Foreign Direct Investment in the Philippines: A Review of the Literature

philiF?ÂŁne_Institute for Deveio_.ent Studies_ WorkLng "Paner 81-Ii

FOr_I._'_ DIRECf ....._ ..... A _AU]5_ 0F _q_fl I I_TUPÂŁ by Charles Lindsey hl collaboratlnn _ith Ernesto >.LValencia*

Philippine Instit_itefor Deveio_F.entStudies October 1981

*_ssigtmnt Professor, Trinity Coiieffe,Hartford, _, and _structor, School of Eccncmics, University of the Philippines, lar....ely respectively. The research_as _ _ " carried out while iXndsev was Visitin_ Associate Professor at the School of Econc_Acs. Arnold 01iva, Teofi!o Pilando, Jr., and Jose Raymond Vergara _,ere research assistants; their efforts are appreciated. The views expressed in d_is study are those of the audlors and do not necessarilyreflect those of the Institute,

C ont ents

I. II. III. IV. V.

Page

Introduction

I

Attitudes, Size

of

Policy, Foreign

Factors

and

Investment

Affecting

Benefits

and

Regulation

the

Costs:

in the

Decision

Some

@

to

Philippines

I@

Invest

25

Preliminaries

29

VI.

Capital

Contribution

37

VII.

Balance

of

51

VIII. IX. X. XI. XII. XIII.

Payments

Employment Factor

and

Labor

Intensity,

Technology Training Monopoly, Summary References

Relations

Wages,

and

Transfer and

Skill

Power, and

57 Profits

66 74

Development _nd

Conclusion

Influence

8@ 91 108 112

I.

Introduction

This

is a review

investment

in

demarcation

the

is

appropriate

sectoral

pattern

the

post-lndependence

imposition

of

large.

latter

primarily

be

than

by

synonymous (TNCs).

between

the

not

preference

years

pre-

following

the

in

19@9,

146-I_7) of

In

direct

foreign

has

by

been

we

investment,

virtually

by transnational

corporations

almost

interchangeably.

that

there

is

any

useful

"transnational"

and

"multinational".

for

but

we

former,

will

economy.

terms

the

the

investment

of the

and

is

therefore,

sector

in

in the

the

feel

is

This

distinction

also

use

the

decade

of

latter

occasion. In this

the

this

investment

terms

1958:

proportion

with

direct

difference

controls

nationals,

use

asthe

in maaufacturing;

30

Chinese

We will do

on

past

with

Also, we

Our

been

the

import

greatest

foreign

independence.

especially

University

concerned

During other

and

on

investment

periods,

the has

since

foreign

exchange

period,

literature

inasmuch

of

(Columbia

non-citizens

the

Philippines

the

quite

of

century,

at

1970s, American_and

Filipino

owners

Although

the

prominently

presence

discussions

desirability

of

the

particularly

economy,

period,

the

Filipino

issue

prior

to

Chinese-were

of productive

Chinese in

least

usually

the in

in the

economy

control

has

dominant

assets

concerning

in

the

the

of

the

Philippines. has

extent

various

early

been

the

non-

figured or the

sectors

of

post-independence

considered

a subject

- 2-

separate focused

from that of foreign more

Japanese. will

on the actions

We will

be referred Neither

follow

reason

years.

quite

Rather

substantial different

questions

Therefore,

indexes

government

_offices

Reference

Pascua

and to the

(1977),

particularly

Stauffer

in recent

has not received•

about

In addition, loans and equity on the ]'atter. as

and abroad.

of major universities

science

and

area,

disciplines,

and the Philippine

Index

of

was made to the bibliography work of others

of the literature

the Philippines.

of this type are

in the Metro-Manila

social

Periodicals.

The

as much of the literature

catalogues

abstracts,

parts

investment

both in the Philippines

dissertation

reviwed

foreign

we will concentrate

cover

of the various

(1978)

investments

or private.

investments

may be raised

library

and

Chinese

in the literature.

that written

We consulted

public

it is that the subject

We attempt to possible,

with

the contrary,

treatment

investments.

relevant

either

is not so much that

unimportant;

Europeans,

has

in passing.

we be concerned

in the form of loans,

The latter

of Americans,

this pattern;

to only

will

investment.

This includes (1979),

Subido

wh6 have previously

on foreign Espiritu (1975),

by

investment

in

(1977), Magall0na Suva Martin

(1972),

and suda, eAta_ (1978). l We find that writing

on forei6n

ranging

from

there

is a quite sizable

direct

academic

investment

inquiry

amount

of

in the Philippines,

to political

debate

to

-- 3

speeches follow and

for business in decidin_

arguments

at times

We include

those

work.

items

in nature,

that

new

historical

or analytical

apologize.

The topics fashion;

segmented

however,

approach

We normally

conclusions under

critically argument

cover

on occasion

extract

examine

somewhat

(copies

ocer.

upon request).

on more encompassing

a particular

author's facts,

In a few 21aces,

in benefit/ this issues. work

and

to the particular

the theoretical

to

of which

we go beyond

the data,

varying

For this we

are taken up separately

that are pertinent

however,

issue we do

and analytical

presented.

