Thesis Finals

8/2/2019 Thesis Finals

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IMPACT OF FOREIGN DIRECT INVESTMENT AND DOMESTIC

INVESTMENT ON THE PHILIPPINES GDP PER CAPITA

________________

A Thesis Presented to the

College of Commerce and Business Administration

University of Santo Tomas

________________

In Partial Fulfillment

Of the Requirements for the Degree

Bachelor of Science in Commerce, Major in Economics

________________

By

Letran, Jennifer

Hao, Marigold

Quiambao, Ana Katrina


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Certificate of Originality

We hereby declare that this submission is our own work to the best of our

knowledge and belief. It contains no material previously written or published nor

any composition in which have been accepted for an award from any other degree

of a university or other institute of higher learning except where due

acknowledgement is made in the text

We also affirm that the intellectual content of this thesis is the product of our own

efforts even though we may have received assistance from others on style,

presentation, and language expression.

LETRAN, JENNIFER

HAO, MARIGOLD

QUIAMBAO, ANA KATRINA M.

September, 2008

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Approval Sheet

The thesis entitled

IMPACT OF FOREIGN DIRECT INVESTMENT AND DOMESTIC

INVESTMENT ON THE PHILIPPINES GDP PER CAPITA

Prepared and submitted by Jennifer Letran, Marigold Hao, Ana Katrina M.Quiambao of 4e4 has been approved in partial fulfillment of the requirements inEconomic research 32.

JODYLYN M. QUIJANO-ARSENIO, Ph.D

Thesis adviser

Approved by the thesis committee with a final Grade of ____ onSeptember 2008

CLARISSA RUTH S. RACHO, MDE

Chair, Eco Department

PROF. HELENA MA. F. CABRERA, Ph.D, DBA

Dean, College of Commerce and Business Administration

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IMPACT OF FOREIGN DIRECT INVESTMENT AND

DOMESTIC INVESTMENT ON THE PHILIPPINES GDP PERCAPITA

Abstract

This paper examines the effects of foreign direct investment (FDI) and domestic

investment (DI) specifically on private and public domestic investment on the

gross domestic product per capita (GDPp) in the Philippines for the period of

1974-2007. The study used Granger-Causality test and the results demonstrated

that on the 33 observations or sample size ran out, FDI granger causes GDP and

GDP granger causes the public domestic investment. Through the F-test, the

ordinary least square multiple regression models between FDI and DI and the

GDP per capita appeared significant which means that investment truly has an

impact on a countrys GDP growth. On which type of investment has a more

impact on GDP per capita, FDI appeared to be more productive than that of DI.

Keywords: Domestic Investment, Foreign Direct Investment, Gross DomesticProduct

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Table of Contents

PRELIMINARY PAGES

Title page . i

Certificate of Originality. ii

Approval Sheet iii

Acknowledgement.. iv.

Abstract. v

Table of Contents.... vi

List of Tables. ix

List of Figures.. x

1. INTRODUCTION AND BACKGROUND

1.1. Introduction .... 1

1.2. Statement of the Problem 3

1.3. Objectives of the Study ... 4

1.4. Hypotheses of the Study.... 5

1.5. Significance of the Study 5

1.6. Theoretical Framework . 7

1.7. Conceptual Framework .. 8

1.8. Scope and Limitation .. 8

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1.9. Definition of Terms ... 9

2. LITERATURE REVIEW

2.1. Related Literature

2.1.1. Foreign Direct Investment and Economic Growth 11

2.1.2. Foreign Direct Investment and Its Factors . 12

2.2. Related Studies

2.2.1. The Link between Foreign Direct Investment andEconomic Growth. 13

2.2.2. Foreign Direct Investment and Domestic Investment. 16

2.2.3. Type of Investment that Has More Impact onGrowth 17

2.2.4. Effects of FDI to other Economic Variables . 18

2.2.5. Factors that Contributes to Higher Level of

Investment . 18

2.2.6. On Private and Public Domestic Investment.. 19

2.3. Synthesis . 20

3. RESEARCH METHOD

3.1. Research Design ............ 25

3.2. Data Collection .. 25

3.3. Data Treatment .. 26

3.4. Statistical Treatment 27

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4. RESULTS AND DISCUSSIONS

4.1. OLS Multiple Regression (GDP, FDI, DI). 32

4.2. Unit Root Test and Granger-Causality Test.... 37

5. SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1. Summary ... 41

5.2 Conclusion.. 42

5.3. Recommendations .. 43

APPENDICES

BIBLIOGRAPHY

VITAE

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List of Tables

Table 4.1 Ordinary Least Square Multiple Regression Result of GDPPer Capita 32

Table 4.2 Ordinary Least Square Multiple Regression Result of GDPper capita 35

Table 4.3. Unit root test .. 37

Table 4.3.A. Pairwise Granger Causality Tests of FDI and GDPper capita . 38

Table 4.3.B. Pairwise Granger Causality Tests of Public DI and GDPper capita .. 38

Table 4.3.C. Pairwise Granger Causality Tests of Private DI and GDPper capita .. 39

Table 4.4 White Heteroskedasticity Test . 40


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List of Figure

Figure 1. Impact of FDI and DI to GDP per capita.. 8


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internationalization of production in a range of industries, FDI into developed

countries rose to $636 billion, from $481 billion in 1998 (Graham and Spaulding,

2005). Because of this ample effect, FDI in developing countries now comprises a

large portion of global FDI.

Moreover, since most of the growth theories like that of Harrod-Domar,

Rostows and Chenery states that capital mobility, industrialization, technological

advancement and diversification are needed in order to attain economic growth,

the challenge for a developing country like the Philippines is to promote and

sustain such growth through capital in the form of investment so as to scale the

countrys technological ladder.

Investment is always classified under domestic investment or foreign

direct investment. The two types of investment have been subjected to many

empirical studies that intended to prove whether which kind of investment has a

greater influence on a countrys growth. According to Hirschman (1997 as cited

by Firebaugh in 1992), there have been compelling reasons for expecting Third

World countries to benefit less from foreign investment than from domestic

investment: foreign investment is less likely to contribute to public revenues, as

transnational corporations are often able to avoid taxes and when it comes to

encouraging the development of indigenous industries chances appears to be very

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small. On the other hand, Khawar (2005) on his study concluded that there is a

large and positive relation between FDI and economic growth.

In line with this, the researchers would like to investigate if previous

studies (Firebaugh, 1992; Blomstrom et al., 1996; Ikamoto, 1999; Fan and Dickie,

2000; Ericsson and Irandoust, 2001; Makki and Somwaru, 2004; Roy and Van

den Berg, 2006) of the effects of both foreign direct investment and domestic

investments(public and private domestic investment) to growth are also true in the

Philippines by using the annual data of foreign direct and domestic investments

and GDP per capita from the periods of 1974-2007. Chapter 1 will provide the

introduction and objectives of the study; Chapter 2 is the literature review;

Chapter 3 presents the research method used while findings and conclusions are

presented in Chapters 4 and 5, respectively.

