Factors Affecting Inward Foreign Direct Investment in The Philippines

UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE i
Factors Affecting Inward Foreign Direct Investment in the

Philippines
A Thesis Presented to the

College of Commerce
University of Santo Tomas
In Partial fulfillment
of the Requirements for the Degree
Bachelor of Science in Business Administration, Major in Business Economics
By
Anna Ruby G. Colozo
Mary Jane V. Tarectecan
October 2010
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE ii
CERTIFICATE OF ORIGINALITY
We hereby declare that this submission is our own work and that, to the best of our
knowledge and belief, it contains no material previously published or written by
another person nor materials which to a substantial extent has been accepted for the
award of any other degree or diploma of a university or other institute of higher
learning, except where due acknowledgement is made in the text
We also declare that the intellectual content of this thesis is the product of our own
work, even though we may have received assistance from others on style, presentation
and language expression.
COLOZO, ANNA RUBY G.
TARECTECAN, MARY JANE V.
October 2010
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE iii
APPROVAL SHEET
The Thesis entitled

“FACTORS AFFECTING INWARD FOREIGN DIRECT INVESTMENT IN
THE PHILIPPINES”
prepared and submitted by Anna Ruby G. Colozo and Mary Jane V. Tarectecan of 4E2
has been approved in partial fulfillment of the requirements in Economics Research II
(ECO 32).
Rosemary P. Dinio, Ph.D.

Thesis Adviser
Approved by the Thesis Committee with a Final Grade of on October, 2010.
Asst. Dean, Mary Hildence Baluyot Mr. Charles Fajardo, MSc PEMF
Thesis Examiner Thesis Examiner
Alma Aileen L. Almario-Miguel

Chair, Economics Department
Prof. Ma. Socorro P. Calara, Ph.D.

Dean, College of Commerce and Business Administration
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE iv
Acknowledgement
First and foremost, we thank our almighty God for the inspiration and wisdom
that guided us in every stage of our study. We are grateful to our respective parents,
Jose Montimer Colozo and Filipinas Colozo, and Fortunato Tarectecan and Meriam
Tarectecan, for their support and encouragement to work hard to finish our college
education.
To our respective siblings Allejo Colozo and Audrey Mae Tarectecan we say
thank you for adding fun to what otherwise were very stressful days for us while doing
our research.
Our thanks also go to the personnel of various government agencies for granting
us access to their data and helping us identify and locate their sources.
Finally, we cannot thank enough our thesis advisers, Dr. Jodylyn M. Quijano–
Arsenio and Dr. Rosemary P. Dinio for their academic guidance and assistance in the
conduct of our study. Together, we also want to thank all our professors especially Mr.
Ronald Paguta, Mr. Ronaldo Cabauatan, Mr. Francis Ian Quesada, Ms. Karren Grace
Valdez, Mr. Charles Fajardo, Ms. Marie Antoinette Rosete, Asst. Dean Mary Hildence
M. Baluyot and Asst. Prof. Alma Aileen Almario-Miguel, without which we could not
have completed our research project and paper on time. Furthermore we would like to
thank our guidance counselors Ms. Monica Sophia De Leon and Ms. Christine Quita.
We want to state, however, that any errors or shortcomings of this study are our
sole responsibility.
On a personal note, Anna Ruby also wants to dedicate this paper to her
grandfather, Santiago Colozo, who passed away on the same day we successfully
defended our thesis proposal, as well as to her aunt, Purificacion Colozo and her uncle,
Wilfredo Colozo and family for their untiring support
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE v
TABLE OF CONTENTS
Title Page
Title Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Certificate of Originality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Approval Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .viii
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CHAPTER 1 INTRODUCTION
Background of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Objectives of the Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Significance of the Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Scope and Limitations of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Definition of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CHAPTER 2 LITERATURE REVIEW

Related Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Related Literature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Synthesis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CHAPTER 3 RESEARCH METHODS

Theoretical Framework. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE vi
Conceptual Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Research Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Statistical and Mathematical Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 4 RESULTS AND DISCUSSIONS

Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Data Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS

Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
BIBLIOGRAPHY
Appendix A. General Reference Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix B. Regression Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix C. Indices Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Appendix D. Curriculum Vitae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE vii
LIST OF ACRONYMS
BOI – Board of Investment NSO – National Statistics Office

CDC – Clark Development Corporation PEZA – Philippines Economic Zone
CIA World Factbook - Central Authority
Intelligence Agency Factbook PHP per USD – Philippines Peso per
CPI – Corruption Perception Index US Dollars
CR – Crime Rate PNP – Philippine National Police
DMR – Democracy Rate Real GDP – Real Gross Domestic
ESI – Environmental Stability Index Product
EXR – Exchange Rate SBMA – Subic Bay Metropolitan
FH – Freedom House Authority
HDI – Human Development Index TFP – Total Factor Production
IFR – Inflation Rate TI – Transparency Index
Inward FDI – Inward Foreign Direct TOPSIS – Techniques for Orderly
Investment Preference by Similarity to Ideal
KWH – Kilowatt / Hour Solution
LR – Simple Literacy Rate UNCTAD – United Nation Conference
MNC – Multinational Corporation on Trade and Development
NSCB – National Statistical
Coordination Board
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE viii
LIST OF TABLES
Table 1. Selected Economic Variables Table 5. Regression Results for

Table 2. Selected Political Variables Political Factor
Table 3. Selected Social Variables Table 6. Regression Results for Social
Table 4. Regression Results for Factor
Economic Factor Table 7. Regression Results Including
All Factors
LIST OF FIGURES
Figure 1. Determinants of Inward FDI Figure 2. Porter‟s Diamond of

National Advantage
UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE 1
Factors Affecting Inward Foreign Direct Investment in the Philippines
Abstract
The study aims to identify how to increase Philippines‟ Inward Foreign Direct
Investment (FDI) by using three factor categories: economic, political and social. To
measure each factors, the researchers used variables to pinpoint which has the greatest
impact among the three where the government should focus. Variables under each factor
are Real Gross Domestic Product, Inflation Rate and Exchange Rate, Corruption
Perception Index, Democracy Rate, Crime Rate and Simple Literacy Rate. After
conducting appropriate tests and adjustments to examine the significance of each
variable to the dependent variable inward FDI; results shows that all variables under
economic, political and social are significant to the dependent variable inward FDI.
Based on the test conducted, social factors obtained the highest R-squared which proved
that Philippines‟ social factors are more important to foreign investors‟ decision. Strict
implementations of laws and by giving much attention to education as the primary
component of a better economy are some of the researchers‟ recommendation to
improve the countries social issues.
Keywords: Inward Foreign Direct Investment, Real Gross Domestic Product,

Inflation Rate and Exchange Rate, Corruption Perception Index, Democracy Rate,
Crime Rate, Simple Literacy Rate
1. Introduction
Inward Foreign Direct Investment (FDI) has been significant in promoting

productivity and growth of its recipients. A recent study by Contessi and Weinberger
(2009) discussed the effects of inward FDI into host country‟s productivity and growth.
On their study, they cited literature which dated back to 1978 stating that: “technology
from investor countries was transferred to host country through investment agreements
that allows the host country to be more productive and profitable,”- this proved that even
before, FDI has been considered as an opportunity to every host country to empower its
economy. In Haskel et al.‟s study (2005), they measured productivity spillover from FDI
to domestic firms. Using data from United Kingdom‟s manufacturing sector with
variables such as domestic plant-level output, domestic plant level input, domestic total-
factor production (TFP) and inward FDI, findings showed that there was a significant
positive correlation between the variables. A study done by Buckley et al. (2006)
employed data from China‟s electronic industry for 41 sub-sectors for years 1996, 1998,
2000 and 2001. Using a small panel of China‟s electronics industry sub-sector found
partial support for the view that inward FDI has promoted overall productivity growth
over the period 1996-2001 but this also showed a decline spillover benefits to China‟s
domestic industry over the period. Furthermore, a study conducted by Wang et al.
(2007) examined the relationship between inward FDI and export performance in China.
The study focused on three major variables which are FDI, exports and exchange rate.
Results indicate that FDI promotes exports by foreign and also domestically owned
firms with strongest effect on labor intensive industries. Inward Foreign Direct
Investment (FDI) has been extensively distinguished as one of the major motivating
force behind industrial promotion and economic progress in developing countries in
Asia. This made FDI a very interesting topic due also to the fact that it has been an
important part of globalization in the recent years (Haskel et al., 2005). Furthermore, the
National Statistical Coordination Board (NSCB) recognized that inward FDI has become
a focal point of competition among countries.