We have on the

persons

and touch

consideration.

of widely We tried

we include

bibliography

do not examine

as such, but rather

Works

no doubt intrude.

to interested we cover

and that use a

are mentioned.

our biases

as broadly

new data or information

approach.

of our initial

can be supplied

would not be

has to be exercised.

analysis,

As it is, however,

one-third

cost

introduce

or different

but

otherwise

But judgment

and sophistication

be catholic,

that

Facts

to our purpose

that can be classified

or present

quality

are relevant

in pieces

serious

There is no easy rule to

to and what not to include.

that we feel

considered

economic

_roups.

what

appeared

--

attempted

subject

as it is currently

considerable

that there

to present

ground,

are few areas

incontrovertible.

the state of knowledge in the Philippines.

but the reader

should

in which the results

If only those pieces

We

be aware

appear

were included

in

which

the

to prove would

author presented his or her point

indeed

presented in the

sufficient beyond

be very short.

likewise,

ourselves.

hopefully

dispute,

we question

We encourage

improving

and the discussion.

Lastly,

mention

articles,

and books

included

(at least

which

major

of Thomas

Alle_

A which

Working

others

that almost

cover

and quality

deal

to

are the monographs Asia.

by the Philippine

as part

specifically

or sections

all of Southeast

Group

to do

all the papers,

the chapters

exception

as his study was commissioned Inter-Agency

some of them

in this survey

with the Philippines we refer).

the bibliography

on the quantity

of both the data

we should

and argument

Many of the conclusions

are open to doubt;

review

data

Imasmuch

gevernment's

of its investigation i

of foreign relevant

II.

Attitudes.

foreign

in the Philippines,

we feel

it is

to this review.

There

both

investment

Policy_

are at least

investment

and Re_gulation three

in the Philippines

historically

why studies

importance

upon

and pattern

in the economy

investment

of the country's

perceive

to be significant

consequently, is desirable government

hold

strong

or not. has, with

And

views thirds

variations,

has been

development.

section.

investment

First,

to have an impact

This we take up in the next foreign

on

are important.

and currently, .foreign

of sufficient the pace

reasons

Second,

on whether the policy

Filipinos and,

its presence of the national

been encouraging

of

-5-

foreign the

investment

second

and

third

Economic important climate has

since

nationalism

Writing

a decade

traditionally

of

of Philippine a rapid

We now

take

up

points.

ingredient

been

independence.

the

intellectual

society.

Since

Filipinization and

a half

has

Golay

an

andlpoli_ical independence

of much

ago,

been

of

the

there

economy.

summarizes

this

movement. Equally remarkable has been the rapid Filipinization of all major economic sectors. Importing, other t_u industrial raw la_erials and equipment for direct use, was steadily diverted to Filipino enterprises by import controls. Export production, with the exceptions of mining, where foreign capital and m_na_ement are sÂŁflxl prominent, and the _roductiom _nd pr0cessin_ of pineapples and manu_fact_e of desicca_ced coconu_ by America_-ow_ed enterprises_ today is substantially in Filipino hands. Internal commerce, with the major exceptions of the ubiqultous In ernatlonal oli dlstrlbutlnK f lrms, 18 dominated by Fiiipino ownership and management and heavy nationalist pressures are being maintained on the remaining Chinese and Western interests. Retail trade and trade in rice and corn, long dominated by the Chinese, have been reserved by law to Filipinos and substitute Filipino marketing structures apparently have materialized with little dislocation. Similarly public utility services, including internal transport and communications, are today essentially Filipinoowned and managed. Finally the postwar period has seen the emergence, with government encouragement and subsidization, of a complex structure of money and capital market institutions owned and controlled by Filipinos. (_966: q05-IO_, emphasis added) There the be

have

possible difficult

should

be

changes

exception to

noted,

manufacturing. manufacturing

been

argue

of

Elsewhere, as

an

the

with

however,

area

since

Golay no

Golay being

mid-1960s

financial

what that

the

sector, has

mention

off

is made

to

with

it would

written.

specifically

closed

but

It of

exempts n0n-citizens.

- 6-

The reason as the that

iS that

"Filipinos

'man in the street'

foreign

capital

in employment

pace

growth

that Those

economic

he excepted

petroleum,

unimportant

areas

of economic presence

foreigm

the exclusion

pineapple

development.

a view

thesis

Filipinized. and

~- are not

In fact, they are aad policy

For that reason

investment

of

Golay's

production

and manufacturing

of both discussion

articulates

(1969: 6_)

have become

of the economy,

of foreign

Gleek

sectors"

development

are to keep

have to question

-- mining,

processing,

at the center

one means

as well

persistently

if economic

opportunities

then we would

"all major

elites

avowed

in population."

If by Filipinization non-Filipinos,

-- have

is necessary

and expansion with the

generally--

has been that

in the area

the continued

controversial.

is not limited

to

observers.

