064 9.522375279
Figure 4: Linear Regression of FDI and Population

SUMMARY OUTPUT
R Square 0.232204401
Observations 23
ANOVA
Regression 1 3384724.164 3384724.164 6.351029408 0.01989298
Residual 21 11191761.66 532941.0315
Total 22 14576485.83
Intercept -1330.970772 1120.278503 -1.18807133 0.248068958 -3660.717457 998.7759138 -3660.717457 998.7759138
Population 35.53482481 14.10042221 2.520124879 0.01989298 6.211391575 64.85825805 6.211391575 64.85825805
Figure 5: Mulitple Regressions (Original Data)

SUMMARY OUTPUT
R Square 0.304121335
Observations 23
ANOVA
Regression 4 4433020.329 1108255.082 1.966644584 0.142999818
Residual 18 10143465.5 563525.8609
Total 22 14576485.83
Intercept 1302.282136 2856.696878 0.455869906 0.653935365 -4699.415298 7303.97957 -4699.415298 7303.97957
Infrastructure Spending 0.159792307 6.949871697 0.022992123 0.981909525 -14.44134632 14.76093093 -14.44134632 14.76093093
Interest Rate -74.92179398 59.13944572 -1.266866692 0.221350513 -199.1691589 49.32557099 -199.1691589 49.32557099
Total Customs Duties 3.974113347 6.922936222 0.574050261 0.573038035 -10.57043595 18.51866264 -10.57043595 18.51866264
Population -0.048132456 43.76710552 -0.00109974 0.999134631 -91.99940908 91.90314417 -91.99940908 91.90314417
Figure 6: Multicollinearity Test

SUMMARY OUTPUT
R Square 0.418272861
Observations 23
ANOVA
Regression 4 6096948.424 1524237.106 3.235585458 0.036348561
Residual 18 8479537.402 471085.4112
Total 22 14576485.83
Intercept 1216.706671 212.392581 5.728574254 1.97416E-05 770.4864168 1662.926926 770.4864168 1662.926926
Infrastructure Spending 1.04956E-26 1.5811E-26 0.663817427 0.515220522 -2.2722E-26 4.37133E-26 -2.2722E-26 4.37133E-26
Interest Rate -4.8458E-10 3.0577E-10 -1.58478467 0.130426484 -1.12698E-09 1.57819E-10 -1.12698E-09 1.57819E-10
Total Customs Duties -1.86002E-26 8.03718E-27 -2.314274217 0.032669556 -3.54857E-26 -1.71475E-27 -3.54857E-26 -1.71475E-27
Population 4.65656E-21 1.75034E-21 2.660375913 0.015935409 9.79234E-22 8.33389E-21 9.79234E-22 8.33389E-21
Figure 7: Heteroskedasticity ESS1

SUMMARY OUTPUT
Multiple R 0.994453
R Square 0.988937
Observations 9
ANOVA
Regression 4 1419363 354840.8555 89.39107 0.000364
Residual 4 15878.13 3969.533422
Total 8 1435242
Coefficients Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0% Upper 95.0%
Intercept 1.753078 52.82185 0.033188503 0.975114 -144.904 148.41 -144.904 148.41
Infrastructure Spending 4.63E-19 3.53E-19 1.310202389 0.260299 -5.2E-19 1.44E-18 -5.2E-19 1.44E-18
Interest Rate7.65E-11 3.3E-11 2.316404629 0.081457 -1.5E-11 1.68E-10 -1.5E-11 1.68E-10
Total Customs Duties 2.67E-22 4.17E-23 6.407136255 0.003048 1.52E-22 3.83E-22 1.52E-22 3.83E-22
Population 5.22E-20 4.25E-21 12.28438389 0.000252 4.04E-20 6.4E-20 4.04E-20 6.4E-20
RESIDUAL OUTPUT
Observation Predicted Foreign Direct Investment Residuals E2
1 197.6672 -2.66717 -2.66717463
2 235.2498 -7.24976 -7.24975921
3 492.4323 -1.43231 -1.43230785
4 441.0017 88.9983 88.99829533
5 583.8455 -39.8455 -39.8455074
6 761.6777 -73.6777 -73.677676
7 1193.177 28.82294 28.82293831
8 1231.008 6.991642 6.991642167
9 1246.94 0.059549 0.059549303
sum 6.82121E-13
Figure 8: Heteroskedasticity ESS2