All the above studies are about the effect of FDI and therefore the researchers
are both aware of the positive upshot of inward FDI on host countries. After identifying
all these benefits, the main concern is how to attract foreign investors into the country.
Through the years, there are also studies conducted to identify the determinants of
inward FDI for different countries and in different fields. One of these was the study
conducted by Gao (2000) entitled “Ethnic Chinese Networks and International
Investment Evidence from Inward FDI in China,” which examined the role of business
and social networks in international investment by examining the effects of social
Chinese networks on FDI in China. This study focused on the social factors which bring
inward FDI into China. Using social factors such as size of the home and host country,
trade cost, relative capital and skilled labor endowments and income level of each
country issues as variables; the paper presented evidence that FDI in China is positively
related to the population share of ethnic Chinese in the source country. Furthermore,
Karimi et al. (2010) stated that FDI is a major means to development with an open and
effective international economic system. This led them to study on location decision for
FDI in ASEAN countries. This study used TOPSIS method to evaluate and rank the
most attractive location influencing for FDI according to the determinant of inward FDI.
TOPSIS or Technique for Order Preference by Similarity to Ideal Solution was
developed by Hwang and Yoon on the year 1981. It was based on the concept that the
selected best alternative should have the shortest distance from the ideal solution while
having farthest distance from the negative-ideal solution using geometrical sense.
Mathematical simplicity and flexibility in the definition of choice set is its main
advantage. The study considered ten key determinants for FDI to flow. The researchers
indentified these ten key determinants and grouped these under three categories, namely
economic, political and social. GDP per capita, share of exports in GDP, telephone
mainlines (per 1,000 people), Electricity production (KWH) per capita and Overall
Index of Economic Freedom will fall under economic. Human Development Index
(HDI), Environment Stability Index (ESI), and school enrollment (tertiary, % gross) are
then under social factor. While, rate of GDP growth over the previous 15years, average
FDI flows over the previous 10 years will be classified under political because it
considered time where it varies among the political factors. The empirical result
identified Singapore as the most attractive among the ASEAN countries while Lao PDR
on the last and ninth place. On the fifth place was the Philippines.
This study concentrates on the Philippine‟s inward FDI. Inward foreign direct
investment (FDI) is known as the long term participation by a foreign direct investor
(either individual or company) by providing capital to the host country. Foreign
ownership can be of factories, mines, assets and the like. Most of the countries consider
inward FDI as a measure of upward economic globalization; as stated by Rodriguez and
Pallas (2008) – “foreign direct investment (FDI) has been instrumental in shaping the
dynamics of the globalization process within different economies.” National Statistics
Coordination Board (NSCB) finds its roots from the realization of the resource and
technology difference among countries. The Philippines has four investment promotion
agencies which serves as the think tank in establishing suitable policies and promoting
competitive investment conditions to attract foreign direct investments namely the Board
of Investment (BOI), Philippine Economic Zone Authority (PEZA), Clark Development
Corporation (CDC), and Subic Bay Metropolitan Authority (SBMA). These are agencies
that the economy counts on in terms of additional capital from foreign investors to
compliment domestic investment and in turn can expand national income and national
savings for economic development. Latest statistics show that as of 2009, NSCB-
IACFDIS recorded a total 121,815.9 million pesos of total approved foreign direct
investment. From this total, more than fifty percent or 103,421.3 million pesos was
collected by Philippine Economic Zone Authority (PEZA) alone. The top three foreign
direct investor countries were Japan with 70,737.1 million pesos, USA with 12,947.1
million pesos and Korea with 9,632.6 million pesos. Most of these investments were in
the manufacturing sector which has 70.71 percent share, while the other two major
destinations of investments are finance and real estate sector with 13.49 percent and
around 8.94 percent for the service sector which includes hotel and restaurant, computer
software development, health care programs, renting and leasing of water sport
equipment, training services, college education and other services. Furthermore, latest
World Investment Report released by United Nations Conference on Trade and
Development (UNCTAD) reported around 67,594.4 million pesos total inward FDI flow
for the Philippines on 2008 with 6.2 as percentage of gross fixed capital formation. Also
on the same year, UNCTAD‟s recorded inward FDI stocks amounted to about 954,770.9
million pesos with 12.7 as percentage of gross domestic product. Furthermore, in 2009,
UNCTAD released its World Investment Report covering worldwide statistics about
economic development. The world‟s leading recipients of inward FDI are United States,
France, China, United Kingdom, Russian Federation, Spain, Hong Kong, Belgium,
Australia and Brazil respectively. Among the developing countries, the top recipients are
Russia, Brazil, India, Mexico and Nigeria. In addition, Central Intelligence Agency
Factbook, also known as CIA World Factbook, of United States released its 2009
ranking of countries receiving inward FDI which ranked Philippines at 63rd among 151
countries.
After enumerating the extent of influence of the determinants, the main focus of
this study is to identify how to increase those above mentioned inward foreign direct
investments by identifying which strongly pull foreign investments into the Philippines.
Given three factor categories: economic, political and social which were based on a
theory by John Dunning entitled OLI Paradigm – The Eclectic Theory. OLI stands for
Owner advantages, Location advantages and Internalization advantages. Under local
advantage where economic advantage, political advantage and social advantage; the
researchers want to identify which among the three greatly affects the foreign investors‟
decision to invest in the Philippines. The researchers identify sub-determinants under
each category. Gross Domestic Product (GDP), Exchange Rate and Inflation Rate are
identified under economic advantage which was defined by Dunning as the quantities
and qualities of the factor of production. Whereas under political advantage, which
Dunning identified as the common and specific government policies that influence
inward FDI flows, are Corruption and Democracy which are the most commonly used
determinants by other past studies; these two political variables will be measured using
indices. Lastly, under social advantage are Crime Rate and Literacy Rate are the most
popular determinants of inward FDI; these are examples of what Dunning called as
general attitude towards foreigners. This study aims to help the government identify to
which advantage to focus to help attract foreign investors. It is the government that has
the key in increasing investors‟ preference by improving the factors or advantages for
inward FDI attraction. A theory entitled Porter‟s Diamond of National Advantage,
discussed the role of government in the development of its country‟s advantage.
According to the theory, government must persuade companies to boost their
performance, invigorate early demand for advance products, concentrate on specialized
factor formation and encourage local rivalry through partial direct cooperation and
enforcing antitrust regulations. The paper proceeds as follows: Section 1 states the
introduction for the study, discussing all recent statistics and its economic significance.
Section 2 discusses all the variables that were used in the study together with the
appropriate supporting data from the literature review. Section 3 provides the
methodology with the study‟s conceptual frame work, supporting theories and laws, and
the regression model. While Section 4 enumerates all the data that were collected from
different government agencies and indexes together with the regression results. Lastly,
Section 5 states the researchers‟ conclusions and pertinent recommendations for further
study.
2. Literature Review
2.1 Inward FDI

Foreign direct investment (FDI) plays an important role in promoting economic
growth through increasing trade, advancing a country‟s technological level, enhancing
institutional development, improving managerial skills, and elevating the education and
financial systems to face the new challenges brought by globalization (Borenzstein, De
Gregorio, & Lee, 1998; Klein, Aaron, & Hadjimichael, 2003). The effect of foreign
direct investment (FDI) on growth has been debated extensively in the economic
literature. The rising interest in this area of research also coincides with the shift in
emphasis among policymakers towards attracting more FDI inflows in recent years
(Baharumshah A. et al, 2010). In addition, this may result to stronger ties between
developed and developing countries that could yield cost advantages in the form of
advanced technology transfers resulting into positive externalities. Furthermore, FDI can
have other beneficial effects on the host nation; it may facilitate the extraction and
distribution of raw materials produced in the host country by improving the network of
transport and communication like what multinationals does when constructing ports for
faster transportation. Also, FDI can beneficially affect the productive efficiency of
domestic enterprises. Local firms have an opportunity to improve their efficiency by
learning and interacting with foreign firms. It can also raise the quality of domestic
human capital and improve the know-how and managerial skills of local firms (Bengoa
and Sanchez, 2003). FDI can accelerate the transition process by forming a basis for
more effective corporate governance and by promoting enterprise restructuring (Bevan
and Estrin, 2004). Countries can have different variables that could attract Inward
Foreign Direct Investment to their country an example is the study of Reiter and
Steensma (2010) which argued that FDI inward flows are more positively related to
human development when FDI policy strategically controls foreign investment by
limiting the economic sectors open to foreign investment or by discriminating against
foreign investors in favor of domestic ones.
Foreign direct investment (FDI) in the Philippines has increased rapidly since
1993, due to major liberalization of the investment regime but still remains low by
ASEAN standards. The most important sectors for FDI are manufacturing, banking,
infrastructure and public utilities, where reform has been most rapid. In sectors such as
mining and agriculture, where trade and legal reform and implementation are lagging,
FDI flows have been weak. Dominant sources of Philippine FDI are Japan, followed by
the USA while Australia‟s FDI flows to the Philippines are small and volatile, with
strongest growth occurring in the late 1980s and 1994 and 1995. In spite of the Asian
financial market turmoil, 1997 was also a strong year for Australian FDI (Department of
Foreign Affairs and Trade).

In this study the researchers used different issues in the country and the factors
under it that may possibly affect the Inward Foreign Direct Investment into the
Philippines. Real Gross Domestic Product, Inflation Rate and Exchange Rate are the
determinants under Economic issues; which are also known as macroeconomic factors.
Macroeconomic stability as measured by the current account had the most consistent
effect on FDI flows across countries in the region (Montero, 2009). The researchers also
took into account political factors that may affect investors‟ preference for investing; the
variables under it are Corruption Perception Index and Democracy Index. Lastly,
researchers also consider social factors and these are the Crime Rate and Literacy Rate,
the variables of which will be discussed thoroughly on the succeeding part.
2.2. Gross Domestic Product (GDP)

Gross Domestic Product is defined as a weighted average of the output of all
final good. It is the monetary, market value of all final goods and services produced in a
country over a period of a year. The real GDP per capita (corrected for inflation) is
generally used as the core indicator in judging the position of the economy of a country
over time or relative to that of other countries. The GDP is thus implicitly, and often
even explicitly, identified with social welfare – witness the common substituting phrase
“standard of living.” The GDP information for firms, investors and citizens/consumers is
important. One can identify more concrete indications of the influence of GDP
information on economically-relevant decisions. Financial markets are sensitive to
realizations and predictions of GDP growth, which if positive create optimism and if
negative pessimism about the „„economic climate”. Central banks generally formulate
their interest policy on the basis of expectations about growth and inflation. Private
companies regard GDP growth as an important element of the general investment
climate. Even the confidence of consumers, which determines their purchasing behavior,
is influenced by expectations of GDP growth (Van den Bergh, 2009). GDP growth has
also been a variable under economic issues due to the fact that an increase in GDP
together with per capita income, especially in developing countries, fosters poverty
alleviation. In the study of Bengoa and Robles (2003) they included GDP as variables
that are traditionally considered as influencing FDI. The coefficient of the level of GDP
is positive and significant in all regressions. This result is consistent with the market-size
hypothesis, which means that the GDP greatly affect investor‟s decision in investing to a
country. Also, in the study of Asiedu (2001) she used GDP as a determinant of inward
FDI, the result show that FDI-GDP increases with the degree of openness to
international trade, infrastructure development and the return on capital. On the basis of
this intricate link between FDI and growth/development, the trade regime of Bangladesh
has been intensely liberalized to maintain the streams of investments and finances from
abroad. These reasons also increase the effort of the government to try and make the
country an attractive destination for FDI, which in itself has several benefits (Kabir,
2007). In the study of Hsiao and Hsiao (2006) they explain and justify the choice of the
eight economies composed of developed and developing countries which are Korea,
Taiwan, Singapore, Hong Kong, China, Malaysia, Philippines and Thailand by
examining their historical performance of real GDP per capita from the global economic
perspectives. The eight economies are known for their rapid growth through the
promotion of GDP per capita, exports and encouragement of FDI inflows. The study
proved that with high GDP per capita, countries became more attractive to FDI inflow.
2.3. Exchange Rate