The influence of the American-owned firm has historically been profoundly democratic in its hiring, training and advancement policies; in its emphasis on the importance of building a mass market; in its promotion of the spread of ownership (of either the local or parent compaz_y). This thrust was in the early years invested with heavily ideological content, but as time went on, its chief motivation was rationally based on visions of economic development and the broader markets it generates. W_ether we think of Philippine Education, with the impetus it gave to education, the early Meralco and its extension of mass transit, the bus and embroidery pioneers, the exploration of mineral resources, consumer goods manufacturing, or the media industry -- all participating American firms spread education and income in ways favorable to economic development. (1975: 178) Those

holding

one mind -- often capitalism

contrary question

in general,

views

-- and they are not

the efficacy,

at least

of

if not of

of its unregulated

operation

-7-

at the world

level

on the economic

Philippines.

The dominant

capitalism_

the transnational

particular

institution

of the

of international

corporation

receives

scrutiny.

Constant_no TNC-Ied

development

for example,

questions

the benefit

of

industrialization.

Instead of economic development which will benefit the people, ther_ results a distorted development not responsive to the people's needs but profitable to the global enterprises. Instead of using its own resourc_ for its own people, such a cot_try is drained of i_s natural riches in exchange for a pittance in the form of temporarily higher employment levels and the chimera of technological know-how. For precisely, to assuurm the perpetuation of the captured country's dependence which is the basis for their own profits, the global enterprises will impart only such t_chnology as suits their purposes. (1978_ 231) Magollona, the

influence

issue to

on the other of TNCs

hand,

on national

him is one of "national

is more concerned decision-making.

economic

with The

security."

The key factor in the problem is the fore i_ ownership o_ control which the TNCe hold_in _ th_ c_o_u_ry"s means shift8 the whole ft_cr_ of the national economy, from the c ql_ective interest of the broadest ranks of the population in their own independent social progress and economic development, to the demands of global profit maximization o _;he TNCs.... __ . . . . the government is likely to equate the developer process with the proflt strategy of the TNOs, wh'_e dominant posit_on in the economy creates furthel, conditions for the government to reinforce their resence as a prerequisite to economic stability. 1977: 122, emphasis in original) Lichauco agencies

brings

_

in establishing

the internationalization Philippines. are deemed

He 2;_s es_mtial

the role policies

of the international that are conducive

of the economic that

to

life of the

the four basic policies

from the international

that •

perspective

- 8 -

are

harmful

keeping

to

the

encouraging and

fiscal

remedy

the

nation_!

economy

open

foreign

investment,

austerity,

to

balance

in the

with

business

community.

views

of those

and

those

who

the

following than

fighting

in

and

terms

there

is

TNCs

no

needed

On (I)

need

(3)

local

of

access

to

the

small

although

the summarize

side, little

choice

of TNCs

are

discipline,

Philippines development,

and

medium

inflow; the and

and

government

investment

is

skill

technology

markets

to

industry,

self-reliance;

world

0f

pro

the

the subject

the

foreisn

help

exports,

R & D,

at

on

critics

for

TNCs

(continuous)

for

an

in

there

(2)

encouragement

attempts

for

(%)

presence (5)

world

the

TNCs

brand

(55-59) critics

Philippines the

early

bourgeoisie, (along

made:

production,

and

need

reduce

The

in

investment;

competition, business,

names.

have

better

scale

are

were

the

calls

attempts of

critical.

and

he

people

favor

comments TNC

(1975:21-25)

individuals

He

capital,

the

representatives

in

rationalization;

of

healthy

of

largely

modernization

order,

and

generally

are

to

what

(1979: 16,56)

the

as

difficulties.

academics,

TNCs,

and

to monetary

devaluation

informed

Philippines,

dealing

include trade

adhering

using

26

These

international

ccmducted

with

agencies

other

and

Stauffer

interview-dialogue TNCs

to

of payments

Recently,

of

economy.

with

also

could

have

1970s; get other

made

(2)

the l_e

several

gone TNCs

best

for

independent

kill

brains,

points:

(1)

the

_

industrialization

off

the

national

and

have

close

with

Ph_2ippine

corporations)

relations

_ _) -

government

agencies;

in Philippine "national the

affairs

styles"

lastly

in (6)

(5)

the

foreign

Japanese

TNCs

hurt

superiority

some

governments

on behalf

(the

Americans);

a belief

(3)

business

of TNCs;

(4)

are

aggressive

more

small of

TNCs

business

foreign

people

intervene have

and

create

products;

feel

that

they

than

and can

compete

with NCs. (39- 2) In

reviewing

foreign that is

investment

much

the

exists

of

it

in has

one

suspects,

not

foreign

views

of The

they

enforce

have

Both

success

and

earlier the

has

the

the

much

points

explains

why

debate,

of

. • • less

the

by

this

course,

'business The

subject

necessary

of

out

governmentJs

(1979:52) to

on

Stauffer

overarching

government

to

the

failure laid

they

in the

at their

a major

'business

actor

described

enact

culture'

need

to

lay

scrutiny,

proponents

works

are

is, of

of particular

and

the

regulations

on

the

economy.

impact

Philippines'development door.

One

in the

culture'

laissez-faire

post-independence

waI_

officials

considerable

is

include

Philippines

followin_

.

policies

been

government

not

the

deemed

importance.

addition,

to

literature

investment.

