The impact of governance indicators on foreign direct investment (FDI) inflows in the Philippines
Date
2023-07-21
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Abstract
This study analyzes the impact of governance indicators on the FDI inflows of the Philippines. Using the top 20 foreign investor countries from 2005 to 2021, we explore whether their investment decisions were affected by governance, which we measure six-ways as provided by the World Bank: (1) control of corruption; (2) government effectiveness; (3) political stability and absence of violence/terrorism; (4) regulatory quality; (5) rule of law; and (6) voice and accountability. Using the ordinary least squares (OLS), the fixed effects, and the random effects regression models, we find that regulatory quality, defined as the
government’s ability to implement policies and regulations that
promote private sector growth, is the only indicator that had a positive significant impact on FDI inflows, while the rest of the indicators did not have a significant effect on it. From
our study’s results, we suggest that the national government consider formulating and implementing policies and regulations that would better protect and develop the private
sector to attract more foreign investors. Due to the limitations of our findings, we also recommend further improvements to future studies in the field to explore the effects of governance indicators on Philippine FDI with greater detail.
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Keywords
foreign direct investment, foreign investors, Philippines