Exchange rate is the price of domestic goods in terms of foreign goods
(Blanchard, 2006). A study in Southeast Asian countries exchange rate affect direct
investment not only from Japan but also from the US, direct investment from Japan into
Southeast Asia has been very sensitive to changes in the yen-dollar exchange rate: dollar
depreciations lead to investment surges from Japan. Moreover, holding constant the
effect of the real exchange rate, direct investment from Japan promotes trade between
Asia and both Japan and the US. Japanese direct investment expands both the export and
import linkages of Southeast Asia (Goldberg L. and Klein M.). On the other hand,
exchange rate in the study of Baek and Okawa (2001), studied the Japanese FDI in
Asian countries which is characterized as export-oriented investment to create a
production site for exporting. When this characteristic of Japanese FDI into Asia is
considered, the investment decision must be based on not only the exchange rates
between the yen and the host countries‟ currencies, but also the exchange rates of the
yen and the Asian currencies against the currency customarily used in international
transactions such as US Dollar currency. In examining the role of exchange rates in
Japanese FDI in Asia, the analysis in this paper thus focused on exchange rates of the
yen against the Asian currencies, of the yen against the US dollar, and of the dollar
against the Asian currencies. Developing economies do not have a sufficiently
developed foreign exchange futures or options market for foreign investors to hedge the
exchange rate risk of their FDIs. It is also unlikely that these developing economies can
promote the development of such markets for FDI in the near future (Yip and Yap,
2006). A study by Brzozowski (2006) found out that nominal exchange rate uncertainty
and volatility may negatively influence the decision to locate investment in transition
and accession countries. Exchange rate volatility affects FDI in two opposite ways: (1) it
depresses investment, because the firm will only invest if the present value of the
expected revenues is higher than the sunken entry cost by an amount equal to the value
of waiting and (2) the opportunity cost of waiting rises with exchange rate volatility and
thus boosts investment. Furthermore, in the study of Kyota and Urata (2004) entitled
“Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment”; results
generally indicate that the depreciation of the host country currency attracts FDI while
large volatility in real exchange rates discourages FDI.
2.4. Inflation Rate

A high rate of inflation is a sign of internal economic instability and of a host
government‟s inability to maintain expedient monetary policy. Where inflation rates are
high, potential direct investors may perceive difficulty even in making short-term
pricing decisions. Inflation also may inhibit export sales from the country, thus making
resource-seeking FDI less attractive. For these reasons, companies may avoid making
investment in countries with high inflation .In the study of Asiedu (2001) she used
inflation rate as one of the determinants of FDI as a measure of the overall economic
stability of the country. Also in the study of Bengoa and Sanchez-Robles (2003) they
cited that high inflation rate jeopardizes competitiveness and hence exports, and may be
a symptom of the existence of distortions in the markets, lack of fiscal discipline or poor
macroeconomic stability as argued by Fischer (1993). Mansoorian and Mohsin (2006)
studied one of the most controversial issues in the 1980‟s and 1990‟s which was the
usefulness of low inflation targets adopted by the central banks of several industrial as
well as developing countries. The presented paper studies the effects of inflation targets
for a small open economy, by working out the effects of changes in inflation targets on
the important macroeconomic variables that could affect the rise or fall of investments
into the country. In addition, in the study of Mallick (2008) he found out that inflation
rates have a significant impact to attract investment towards economic growth. This
suggests a policy of targeting price stability is desirable to achieve a higher rate of
economic growth in emerging markets.
2.5. Corruption
Corruption is the promotion of private gains or selfish interest at the expense of
public interest, against the overall objectives of the government (Mafunisa, 2000). In the
study of Wei and Wu (2001) they used Corruption as one of the determinants of inward
foreign direct investment. Results showed that corruption may affect a country's
composition of capital inflows in a way that makes it more likely to experience a
currency crisis that is triggered by a sudden reversal of international capital flows. They
also found out that tax rate on multinational firms or corruption level in a host country
reduces inward foreign direct investment. They stated that there is no support for the
hypothesis that corruption has a smaller effect on FDI into East Asian, an increase in the
corruption level that of Singapore to that of Mexico is equivalent to raising the tax rate
by over twenty percent. Furthermore, Djankov et al (2002) suggested that stricter
regulation of entry is correlated with more corruption and a larger informal economy
and therefore restrictions on entry may have a negative impact on FDI inflows a country.
He also found out that the American investors averse to corruption in host countries, but
not necessarily more so than average OECD investors this is in spite of the U.S Foreign
Corrupt Practices Act of 1977. Also, corruption at the level of powers to be plays a
major role; this is the reason why laws so often exist only on paper. An example was
corruption in Russia which exists both on federal and local level. Some studies show
that countries with higher corruption level have a lower ratio of both total and private
investment to GDP. Furthermore, Corruption has been one of the foremost challenges
faced by less developed countries (Quah, 2003; Rahman, 1986; Pei, 1999; Rose and
Ackerman, 1999; Hamilton and Hart, 2001; Bhargava and Bolongaita, 2004; Yang,
2004; Samajdar and Ko, 2010). Corruption can lead to low administrative efficiency,
poor governance structure and underdevelopment of the economy making it an
international issue. International organizations have recognized that corruption explains
the failure of foreign direct investment and foreign aid programs (Samajdar and Ko,
2010). Corruption lowers investment and employment growth, though these effects are
smaller and not always statistically significant. Their study also finds that the reported
levels of corruption and bureaucratic interference are positively correlated at the firm
level, which casts serious doubts on various theories that postulate that corruption may
increase efficiency by allowing firms to circumvent government regulations (Gaviria,
2002). In the study of Blackburn et al (2010) corruption may arise due to the opportunity
for bureaucrats to embezzle public funds, an opportunity that is made more attractive by
financial liberalization which at the same time raises efficiency in capital production.
The main results is summarized as follows: (1)corruption is always bad for economic
development, but its effect is worse if the economy is open than if it is closed; (2)the
incidence of corruption may itself be affected by both the development and openness of
the economy; (3) financial liberalization is good for development when governance is
good, but maybe bad for development when governance is bad; and (4)corruption and
poverty may coexist as permanent, rather than just transitory, fixtures of an economy. In
addition, low administrative efficiency, poor governance structure, political instability,
and underdevelopment of the economy all have corruption as one of their causes.
Corruption is also an international issue. International organizations have recognized
that corruption explains the failure of foreign direct investment and foreign aid
programs. (Ko and Samajdar, 2010)
2.6. Democracy
On the democracy level, many view globalization as the simultaneous expansion
of free markets proxied by the growth of cross-border trade and investment and the
institutions of political democracy (de Soysa 2003, Held and McGrew 2000, Li and
Resnick 2003, Milner and Kubota 2005, Simmons and Elkins 2004). The successful
consolidation of democracy requires meeting the economic expectations of people, a
task that becomes increasingly dependent upon opening up to trade and international
sources of capital and technology (Bhagwati 2004). The researchers found out that
expanding the sample and transforming the dependent variable yield consistent support
for the view that democracy actually increases FDI. Moreover, a study by Jakobsen and
De Soysa (2006) stated that democracy‟s negative effect becomes positive and
significant when the inward FDI is logged. These results also withstand several tests of
sensitivity; initial findings do not suggest a trade-off between democracy and FDI. In
contrary, in the study of Li and Resnick (2003) they show that when property rights
protection, which is positively associated with democracy, is controlled, developing
country democracies are punished by manufacturing companies because remaining
features of democracy pose unfavorable conditions for these companies. Several studies
argue that higher levels of democracy increase foreign and domestic investment because
democracy provides checks and balances on the executive and strengthens the rule of
law, thus reducing the potential for arbitrary government intervention in the affairs of
MNCs (Henisz 2000, Jensen 2003, Olson 1993, Ramamurti and Doh 2004).
Furthermore, according to the study conducted by Tavares and Wacziarg (2001),
democracy needs a functioning state and a state bureaucracy considered useable by the
new democratic government, to protect the rights of citizens and deliver the services that
citizen‟s demand. In addition, another study by Papaioannou and Siourounis (2007)
stated that a democratic government needs to be able to exercise its claim to the
monopoly of the legitimate use of force it would have to tax compulsorily. For this it
needs a functioning state and a state bureaucracy usable by the new democratic
government. Initial income, investment rates, population growth rates, measures of
human capital and a host of other economic policy variables thought to affect growth
such as the share of government consumption expenditures in GDP, openness to trade,
and the inflation rate. The major finding of this literature is that democracy has a small
and statistically insignificant effect on growth.
2.7. Crime Rate

Crime rate is the count of crimes compiled to assess the effectiveness of a crime
control policy and the impact of the policy on the risk of crime victimization. It also
conditions business activities in many ways; generally, it increases the risks for
investment because of possible attacks, intimidation and the destruction of property.
Crime and the control of a part of the legal economy have been well documented in
judiciary inquests and are the subjects of much research (La Spina and Lo Forte, 2006).
In the study of Gaviria (2002), results show that crime has a similar effect on the
economic outcomes of firms, which also affect the firm's decision for investing it is also
noticed even after taking into account firm and country characteristics. He found out that
besides corruption, crime is also a factor that substantially reduce sales growth and it is
positively correlated at the firm level. Overall, the results of the paper suggest that crime
substantially reduce firm competitiveness and is unlikely to have any positive effects.
Crimes/total population is a "gross" rate; it includes both children and adults. According
to Gregory Brock, FDI will increase substantially with lower crime levels. Based upon
the outcome of his research, he argued that crime is one of the important FDI factors.
According to his Gross FDI Regression Results Table, crime is ranked in the one of the
first places as far as Russia is concerned (Eliassov, 2002). Crime and violence also
lowers investment and employment growth and as a result may lowers the city growth
rate (da Mata et al, 2007)
2.8. Literacy Rate