SUMMARY OUTPUT
Multiple R 0.989073
R Square 0.978265
Observations 9
ANOVA
Regression 4 2559085 639771.1 45.00862 0.001397
Residual 4 56857.65 14214.41
Total 8 2615942
Coefficients Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0% Upper 95.0%
Intercept 1421.649 104.5491 13.59792 0.000169 1131.375 1711.924 1131.375 1711.924
X Variable 1-7.1E-28 2.86E-27 -0.24741 0.816769 -8.7E-27 7.24E-27 -8.7E-27 7.24E-27
X Variable 22.55E-07 1.83E-07 1.394094 0.235741 -2.5E-07 7.63E-07 -2.5E-07 7.63E-07
X Variable 3 4.1E-27 2.47E-27 1.658494 0.172557 -2.8E-27 1.1E-26 -2.8E-27 1.1E-26
X Variable 41.52E-21 6.7E-22 2.269675 0.085758 -3.4E-22 3.38E-21 -3.4E-22 3.38E-21
RESIDUAL OUTPUT
ObservationPredicted YResiduals e2
1 1586.688 4.31156 18.58955
2 1621.344 13.65618 186.4912
3 1744.346 -80.3461 6455.498
4 1980.375 49.62459 2462.6
5 2273.249 -33.2487 1105.474
6 2312.678 -25.6775 659.3353
7 2524.098 182.9021 33453.19
8 2823.875 -111.875 12516.05
9 3244.347 0.652997 0.426405
sum 56857.65
Figure 9: Autocorrelation Test

RESIDUAL OUTPUT
Observation Predicted Foreign Direct Investment Residuals et-1 e-et-1 (e-et-1)2 e2
1 815.7421 -285.742 81648.56
2 1236.98 -692.98 -285.742 -407.2378882 165842.7 480221.3
3 156.2157 71.78431 -692.98 764.7643247 584864.5 5152.987
4 1242.668 -4.66765 71.78431 -76.45195627 5844.902 21.78692
5 1267.454 323.5461 -4.66765 328.2137039 107724.2 104682.1
6 1261.598 216.4023 323.5461 -107.1437217 11479.78 46829.97
7 1276.793 240.2072 216.4023 23.80486061 566.6714 57699.5
8 1050.69 171.3098 240.2072 -68.89736259 4746.847 29347.06
9 1325.629 961.3714 171.3098 790.0615518 624197.3 924234.9
10 1357.722 -110.722 961.3714 -1072.093643 1149385 12259.42
11 1398.459 841.5412 -110.722 952.2635039 906805.8 708191.7
12 1446.464 -1251.46 841.5412 -2093.005334 4380671 1566162
13 1512.369 29.63128 -1251.46 1281.095364 1641205 878.0126
14 1589.879 -1098.88 29.63128 -1128.510401 1273536 1207535
15 1688.69 -1000.69 -1098.88 98.18938236 9641.155 1001380
16 1808.021 -144.021 -1000.69 856.6690821 733881.9 20741.95
17 2020.738 686.2624 -144.021 830.2830578 689370 470956.1
18 2189.325 1055.675 686.2624 369.4121167 136465.3 1114449
19 819.6691 616.3309 1055.675 -439.3436643 193022.9 379863.7
20 2741.92 -29.9203 616.3309 -646.2511521 417640.6 895.2244
21 1723.058 -88.0583 -29.9203 -58.13800694 3380.028 7754.266
22 1761.557 -508.557 -88.0583 -420.4983618 176818.9 258629.9
23 2028.36 1.639525 -508.557 510.1961949 260300.2 2.688041
SUM 13477391 8479537
n=23 k=4
DL 1.785 Du 0.9861
Durbin-Watson 1.589402 inconclusive
APPENDIX B
Table 1. Data of Dependent Variable: Foreign Direct Investment