1.2. Statement of the Problem

Investment especially FDI has always been studied on its relationship to

economic growth. There have been a number of times where FDI have been

proven to have caused an increase in the growth of an economy. However, some

studies have also taken into account DI and its role for developing a country.

There have also been many discussions whether which of the two types of

investment, namely FDI and DI, has more impact on a countrys national output.

That is why, in line with these, below is the list of problems the researchers would

like to solve:

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a) What is the impact of foreign direct investment (FDI) and domestic investment

(public and private domestic investment) on our countrys GDP per capita?

b) Which of the two types of domestic investment- private and public contributes

more to the GDP per capita?

c) What is the direction of causality of FDI and private domestic investment and

public domestic investment to GDP per capita and vice versa?

1.3. Objectives of the Study

Following the statement of the problem presented, the following is the list of

objectives that the researchers would want to cover:

a) To be able to know the relationship of foreign direct investment and domestic

investment (public and private domestic investment) on the GDP per capita.

b) To be able to know which of the two types of domestic investment- private and

public contributes more to the GDP per capita.

c) To determine the direction of causality of FDI and private domestic investment

and public domestic investment to GDP per capita and vice versa.

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1.4. Hypotheses of the study

1. More FDI, private and public DI contributes to higher GDP per capita.

2. Private domestic investment increases a countrys GDP per capita more

compared to public domestic investment.

3. FDI and private and public domestic investment granger causes GDP per

capita.

1.5. Significance of the Study

Foreign direct investment and domestic investment plays a vital role in a

countrys growth and even development especially in the Philippines where labor

is abundant and capital is scarce. More FDI and DI (public and private domestic

investment) would bring more capital that would help bridge the gap between

capital and labor. This study could help the government to understand that

domestic investments as well as foreign direct investments are both important

factors to consider for increasing the Philippines rate of economic growth. The

government, through this work, can think of ways on enhancing the countrys

capabilities on foreign investment and domestic investment in order to attract

other countries to invest more in the Philippines. This paper could also help the

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government to decide on whether the freer trade policies that they are doing for

foreign investors are actually worth it or not.

The study conducted could also help the domestic firms and other

industrial sectors in making investment decisions. This could help firms

understand the importance of foreign direct investment since investments endow

financial capital which creates new facilities that can provide new products and

therefore, offering new jobs. It would also help them to realize the need for

foreign investments to produce more output thereby increasing their sales.

Domestic investors and foreign direct investors could work hand in hand to build

a better market for the consumers. Firms would now be aware that foreign

investment together with a good absorptive capacity could bring more output on

their business. Moreover, this can also help entrepreneurs and managers to make

decisions on whether to invest domestically or abroad.

As for the households and consumers, this study would open up their

minds about the importance of foreign investments in the Philippines. It would

also help these people to realize that dependence through other countries is not

such a bad thing.

Lastly, this could serve as new sets of information and research tools on

the academe and on the different government agencies as well.

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1.6. THEORETICAL FRAMEWORK

The Harrod-Domar growth model is a functional economic relationship

on which the growth rate ofgross national product (g) depends directly on the

national net savings rate (s) and inversely on the national capital-output ratio (k),

that is g=s/k. The model takes its name from a synthesis of analyses of the growth

process by two economists, Sir Roy Harrod of Britain and E.V. Domar of the

United States (Todaro and Smith, 2003).

This theory relates to the researchers study since in this theory, savings

and capital output ratio was used to determine the level of growth of the gross

national product. Economics majors must all know that savings must equal

investment. Therefore, investment is also included in determining the level of

growth of gross national product. This relates on the present study since as a

developing nation, this theory could help explain if sufficient investment is what

this country needs to be able to increase our GNP or GDP through GDP per capita

likewise.

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PUBLIC DOMESTIC

INVESTMENT

PRIVATE DOMESTIC

INVESTMENT

GDP PER

CAPITA

FOREIGN DIRECT

INVESTMENT

1.7. CONCEPETUAL FRAMEWORK

H1 & H2

H3

Figure 1. Impact of FDI and DI (private and public domestic investment) to GDP percapita.

As presented in Figure 1, foreign direct investment and domestic

investment which are private and public domestic investments are the independent

variables while the GDP per capita is the dependent variable. The positive signs

that can be seen on Figure 1 represent the kind of relationship that exists between

the variables.

1.8. Scope and Limitation

The study would focus on the impact of foreign direct investment and

domestic investments which are private and public investments on the GDP per

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capita during the period of 1974 to 2007. To know the impact of foreign direct

investment and domestic investment, other factors that affect GDP per capita

would be held constant. FDI and DI (private and public domestic investment)

would be in terms of monetary value only and other indirect investment would not

be included. The main focus of this study is the relation of foreign direct

investment and public and private domestic investment on GDP per capita. The

factors that affect the level of private and public domestic investment and foreign

investment would not be tackled.

1.9. Definition of Terms

Below are the lists of conceptual and operational terms used on this study for

better understanding of the readers of this paper.

Capital-Output Ratio - A ratio that shows the units of capital required to

produce a unit of output over a given period of time (Todaro and Smith, 2003).

Foreign Direct Investment - Overseas investments by private multinational

corporations (Todaro and Smith, 2003).

Gross Domestic Product - The total final output of goods and services produced

by the countrys economy, within the countrys territory, by residents and

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nonresidents, regardless of its allocation between domestic and foreign claims

(Todaro and Smith, 2003).

Gross National Product - The total domestic and foreign output claimed by

residents or citizens of a country. It comprises gross domestic product plus factor

incomes accruing to residents from abroad, less the income earned in the domestic

economy accruing to persons abroad (Todaro and Smith, 2003).

Investment - The part of national income or national expenditure devoted to the

production of capital goods over a given period of time (Todaro and Smith, 2003).

Savings Ratio - Savings expressed as a proportion of disposable income over

some period of time (Todaro and Smith, 2003)

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CHAPTER 2

LITERATURE REVIEW

This chapter serves as an overview of the various existing works that

provide concrete support with the researchers current study. This will be

separated into two sections discussing literatures and studies, respectively.

2.1. RELATED LITERATURE

2.1.1. Foreign Direct Investment and Economic Growth

Investment has always been a factor that a country considers for its

sustainability. Throughout the years that passed, capital formation and the drive to

acquire new technology has always been a countrys main objective. Several

studies have proven that investment especially foreign direct investment has

played key roles for the growth of an economy. Austria (1998) on her study states

that during the 1990s FDI had played a big role to the sectors of the Philippine

economy especially on the manufacturing sector wherein the value of FDI

increased from $196M in 1990 to $1.1B in 1997. In real terms, FDI grew at an

average yearly rate of 20 percent during the period 1990-1997. Cai (1999) as

well, said that FDI is a source to acquire a stable supply resource, an efficient way

to raise capital and an effective channel to obtain foreign technology and

managerial skills. Likewise, Sun (1999) also said that among the factors

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promoting export growth, FDI has played an important role and that importation

of foreign goods especially machinery and equipment, assists fixed capital

investment in China and promotes economic growth in the long run.