Literacy rate, is defined as the percentage of the population 15 years and older
who can read and write. It is also considered as a factor determining Human Capital. It
has been argued that developing countries might enhance their attractiveness as
locations for FDI by pursuing policies that raise the level of local skills and build up
human resource capabilities (Paloni A. et al, 2001). It is the quality of the labor force, its
accumulated experience and human capital, its education system, and so on, that
determines an economy‟s ability to create new ideas and adapt old ones (Den Berg V,
2001). Consequently, improvements in education and human capital are essential for
absorbing and adapting foreign technology, and to generate sustainable long run growth.
Along with international trade, the most important vehicle for international technology
transfer is foreign direct investment (Blomstrom and Kokko, 2003). In the study of
Anwar (2008) foreign investment has been long regarded as the main driver of
Singapore‟s manufacturing sector growth. In his study, human capital is a factor of
attracting inward FDI to Singapore wherein human capital is defined as the literate
people who can work. Furthermore, in the study of Reiter and Steensma (2010) they
stated that the FDI inflow continues into areas where the state focused to the
improvement in their human development which is described as the basic skill of a
person, significant both absolutely and relative to other countries
3. Research Method
This study attempts to identify which among the three factors: economic, social
and political, strongly affect inward Foreign Direct Investment in the Philippines. This
section presents the paper‟s conceptual and theoretical framework together with the
appropriate theories; it also discusses the secondary data to be used and the regression
model.
The conceptual framework shows how the explanatory variables affect the
dependent variable through the a priori conditions that the researchers hypothesized and
various theories that supports it. In this case, there will be three sets of conceptual
framework representing the three factors that attract inward FDI. The entire three
conceptual frameworks will have the same dependent variable which is Inward FDI.
Under economic factors, inward FDI will be determined by the constructed explanatory
variables: Gross Domestic Product (GDP), Exchange Rate and Inflation Rate. Political
factors on the other hand will use Corruption and Democracy as the determinants of
inward FDI. Lastly, social factors include Crime Rate and Literacy Rate as independent
variables.
3.1. Conceptual Frameworks
Economic Determinants
 Real Gross
Domestic Product
(+)
 Exchange Rate
(+)
 Inflation Rate
(-)
Political Determinants
 Corruption
Perception Index Approved Inward FDI
(-) Growth Rate
 Democracy Index
(+)
Social Determinants
Figure 1: Determinants of Inward FDI
 Crime Rate
(-)
 Simple Literacy
Rate
(+)
Figure 1: Determinants of Inward FDI
Figure 1 presents the factors affecting Inward Foreign Direct Investment. Only
inward FDI is the variable to be regressed and all the rest are the regressors. Inward FDI
is commonly known as the investment of foreign capital into local sources. It is the
participation of the source country to its host country, which not only includes capital
but also expertise and technology. For this study, the researchers will focus primarily to
approved inward FDI which are indicators of how good a prevailing investment climate
and foreign investors' confidence in the country. Since the study aims to identify which
among the three factors greatly affect inward FDI, growth rates of approved inward FDI
are more appropriate to identify the impact of the proposed independent variables to the
dependent variable. The same explanation will hold for the rest of the dependent
variables which will be measured using growth rates. Under economic factor, Gross
Domestic Product or GDP is generally defined as the total monetary value of all goods
and services that a country produced for a given period and within the country‟s borders.
The general formula for GDP is the sum of consumption, investment and government
spending together with the net export/import. Real GDP growth rate will be used for this
study for its characteristic of being adjusted for inflation. Real values always convey a
magnitude obtainable at some point in time relative to a magnitude obtainable at some
other point in time. Real GDP has a positive effect on inward FDI because if real GDP
increases, it means that the country has an effective labor performance. Exchange Rate
was defined by Kipici and Kesriyeli, on their study about exchange rate in Turkey, as
the calculated exchange rate that takes into account the inflation differentials between
the two countries. This is a strong indicator of competitiveness in attracting inward
foreign direct investment. For this study, Philippine Peso per US Dollar (Php per USD)
exchange rate in terms annual average computed from its monthly average will be used
due to the fact that the U.S. dollar is the currency that most of the countries used
in international transactions and is one of the world's reserve currencies. In
addition, several countries use it as their official currency, and in many others it is
the “de facto currency” or the unit of money that is not legal tender in a country but is
treated as such by most of the population. Exchange rate could have a positive effect on
inward FDI based on the study conducted by Zeng (2009) which compared the
determinants of FDI in China and India. Zeng also used Inflation rate as one determinant
of inward FDI with a negative a priori condition which means that it is inversely related
to inward FDI. Inflation rate is the increase in price of goods and services which weigh
the value of a country‟s currency. Corruption under political factors is defined as the
abuse of public official for private gain. The common corruption measure was the
Corruption Perception Index which also defined corruption as the “abuse of entrusted
power for private gain.” Corruption Perception Index (CPI) has been used by many
researchers in their studies. Some of them even studied its significance like that of Ko
and Samajdar (2010) which test the reliability and validity of various indexes which
include CPI of Transparency International (TI). They found out that reliability of
international corruption indexes has improved over the years. But there are still
shortcomings by some corruption indexes which might affect the results of the study. In
relation, they stated that this can be avoided by paying more attention towards
minimizing the impact of measurement errors through rigorous data screening and
choosing a reliable international corruption index. On the same study, the researchers
enumerated features of CPI: (1) it uses a variety of sources to measure general public
sector corruption, (2) many sources used to construct CPI are designed for assessing
country risk and competitiveness, which is somewhat related to business decision
making, which make it more reliable in this study about inward FDI, (3) it encompasses
the evaluative perception of anti-corruption efforts since most sources used in CPI
define corruption in general terms. Another study that used CPI was the research done
by Akoto and Roubaud (2010) which also studied the reliability of corruption indexes.
They defined CPI as one of the oldest and best known measurements of corruption
which made it the producers of benchmark corruption indicators. Furthermore, a study
entitled “Human Development and Foreign Direct Investment in Developing Countries:
The Influence of FDI Policy and Corruption” by Reiter (2010) proved that corruptions
lowered FDI inflow by using CPI as a proxy for level of corruption in each country.
With this definition, a negative a priori was used to state its relationship to inward FDI, a
corrupt government will not likely to attract foreign investors. On the other hand,
Democracy is defined as the state of government where the people held the supreme
power. Jakobsen and Soysa (2006) stated that democracy could actually increase inward
FDI giving it a positive a priori. Crime Rate, as one of the social determinants of inward
FDI, was defined by Gillado and Tan-Cruz (2004) on their study about “Panel Data
Estimation of Crime Rates in the Philippines,” as the disturbance of men‟s living. With
this definition, the researchers strongly agreed that this factor will have a negative effect
on attracting inward FDI. When it comes to literacy rate, in plain definition, is the ability
to read and write making it as one positive determinant of inward FDI. The United
Nations Education, Scientific and Cultural Organization (UNESCO) define literacy as
“the ability to identify, understand, interpret, compute, create, communicate and use
printed and written materials.” It includes continuous learning enable humans to achieve
their goals and fully develop their knowledge. National Statistics Office (NSO)
identifies literacy rates in two form which are Simple and Functional. Simple Literacy
Rate or Basic Literacy Rate is defined as the ability to read and write with understanding
simple messages in any language or dialect. On the other hand, Functional Literacy Rate
represents a significant higher level literacy which includes not only reading and writing
skills but also numerical skills. In this study, the researchers will use simple literacy rate
for simplicity.
3.2. Supporting Theories/Laws/Principles

There are two theories that the researchers introduced in the previous part of this
paper, namely OLI Paradigm – The Eclectic Theory and the Porter‟s Diamond of
National Advantage. This part will discuss these two theories comprehensively. OLI
Paradigm – The Eclectic Theory, as was introduce on the previous chapter, was evolved
by John Dunning. It was termed as “eclectic” because OLI Paradigm is a combination of
three various theories on FDI. Ownership Advantages is intangible and transferable
through countries at low cost. This stated that the success of a foreign firm in another
country depends on the advantage that vanquishes the costs of operating in the host
country. Location Advantages are also called “Country Specific Advantages,” these are
the basis in identifying which will become the host countries of the investors. And lastly,
Internalization Advantages which is the using of host countries “market failures” to take
advantage of profit. By identifying the deficiency of the host country and employing
investors‟ resources to take advantage. On the other hand, another theory by Michael E.
Porter entitled “Porter‟s Diamond of National Advantage” was defined as one of the
classical theories of international trade. This theory stated that factor endowments of a
country must have comparative advantage. These advantages are not limited to those
that the country inherited but can also be new advanced factor endowments that the
country created like skilled labor, technology government support and even culture. This
is directly related to the nature of inward FDI in a way that it promotes economic
progress and motivates industrial promotion as well as heightens economic
globalization. Porter‟s Diamond of National Advantage was also named after its
illustration which was shown below:
Firm Strategy,
Structure and
Rivalry
Factor Demand
Condition Condition
Related and
Supporting
Industries
Figure 2: Porter‟s Diamond of National Advantage
Factor conditions are factors created by the country itself such as skilled
resources. Demand conditions are competitive advantage arising from a larger demand
in the local than in the foreign market, more demand in local market may lead to
national advantage. The third point is Related and Supporting Industries, which is the
competitiveness of the local industry to enjoy more cost effective innovation inputs. And
for the last point, Firm Strategy, Structure and Rivalry, this states that the local condition
affect firms strategy. These strategies and structures facilitate in identifying in which
type of industry a nation will do extremely well. As a whole, the Porter‟s Diamond of
National Advantage portrays that the effect of one point will extremely depend on the
others.
3.3. Regression Model
The study is an identification of which among economic, political and social

factor have the greatest impact on Inward Foreign Direct Investment. This study used
Simple Linear Regression Technique for each factor (economic, political and social) and
Multiple Linear Regression Technique that combines the entire three factors. Both used
Natural Logarithmic/Ordinary Least Square Method which estimates the trend for
inward FDI over the period 1995 to 2009. The regression model to be included in this
study will be four sets: one economic determinant, one political determinant, one social
determinants and another regression which combines all the independent variables from
all three determinants.
First Regression Model (Economic Determinants of Inward FDI)