Source: Asian Development Bank

Year Foreign Direct Investment
1990 530.00
1991 544.00
1992 228.00
1993 1238.00
1994 1591.00
1995 1478.00
1996 1517.00
1997 1222.00
1998 2287.00
1999 1247.00
2000 2240.00
2001 195.00
2002 1542.00
2003 491.00
2004 688.00
2005 1664.00
2006 2707.00
2007 3245.00
2008 1436.00
2009 2712.00
2010 1635.00
2011 1253.00
2012 2030.00
Table 2. Data of Independent Variable: Infrastructure Spending

Source: DBM

Year Infrastructure Spending
1990 18.1
1991 19.2
1992 25.6
1993 20.4
1994 34.8
1995 42.6
1996 42.8
1997 49.9
1998 41.7
1999 55.2
2000 65.1
2001 65.7
2002 59.9
2003 60.7
2004 58.6
2005 51.7
2006 84.8
2007 111.5
2008 143.3
2009 168.5
2010 131.2
2011 159.1
2012 250.8
Table 3. Data of Independent Variable: Interest Rate

Source: BSP
Year Interest Rate
1990 9.87
1991 5.62
1992 10.70
1993 7.35
1994 4.61
1995 6.63
1996 6.67
1997 9.46
1998 -4.58
1999 4.87
2000 4.92
2001 6.49
2002 4.78
2003 6.08
2004 4.32
2005 4.12
2006 4.60
2007 5.43
2008 1.12
2009 5.64
2010 3.31
2011 2.54
2012 3.7
Table 4. Data of Independent Variable: Total Customs Duties

Source: DTI

Year Total Customs Duties
1990 43
1991 60
1992 68
1993 77
1994 77
1995 98
1996 105
1997 95
1998 76
1999 86
2000 95
2001 96
2002 96
2003 106
2004 122
2005 142
2006 198
2007 209
2008 260
2009 220
2010 259
2011 265
2012 274
Table 5. Data of Independent Variable: Population

Source: PIDS

Year Population
1990 60.70
1991 63.69
1992 65.34
1993 66.98
1994 68.62
1995 68.35
1996 69.95
1997 71.54
1998 73.13
1999 74.72
2000 76.32
2001 77.90
2002 79.48
2003 81.05
2004 82.64
2005 84.21
2006 86.97
2007 88.71
2008 90.46
2009 92.23
2010 94.01
2011 95.80
2012 97.59
Table 6. Multiple Regression Data (Original)

Year Foreign Direct Investment Infrastructure Spending Interest Rate Total Customs Duties Population
1990 530.00 18.1 9.87 43 60.70
1991 544.00 19.2 5.62 60 63.69
1992 228.00 25.6 10.70 68 65.34
1993 1238.00 20.4 7.35 77 66.98
1994 1591.00 34.8 4.61 77 68.62
1995 1478.00 42.6 6.63 98 68.35
1996 1517.00 42.8 6.67 105 69.95
1997 1222.00 49.9 9.46 95 71.54
1998 2287.00 41.7 -4.58 76 73.13
1999 1247.00 55.2 4.87 86 74.72
2000 2240.00 65.1 4.92 95 76.32
2001 195.00 65.7 6.49 96 77.90
2002 1542.00 59.9 4.78 96 79.48
2003 491.00 60.7 6.08 106 81.05
2004 688.00 58.6 4.32 122 82.64
2005 1664.00 51.7 4.12 142 84.21
2006 2707.00 84.8 4.60 198 86.97
2007 3245.00 111.5 5.43 209 88.71
2008 1436.00 143.3 1.12 260 90.46
2009 2712.00 168.5 5.64 220 92.23
2010 1635.00 131.2 3.31 259 94.01
2011 1253.00 159.1 2.54 265 95.80
2012 2030.00 250.8 3.7 274 97.59
Table 7. Multiple Regression Data (Transformed)