The

process

He

policies

society vision,

does

side'

and

a larger

recent

Philippines,

'other

established

permeates

the

critical.

in the

program

of

been

"The

out

the

the

case.

development that

a portion

a tenet.

on

Philippine

is

economy.

of which as

reason

foreign

In

Stauffer One

that

speaks

of the

investment

enterprise

in

the

in

- 10-

When the American business community in the Philippines uses the term "free enterprise," it is thinking of the same institutional set-up their counterparts in the United States are concerned with. When, on the other hand, Filipino businessmen talk of "free _nte_,prise," _hey appear to think of a "private _ rather than of a "free" enterprise economy. In other words, while they are, as a rule, opposed to direct government activities in business undertakings_ except perhaps when the gover_unent is satisfied with the role of a junior partner, they yet clamor for governm_nt protection, subsidies, incentives, and discrimination (mostly against "aliens") to an extent to which appears more r_,presentative of a "corporate state" rather than of a capitalist free enterprise economy. (Columbia University q958: 92) Leaving

aside

enterprise,"

it remains

involvement including

the authors'

true that there

by the Philippine those

parts

Castro

of the legal

framework

investment.

One chapter

deals

nationalism

with foreign

discussing

and be sued,

legal

form of business; regulations

and

transnational

examines

invest.

a detailed

surrounding

enterprise

private the

definitions,

impact

capacity

forms

legal problems

corporation

chapter that

operating

of another in the to sue

of business,

of det_ision-makin_

and a third

examination

foreign

doing business

Jurisdiction,

of control

in the economy,

on law and regulation;

Philippines,

mechanics

government

(1977)provides

"free

is considerable

in which foreigners

Cagampang-de

Philippine

view of American

and

in the corporate

focuses

on specific

arise from a in a developing

economy. Bacu_gan articles

(1978)

has put together

on the regulation

his collection,

extracted

of TNCs. from Tsuda,

a collection

of

The first half of et a__l(_978),

presents

a historical

the Philippines Following,

Board

as well

there

of government

overview

of Investments,

Authority,

and the

The volume

ends with

Paper

Unit

No.11 Robinson

his study

amount

over TNCs: the Central

Securities

Economic

a "critical TNCs.

includes

powers Bank,

Commission.

Nations

Corporations

on

Joint

Working

of the Bacu_gan

a chapter

of the regulation

of data.

appraisal n section

The United

is a summary

in

Development

and Exchange

on Transnational

(1980)

investment

on the regulatory

National

the need to regulate CTG/ESCAP

as a considerable

are sections

agencies

of foreign

collection.

on the Philippines

of entry

of foreign

in

investment 4

in 15 countries.

The Philippines,

according

to the m

author,

_Has the most

the world."

complex

entry control

system

in

(1976: xlx)

The very complexity of the system invites criticism, indeed, members of the LBoard of Investments] staff admitted that they themselves did not have a full understanding of all laws, regulations, and procedures. One suspects that, given this complexity, almost any project (assuming tha_ foreign ownership be held with the appropriate limits) could be justified on som_ basis. (150) Other

articles

foreign

investment

include

Allen

(1979),

Camlas

Allen

(1974)

discussions member made

describing

and the relevant

(1973a,

1973b,

(1977),

and Draper of foreign

governments.

by Japanese

government

Draper

1973c,

1974),

L. Bautista

(1974), and Virata

investment

In addition,

towards

legal considerations

have undertaken

and American

policy

comparative

policies Allen

investors

(1972a).

of ASEAN

list_ suggestions whom he ÂąGta_viewed

-12-

as to what policies implemented

that they

in Southeast

After

pointing

entry

of foreign

makes

a rath_r

investment

or owned

by Filipinos, argues

implementation 1950s

that,

Filipino

on the coatrary,

inte_pretation

receiving

Virata

whether

foreign

favored

(1972a:

the

controls

in the

of the Retail

Law, to cite two examples,

businesses

over the

on equal footing."

and import

40)

"Cnce the

the companies,

of exchange

Nationalization

is control

statement:

operate

and the judicial

43-_+4; 1973b:

in the Philippines,

controversial

is established,

Golay

Asia. (1975:

out that there

business

262)

would like to see

resulted

treatment.

in (1969:

o

61, 68) Henares was not neutral controls, He

gives

during

examples

policy,by

able to get foreign

profitable

business

government

of import

policy

and exchange

on who the beneficiaries

to buttress

first

Golay that

the period

but he disagrees

of a Filipino were

agrees with

were.

his position

that in spite

the Central

Bank, forei@ners

exchange

opportunities

"to preempt

the most

in the country."

(1979a: I%7) The termination July 4, 4974, provision accord

brought

whereby

citizens

in engaging

the Philippine

of the United

divestment

of land ownership,

activities.

the

a_reed

national

the adjustments

particularly

imposed

government

States

economic

surrounding

of Americans,

Agreement

to an end an American

in certain

and negotiations status

of the Laurel-Langley

to

treatment The discussions in the

legal problems

are examined

by Landes

of and

- 13-

Landes

(1977).

The authors

amount

of land to be divested:

and 2648 hectares firms

as

of 197_.

that are affected

agreement.

By mid-1976

with the new legal 7 unaccounted

of the time,

process

involving

in the property;

one hand,

while 26 had not

rulings,

(leavi_

or other

In chapter

either

assets.

