Multinationals, Employment Creation and Spillover Effects: The Case of the Philippines

Abstract

This paper analyzes the role of FDI in industrial development of the Philippines using the three-digit industrial classification data type of ownership. Unlike other ASEAN countries, FDI did not become an engine of growth in the Philippines until the recent years. This seems to arise from differences in the quality, as well as the level, of FDI. The entry of foreign firms did not enhance industrial development with substantial labor absorption in the Philippines. Besides, the spillover gains of productivity tended to be weak. The benefits from FDI, however, depend on the policies of host countries, as well as the behaviors of the multinational firms. The case study of the Philippines seems to show that opening FDI regime without complementary trade and other liberalization policy may detract from long-run economic growth. The benefits of comprehensive economic reforms in the early 1990s, however, have started to be realized in the Philippines since 1994. The virtuous circle of export, investment and growth seems to be setting in. Further, trade, as well as investment, liberalization will enhance the role of FDI in economic development of the Philippines.