YFDI = β0 + β1GDP + β2EXR - β3IFR + ε
Second Regression Model (Political Determinants of Inward FDI)

YFDI = β0 - β1CPI + β2DMR + ε
Third Regression Model (Social Determinants of Inward FDI)

YFDI = β0 - β1CR + β2LR + ε
Forth Regression Model (Combination of all Factors)

YFDI = β0 + β1GDP + β2EXR - β3IFR - β1CPI + β2DMR - β1CR + β3LR + ε
Where:
YFDI = Approved Inward FDI Growth Rate
β0 = Constant Term
β1GDP = Real GDP Growth Rate
β2EXR = Exchange Rate
β3IFR = Inflation Rate

β1CPI = Corruption Perception Index
β2DMR = Democracy Index
β1CR = Crime Rate
β3LR = Simple Literacy Rate
ε = error term
The researchers‟ hypothesis for this study follows that for the economic factors,
only inflation rate has a negative effect on inward FDI and all the rest are positively
related to the dependent variable. These are secondary variables that are readily
available at our local government agencies that coordinate all statistical information that
are relevant to the countries performance and status which are National Statistical
Coordination Board (NSCB) and National Statistics Office or NSO and at our local
central bank referred as “Banko Sentral ng Pilipinas.” While among the political factors,
the researchers hypothesized that corruption is a negative determinant of inward FDI
while democracy is considered as good indicator for investors. These political
determinants can also be obtained by using secondary data. Corruption can be measured
by using Corruption Perception Index (CPI), published annually by Transparency
International (TI) which is an international non-governmental organization combating
corruption and for public awareness since it was established 15 years ago. They defined
corruption as “the abuse of public office for private gain.” Corruption Perception Index
measures the perceived level of public sector corruption in 180 countries including the
Philippines. It is a “survey of surveys,” according to TI, which is based on 13 different
experts and business surveys from business people and country risk analyst, both
residents and non-residents and nationals and expatriates. It rates countries from 1-10; a
lower score means higher (perceived) corruption. On the other hand, democracy rate will
be measured by using the average of Degree of Civil Liberties and Political Rights
which rate countries between 1-7, where 1 signifies “most free” and obviously 7 as
“least free”. This is part of the published annual “Freedom in the World Report” to
measure democracy since 1973 by Freedom House; an international non-governmental
organization based in Washington D.C. The organization was known as “a clear voice
for democracy and freedom around the world,” it conducts researches on democracy,
political freedom and human rights. The researchers‟ hypothesis for social factor follows
that crime rate has a negative a priori condition and the other posses positive a priori.
Both crime rate and literacy rate are available using local statistical agencies that gather
information for our country like that of economic factors. Crime rates are provided by
our local police department or the Philippine National Police (PNP) which is a collection
of recorded crime per 100,000 populations. For simple literacy rate, National Statistical
Office (NSO) publishes rates every ten years and recently for five years. All these
independent variables are tested against the dependent variable inward FDI. Data for
inward FDI are secondary data annually published and collected by NSBC from BOI,
PEZA, CDC and SBMA; our countries investment promotion agencies.
4. Results and Discussions
This section enumerates all the data that were collected from different
government agencies and indexes mentioned on the previous section. Figures showing
the results from the test conducted are also enumerated. Appropriate tests and
adjustments were conducted to examine the significance of each variable to the
dependent variable inward FDI. A priory relationship that was stated on the conceptual
framework is also tested to check if accurate. The main objective of the study is to
identify which among the three factors affect inward FDI which will be the major
purpose of the tests conducted. Three tables were provided to separate data of the each
factor variables. The first table provided data on the economic variables followed by
political variables and lastly by social variables.
Table 1. Selected Economic Variables

INWARD FDI GDP EXCHANGE
INFLATION
OBSERVATIONS GROWTH RATE GROWTH RATE (PESO per
RATE
(APPROVED) RATE (REAL) US DOLLAR)
1995 -23.30 4.70 25.71 6.70

1996 -47.30 5.80 26.22 7.50
1997 131.64 5.20 29.47 5.60
1998 192.10 -0.60 40.89 9.30
1999 -37.79 3.40 39.09 5.90
2000 -24.70 6.00 44.19 4.00
2001 -22.32 1.80 50.99 6.80
2002 -26.25 4.40 51.60 3.00
2003 -26.14 4.90 54.20 3.50
2004 411.30 6.40 56.04 6.00
2005 -44.91 5.00 55.09 7.70
2006 73.14 5.40 51.31 6.20
2007 29.75 7.20 46.15 2.80
2008 -15.12 4.64 44.47 9.30
2009 -33.33 0.90 47.64 3.20
Sources: NSCB and BSP
Table 2. Selected Political Variables

INWARD FDI CORRUPTION
DEMOCRACY
OBSERVATIONS GROWTH RATE PERCEPTION
RATE
(APPROVED) INDEX
1995 -23.30 2.77 3
1996 -47.30 2.69 2.5
1997 131.64 3.05 2.5
1998 192.10 3.30 2.5
1999 -37.79 3.60 2.5
2000 -24.70 2.80 2.5
2001 -22.32 2.90 2.5
2002 -26.25 2.60 2.5
2003 -26.14 2.50 2.5
2004 411.30 2.60 2.5
2005 -44.91 2.50 3
2006 73.14 2.50 3
2007 29.75 2.50 3.5
2008 -15.12 2.30 3.5
2009 -33.33 2.40 3.5
Source: NSCB, Transparency International (TI) and Freedom House (FH)
Table 3. Selected Social Variables

INWARD FDI CRIME RATE LITERACY
GROWTH RATE (per 100,000 RATE
OBSERVATIONS
(APPROVED) population) (for every 5years)
1995 -23.30 115 93.90
1996 -47.30 110 93.90
1997 131.64 99 93.90
1998 192.10 98 93.90
1999 -37.79 108 93.90
2000 -24.70 105 93.90
2001 -22.32 101 93.40
2002 -26.25 112 93.40
2003 -26.14 103 93.40
2004 411.30 93 93.40

2005 -44.91 91 93.40
2006 73.14 82 93.40
2007 29.75 49.20 93.40
2008 -15.12 88.37 93.40
2009 -33.33 144.74 93.40
Sources: NSCB, PNP and NSO
Tables 1 to 3 show the tabulation of data collected and computed for each factor
variables that was significant for the study. Approved FDI values are provided in million
pesos originally therefore the researchers computed for its annual growth rate: [(FV–
PV)/PV]*100. Democracy rate was computed as the average of Civil Liberties and
Political Rights that was provided by Freedom House (FH) as a measurement of
Democracy. Since data for literacy rate were not published annually and only two
figures were obtained for 15 years, data were stretched for six years for the first figure
and nine years for the last figure in order to complete the years covered. The rest of the
data hold the way they were attained with no particular calculation made.
Table 4. Regression Results for Economic Factor

Dependent Variable: FDI(-7)
Method: Least Squares
Date: 10/13/10 Time: 02:29
Sample(adjusted): 2004 2009
Included observations: 6 after adjusting endpoints
Variable Coefficient Std. Error t-Statistic Prob.
C 1252.288 262.5171 4.770310 0.0412
GDP(-9) 32.33387 9.575187 3.376839 0.0776
EXR(-4) -20.06232 4.437796 -4.520785 0.0456
IFR(-5) -62.72523 16.11975 -3.891203 0.0601
R-squared 0.939620 Mean dependent var 35.44667
Adjusted R-squared 0.849049 S.D. dependent var 99.91809
S.E. of regression 38.82061 Akaike info criterion 10.39050
Sum squared resid 3014.079 Schwarz criterion 10.25167
Log likelihood -27.17150 F-statistic 10.37443
Durbin-Watson stat 2.791713 Prob(F-statistic) 0.089189
Table 4 shows the results of the regression analysis done with various estimation
techniques and adjustments used for each variable. These results are essential in order to
know if the independent variables are significant to the dependent variable inward FDI
and to test the hypothesis stated by the researcher of the possible effect of each
independent variable to inward FDI. Impact of each factor can also be measured. Same
explanation will hold for the following four tables. Regression result for the economic
factors shows that the probability of the regression equation for each variable is less than
the 10% level of significance which means that all the three variables strongly influence
the inward FDI. Also, a Durbin-Watson Statistic of 2.79 which indicates that
autocorrelation doesn‟t exist. R-squared of 93.96%, accompanied by 84.90% adjusted R-
squared measures the success of the regression in predicting the values of the variables
within the sample, it states the impact of the dependent variables to inward FDI.
Table 5. Regression Results for Political Factor

Date: 10/13/10 Time: 02:44
C -2957.014 344.7866 -8.576358 0.0001

CPI(-4) 201.1948 46.68692 4.309448 0.0035
DMR(-4) 955.1088 108.0629 8.838450 0.0000
Table 5 shows the regression results for political factors. Probability of the
regression equation for Corruption Perception and Democracy Rate are less than the
10% level of significance; this signifies that inward FDI is highly dependent. A Durbin-
Watson Statistic of 2.19 which is .19 higher than the 2.0 level of autocorrelation together
with R-squared and adjusted R-squared as high as 91.95% and 89.66% respectively that
shows that all the dependent variables succeed in identifying the change in the
dependent variable.
Table 6. Regression Results for Social Factor