Transferees organizations, and employees'

or donatio_

of the

no further

a lease-back

government

funds

arrangement,

company

"friendly"

pension

views

were

of a holding

and

sector

IV the actual

One entails

include

climate

Three options

sale

another,

the creation

the political

and private

is described.

interest

charitable

identify

had complied

III.

land

lease-back.

117 U.S.

policies,

affected

and the third,

They

84 of these firms

in chapter

each

as of 1972

"parity"

Court

government

of divestment

available,

5550 hectares

(II, 208-210)

Supreme

are discussed

of the

by the end of the

situation,

for).

Relevant

give two estimates

with

agencies,

firms,

on

the

on the other.

(Iv, 57-141) A three Landes

part criteria

to examine

the various

"bon..___ fid__eabsolute qualifications citizen

t_ansfer

of transferee

1

, and minimization

transfer [to avoid (IV, 137) transfers

The that

is put forward

disruption

authors involved

by Landes

divestment

mechanisms:

of property

ownership,

[i.e., transferee of the financing of financial

question pension

whether

and

is a Filipino

'

required

for

marketsj." or not those

funds meet

the bona

fide

- 14-

requirement. They

( IV, I_3-1_4)

conclude

the expiration

that the change

that took place

of the Laurel-Langley

Agreement

take Ithe]form of either [a]mass exodus or the state

escheat

the] Philippine resorting

government.

to these

p tiossucceeded change."

on the

two percent weak position chosen

lease-backed

for divestment."

section there

a central

Investment of equity

issue

which has finance

needs

in the Philippines investment

statistics.

here,

to the discussion.

of the contributions

have

In this Although

of the significance

data reviewed

is basic

by non-citizens

in the literature.

to the question

than the

information

"the relatively

government,

we look at the relevant

importance

most

reflecting

(IV, 148-149)

importance

is more

from the

often less than

to minimize necessary

llI. S_ize of Foreign

has been

side, both

they go on to note that

lands were

of the Philippine

deliberately

The

value,

by

then that, without

they wanted

Nevertheless,

of their

of US investors

means by either

to gain [sic]what

"did not

or land holdings

It seems

radical

(IV, 147)

the rental

of US business

with

or

quantitative In addition,

not gone beyond

looking

at the numbers "involved. A major foreign (19_21

pre-independence

investment

in the Philippines

also see 1943).

was a survey

discussion

His primary

bj the United

States

of the size of

is that of Callis source

Tariff

of information

Commission

-15-

(1937;

also see 1931),

were cited,

although

particularly

for non-American

Data on American

investment

be obtained

publications

ment

from

of Commerce.

Callis

data preferable

because

appraised

of assets

value

investments

Philippines,

a significant

Other

addition

to that

and _suda,

et a____l (1978).

d998

and 1961

1953;

1965),

Census

Group

..Curr_entBusiness

and Exchange well firms

en_aging

by

(12)

(1911'._)

of statistics

|'t_

Lan,l-,'

Suva Martin

of Private

Foreign

Report"

(197;'),

would

Ij1clude

(1955;

data published on newly

collected

in foreign

and St.ilstics Invest,J.,_s

(Phil.,

also see 1972b),

Commission

as information

in I, he

of the data

of the Census

of Commerce

cites

.mL

invest,J,,at

Committee

Inter-Ak_ency

and the

and other publications

Department (1958)

foreign

see Golay (1966),

Bureau

Interim

1972c;

os

of investment

at that time.

(1975).

Co_f,,_ission

value

resident

Depart-

0f the Philippine s for the ye,_i'_

"Study

in the Philippines;

Itcheo_

than book

component

sources

(Phil., the

States

(1) was based

of Americans

Subido

19_43 major

the Economic

States

rather

of Callis,

(1977),

Working

latter

al_*,,can

the Tariff

For discussions

and Landes

Since

considered

in Phil. ,Technical

(1978).

investm_,,t.

this period

of pro-independence

data can be found

referen ,',''s

of the United

in the Philippines

estimates

and Inamura

during

the

(2) included

U.S. citizens

additional

of the Unll,,,d

1960;

and no ,l,_te).

by the Securi_.l,'S

registered

by the Central

exchange

firms,

t,s

Bank ,n_

transactions

Ill1956.

- 16-

Bantegui

(1965)gathered

1965 on 108 American registered (1971)

firms

collected

Industry,

sources

can be observed. when American foreign U.S.

a series

investment

was

often

part

increasingly Japan

statistics

the bulk

of the total, reliance Statistical

and

1967. have over time century,

of non-Chinese,

the pattern

used as a proxy

should be accessed.

of the

and Securities

of the twentieth

by Japanese

inadequate,

of ForeiEn

so that changes

formed

(1970)

of Commerce

March

in the Philippines,

llowever, as investments a larger

most

investments

investment

"Survey

of Commerce

During

Valdepe_as

and Statistics, released

The U.S. Department of being

the

(Department

of Census

Commission),

the advamtage

and Poblador

Industry, _ a report

Committee

Bureau

and Exchange

million.

in Philippine

Survey

1956-

data for fl96_ and 1965 on corporations

as one of his data

Industry

at that time,

of at least 21.0

Participation

ÂŁor the period

of the 157 he says were

in the Philippines

with assets gives

statistics

firms

of

for the total. are becoming

on American

data is

information

See the discussion

from

in Tsuda

(1978: 3). Since

1968

Business

the 1000 largest In some years articles

which

Day has published

non-financlal

(e.g,

the issue

identify Those

included

therefore,

lists

should

the

corporations

lists of

in the economy.

for fl97@) the annual

subsidiaries

corporations.

yearly

includes

of transzational

are usually

wholly

not be coasidered

owned;

comprehensive.