Then again, Li (2003) in his work also mentioned that FDI contributes to

the capital formation of the host countries. FDI have also become important in

accelerating the pace of the economic growth in East Asia. FDI-oriented approach

to economic growth and industrialization of a developing country in East Asia is

actually more sustainable and better rather that the restrictive strategies adopted

by the majority of developing countries. FDI can also be a profit-generating

option for the government (Mahasneh, 2003).

2.1.2. Foreign Direct Investment and Its Factors

FDI have really become a good approach to sustain growth. However,

many literatures emphasized the conditions that a country must have in order to

benefit from the growth effects that FDI brings. China, for example has been

successful on acquiring FDI since its open-door policy was introduced and since

its government had made stronger commitment for further liberalization of its

economic system (Cai, 1999). Political stability, easy access to huge domestic

market and economic performance could also attract FDI more (Li, 2003).

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2.2. RELATED STUDIES

2.2.1. The Link between Foreign Direct Investment and Economic Growth

The relationship of FDI to economic growth has always been questioned

as to what extent FDI could really help in promoting growth and whether it could

also help the developing countries. Rothgeb (1984) stated that the effects of

foreign investment vary for differing types of third world states. New ideas and

values are forced upon the host country that could create turmoil due to the

condition for adjustments. Firebaugh and Beck (1994) also said that economic

growth maybe ephemeral in the third world because growth based on imported

capital and trade with the core is short-lived. Over the long run, dependence

harms the masses in the third world by surpassing economic expansion. Similarly,

Power (1998) in her study noted that there is no observable significant

relationship between investment and productivity or productivity growth which

was also true to the study of Podrecca and Carmeci (2001) wherein granger

causality from investment shares to growth rates is found to be negative.

Kentor (1999) stressed out that those peripheral countries with relatively

high dependence on foreign capital exhibit slower economic growth than those

less dependent peripheral countries. He also noted that it is not true that foreign

capital is attracted to areas of relatively higher economic growth since one of his

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earlier measures of GDP growth 1940-1965 did not have any significant effect on

the amount of foreign investment penetration in 1967.

Recent studies have shown that FDI help in promoting growth. FDI can

cause technological change to a country and hence it can also affect the economic

growth by providing more income (Nigel and Pain, 1997). Fan and Dickie (2000)

also states that FDI contribute to growth through several channels. An increase in

FDI will, by itself, contribute to an increase in total investment and an increase in

investment directly contributes to growth.

The FDI inflow can also contribute to the advancement of technology,

equipment and infrastructure in the host economy. Sylwester (2005) likewise

viewed FDI as a medium than can transfer productivity. Khawar (2005) also

concluded that there is a large and positive relation between FDI and economic

growth which is also like the previous study made by Firebaugh (1992). However,

Roy and den Berg (2006) said that FDI and economic growth relationship is

inherently complex. As a matter of fact the study by Zhang (2001) showed that

there exists a bi-directional causality between FDI and economic growth.

The study by Berthelemy and Demurger (2000) suggested that such

economic growth may also influence the inflows of foreign capital. Ericsson and

Irandoust (2001) had the same findings on Sweden which resulted on a causal

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linkage between FDI growth and income growth which proves to be bi-directional

in nature. Whether FDI positively or negatively affects growth, some studies

stated that it depends on the characteristics of the economy and to what sector

does FDI has a great impact on.

Ikamoto (1999), in his study, found out that FDI played an important role

in the development of major industries in the Philippines. However, this is only

true for the manufacturing sector. According to the author, although FDI tends to

increase the level of productivity, it varies among the sectors in the Philippines.

Alfaro (2003) likewise said that the effect of FDI depends on the sector. He said

that foreign direct investments (FDI) in the primary sector tend to have a negative

effect on growth, while investment in manufacturing have a positive effect. He

argued that though FDI transfer great advantages on the host countries but such

gains might differ across from primary, manufacturing, and services sectors.

The recent study by Qi (2007) states that FDIs effect on growth is still

questionable and is affected by country conditions and characteristics. The study

states that the long run equilibrium relationship of investment, FDI and growth is

less frequent to be significant in developed countries than in developing countries.

Second, in developed countries causal effects generally run unilaterally from

growth to total investment, from growth to FDI, or from total investment to FDI,

while in developing countries causal effects run in both directions. Third, the sign

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of the causal effect between growth and total investment, or between total

investment and FDI is always positive in developed countries. However in

developing countries, total investments interrelation with growth and FDI is

sometimes negative.

The paper by Qi (2007), found out that Asia has been most successful in

making domestic investment and FDI advantageous to economic growth, and

Africas performance has been unsatisfactory. Additionally, the empirical results

show that countries heavily dependent on petroleum export have more difficulties

than other countries in benefiting from FDI, and also the role of total investment

in impelling growth would be weakened in oil-exporting countries. The paper

states that investments do promote growth but clearer relationship between the

two still depends on the condition that a country has.

2.2.2. Foreign Direct Investment and Domestic Investment

Aside from the relationship of FDI to growth, there have been also studies

that states the effect of FDI to DI and vice-versa and whether which of the two

crowds out the other. The study by Oneal and Soysa (1999) stated that an increase

in FDI encourages greater domestic investment. A permanent increase of 1

percent in the ratio of foreign direct investment to GDP boosts the ratio of

domestic capital to GDP by 2.89 percent in the long run. This means that FDI

doesnt crowds out the domestic firms but instead helps them. Asheghian (2004)

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proves this in his study where FDI could increase the value-added content of FDI-

related production and could also lead to increasing returns in domestic

production. Likewise, Makki and Somwaru (2004) stated that FDI stimulates DI.

Meanwhile, Desai, Foley and Hines (2005) indicated that foreign and

domestic investments are complements in the American economy, whereas they

are substitutes in other OECD economies. They also stated that a new finding

suggests that greater foreign investment is associated with higher levels of

domestic investment from the Analyses of American multinational firms. This

estimated complementariness implies that firms combine home production to

generate final output at lower cost than with a possible production in just one

country, making each stage of the production process more profitable and more

abundant. However, a study by Lee and Tcha (2004) said that FDI was found out

to have no effect or positive interaction with DI for the economies they included.

Other than this, FDI has either a crowding-out effect on or a positive interaction

with DI.

2.2.3. Type of Investment that Has More Impact on Growth

As to the type of investment that greatly affects growth, there have also

been questions of which investment is more significant. Rothgeb (1984) in his

study noted that investment without domestic investment would lead to only a

small impact on growth. However, Oneal and Soysa (1999) stated that foreign

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capital is 2.5 times as productive as domestic investment when compared to a

dollar by dollar basis. Lee and Tcha (2004) also shared the same finding but the

researchers increased the role of FDI since they found out that FDI is more than

four times larger than that for DI. Khawar (2005) likewise concluded that the

coefficient on the foreign investment variable is considerably larger than that of

domestic investment variable, suggesting a potentially large role for FDI.