Dependent Variable: FDI
Date: 10/13/10 Time: 02:38
C -92001.77 7680.211 -11.97907 0.0013
CR(-9) -7.960263 2.620806 -3.037334 0.0560
LR(-4) 993.9138 84.16011 11.80980 0.0013
Table 6 shows the regression results for social factors. Probability of the
regression equation for each variable is less than the 10% level of significance; this
proved that each dependent variable inward FDI is highly dependent to Crime Rate and
Literacy Rate. A Durbin-Watson Statistic of 2.79 also proved that autocorrelation does
not exist. A very high R-squared of 98.42% and adjusted R-squared of 97.38% means
that crime rate and literacy rate strongly affect inward FDI.
Table 7. Regression Results Combining All Factors
Date: 10/12/10 Time: 03:14
C -190352.7 4793.683 -39.70907 0.0160
GDP(-6) 161.9663 5.352350 30.26078 0.0210
EXR(-5) 73.94133 2.023218 36.54640 0.0174
IFR(-6) 334.9028 9.138010 36.64942 0.0174
CPI(-4) 270.8479 18.89484 14.33449 0.0443
DMR(-4) -556.1974 32.01971 -17.37047 0.0366
CR(-4) -17.90032 0.829758 -21.57294 0.0295

LR(-1) 2001.464 50.25988 39.82231 0.0160
After isolating the effect of each factor category individually to the dependent
variable, the researchers also showed the effect of these independent variables as a
whole. By regressing all dependent variables against inward FDI, presented in table 7,
the researchers proved that all independent variables are significant to inward FDI by
having less that 10% level of significance. Durbin Watson Statistics of as high as 2.50
were also obtained together with a near perfect 99.95% R-squared and adjusted R-
squared of 99.61%.
5. Conclusions and Recommendations
The study focuses on identifying how to increase Philippines‟ Inward Foreign

Direct Investment (Inward FDI) by identifying the effect of three main factors:
economic, political and social. Among the three factors, the researchers also aim to
identify which among the three strongly pull foreign investments into the Philippines
that caused the drastic up and down peak in each year. By pinpointing which factor have
the greatest impact on Inward Foreign Direct Investment; unwanted negative peaks can
be prevented. The study used secondary data to identify the pattern and trend of the each
variable through its annual data statistics. Economic factors are Philippines‟ real GDP,
annual monthly average of peso to dollar exchange rate and inflation rate. Political
factors are Corruption Perception Index (CPI) and Democracy Rate. While social factors
focused on the countries crime rate and simple literacy rate; all data are from 1995-2009
which is 15 years.
Based on the results of the regression analysis done together with various
estimation techniques and adjustments used for each variable presented in Tables 4 to 7;
the researchers proved that all variables under economic, political and social including
the combined regression are significant to the dependent variable inward FDI. Also, for
all the factors, the researchers obtained a very high Durbin Watson Statistics which
proves that there was no autocorrelation among the independent variables; this means
that an event at one point doesn‟t affect the succeeding events. Furthermore, R-squared
that almost reaches 100% which means that all the three factors have a very high impact
on Philippines‟ inward FDI. By looking at the R-squared of each factor: economic -
93.96%, political – 91.96% and social – 98.43%, including the overall R-squared of the
combined regression which is 99.95%; the researchers met their primary objective which
was identifying which among the three factors strongly affects inward FDI. Based on the
figures above, a notable 98.43% r-squared was obtained for social factors compared to
93.96% economic factors and the lowest 91.96% for economic factors which proved that
Philippines‟ social factors are more important to foreign investors‟ decision.
Furthermore, the R-squared obtained in the combined regression is 99.95% which verify
that all the dependent variables are highly significant to the dependent variable
Observing each variables coefficient, the researchers‟ hypothesis about the effect
of each independent variable to the dependent variable is either rejected or accepted.
Under economic factors, only inflation rate was assumed to have a negative effect on
inward FDI and the rest were positively related. Based on its coefficient, the hypothesis
about exchange rate was rejected which gave exchange rate a negative effect on inward
FDI like the independent variable inflation rate. In the study of Blonigen (2006), he
found out that a depreciation of the host country‟s currency also reduces the amount of
foreign currency and in relation also reduces the return on investment. Political variables
both had positive coefficients which led to the acceptance of the hypothesis about
democracy rate having negative effect on inward FDI. In contrast, the opposite happened
to corruption perception which assumed to be negatively related to inward FDI therefore
rejecting the hypothesis. This result can be supplemented by the study of Al-Sadig
(2009) entitled; “The Effect of Corruption on FDI Inflows,” which state that although
corruption is generally a bad indicator for a possible investment transaction in some
countries; there are also positive effect. He stated that corruption can take in many
forms; one example is paying bribes to government official to get “favors” such as fast
approval of permits and other licenses. Although paying this additional “below-the-
table” charge could entail additional cost, it doesn‟t matter to the investors considering
that this will help them for faster profit earning once the investment is approved. On the
other hand, the hypothesis on democracy rate having positive effect to inward FDI was
rejected on the forth regression which combine all the dependent variables together. The
researchers conclude that investors might prefer less democratic country because the
more the people the host country is in control, the less likely that they can penetrate the
local market and furthermore the more difficult to handle workers. As to the social
factors, both hypotheses for each variable are accepted. Crime rate which was assumed
to have a negative effect on inward FDI obtained a negative coefficient while literacy
rate on the other hand obtained a positive coefficient in connection to the hypothesis that
literacy rate is positively related to inward FDI. The above results showed significant
relation to the study which could help government to know where or on what sector or
issues should they focus to increase the country‟s inward foreign direct investment.
Based on the findings of the study, the researchers strongly recommend that the
government, especially the country‟s promotional agencies, should focus on improving
social factors like crime rate and literacy rate. Political leaders should focus on strict
implementation of laws. Punishments should be implemented fairly and justly without
giving weight to those inferior ones. Government should give much attention to
education which as we all know is the primary component for a better economy.
Education itself is another form of investment for each individual that in the long run
serves as country‟s asset. The researchers are well aware of the study‟s short comings
due to many constraints that were encountered especially on time and resources. Future
study‟s must expand the variables and even use some other factors that might affect the
investors‟ decision. A study which has more observations, especially on political factors,
could help improve this study and additional factor like environmental issues that were
not tackled.
Reference:
Akoto` M. and Roubaud F. (2010). “Are International Database on Corruption Reliable?
A Comparison of Expert Opinion Surveys and Household Survey in Sub-Sahara
Africa.” World Development, Vol. 38, No. 8, pp.1057-1069.
Al-Sadig A. (2009), “The Effect of Corruption on FDI Inflows.” Cato Journal.
Amal M. et al. (2009). “Strategies and Determinants of Foreign Direct Investment (FDI)
from Developing Countries: Case Study of Latin America.” Latin American
Business Review, Vol.10, pp. 73–94.
Asiedu E. (2001). “On the Determinants of Foreign Direct Investment to Developing
Countries: Is Africa Different.”
Asiedu E. (2003). “Foreign Direct Investment to Africa: The Role of Government
Policy, Governance and Political Instability.”
Azuaje F. et al. (2009). “Innovative Methods in Assessing Political Risk for Business
Internationalization”. Research in International Business and Finance, Vol. 23,
pp.144–156.
Baek I. and Okawa T. (2001). “Foreign Exchange Rates and Japanese Foreign Direct
Investment in Asia.” Journal of Economics and Business, Vol. 53, pp. 69-84.
Baharumshah A. et al (2010). “Foreign Direct Investment, Economic Freedom and
Economic Growth: International Evidence.” Economic Modelling, Vol. 27, pp.
1079-1089.
Bakir A. and Alfawwaz T. (2009). “Determinants of Foreign Direct Investment in
Jordan.” International Management Review, Vol. 5, No. 2, pp.65-72.
Baliamoune M. (2002). “Assessing the Impact of One Aspect of Globalization on
Economic Growth in Africa.” World Institute for Development Economics
Research.
Bengoa M. and Sanchez-Robles B. (2003). “Foreign Direct Investment, Economic
Freedom and Growth: New Evidence from Latin America.” European Journal of
Political Economy, Vol. 19, pp. 529–545.
Bevan A. and Estrin S. (2004). “The Determinants of Foreign Direct Investment into
European Transition Economies.” Journal of Comparative Economics, Vol. 32,
pp. 775–787.
Blackburn, K. et al. (2010). “Financial liberalization, bureaucratic corruption and
economic development.” Journal of International Money and Finance, Vol. 30,
pp. 1-19.
Blonigen B. (2006). “Foreign Direct Investment Behavior of Multinational
Corporations.” National Bureau of Economic Research.
Brennan L. and Rios-Morales R. (2007). “Foreign Direct Investment from Emerging
Countries: Chinese Investment in Latin America.” 19 International DSI / Asia
and Pacific DSI.
Buckley P. et al. (2005). “China‟s Inward Foreign Direct Investment Success: Southeast
Asia in the Shadow of the Dragon.” The Multinational Business Review, Vol. 13,
No. 1, pp.1-31.
Buckley, P. et al. (2006). “Inward FDI and Host Country Productivity: Evidence from
China‟s Electronic Industry.” Transnational Corporations, Vol. 15, No.1.