- 17-

For several

years

(University

of the East)

compiled

150 largest

firms

economy

beginning the

in the

19608

in the

in 1963 and the

Busi.uess Day_ and the

the Bu_i._e_sR_ie_w

(1971a,

among

1971b,

information Business

Tsuda,

equity

the two lists

population

information or other

glance

are not the

firms

be considered

in which

to

problem

owner.

ownership

the

larger

are to be

ownership Commission

For example,

if

in the Philippines,

by firm Y, and if firm Y (the other 49 percent

in both cases),

fore i_n owned?

to the

is that of identifying

incorporated

owned

to see

is no doubt•

and Exchange

by non-ci_,izens

owned by Filipinos

attempt

In addition

the correct

of the ultimate

owned

(1981)

with •foreign-equity

A related

X and firm Y are both

is 51 percent

in

1968.

in establishing

as obtaining

if firm X is 51 percent

listed

the discrepancy

from the Securities

,the nationality

gathered

is sufficient

same.

in time periods

sources.

Yoshihara

group of firms with equity

to the difficulty

as well

Both

of firms with foreign-owned"

A quick

from •which

selected,

for example,

and HacDougald

was collected,

attributable

1963).

foreign

CorporationsL

as well as the smaller by TNCs.

issues

in the economy.

for large firms

the population

information

being

firms

IOOQ Largest

two year difference

firm

to identify

and 1971d),

et a_.__l (1978)

investments that

larger

1971c,

and

Business _R_evie.w. publications

on ownership

Day's

establish

the

(see the August

one for December

have been used by researchers investment

lists of the 100

Poblador

is firm X to

(1971:5),

Lindsey

- 18 -

(1976: 134-135), discuss

and ¢agampang-de

Philippines_

studies

the

terms

(or multinational) interchangeably.

criteria

Some

to those

However,

_O00 LarEest

sources, percent

of equity

substantial we will been

major

investment. briefly

definitions

et al do provide

types

of _NCs, a three _NCs

in 1975.

to be limited

of Business

Da:_'s

is 4

of that publication. of data, comparability

of data

of assets to be included,

participation with

necessary

a few major of this

of discussion

The reader

appears

197@ issue

to in the course

topics

almost

for which information

issue

influence,

refer

have been used

sample

in the

of quality

coverage,

and transnational

firms in the country

qor_or_tions

Questions

investor

in the

to have used it to identify

their

in the 1975

investment

have provided

and claim

TNCs listed

included

foreign

Villegas,

the 1OOO largest

(1977: 53)

of foreign

corporation

but most have not.

among

(1977: 7@-77)

this question.

In recent

part

Castro

should

look at the statistics

for control exceptions

review,

in studies bear this

and or

that

have not

on foreign

in mind

that have been

as we

presented

in the literature. Callis

reports

at _2OO million investment. in Malaya

in 1935,

It was or Dutch

Nevertheless,

American

the

in the Philippines,

investment

80 percent

"considerably investments

of which

below

about

was direct

British

in Netherlands

U.S. was by far the comprising

in the Philippines

largest

investment

India." investor

50 percent

oÂŁ direct

- 19 -

foreign

investment

Chinese

are included).

presented total

(40 percent

by Inamura

at a slightly

(1942:12-13, for the

higher

inasmuch

Callis,

but

foreign

ownership,

percent

level.

reports

owned by Filipinos

(6.7 percent) attributes doubt

22)

same year

figure

the American

Interestingly,

Statistics

list the

than that

as he includes

sh_re

re_ains

at the 50 Inamura

and Spanish

the proportion

(22 percent).

are substantial

as well as

the proportion

sum to approximately

American

given by

Filipino

(1_.5 percent)

to the Spanish

there

if esti__Jates of resident

difficulties

(1978:

Callis

59)

No

in assigning

nationality. U.S.

Department

than those in 1936. this

presented At the

source

estimates

the 1950

by 1979 it had _978: !_,

was

increased

citizens

in the mid-1930s.

even more

In 1970

80 percent

of foreign-owned

1000 firms

in the economy

Agency

Aui_st

1980: 27)

owned by

significant

among 900

was America_.

and

(Tsuda al et

than it

it was estimated

equity

almost

j6_O million,

of foreign investment

has become

1950,

in the Philippines

to $I,317 million.

of Curreut Business

share

period,

_@14 m_llion

In 1970 it was

lbwer

_92 million

recovery

Am.erican investment

f_gure.

the

are much

and Inamu_a:

By 1960 it was

31_ Survey

If anything, U.S.

by Callis

figues

end of the post-war

to be $1_9 million. triple

of Commerce

that almost

of the larsest

(Phil.,

Inter-

d9720:16)

On the basis the Philippines

of the aEgre_ate

has not

statistics,

in the past nor

however,

does it currently

- 20 -

loom

large

United .The

in the overall

States.

