Ma. Theresa U.

Prudencio International Political Economy

AB Foreign Service 302 Sir. Jumel G. Estrañero
March 14, 2018

Foreign Direct Investment: A Road to Philippines' Economic Development

Foreign Direct Investments (FDI) as defined by de Mello Jr. (1999), a form of

international inter-firm cooperation that involves significant equity stake and effective
management decision power in ownership control of foreign enterprise. While based on
International Monetary Fund and Organization for Economic Co-operating and
Development (OECD) defines Foreign Direct Investment reflects the aim of obtaining a
lasting interest by a resident entity of one economy (direct investor) in an enterprise that
is resident in another economy (the direct investment enterprise). The lasting interest
insinuates a significant degree of influence in the management of enterprise between
the investor and the investment, as a result of globalization.
FDIs are needed for the economic growth and development in the host country
where the business is established. Inflow investments help to increase capital formation
that is significant in economic growth. Technological advantages brought by FDI inflows
allow the host country for higher productivity for local firms as a key to potential
technological advancements. The level of labor demand grows as FDI inflows create
employment opportunities for domestic laborers especially in developing countries
where labor forces dominates. It also improves management skills that laborers can
apply in production and enhance employees to an efficient productive skills that will lead
to effective productive capabilities. A beneficial competition is also a key advantage
brought by FDI inflows in which research and development will be generated by
domestic firms for higher productivity, lower commodity prices, and efficient allocation of
resources. FDI also affects the Balance of Payments (BOP) as FDI inflow is invariably
positive in BOP accounts of the state. With these economic advantages also give rise to
economic drawbacks in the host country. There are adverse effects on employment that
not all investments created by FDI proposed jobs for local laborers. There’s no likely a
‘beneficial’ competition between FDI and domestic firms, sometimes FDI subsidiaries
have economic power than local competitors, therefore downfall of domestic firms are
more likely to happen. There is a greater risk of interference by foreign government that
influences FDI to monopolize domestic market and that will further result to abrasion of
the host country’s culture. FDI inflows are often have longer and higher term outflows
that is not beneficial to host country, furthermore, foreign investments have benefited
their host countries especially those with limited domestic sources and restricted
opportunities to access and compete in the world market.
The Philippines, as a developing country actively attracts foreign direct
investments (FDI) over the last two decades. With the recent reports on the FDI surge
to $10B on Duterte’s Administration, we can discern that investors are trusting the
Philippines’ growing economy as the next investment hotspot in Southeast Asia, as
manufacturing sector and business processes outsourcing sectors as the leading
recipients. Aside from Singapore, US, Netherlands, and Luxembourg as the source of
equity capital infusions in the country, I consider Australia as another potential source in
which the Philippines can engage economic cooperation. Australia was the second
main investing countries in the Philippines last 2016. Since the two states have built a
strong relationship and also regional cooperation through ASEAN-Australia-New
Zealand Free Trade Agreements (AANZFTA) and also the Regional Comprehensive
Economic Partnership Agreement (RCEP), it is no longer difficult to deepen and
broaden bilateral trade and investments in creating economic conditions such as taking
consideration the SMEs, to flourish economic cooperation.
The Philippines as influenced by its governmental policy has been keen on
alluring inward FD. Philippines' openness and restriction on foreign investment also
hinders inward FDI as Philippine laws and governmental policy such as Philippine
Constitution, Omnibus Investment Code of 1987 and Foreign Investment of 1991, as the
laws treats foreign investors the same as their domestic counterparts and the 60/40
foreign ownership rule. The pursuance of economic liberalism has been on discussion
to remove existing equity and capitalization requirements and a 100% foreign owned
business to operate. With this, surely the FDI will help to surge greater heights and
Philippine economic development can achieve stability and compete with other
developing countries in the world market.
With globalization, developing countries have depended on foreign direct
investment to aid their economies toward development and stability. The Philippines in
order to achieve economic growth and stability, should solve national security issues
like the insurgency in Mindanao. Land reforms should also be of concern to protect and
promote domestic businesses and the growing MSMEs. Economic liberalization shall be
taken to consideration especially for public transportation and infrastructure. Certain
measures, policy and dialogues should be thoroughly undertaken for the road to
economic stability is still a long way to go for our country.