Campbell T. and Gill K. (2005). “A look inward Foreign Direct Investment Transactions
for Barbados.” Money Affairs.
Cevis I. and Camurdan B. (2009). “The Economical Determinants of Foreign Direct
Investment (FDI) in Developing Countries and Transition Economies.” Vol. 4,
No. 3, pp. 210-223.
Choi C. (2003). “Does the Internet Stimulate Inward Foreign Direct Investment?”
Journal of Policy Modeling, Vol. 25, pp. 319–326.
Cohen D. and Soto M. (2007). “Growth and Human Capital: Good Data, Good Results.”
Journal of Economic Growth, Vol. 12, pp. 51–76.
Contessi S. and Weinberger A. (2009). “Foreign Direct Investment, Productivity, and
Country Growth: An Overview.” Federal Reserve Bank of St. Louis Review, Vol.
91, No. 2, pp. 61-78.
De Boyrie M. (2009). “Structural Changes, Causality, and Foreign Direct Investments:
Evidence from the Asian Crises of 1997.” Economy Journal, Vol. 9, No. 4,
Article 2, pp.1-38.
Faeth I. (2009). “Determinants of Foreign Direct Investment– A Tale of Nine
Theoretical Models.” Journal of Economic Surveys, Vol. 23, No. 1, pp. 165–196.
Faria J. and Mollick A. (2010). “Tobin‟s Q and U.S. Inflation.” Journal of Economics
and Business, Vol. 62, pp. 401–418.
Fung K. et al. (2005). “Hard or Soft? Institutional Reforms and Infrastructure Spending
as Determinants of Foreign Direct Investment in China.” The Japanese
Economic Review, Vol. 56, No. 4, pp. 408-416.
Gao, T. (2000). “Ethnic Chinese Networks and International Investment from Inward
FDI in China.”
Gaviria A. (2002). “Assessing the Effects of Corruption and Crime on Firm
Performance: Evidence from Latin America.” Emerging Markets, Vol. 3, pp.245-
268.
Gottschalk S. and Hall S. (2008). “Foreign Direct Investment and Exchange Rate
Uncertainty in South-East Asia.” International Journal of Finance and
Economics, Vol.13, pp. 349–359.
Haskel, J. et al. (2005). “Does Inward Foreign Direct Investment Boost the Productivity
of Domestic Firms.”
Henderson, J. et al. (2007). “Determinants of City Growth in Brazil.” Journal of Urban
Economics, Vol. 62, pp. 252-272.
Hsiao F. and Hsiao M. (2006). “FDI, Exports, and GDP in East and Southeast Asia-
Panel Data vs. Time-Series Causality Analyses.” Journal of Asian Economics,
Vol. 17, pp.1082-1106.
Ismail R. and Yussof I. (2003). “Labour Market Competitiveness and Foreign Direct
Investment: The case of Malaysia, Thailand and the Philippines.” Papers in
Regional Science, Vol. 82, pp.389–402.
Jacobsen J. and de Soysa I. (2006). “Do Foreign Investors Punish Democracy? Theory
and Empirics, Vol. 59, No. 3, pp. 383–410.
Janicki H. and Wunnava P. (2004). “Determinants of Foreign Direct Investment:
Empirical Evidence from EU Accession Candidates” Applied Economics, Vol.
36, pp. 505–509.

Johnson G. (2002). “Globalization: What and Who benefits?” Journal of Asian
Economics, Vol.13 pp. 427-439.
Karimi, M. et al. (2010). “Location Decision for Foreign Direct Investment in ASEAN
Countries: A TOPSIS Approach.” International Research Journal of Finance
and Economics, No.36.
Kasuga H. (2007). “Evaluating the Impacts of Foreign Direct Investment, Aid and
Saving in Developing Countries.” Journal of International Money and Finance,
Vol. 26, pp. 213-228.
Kasuga H. (2008). “Exchange Rates and Ownership Structure of Japanese Multinational
Firms.” Japan and the World Economy, Vol. 20, pp. 661-678.
Kimino S. et al. (2007). “Macro Determinants of FDI Inflows to Japan: An Analysis of
Source Country Characteristics.” The World Economy, pp. 446-468.
Kipici, A. and Kesriyeli, M. (1997). “The Real Exchange Rate Definitions and
Calculations.” Central Bank of the Republic of Turkey, Vol. 97, No. 1, pp. 1-11.
Ko K. and Samajdar A. (2010). “Evaluation of Corruption Indexes: Should We Believe
Them or Not?” The Social Science Journal, Vol. 47, pp. 508-540.
Ko K. and Samajdar A. (2010). “Evaluation of International Corruption Indexes: Should
We Believe Them or Not?” The Social Science Journal, Vol. 47, pp.508-540.
Makabenta M. (2002). “FDI Location and Special Economic Zones in the Philippines.”
RURDS, Vol. 14, No. 1.
Mallick H. (2008). “Inflation and growth dynamics: the Indian experience” Journal of
Economics Policy Reform, Vol. 11, No. 3, pp.163-172.
Marceau N. and Mongrain S. (2010). “Competition in Law Enforcement and Capital
Allocation” Journal of Urban Economics.
Oxelheim L. (2010). “Globalization, Transparency and Economic Growth: The
Vulnerability of Chinese Firms to Macroeconomic Shocks.” Journal of Asian
Economics, Vol. 21 pp.66–75.
Paul S. and Yip S. (2006). “Removing Foreign Direct Investment‟s Exchange Rate Risk
in Developing Economies: The Case for a Foreign Exchange Custodian Board.”
Yao International Review of Economics and Finance, Vol. 15, pp. 294–315.
Reiter S. and Steensma H. (2010). “Human Development and Foreign Direct Investment
in Developing Countries: The Influence of FDI Policy and Corruption.” World
Development.
Rock M. (2009). “Has Democracy Slowed Growth in Asia?” World Development, Vol.
37, No. 5, pp. 941–952.
Rodriguez X. and Pallas J. (2008).”Determinants of Foreign Direct Investment in
Spain.” Applied Economics, Vol. 40, pp. 2443-2450.
Tavares J. and Wacziarg R. (2001). “How Democracy Affects Growth?” European
Economic Review, Vol. 4 No. 5 pp. 1341-1378.
Trevino L. et al. (2002). “Market Reform and FDI in Latin America: An Empirical
Investigation.” Vol. 2, No. 1, pp.1-21.
Tuman J. (2009). “The Political and Economic Determinants of Foreign Direct
Investment in Latin America.” Latin American Research Review, Vol. 4, No. 1,
pp.190-194.
Van den Bergh J. (2009). “The GDP Paradox.” Journal of Economic Psychology, Vol.
30, pp.117-135.
Wang, C. et al. (2007). “The Impact of Inward Foreign Direct Investment on the Nature
and Intensity of Chinese Manufacturing Exports.” Transnational Corporation,
Vol. 16, No. 2.
Wei W. (2005). “China and India: Any Difference in their FDI Performances?” Journal
of Asian Economics, Vol. 16, pp.719-736.
Zheng P. (2009). “A Comparison of FDI Determinants in China and India.” Thunderbird
International Business Review, Vol. 51, No. 3, pp.263-278.
BIBLIOGRAPHY
Appendix A. General Reference Table
FDI GDP EXR IFR CPI DMR CR LR

OBS (DV) (IV) (IV) (IV) (IV) (IV) (IV) (IV)
1995 -23.3 4.7 25.71 6.7 2.77 3 115 93.9
1996 -47.3 5.8 26.22 7.5 2.69 2.5 110 93.9
1997 131.64 5.2 29.47 5.6 3.05 2.5 99 93.9
1998 192.1 -0.6 40.89 9.3 3.3 2.5 98 93.9
1999 -37.79 3.4 39.09 5.9 3.6 2.5 108 93.9
2000 -24.7 6 44.19 4 2.8 2.5 105 93.9
2001 -22.32 1.8 50.99 6.8 2.9 2.5 101 93.4
2002 -26.25 4.4 51.6 3 2.6 2.5 112 93.4
2003 -26.14 4.9 54.2 3.5 2.5 2.5 103 93.4
2004 411.3 6.4 56.04 6 2.6 2.5 93 93.4
2005 -44.91 5 55.09 7.7 2.5 3 91 93.4
2006 73.14 5.4 51.31 6.2 2.5 3 82 93.4
2007 29.75 7.2 46.15 2.8 2.5 3.5 49.2 93.4
2008 -15.12 4.64 44.47 9.3 2.3 3.5 88.37 93.4
2009 -33.33 0.9 47.64 3.2 2.4 3.5 144.74 93.4
Sources: NSCB, PNP, BSP, NSO, TI and FH
Appendix B. Regression Results
Regression Results for Economic Factor

Date: 10/13/10 Time: 02:29
C 1252.288 262.5171 4.770310 0.0412
GDP(-9) 32.33387 9.575187 3.376839 0.0776
EXR(-4) -20.06232 4.437796 -4.520785 0.0456
IFR(-5) -62.72523 16.11975 -3.891203 0.0601
Regression Results for Political Factor

Date: 10/13/10 Time: 02:44
C -2957.014 344.7866 -8.576358 0.0001
CPI(-4) 201.1948 46.68692 4.309448 0.0035
DMR(-4) 955.1088 108.0629 8.838450 0.0000
Regression Results for Social Factor

Dependent Variable: FDI
Date: 10/13/10 Time: 02:38
C -92001.77 7680.211 -11.97907 0.0013
CR(-9) -7.960263 2.620806 -3.037334 0.0560

LR(-4) 993.9138 84.16011 11.80980 0.0013
Regression Results Including All Factors