1990 530.00 1.23635E+15 8.51504E+11 4.09179E+19 2.50345E+21
1991 544.00 2.50966E+15 988914163.2 2.24523E+21 4.45663E+21
1992 228.00 7.92282E+16 2.24665E+12 9.50401E+21 6.05437E+21
1993 1238.00 5.19472E+15 24797322077 4.21907E+22 8.15581E+21
1994 1591.00 3.15465E+18 91030388.88 4.03817E+22 1.09076E+22
1995 1478.00 3.57203E+19 7221954124 7.47225E+23 1.03949E+22
1996 1517.00 3.77855E+19 7724239616 1.70878E+24 1.37142E+22
1997 1222.00 2.38345E+20 5.15236E+11 5.26866E+23 1.79674E+22
1998 2287.00 2.7646E+19 85047908.46 3.71626E+22 2.34001E+22
1999 1247.00 8.0033E+20 178178133.4 1.75393E+23 3.03024E+22
2000 2240.00 5.79391E+21 199572585.3 5.4077E+23 3.90543E+22
2001 195.00 6.46821E+21 5602933063 6.30716E+23 4.99261E+22
2002 1542.00 2.13364E+21 141359240.7 6.32134E+23 6.35109E+22
2003 491.00 2.50187E+21 2530821459 2.03279E+24 8.04105E+22
2004 688.00 1.63973E+21 42672480.3 1.13856E+25 1.01409E+23
2005 1664.00 3.64659E+20 23709272.24 6.56964E+25 1.2725E+23
2006 2707.00 1.38277E+23 90205243.11 3.66622E+27 1.8732E+23
2007 3245.00 3.69231E+24 661695829.2 7.12345E+27 2.37385E+23
2008 1436.00 7.49815E+25 3.79906701 9.6527E+28 3.00136E+23
2009 2712.00 5.2384E+26 1028512119 1.30719E+28 3.78682E+23
2010 1635.00 2.60139E+25 1732672.52 9.21392E+28 4.76723E+23
2011 1253.00 2.63052E+26 72111.51162 1.20524E+29 5.97837E+23
2012 2030.00 6.19342E+28 6582952.006 1.78218E+29 7.46586E+23
Table 8. Heteroskedasticity Data (Arranged)

1990 195.00 1.23635E+15 8.51504E+11 4.09179E+19 2.50345E+21
1991 228.00 2.50966E+15 988914163.2 2.24523E+21 4.45663E+21
1992 491.00 7.92282E+16 2.24665E+12 9.50401E+21 6.05437E+21
1993 530.00 5.19472E+15 24797322077 4.21907E+22 8.15581E+21
1994 544.00 3.15465E+18 91030388.88 4.03817E+22 1.09076E+22
1995 688.00 3.57203E+19 7221954124 7.47225E+23 1.03949E+22
1996 1222.00 3.77855E+19 7724239616 1.70878E+24 1.37142E+22
1997 1238.00 2.38345E+20 5.15236E+11 5.26866E+23 1.79674E+22
1998 1247.00 2.7646E+19 85047908.46 3.71626E+22 2.34001E+22
1999 1253.00 8.0033E+20 178178133.4 1.75393E+23 3.03024E+22
2000 1436.00 5.79391E+21 199572585.3 5.4077E+23 3.90543E+22
2001 1478.00 6.46821E+21 5602933063 6.30716E+23 4.99261E+22
2002 1517.00 2.13364E+21 141359240.7 6.32134E+23 6.35109E+22
2003 1542.00 2.50187E+21 2530821459 2.03279E+24 8.04105E+22
2004 1591.00 1.63973E+21 42672480.3 1.13856E+25 1.01409E+23
2005 1635.00 3.64659E+20 23709272.24 6.56964E+25 1.2725E+23
2006 1664.00 1.38277E+23 90205243.11 3.66622E+27 1.8732E+23
2007 2030.00 3.69231E+24 661695829.2 7.12345E+27 2.37385E+23
2008 2240.00 7.49815E+25 3.79906701 9.6527E+28 3.00136E+23
2009 2287.00 5.2384E+26 1028512119 1.30719E+28 3.78682E+23
2010 2707.00 2.60139E+25 1732672.52 9.21392E+28 4.76723E+23
2011 2712.00 2.63052E+26 72111.51162 1.20524E+29 5.97837E+23
2012 3245.00 6.19342E+28 6582952.006 1.78218E+29 7.46586E+23
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