This point

investments

U.S.

citizens

investors

and firms,

investment

that

the United

States,

of the

by Golay

very important

but not to the

(1980).

to individual

group of foreign

If there are specific

are in some sense crucial

areas

of

or strategic

to

we have not seen the case made.

and Landes

calculate

overseas

investment

selected

years

percent,

with a declining

discusses

investment

is stressed

are no doubt

as a whole.

Landes

foreign

located

since

the portion

in the Philippines

1929 as varying

the reasons

of U.S.

trend.

for these

between

(1977:

for 0.6

and 1.3

If, 18@)

low figures

Gallis

during

tie r

colonial

and commonwealth

to the raw producing America,

investing

land holding

question

hand,

prior

that foreign

in the Philippines.

ownership

estate

of other

in 1935

on the other capital

stock

mid-193Os argues

the United

and tropical

incentives

Central

offered

to

(3) restrictive

of double States

proximity

taxation,

might

and

withdraw

from

(19_2: S0-11)

On the other

in

of Canada

(4) problems

that

the Philippines.

(1) American

in the Philippines,

laws,

(5) knowledge

force

areas

(2) the lack of special

Americans

little

periods:

investment

Inamura

than

15 percent

places

the American

than

in agricultural

other

at 22.3 percent.

the Americans

(1980)

comtrolled

was

there

is

a significant

sets the share

agricultural

at less than

hand,

to independenc_

lands

of Filipinos

and real

of the total. share

Golay

of Philippine

lands,

in the

If as Callis

about one-half

of foreign

- 21 -

investments, would

be approximately

portion than

the portion

implied

Inamura

in Golay's

The Economic

seven

year.

Foreigners

(58%),

Census

commerce

owned

(Columbia

University

Since

19_8,

decreased.

Surapath

sectars

estimates

firms

to be 40 percent. no doubt

has not been

assets

sectoral

Almost Philippines utilities

mining

(51%).

that Americans'

of foreign U.S.

foreign

Group

of 900

of the

1972c: 16)

are included, would

a shift

be even

in th_._

investment. direct

investment

in mining

centrals

(11%).

units

proportion

has been

in

share was

Inter-Agency

economic

has

share

Working

of the equity

controlled there

O.verall,

and commercial

sad their equity

(Phil.,

If smaller

(2(F%), sugar

so clear.

industrial

share

as of 1935 was

major

in that

however,

(82%),

The Inter-Agency

in 1970

80 percent

and merchandising of other

78)

In addition, location

assets

owned by non-ci_izans

calculates

the foreign

smaller.

of assets,

and manufacturing

non-citizens'

largest

reports

of the economy

electricity

in 1963 was 30 percent, (1965:

smaller

of the total

the majority

of the I_0 largest

35 percent.

1000

52 percent

the issue

of productive

firms

is much

1958: 51)

the share

the assets

the foreign

.of the Philippines._9._8,

sectors:

(55%),

Although

calculations

non-financial

of the seven

owned by Filipinos

it is still quite substantial.

controlled

in the

in four

55 percent.

suggests,

that Filipinos

of the total

(Callis

in the

(23%), public

(14%), plantations 19_2: 17)

participants

in the

(12%),

_he investments'i pre-independence

- 22-

period

were

abaca

in commerce

plantations

and base

and gold and silver (U.S., Department World

study

Tsuda,

56 percent

of total

however,

foreign

to the larger

importance

increases.

For example,

Poblador

assets

sector

of between

the proportion for

firms

proportion 5_oup

facturin_ firms,

was

by non-citizens,

investmen_

that in _965 of firms

with net

Amcng

one-half

However ,

less -- 60.2 percent

the flOO largest.

in 1970.

in the

adjusted

to 57.2 percent

pattern

2"I)

f irmm in

and )'10.0 million.

reduced

a similar

firms

(_972c:

of at least )'10.O million.

further

approximately

proportion

economy

was significantly

with assets

finds

of the equity

_1.0 million

of firms amon_

Lindsey

of the

each.

of foreign reports

and

Group found

is restricted

the relative

non-financial

and quarrying,

Working

the economy

for

in the mid-1970s,

for 1970.

owned 85.6 percent

In their

accounted

same distribution

If attention

Filipinos

has become

12 and fl@ percent

The In_er-Agency

the

In the post-

investment.

investment

for between

(1978: II26-27)

(Spanish).

manufacturing

mining

British),

(Japanese),

manufacturing

of foreign

and insurance,

accounting

very nearly

fl955:7-8)

et al found that

with finance trade

and tobacco

of Commerce

receipien_

(Chinese,

metal mining

mining

'4at II period,

the principal

and finance

(1971; 22, 39)

the 5 largest

largest,

(1976;

136)

of manu-

or flO largest

of the firm assets

is less than %0 percent,

The

for the

in the ownership

but for the 60 or 100

--

are owned the

- 25 -

Foreign economy

as

among in

investment we

the

some

Census

have

of

the

of

(defined

in

firms

the

only four

manufacturing

products

and

to

distributed

importance

(69%),

60

looks

of

is

at the firms

Filipino-owned

agij.Te6ation , in

than

50 percent

to

foreign

firms:

products

(5_%),

and

greater

k'conQmic

percent

level

1961 attributable

products

the

foreign-owned

is more

rubber

in

fro_._the

than

ISIC

firms

(52%),

chemical

its

data

less

two-digit

in

equally

1961 , Valdepe_s

with

At

metal

Using

attributable

equity).

output

is it

spread

industries;

Phil_iooines,

to be

evenly

Nor

others.

output

total

not

seen.

manufacturing

than

percent

is

petroleum

of

chemicals

(_970:

(100%).