2.2.4. Effects of FDI to other Economic Variables

Aside from FDIs impact on growth, several studies also included

some of the factors that are also affected by FDIs. Ikamoto (1999) stated that the

effect of FDI with employment creation depends on whether foreign firms use

more or less labor intensive technology than domestic firms. Meanwhile, a study

by the impact of FDI on domestic gross fixed capital formation was said to be

dependent on the underlying motivation for investment, and not simply on the

growth in outward relative to inward FDI (Hejazi and Pauly, 2003). As to income

inequality, Sylwester (2005) found that there was no significant relationship

between the two. On the relationship of FDI to domestic savings, Katircioglue and

Narliyeva (2006) found out that there exists no co-integration.

2.2.5. Factors that Contributes to Higher Level of Investment

Most of the studies also stated that investment depends on the conditions

and characteristics of a country as well. This is true especially when it comes to

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FDI. Zhang (2001) said that FDI is more likely to promote economic growth in

countries with more liberalized trade regimes, good human capital, more

macroeconomic stability and good export-promotion. Khawar (2005) stated that

theres a need for a minimum human capital requirement in order for FDI to be

beneficial. Vu Le and Suruga (2005) also said that too much government

intervention may have a negative effect on the economys performance. Excessive

government control can have a negative impact on the absorptive capacity of the

economy.

Aside from this, Berthelemy and Demurger (2000) also mentioned that too

much technological investments disconnected from the domestic productive

sector may be adverse rather than beneficial to growth. That is why they stated

that human capital also contributes by facilitating the adoption of foreign

technologies. Qi (2007) also second these motions by saying that if a country

wants to strengthen the relationship between FDI, total investment and growth,

more liberalized policy, macroeconomic stability and better human resource are

needed.

2.2.6. On Private and Public Domestic Investment

According to the study of Mataya and Veenam (1996), the effect of

private investment on public investment using the Granger-Causality test, and

vice versa, is positive, implying that the two forms of investment are

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technologically complementary. The authors analysis of the behavior in Malawi's

private and public goods sectors between 1967 and 1988 shows that public

investment may compete with private investment for scarce physical and financial

resources, at least in the short term. However, public investment is also expected

to complement private investment by creating infrastructure and raising the

productivity of private capital stock. The study also of Fisher and Turnovsky

(1998) states that public investment may ultimately stimulate the private capital

stock in the long-run however the effects of private investment in the short run is

unclear since public investment tends to negate the attention of the private sector

from capital accumulation to consumption in the said short-run period. In

addition, the study also of Vijverberg and Gamble (1997) showed that a decline in

public investment explains a significant portion of the decline in labor and

multifactor productivity growth. Lastly, the study also of Glomm and Ravikumar

(1992) stated the importance of both public and private investment as an engine

for growth in the economy through human capital investment.

2.3. SYNTHESIS

FDI has a positive impact to a countrys economic performance and

growth. FDI is a source of capital formation as well as it serves as a means of

transferring technology, equipment and infrastructures. It provides technological

spillovers to help the local industry. It even indirectly promotes welfare and also

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the quality of human capital (Barrell and Pain, 1997; Ikamoto, 1999; Cai, 1999;

Sun, 1999; Fan and Dickie, 2000;Ericsson and Irandoust, 2001; Mahasneh, 2003;

Borensztein et al. (1988), Dunning (1993), Blomstrom et al., (1996) as cited by

Asheghian, 2004; Makki and Somwaru, 2004; Sylwester, 2005; and Roy and Van

den Berg, 2006). Aside from the aforementioned studies, several other authors

similarly argued that economic growth could also be a factor for more

investments. Such authors like Berthelemy and Demurger (2000), Zhang (2001),

Ericsson and Irandoust (2001), correspondingly said that FDI and economic

growth are positively interdependent with bi-directional causality. This is true

since FDI provide spillovers in technology which stimulates and promotes

growth. Countries, on the other hand, provide the initiative for FDI inflows given

the conditions that these countries are more liberalized and stable. Berthelemy

and Demurger (2000) likewise suggest that such economic growth may

conversely influence the inflows of foreign capital. According to them,

productivity growth itself is an important factor in absorbing FDI inflows. Of the

two types of investment, FDI or DI, several authors agreed that FDI has more

impact in the economys growth (Ikamoto, 1999; Oneal and Soysa, 1999; Lee and

Tcha, 2004; Le and Suruga, 2005; and Khawar, 2005). However, Rothgeb (1984)

balances the overall perspective by stating that domestic investment plays a

significant role in promoting growth. Therefore, if the country decides to focus on

foreign investment while paying no attention to the need in promoting growth of

domestic investment, the end result would only lead to little success. Other

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authors also observed the correlation of both types of investments by stating that

foreign domestic investment also helps stimulate domestic investment (Makki and

Somwaru, 2004 and Desai, Foley, Hines Jr., 2005). Meanwhile, Ikamoto (1999)

and Alfaro (2003) both agreed that FDI has more impact on certain sectors of the

economy like manufacturing. Lastly, several authors concluded that the effect of

FDI depends largely on the characteristics and condition of the country

(Berthelemy and Demurger, 2000; Zhang, 2001; Khawar, 2005; Vu Le and

Suruga, 2005; and Qi, 2007).

However, the study by Firebaugh (1992) and Jeffrey Kentor (1998) as well

as Beck and Firebaugh (1994) agreed that countries which are less developed, and

with a high dependence on foreign capital, exhibit slower economic growth.

Kentor (1998) said that peripheral countries growth is slower than that of those

by core countries. Then again, Firebaugh (1992) attributed the slow economic

growth because of the inevitable slowing of foreign investment. Similarly,

Firebaugh and Beck (1994) reasoned that economic growth is ephemeral in the

Third World because growth is base on imported capital and that trade with the

core countries is short-lived. Similarly, Power (1998) in her study noted that there

is no observable significant relationship between investment and productivity or

productivity growth which was also true to the study of Podrecca and Carmeci

(2001) wherein granger causality from investment shares to growth rates is found

to be negative.

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To continue more, on the studies of public and private investment, most of

the studies focused more on the causality between the two types of domestic

invetsment and not on their impact on the countries economic growth, such

studies include that of Mataya and Veenam (1996) and Fisher and Turnovsky

(1998). Nevertheless, few studies also stated the importance of both public and

private investment to economic growth indirectly through human capital and labor

productivity on the studies of Glomm and Ravikumar (1992) and Vijverberg and

Gamble (1997) respectively.

Most studies that have been mentioned especially that of Barrell and

Pain (1997), Ikamoto (1999), Fan and Dickie (2000), Ericsson and Irandoust

(2001), (Blomstrom et al., 1996; Borensztein et al., 1988; Dunning, 1993) as cited

by Asheghian, (2004), Makki and Somwaru (2004), Sylwester (2005), and Roy

and Van den Berg (2006) will aid greatly in shaping this paper since the

aforementioned studies included variables that was used in this study, thereby

ensuring the relevance and relation of the journals with this dissertation.

