Capital inflows and economic growth: the Philippine scenario
Date
1995-03
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Abstract
The role of foreign capital inflows as an engine of growth has been the focus of attention/or several years. The need to reconsider this issue stems from the disparity between theory and empirical data. This paper analyzes the relationship between capital inflows and economic development in the Philippines with the view of deriving some policy implications. The simultaneous regression analysis used in this paper showed that foreign capital inflows had a negative effect on domestic saving while its effects on growth is mixed--the positive effect was significant in the case of foreign aid, among various types of capital, while foreign private investments had an unfavorable effect. Empirical data also showed that export performance and growth of labor force has an unfavorable contribution to growth. The findings of this study suggest that while the country's development strategy is dependent on large amounts of foreign capital to increase growth, inconsistent policies by the government have led to the unsuccessful implementation of this strategy. If the country wishes to maintain sustained economic growth, 1)foreign aid should be encouraged instead of foreign private investments and 2)rather than rely heavily on foreign capital, efforts should be directed towards increasing efficiency and mobilizing domestic resources.
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Keywords
Capital inflows, Economic growth