Date: 10/12/10 Time: 03:14
C -190352.7 4793.683 -39.70907 0.0160
GDP(-6) 161.9663 5.352350 30.26078 0.0210
EXR(-5) 73.94133 2.023218 36.54640 0.0174
IFR(-6) 334.9028 9.138010 36.64942 0.0174
CPI(-4) 270.8479 18.89484 14.33449 0.0443
DMR(-4) -556.1974 32.01971 -17.37047 0.0366
CR(-4) -17.90032 0.829758 -21.57294 0.0295
LR(-1) 2001.464 50.25988 39.82231 0.0160
Appendix C. Indices Methodology
I. CORRUPTION PERCEPTION INDEX SOURCES
Who was
Source Name Subject asked Coverage
Surveyed?
Corruption, conflicts
Country teams, of interest, 29
Country
Asian experts inside diversion of funds as countries
Performance
1 Development and well as (eligible
Assessment
Bank (ADB) outside the anticorruption for ADF
Ratings
bank efforts and funding)
achievements
Country teams, of interest, diversion
African Country Policy
experts inside of funds as well as 52
2 Development and Institutional
and outside anti-corruption countries
Bank (AFDB) Assessments
the bank efforts and
achievements
Network of
local 125 less
The government‟s
Bertelsmann Bertelsmann correspondents developed
capacity to
3 Foundation Transformation and experts and
punish and contain
(BTI) Index inside and transition
corruption
outside the countries
organization
Country teams, 75
of interest, diversion
World Bank - Country Policy experts inside countries
of funds as well as
4 IDA and IBRD and Institutional and (eligible
anti-corruption
(CPIA) Assessment outside the for IDA
efforts and
bank funding)
achievements
The misuse of
Country Risk
Economist public office
Service and Expert staff 170
5 Intelligence Unit for private (or
Country assessment countries
(EIU) political
Forecast
party) gain
Extent of corruption
as practiced in
Assessment by governments,
experts as perceived by the
29
Freedom House Nations in originating or public and as
6 countries /
(FH) Transit resident in the reported in the
territories
respective media, as well as the
country. implementation
of anticorruption
initiatives
The likelihood of
encountering corrupt
Global Insight Country Risk Expert staff 203
7 officials, ranging
(GI) Ratings assessment countries
from petty
bureaucratic
corruption to grand
political
corruption
IMD Executives in Category
International, top and middle Institutional
IMD World 55
Switzerland, management; Framework - State
8&9 Competitivenes countries
World domestic and Efficiency: “Bribing
s Yearbook (both)
Competitiveness international and corruption
Center companies exist/do not exist”
Corruption, ranging
from bribery of
Merchant Expert staff government
International Grey Area and network of ministers to 155
10
Group Dynamics local inducements countries
(MIG) correspondents payable to the
“humblest
clerk”
How serious do you
consider the
Political & Asian Expatriate 15
problem of
11 & 12 Economic Risk Intelligence business countries
corruption to be in
Consultancy Newsletter executives (both)
the public
(PERC)
sector?
Undocumented extra
payments or bribes
connected
Senior with 1) exports and
business imports, 2) public
World Global
leaders; utilities, 3) 131
13 Economic Competitivenes
domestic and tax collection, 4) countries
Forum (WEF) s Report
international public contracts and
companies 5) judicial
decisions are
common/never
occur
II. DEMOCRACY INDEX QUESTIONNAIRE
POLITICAL RIGHTS CHECKLIST
A. ELECTORAL PROCESS
1. Is the head of government or other chief national authority elected through free and fair elections?
2. Are the national legislative representatives elected through free and fair elections?
3. Are the electoral laws and framework fair?
B. POLITICAL PLURALISM AND PARTICIPATION

1. Do the people have the right to organize in different political parties or other competitive political
groupings of their choice, and is the system open to the rise and fall of these competing parties or
groupings?
2. Is there a significant opposition vote and a realistic possibility for the opposition to increase its support
or gain power through elections?
3. Are the people‟s political choices free from domination by the military, foreign powers, totalitarian
parties, religious hierarchies, economic oligarchies, or any other powerful group?
4. Do cultural, ethnic, religious, or other minority groups have full political rights and electoral
opportunities?
C. FUNCTIONING OF GOVERNMENT
1. Do the freely elected head of government and national legislative representatives determine the policies
of the government?
2. Is the government free from pervasive corruption? 3. Is the government accountable to the electorate
between elections, and does it operate with openness and transparency?
ADDITIONAL DISCRETIONARY POLITICAL RIGHTS QUESTIONS

1. For traditional monarchies that have no parties or electoral process, does the system provide for genuine,
meaningful consultation with the people, encourage public discussion of policy choices, and allow the right
to petition the ruler?
2. Is the government or occupying power deliberately changing the ethnic composition of a country or
territory so as to destroy a culture or tip the political balance in favor of another group?
CIVIL LIBERTIES CHECKLIST
D. FREEDOM OF EXPRESSION AND BELIEF

1. Are there free and independent media and other forms of cultural expression? (Note: In cases where the
media are state-controlled but offer pluralistic points of view, the survey gives the system credit.)
2. Are religious institutions and communities free to practice their faith and express themselves in public
and private?
3. Is there academic freedom, and is the educational system free of extensive political indoctrination?
4. Is there open and free private discussion?
E. ASSOCIATIONAL AND ORGANIZATIONAL RIGHTS 1. Is there freedom of assembly,

demonstration, and open public discussion? 2. Is there freedom for nongovernmental organizations? (Note:
This includes civic organizations, interest groups, foundations, etc.)
3. Are there free trade unions and peasant organizations or equivalents, and is there effective collective
bargaining? Are there free professional and other private organizations?
F. RULE OF LAW
1. Is there an independent judiciary?
2. Does the rule of law prevail in civil and criminal matters? Are police under direct civilian control?
3. Is there protection from political terror, unjustified imprisonment, exile, or torture, whether by groups
that support or oppose the system? Is there freedom from war and insurgencies? 4. Do laws, policies, and
practices guarantee equal treatment of various segments of the population?
G. PERSONAL AUTONOMY AND INDIVIDUAL RIGHTS 1. Do citizens enjoy freedom of travel or

choice of residence, employment, or institution of higher education?
2. Do citizens have the right to own property and establish private businesses? Is private business activity
unduly influenced by government officials, the security forces, political parties/organizations, or organized
crime?
3. Are there personal social freedoms, including gender equality, choice of marriage partners, and size of
family? 4. Is there equality of opportunity and the absence of economic exploitation?
Appendix D. Curriculum Vitae

Name: Anna Ruby G. Colozo

Birthday: October 20, 1990
Birthplace: Mandaluyong City
Contact Number: 09155473904 / 6287341 / 6428375
Educational Attainment:
School Year Graduated
Elementary Ususan Elementary School 2003
High School Pateros Catholic School 2007
College University of Santo Tomas Present
Conference Attended:
 Conquering the Crisis : Through Resource Management and Allocation
Possibilities
– Philippine Stock Exchange
– University of Santo Tomas – September 25, 2009
 Global Financial Crisis - Effects on Philippines Society : Lessons Going
Forward
– Banko Sentral ng Pilipinas
– University of Santo Tomas – September 19, 2009
 Development Planning: A Case of Health Policy Development
– Ms. Rhodora Tiongson
– Thomasian Global Trade Expo (SMX) – October 16, 2010
Membership in Academic and Non-Academic Organization:

 Students in Free Enterprise (UST), Member – 2010 to present
 Economics Society (UST), Member - June 2009 to present
 Junior Philippine Economics Society, Member – June 2009 to present
 Students in Free Enterprise (UST), Junior Apprentice - June 2008 to 2010
 Precom Society (UST), Member - June 2007- March 2009
 Scarlet Commerce Unit, Member – June 2007 - March 2008
 Red Cross Youth Council, Member – June 2007 - March 2008
Name: Mary Jane Tarectecan

Birthday: May 23, 1990
Birthplace: MCU Hospital
Contact Number: 09151275324
Educational Attainment:
School Year Graduated
Elementary Daanghari Adventist 2001
Elementary School
High School St. James Academy 2003
La Purisima Conception 2006
Academy
College University of Santo Tomas Present
Conference Attended:
 Philippine Stock Exchange Seminar
 Bangko Sentral ng Pilipinas Seminar; Global Financial Crisis: Effects on
Philippine Society, Lessons Going Forward
 Development Planning: A Case of Health Policy Development
Membership in Academic and Non-Academic Organization:

 Member, Rotaract Society (2009-2010)
 Member, Economics Society (2009-2010)
 Literacy Training Service (2008-2009)
 Member, St. James Academy Red Cross Youth Council (RCYC) Club (2001-
2002)
 Member, La Purisima Concepcion Academy Glee Club (2002-2006)
 Honor Student, Daanghari Adventist Elementary School (1996-2001)

Factors Affecting Inward Foreign Direct Investment in The Philippines

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Factors Affecting Inward Foreign Direct Investment in The Philippines

Uploaded by

Copyright:

Available Formats

UST COLLEGE OF COMMERCE & BUSINESS ADMINISTRATION PAGE i

Factors Affecting Inward Foreign Direct Investment in the

A Thesis Presented to the

COLOZO, ANNA RUBY G.

TARECTECAN, MARY JANE V.

The Thesis entitled

Rosemary P. Dinio, Ph.D.

Approved by the Thesis Committee with a Final Grade of on October, 2010.

Alma Aileen L. Almario-Miguel

Prof. Ma. Socorro P. Calara, Ph.D.

CHAPTER 2 LITERATURE REVIEW

CHAPTER 3 RESEARCH METHODS

CHAPTER 4 RESULTS AND DISCUSSIONS

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS

BOI – Board of Investment NSO – National Statistics Office

Table 1. Selected Economic Variables Table 5. Regression Results for

Figure 1. Determinants of Inward FDI Figure 2. Porter‟s Diamond of

Factors Affecting Inward Foreign Direct Investment in the Philippines

Keywords: Inward Foreign Direct Investment, Real Gross Domestic Product,

Inward Foreign Direct Investment (FDI) has been significant in promoting

a focal point of competition among countries.

2.1 Inward FDI

Foreign Affairs and Trade).

2.2. Gross Domestic Product (GDP)

2.3. Exchange Rate

2.4. Inflation Rate

2.7. Crime Rate

2.8. Literacy Rate

3.1. Conceptual Frameworks

Figure 1: Determinants of Inward FDI

3.2. Supporting Theories/Laws/Principles

Figure 2: Porter‟s Diamond of National Advantage

3.3. Regression Model

The study is an identification of which among economic, political and social

First Regression Model (Economic Determinants of Inward FDI)

Second Regression Model (Political Determinants of Inward FDI)

Third Regression Model (Social Determinants of Inward FDI)

Forth Regression Model (Combination of all Factors)

β3IFR = Inflation Rate

4. Results and Discussions

Table 1. Selected Economic Variables

1995 -23.30 4.70 25.71 6.70

Table 2. Selected Political Variables

Source: NSCB, Transparency International (TI) and Freedom House (FH)

Table 3. Selected Social Variables

2004 411.30 93 93.40

Table 4. Regression Results for Economic Factor

Table 5. Regression Results for Political Factor

C -2957.014 344.7866 -8.576358 0.0001

Table 6. Regression Results for Social Factor

CR(-4) -17.90032 0.829758 -21.57294 0.0295

5. Conclusions and Recommendations

The study focuses on identifying how to increase Philippines‟ Inward Foreign

China‟s Electronic Industry.” Transnational Corporations, Vol. 15, No.1.

36, pp. 505–509.

Appendix A. General Reference Table

FDI GDP EXR IFR CPI DMR CR LR

Appendix B. Regression Results

Regression Results for Economic Factor

Regression Results for Political Factor

Regression Results for Social Factor

CR(-9) -7.960263 2.620806 -3.037334 0.0560