Moreover, their objective to know if foreign direct investment has an impact to

growth is also one of the primary reasons in conducting this research. Likewise,

the study of Rothgeb (1984), Oneal and Soysa (1999), Lee and Tcha (2004) and

Khawar (2005) would also help this study in determining if it is true that FDI is

really more effective than that of DI. Lastly, the theoretical model provided by

authors, Firebaugh (1992), Fry (1993), Intal Jr. (1997) Jurado (2003) and Canlas

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(2003) influenced this study as their statements and observations in their journals

supported the researchers theoretical framework, which is centered on the

Harrod-Domar Growth Model.

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CHAPTER 3

RESEARCH METHODOLOGY

3.1. Research Design

The researchers applied the correlation design in order to determine and

explain whether there is a correlation between the gross domestic product per

capita (GDPp) and the level of foreign direct investment (FDI) and private

domestic investment (PRIVDI) and public domestic investment (PUBDI) The

researchers also used the comparative research design in order to know whether

the movements in the gross domestic product per capita (GDPp) is similar or

different on the increase of the level of foreign direct investment (FDI) and

private and public domestic investment (PRIVDI and PUBDI).

3.2. Data Collection

In gathering the needed data, the researchers used the secondary data

provided by the government agencies like the National Statistical Coordination

Board (NSCB) and the Philippine Institute for Development Studies (PIDS). The

researchers also used the publications of the Bangko Sentral ng Pilipinas (BSP)

like the Selected Economic Indicators of the Philippines (SEIP). Likewise, the

researchers also used the Philippine Statistical Yearbook (PSY).

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3.3. Data Treatment

The researchers only had the annual data for gross domestic product

(GDP) in million pesos at constant 1985 prices. Since what the researchers want

is the gross domestic product per capita, the researchers divided the annual

population data provided by the Selected Philippine Economic Yearbook, 2007

from the annual GDP. On gathering the data for foreign direct investment, the

researchers used the amount of investments based on the Central Banks approved

registered foreign direct equity investment for the year 1974-2007 in US million

dollars. In order to convert it into the national currency, the researchers multiplied

it on the corresponding peso-dollar annual average exchange rate provided by the

Selected Philippine Economic Yearbook for the said years. Lastly, in gathering

the data for private and public domestic investment, the researchers used the gross

domestic capital formation data of the Philippine Statistical Yearbook of 1978,

1996 and 2007 for the years 1974-2007 at constant 1985 prices in million pesos.

Public domestic investment data are the governments gross value of construction.

While private domestic investment are the private entities gross value of

construction plus the durable equipments, breeding stock and orchard

development plus the change in stocks. Lastly, FDI, private domestic investment

and public domestic investment that will be use for the regression are already as

their percentage share to the amount of GDP.

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)(2

22

=

gse

ggt

3.4. Statistical Treatment or Tool

1. To be able to determine the relationship of GDP per capita to FDI and private

and public DI and which independent variable has a greater effect on the

Philippines GDP growth through GDP per capita, the researchers used the

ordinary least square multiple regression analysis: GDPp = bo + b1 FDI + b2

PRIVDI + b3PUBDI + et, , where GDPp is the gross domestic product per capita,

FDI is the foreign direct investment, PRIVDI is the private domestic investment,

PUBDI is the public domestic investment, b0 is the intercept or the value of the

gross domestic product if there is no FDI and PUBDI and PRIVDI, b1, b2 & b3 is

the slope coefficient of FDI, PUBDI and PRIVDI or the unit change in the GDP

per capita given a unit change in FDI, PUBDI and PRIVDI and et as the error

term. In line with this, the researchers also used the following tests to evaluate the

models significance and also the significance of each variable:

a. To test the significance of the variables FDI and DI, the researchers used

the t-test for significance, where, 2 is the estimated slope

coefficient of DI or FDI and g is the actual slope coefficient of DI or FDI.

b. To test the significance of the whole regression equation, the researchers

used the F-test on which the F statistic is the ratio of the explained

variability (R2) and unexplained variability (1-R2). The larger the F

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SST

SSRR =2

statistic, the more useful is the model. If the F-statistic is greater than the

tabular value, then the null hypothesis is rejected and the alternative

hypothesis will be accepted.

c. To determine if there is an autocorrelation between the variables, the

researchers used the Durbin-Watson test: where d is the

Durbin Watson statistic, e is the residual and t is the

time period counter. If the computed Durbin statistic is 2 or is greater than

its upper critical value, then it has no positive autocorrelation. If it is less

that its lower critical value, it suffers from positive autocorrelation. If the

computed value is between the lower and upper critical values, then the

Durbin Watson statistics is inconclusive.

d. To determine how well the independent variables, FDI and DI, explain the

change on our dependent variable, GDPp the researchers will use the

coefficient of determination or R2: where, R2 is the

coefficient of determination, SSR is the explained variability or regression

sum of squares and SST is the total sample variability/ total sum of

squares.

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= =

++=p

j

p

j

jj tEjtXAjtXAtX1 1

12,121,111 )()()()(

= =

++=p

j

p

j

jj tEjtXAjtXAtX1 1

22,221,212 )()()()(

ptpttt YYYtY +++++= 111 ...

2. To be able to know if the model the researchers will be using is stationary and

if it can be used for Granger causality test, the researchers would be applying the

Augmented-Dickey Fuller Unit Root Test:

where, is a constant, is the coefficient on a time trend,p isthe lag order of the

autoregressive process and t is the error term.

3. To be able to determine the direction of causality of FDI and private domestic

investment and public domestic investment to GDP per capita and vice versa, the

researchers will use the Granger-Causality test:

and

where, p is the maximum number of lag observations included in the model,

Matrix A which contains the coefficients of the model and E1 and E2 which are the

residuals for each time series

4. To determine if there is a misspecification bias in the model, the researchers

will use the White Heteroskedasticity Test.

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CHAPTER 4

RESULTS AND DISCUSSIONS

This chapter of the research paper communicates in details the results of

the study according to the order of objectives and hypotheses which were

presented in the first chapter.

Objective 1: To be able to know the relationship of foreign direct investment

and domestic investment (public and private domestic investment) on the

GDP per capita.

In order to test the relationship and contribution of the investment

variables to the GDP per capita of the country, the ordinary least square (OLS)

multiple regression estimates was used since it is the simplest method at hand and

compared to the other functional forms, OLS provided the most precise and

credible results (significant variables, significant model, high R-squared). The

findings in Table 4.1, shows that foreign direct investment (FDI), private DI,

public DI and GDP per capita are all significant since theirt-statistics which is 1.

