Kate Desiree A.

Mendoza International Political Economy

AB Foreign Service 301 Sir. Jumel G. Estrañero

Foreign Direct Investment as part of the Philippine Economic Growth

INQUIRY #3: RP FDI and Globalization

Foreign Direct Investment (FDI) is investment made to acquire a lasting interest in or effective
control over an enterprise operating outside of the economy of the investor. Foreign direct
investment is when an individual or business owns 10% or more of a foreign company. Foreign
direct investment (FDI) has grown dramatically as a major form of international capital transfer
over the past decade. FDI has become a major form of net international borrowing for Japan and
the United States (the world’s largest international lender and borrower, respectively). Direct
investment has grown even more rapidly of late within Europe. According to the IMF and OECD
definitions, 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).
FDI leads to higher growth rates. Foreign investment helps a country's economy by allowing
foreign investors to fill investment gaps in manufacturing and infrastructure that may not be met
domestically which can be very positive for GDP in open economies. Foreign Direct Investment
will lead to a higher exchange rate in the country being invested in and higher interest rates.
Foreign direct investment is critical for developing and emerging market countries. Foreign
direct investment benefits the global economy, as well as investors and recipients.
(ADVANTAGES) Capital goes to the businesses with the best growth prospects, anywhere in
the world. That's because investors seek the best return with the least risk. This profit motive is
color-blind and doesn't care about religion or politics. Individual investors receive the extra
benefits of lowered risk. Recipient countries see their standard of living rise. Another advantage
of FDI is that it offsets the volatility created by "hot money." That's when short-term lenders and
currency traders create an asset bubble. They invest lots of money all at once, then sell their
investments just as fast. Countries should not allow foreign ownership of companies in
strategically important industries. That could lower the comparative advantage of the nation,
according to an IMF report.
The Philippines is rich in minerals and certain energy resources. It ranks among the top ten world
producers of gold, copper, and chromite. Its mineral reserves also include silver, nickel, cobalt,
and zinc. Foreign investors are encouraged to participate actively in the development and
discovery of new resources, particularly in the exploration for oil and natural gas deposits and
the development of nonconventional sources of energy. The government’s aim is to develop
more effective linkages between the agricultural and industrial sectors, so that both sectors can
improve their international competitiveness and expand their capacity to service both local and
export markets. Today, the Philippine government are negotiating with China, South Korea,
Australia, and India. Each of this country has their own source of economic growth. China is the
world's largest emerging market economy, both in terms of population and total economic
product. The country is arguably the world's most important manufacturer and industrial
producer, and those two sectors alone account for more than 40% of China's gross domestic
product, or GDP. China is also the world's largest exporter and the second largest importer, and it
contains the fastest-growing consumer market. The government of Korea openness to foreign
investment is above average. It is the 4th largest in Asia and the 11th largest in the world. Korea
has mixed economy. And the banking sector remains largely stable. The economy of Australia is
highly developed and one of the largest mixed market economies in the world, with a GDP of
AUD$1.69 trillion as of 2017. Australia is the second wealthiest nation in terms of wealth per
adult. The economy of India is a developing mixed economy. It is the world's sixth-largest
economy by nominal GDP and the third-largest by purchasing power parity (PPP). Foreign trade
plays a significant role in steering the economic development of our country and these would
really help the Philippine to increase the economy.
The stage has been set. The Philippine economy has been growing in leaps and bounds and the
country is poised for further growth. All it needs is a little financial injection from foreign firms
with big pockets. The Philippines is still the regional FDI laggard. Their companies need the
multinationals' funding and expertise to expand their international sales. Their countries need
private investment in infrastructure, energy, and water to increase jobs and wages. The UN
report warned that climate change would hit them the hardest. These global corporations'
investments were for either restructuring or refocusing on core businesses.
Foreign direct investment, as one of the core features of globalization, grew at an unprecedented
pace and even faster than world output and trade. The government should appreciate the fact that
the basic element in any successful development strategy should be the encouragement of
domestic investors first before going for foreign investors. Philippine should give importance to
services sector also. Educational and welfare facilities for foreigners and building bilingual
schools with international standards would go a long way in attracting foreign investment.
Philippine should have strong diplomatic relations in the global arena, membership in the
international community, multilateral investment treaty and avoidance of tension in international
relations in order to gain the confidence of foreign investors, but with a view to maintain and
protect national integrity and interest.