1.972872, 3.890171, 2.146915 and 14.64162, respectively, are all greater than the

tabular value oftwhich is 1.725 at 5% level of significance with twenty degrees

of freedom after it was treated. Using the p-value approach, the intercept of GDP

per capita, private DI and public DI are all significant since their p-values are all

less than the assumed .05 level of significance which is 0.0000, 0.0015 and

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0.0486 respectively, while FDI was also significant at 10% level of significance

with a .0672 probability. As presented in Table 4.1, the results show that as the

level of FDI increase by one in its percentage share to GDP, there is an estimated

increase on GDP per capita by 27326.32. On the other hand, if there is an increase

of one unit in percentage share of public domestic investment and private

domestic investment to GDP, GDP per capita would also increase by 12742.86

and 11986.19, respectively. There was a significant increase on the level of GDP

per capita brought about by FDI, public and private domestic investment implying

that indeed investment has a great impact on the countrys GDP. However, if the

two types of investment are to be compared (FDI and DI) the results showed that

the coefficient of FDI which is 27326.32 is greater than that of the combined

private and public DI which is the whole domestic investment which is 24729.05

This is very similar to the study of Khawar (2005) where the coefficient on the

foreign investment variable he used is considerably larger than that of domestic

investment variable, suggesting a potentially large role for FDI. Likewise, Oneal

and Soysa (1999) also stated that foreign capital is 2.5 times as productive as

domestic investment when compared to a dollar by dollar basis. Lee and Tcha

(2004) also shared the same finding but increased the role of FDI since they found

out that FDI is more than four times larger than that for DI.

Moreover, there is an 86.45% coefficient of determination which means

that almost the whole variations in the GDP per capita are greatly explained by

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changes in both FDI and private and public DI. This coefficient of determination

only means that aside from consumption and government expenditures,

investment may have a bigger role in increasing a countrys economic growth. In

addition, the whole model was also significant since its F probability of .000005

is also less than the assumed level of significance of .05.

Furthermore, the treated Durbin Watson statistics of 1.939222 which is

greater than the upper value of the Durbin Watson statistics which is 1.812 at a

level of significance of .05 means that this model has no positive autocorrelation.

This is attributed to the right usage of the functional form. This also suggests that

the data used are not manipulated and that the variables used were the proper ones

and no important variable was excluded.

Lastly, the use also of AR (1) or the first-order coefficient of

autocorrelation or the coefficient of autocorrelation at lag 1, made the model

better since the researcher used it for treating the autocorrelation of the variables.

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Table 4.1

Ordinary Least Square Multiple Regression Result of GDP per capita

Note: * denotes significance at 5% (1.740 tabular values) and at 10% (1.333 tabular values);

**included observations: 21, convergence achieved after 34 iterations

Source: Computation based on data gathered

The significance of the model only means that investment does have a

great role in contributing on the countrys economic growth through GDP per

capita. This indicates that the investment brought about by other countries and the

investments made by our local producers are used in the improvement of our

production capabilities which may in turn; provide larger output and sales on our

economy. The bigger role of FDI also proves that opening our country to trade

brings us more various skills and specialization. It gives us a leeway to a more

alternatives and new ways to improve our production and economy.

Delineated Variables Coefficient Value t-statistic p-value

n=32**

C 8932.327 14.64162* 0.0000

FDI 27326.32 1.972872* 0.0672

PRIV_DI 12742.86 3.890171* 0.0015

PUB_DI 11986.19 2.146915* 0.0486

AR(1) 0.976258 3.601666* 0.0026

R2 0.86451Adjusted R2 0.819346

F-stat Significance 19.14178F (Prob) 0.000005

Durbin Watson 1.939222

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Objective 2: To be able to know which of the two types of domestic

investment- private and public contributes more to the GDP per capita.

In order to know which domestic investment variables contributes more to

the GDP per capita, the ordinary least square (OLS) estimate multiple regression

analysis was used since it was the best functional form and it gave the most

favorable results (high R-squared, significant variables, significant model). As

presented in Table 4.2, if the two types of domestic investment is to be compared,

private domestic investment contribution to the GDP per capita is greater than that

of public domestic investment since its coefficient of 12742.86 is greater than that

of the public DI which 11986.19. This means that, if there is an increase of a one

unit percentage share of private domestic investment to GDP, GDP per capita

would increase by 12,742.86 and if there is an increase of a one unit percentage

share of public domestic investment to GDP, GDP per capita would increase by

11986.19.

Moreover, the R-squared of the model which is 86.45% means that

the changes in GDP per capita are greatly explained by the changes in the amount

of public and private domestic investment. The whole model was also significant,

since theF-probability .000005 is also less than the assumed level of significance

of .05.

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To continue, the treated Durbin Watson statistics of 1.939222

which is greater than the upper value of the Durbin Watson statistics which is

1.812 at a level of significance of .05 also means that this model has no positive

autocorrelation. Lastly, the use also of AR (1) or the first-order coefficient of

autocorrelation or the coefficient of autocorrelation at lag 1, made the model

better since the researcher used it for treating the autocorrelation of the variables.

Table 4.2

Ordinary Least Square Multiple Regression Result of GDP per capita

Note: * denotes significance at 5% (1.740 tabular values) and at 10% (1.333 tabular values);

**included observations: 21, convergence achieved after 34 iterationsSource: Computation based on data gathered

The larger coefficient of private domestic investment as compared to the

public investment only shows that private companies invests more capital than

that of the investment of the government for public capital.

Delineated Variables Coefficient Value t-statistic p-value

n=32**

C 8932.327 14.64162* 0.0000

FDI 27326.32 1.972872* 0.0672

PRIV_DI 12742.86 3.890171* 0.0015

PUB_DI 11986.19 2.146915* 0.0486

AR(1) 0.976258 3.601666* 0.0026

R2 0.86451Adjusted R2 0.819346

F-stat Significance 19.14178F (Prob) 0.000005

Durbin Watson 1.939222

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Objective 3: To be able to know the direction of causality of FDI and private

domestic investment and public domestic investment to GDP per capita and

vice versa.

In order to know the direction of causality, the researchers first test the

stationarity between the variables through the Augmented Dickey Fuller Test

since it is a pre-requisite for the Pair-wise Granger Causality Test and since it is

better to know whether the variables used in the study have been stationary on the

years which the researchers have taken into account in the sample. As shown in

Table 4.3., the variables are all stationary in their first difference with 0 lagged

difference since the ADF tabular or critical values of GDP, FDI, private DI and

public DI at 5% and 10% level of significance which are -2.9558 and -2.6164 are

all less than their ADF Test Statistics which are -3.571570, -6.838219, -4.779292

and -4.998902 respectively. The results showed that the variables are all

stationary which only means that these variables can now be tested and used for

the Granger-Causality Test.

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Table 4.3

Test Result of Unit root test

DelineatedFactors

ADF TestStatistics** ADF Critical/Tabular Values

GDP -3.57157 1% Critical Value* -3.6496

5% Critical Value -2.9558


FDI -6.838219 1% Critical Value* -3.6496



PRIV_DI -4.779292 1% Critical Value* -3.6496



PUB_DI -4.998902 1% Critical Value* -3.6496



Note: *MacKinnon critical values for rejection of hypothesis of a unit root.

**ADF Test Statistics at First Difference and with "0" lagged difference

As shown in Table 4.3.A, the researchers test if FDI granger causes GDP

or vice-versa and the results showed that in fact FDI does granger causes GDP at

10% level of significance since the probability is only .08586 which is lesser. This

indicates that a countrys foreign direct investment is a huge factor to consider in

boosting the countrys GDP. These results are true since recent studies have

shown that FDI really helps in promoting growth. FDI can cause technological

change to a country and hence it can also affect the economic growth by

providing more income (Nigel and Pain, 1997). Fan and Dickie (2000) also states

that FDI contribute to growth through several channels. An increase in FDI will,

by itself, contribute to an increase in total investment and an increase in

investment directly contributes to growth. Sylwester (2005) likewise also viewed

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FDI as a medium than can transfer productivity. Khawar (2005) also concluded

that there is a large and positive relation between FDI and economic growth

which is also similar to previous study made by Firebaugh (1992).

Table 4.3.A

Pairwise Granger Causality Tests of FDI and GDP per capita

Null Hypothesis F-Statistic Probability

FDI does not Granger Cause GDP 2.87339 0.08586*

GDP does not Granger Cause FDI 0.95207 0.40675

Note: *significant at 10% level of significanceSource: Computation based on data gathered.

The result means that the government is advised to keep on making better

trade policies in order for FDI to continue to increase and bring beneficial effects

in the Philippines. To continue, as shown in Table 4.3.B., a test was made whether

public DI granger causes GDP or not and the results showed that GDP granger

causes public DI and not the other way around since the probability of GDP

which is .09606 is less than the 10% level of significance. This means that the

governments will to provide public investment is really dependent to the level

also of our GDP.

Table 4.3.B

Pairwise Granger Causality Tests of Public DI and GDP per capita

Null Hypothesis F-Statistic ProbabilityPUB_DI does not Granger Cause GDP 0.62177 0.54948GDP does not Granger Cause PUB_DI 2.72196 0.09606*

Note: *significant at 10% level of significance

Source: Computation based on data gathered.

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The finding suggests that it is undoubtedly true that a countrys

characteristics are also considered as a factor for the government to decide

whether to invest for public goods. Lastly, the researchers also intend to know if

private investment also affects the GDP per capita. And so, as shown in Table

4.3.C. below, neither of the two causes each other. This may be because of the

fact the private investment is independent on the GDP per capita since mostly,

private investors decision to invest also depends on their financial capability

unlike that of public investment where the government must rely also to the

countrys performance.

Table 4.3.C

Pairwise Granger Causality Tests of Private DI and GDP per capita

Null Hypothesis F-Statistic Probability

PRIV_DI does not Granger Cause GDP 0.14905 0.86271

GDP does not Granger Cause PRIV_DI 1.63552 0.22580

Note: *significant at 10% level of significanceSource: Computation based on data gathered.

Here, since FDI granger causes GDP per capita and GDP per capita

granger causes public DI, the result denotes that through technological

advancement and advanced skills, FDI affects GDP per capita. This reason is

considered to be the basis why there are spillovers of the effects of FDI to GDP

and GDP to public DI consequently. When FDI affects GDP, GDP per capita

tends to increase and if GDP per capita increases, there is a high probability that

the government will find it profitable to also invest public goods in the country

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since the gross domestic product per individual is increasing which means that

there is a greater consumer spending and consumer confidence.

Lastly, to test if there exists such misspecification bias in the model, the

researchers used the White Heteroskedasticity Test. As shown in Table 4.4, the

model has no misspecification since the probability of 0.019872 is less than the

assumed 5% level of significance.

Table 4.4

White Heteroskedasticity Test

White Heteroskedasticity Test

F-statistic 3.662083 Probability 0.019872*Obs*R-squared 16.12795 Probability 0.064257

Note: *significant at 5% level of significance

Source: Computation based on data gathered.

The results only mean that the model has used the correct data and that it

has no specification bias. This means that we have used the correct functional

form, the variables we used are the correct ones and that there was no data

transformation that was made.

CHAPTER 5

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SUMMARY, CONCLUSION, AND RECOMMENDATION

This chapter presents the rundown of the findings and results which were

made in the previous chapter and the suggestions that the researchers would like

to have.

5.1. Summary

This paper assessed the impact of FDI and DI (public and private) on the

Philippines GDP per capita by using quantitative data that were available from

the year 1974-2007. The results suggested that FDI has proven to be more

productive than DI in its impact on GDP per capita by using the ordinary least

square multiple regression analysis. This result contributed to the previous studies

of Oneal and Soysa (1999) as well as Khawar (2005) by means of confirming the

results from these studies indicating that the flow of capital, whether form

domestic or foreign sources has beneficial effects on the economic growth of a

country. Aside from this, when the two types of investment is compared on their

effects on GDP, FDI tends to affect GDP per capita more. This means that

although DI affects GDP, FDI has still a far greater importance in improving the

countrys GDP per capita since as proven in the Granger-Causality Test, FDI

affects GDP and GDP affects public DI. It is worth mentioning that aside from

foreign direct investment, this paper also included the effects of domestic

investment specifically public and private domestic investment on the GDP per

capita in the Philippines.

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5.2. Conclusion

The application of the ordinary multiple regression result estimates

revealed that indeed investment affects GDP. When it comes to the coefficients of

the independent variables, it can be presented that FDI has a significant role and a

greater impact on the GDP per capita of the country. Furthermore, there was also

a high coefficient of determination between the variables. The results even show

that by using granger causality test, FDI affects GDP and GDP affects public DI

and not the other way around. The model also appears to be significant, which

means that it can qualify for a meaningful econometric modeling and discussion.

Aside from this, we conclude that even though DI is one of the major components

of GDP, as what the equilibrium output of the goods market says, FDI has more

impact to GDP since it has a higher coefficient values in the multiple regression

analysis. FDI had proven that it has a greater significance in improving the

Philippines GDP per capita as compared to DI. This is also supported by the result

of the Granger-Causality test where FDI has been proven to granger cause GDP at

10% level of significance. This means that FDI could really help the country in

innovating and improving its productive capabilities through better production

facilities and more efficient manufacturing of products which could in turn bring

greater output and more products for consumers. Aside from this, if the two types

of domestic investment are to be compared, the results showed that private

domestic investment is greater than that of the public domestic investment. This

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means that private firms really contributes more also on the GDP per capita of the

country.

5.3. Recommendations

Based on the findings of the study, the following recommendations are now

presented:

1.) FDI was proven to be more beneficial than that of DI; the government should

be more open with the idea of FDI and the interaction among other countries

since open economy such as Singapore and Hong Kong are more likely to

encourage competitiveness and economic efficiency. Aside from this, the

country could also find ways to know whether which other sectors could be

helped by FDI inflows aside from the most common manufacturing sectors

that we already know. The government must seek new capital ventures where

other sectors aside from the industry must be included such as services or

maybe perhaps agriculture.

2.) The government could also start to establish a big brother policy wherein a

foreign investor is obliged to tap part of its resources and operations from

local small businesses, and provide technical transfer to them, to affect DI

specifically private domestic investments.

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3.) Moreover, creating a stronger technical exchange and alliance with our

ASEAN neighbours and China, recognizing Chinas emergence as a global

powerhouse. The result is this shift of FDI towards Asia, which we can take

advantage of and ride with our neighbours.

4.) Consolidating also all IPA operations under one roof/entity (e.g. PEZA and

BOI have different incentives for investors and subsequently, have different

reports and are actually independent of each other) though they are both

under DTI, they operate independently.

5.) The government should continue having a joint venture in investments with

our ASEAN counterparts (connected with previous statement) by making

package investment deals to sweeten the pot for investors. For example,

Ford makes the transmission parts here while it produces the brake assembly

in Thailand.

6.) Increasing infrastructure for transport (ship ports, airports, roads) and

communications (phone, internet, satellite link) and expand to places outside

NCR, Region 3 and Region 4 (where most of the EPZs are located) to further

boost development in the countryside.

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7.) Promoting the 10 priority investment sectors the government has been pushing

through for years and promoting EPZs.

8.) Promoting the country as a niche market in areas where we are strong and

where we have a unique offering for the investor such as shipbuilding

(Hanjin in Subic and Tsuneishi in Cebu)

9.) Since tax incentives such as tax holidays arent that effective on attracting

foreign investors to the country, the government should provide new policies

like creating promotional incentives for big-ticket investors who bring in other

potential investors in the country. The present locators (those already with

investments in the country) can invite their colleague-investors to invest in the

country. If successful, these investors can have privileges such as free

retirement packages for the head and his/her family). They can also avail of

free convention package with PICC (Philippine International Convention

Center), for example, to showcase their products and invite other clients and

investors in the Philippines.

10.) Furthermore, the researchers think that further studies on the impact of

FDI and DI (private and public) on the Philippines GDP per capita could be

more interesting if they could add certain variables that also affects the level

of FDI and DI (private and public) such as human capital investment, political

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instability, tax rates and the geographical setting of the country since due to

time and budget constraints especially on the collection of secondary data of

foreign direct investment, the researchers didnt had the chance to include said

variables. Lastly, it is also better to include other indirect investment such as

so as to know if it has also a great effect on the impact of GDP per capita.

APPENDIX A. Data Summary

YEAR FDI*ExchangeRate***** GDP** POPULATION***

PrivateDI****

PublicDI****

1974 269.22 7.065 430314 37.671902.03

9 266.1386

1975 390.94 7.498 454260 39.982931.26

8 299.77

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1976 512.96 7.428 494265 42.293810.26

7 314.1301

1977 695.79 7.37 521954 44.6

5127.97

2 328.702

1978 852.12 7.375 548950 45.86284.38

5 337.775

1979 1051.41 7.415 579909 47.047796.20

5 348.8016

1980 1280.88 7.6 609768 48.329734.68

8 367.232

1981 1587.69 8.2 630642 49.313019.0

6 404.26

1982 1931.59 9.171 653467 50.617714.6

1 464.0526

1983 275.61 14.002 665717 51.83859.09

1 725.3036

1984 146.55 19.76 616962 532895.82

8 1047.28

1985 246.9 19.032 571883 54.244699.00

1 1032.296

1986 108.25 20.53 591423 55.522222.37

3 1139.826

1987 96.38 20.8 616923 53.832004.70

4 1119.664

1988 63.99 21.335 658581 58.171365.22

7 1241.057

1989 202.81 22.44 699448 59.544551.05

6 1336.078

1990 195.87 28 720690 60.94 5484.36 1706.32

1991 415.3 26.65 716522 62.3611067.7

5 1661.894

1992 328.01 25.096 718941 63.828231.73

9 1601.627

1993 377.74 27.699 734156 65.3210463.0

2 1809.299

1994 881.89 24.418 766368 66.8421533.9

9 1632.099

1995 815 26.214 802224 68.4121364.4

1 1793.3

1996 1281 26.288 849121 70.0133674.9

3 1840.423

1997 1053.38 39.975 893151 71.65

42108.8

7 2864.209

1998 884.71 39.059 888000 75.1634555.8

9 2935.674

1999 2106.73 40.313 918160 76.7884928.6

1 3095.232

2000 1398.2 50 972960 76.79 69910 3839.5

2001 857.87 51.4 990042 78.5944094.5

2 4039.526

2002 1431.42 51.609 1034094 80.16 73874.1 4136.977

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5

2003 1488.18 54.203 1085072 81.8880663.8

2 4438.142

2004 680.27 55.939 1154295 83.5638053.6

2 4674.263

2005 552.135 55.0855 1211452 85.2630414.6

3 4696.59

2006 986.387 51.3143 1276873 86.9750615.7

6 4462.805

2007 949.515 46.1484 1368641 88.27 43818.6 4073.519

Source: *Central Bank/ BSP Registered Equity Investments by country of Investor (inmillion US dollars)

**Selected Philippine Economic Indicators Yearbook, 2003 (in million pesos atconstant 1985 prices)

***Selected Philippine Economic Indicators Yearbook, 2007 (in million persons)

****Philippine Statistical Yearbook, 1978, 1996, 2007 (in million pesos at constant1985 prices

*****Selected Philippine Economic Indicators Yearbook

APPENDIX B. Sample Letter of Request for BSP

07 July 2008

Mr./Ms. F. DiangsonBSP Library Head,Bangko Sentral ng Pilipinas

A. Mabini St. cor. P. Ocampo St.,Malate Manila, Philippines 1004

Dear Sir/Madam:

This is to introduce the following Economics students of the College ofCommerce of the University of Santo Tomas:

Ms. Jennifer LetranMs. Ana Katrina Quiambao

Ms. Marigold Hao

They are currently enrolled in Economics Research II where the main requirementor output is a thesis. At this time, they are in the process of gathering pertinentinformation or data or resources for their paper entitled:

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The Impact of Foreign Direct Investment and Domestic Investment to theEconomic Growth in the Philippines

In line with this, may I request your office to extend your kind assistance to thesestudents by way of providing them the necessary data relevant to their study.

Thank you very much.

Sincerely,

Asst. Prof. Clarissa Ruth S. RachoChairperson, Economics Department

College of Commerce, UST

APPENDIX B. Sample Letter of Request for NEDA

30 September 2008

Jonathan L. UyPublic Investment Staff, Director IVNational Economic and Development Authority (NEDA)12 Saint Josemaria Escriva Drive,Ortigas Center, Pasig City 1605 PHILIPPINES

Dear Sir:

This is to introduce the following Economics students of the College ofCommerce of the University of Santo Tomas:

Ms. Jennifer LetranMs. Ana Katrina QuiambaoMs. Marigold Hao

They are currently enrolled in Economics Research II where the main requirementor output is a thesis. At this time, they are in the process of gathering pertinentinformation or data or resources for their paper entitled:

51


60/64

The Impact of Foreign Direct Investment and Domestic Investment to theEconomic Growth in the Philippines

In line with this, may I request your office to extend your kind assistance to thesestudents by way of providing them the necessary data relevant to their study.

Thank you very much.

Sincerely,

Asst. Prof. Clarissa Ruth S. RachoChairperson, Economics DepartmentCollege of Commerce, UST

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