549-55o) Restricting finds

foreign

his

participation

Valdepe_as-

in

industries which

eight

at

are

analysis

leas_

among

the

of @0

_6

somewhat

20

of

largest

ISIC

the

is

firms,

greater

two-digit

percent

1OO

larger

Lindsey

than

did

manufacturing

assets

of

firms

foreign-owned.

(1976:

141) Magallona significant industrial •IQOO

in

Largest

in

•where

four,

other

of

that

"Out TNCs

of are four

foreign

industries.

participation

After

examining

T};Cs as presented

q5

in B us_ness

197@, he makes

Corporations,

dominate

lines."

argues

several

location

observation: sector

also

industry

strong, others,

(1977:109)

they and

lines

the Day's

foliowing

in the

enjoy are

the

is

virtual

prominent

manufacturing monopol_ in

all

- 24 -

Villegas,

et al, using

Day publication, TNCs in their

arrive

study

the three-digit

the q975 issue of the Business

at a silnilar conclusion.

can be placed

level

the TNC-affiliated

50 percent

of tae total

This leads

the authors

presence"

foreign

account

of the "overwhelming

that the dominant

Fllipinization,

BOmB sectors

Of the economy,

is surely

case

if one's

units.

There

of foreign recipient foreign

attention

investment,

and

a reality.

in the sectoral

equity.

appears

concentrated

in those •industries

the economic

composition

becoming

Within

in

Nevertheless,

to the larger

with manufacturing

has

be vie'wed as

is particularly

is restricted

of foreign-owned

industries,

This

has been a shift

of

at least

in the eccnom.v cannot

unimportant.

investment

position

prior to independence

substantially.

quantitatively

than

59-40)

that existed

participatioa

for more

among 1000 largest.

been reduced

foreign

at

In 9 of these

for firms

to speak

we find

investment

firms

assets

of TNCS. (q977:

Summarizing,

into 22 industries

of classificaticn.

industries

The 85

the major

,,snufacturing,

in •certain

foreign

control •looms

large. /he significance foreign

participation

section.

Here

informatiou is a much

has not been

we have simply

has

a bearing

larger •issue.

to concluding defined

of the pattern

issues

addressed

presented

data.

on the significance, We shall

this review. under

or evolution

of

in this The quantitative but the

t:_ke up the topic prior

Now we turn to mcre narrowly

the rubrics

latter

of deteEmJ_-_ants of

- 25-

forei_

IV.

investment

Factors .... The

Affectinf

be

benefit/cost

the

singled

dominated.

process

traasnationals,

ou_.

One

s, nalysis.

_. the__ D_.c_si:_.n_ t ,. Invest

decision-m:_king

particularly can

and

At

time

American

of

investing

is

complex;

global

executive

firms, no

one

reason

consider_tions put

it

this

way:

After we consolidated our markets in the United States, ,_me_ we turned to Canada and South ' -"lea. When we consolidated our market and facilities there, we turned to Europe We have now consolidated our 2 market and facilities in Europe.and we will now turn to the developing countries of Asia and Africa• (quoted in Allen 1975b:_) A from

his

1970s a

Japanese country

as

Eoing

steady

or

(Inamura, The in

investigator in into

post

war

supply

of

practices

period

until

which

assured

"enterprises

sustaln=d

natural

of tie

_id-

Japan

resources

firms

of

"

1978: concern

early

the

described

with

American

natural

resources

investment

in

the

also

played

a role

Philippines.

In the past, external forces represented by needs of the United _tates for basic raw materials were clesrly a major factor influencing the character of the bulk of foreign investment and the timing of such ventures. The development of sugar and coconut production, for example, came when there was a high demand for these products. (U.S., Department of Commerce 1955:9) Allen the

(1973a; interview

gain

an

Japanese

and

Both

potential, respondents

1973c)

and

questionnaire

understanding

investment. growth

1973b;

of find is

in

domestic

major Allen's

(1981a)

approach

determinants

the the

Lindsey

in of

recent

market,

consideration survey

an

list

its of raw

utilize attempt

to

foreign size

and

investors, materials

- 26 -

as the second

most

important

are more concerned manufacture factor

about

for export.

will become

Japanese

more

factor,

while

the ,_me_-icans

acquiring

a 10w-cost

According

to Allen this latter

import:_nt in the

decision-making.

(Allen

base to

future

1975a"

in

11, .-0, 1973b"

I -17) The managers mentiom most

tariffs

interviewed and other

Third

concerned

with

in their

both

as the second

•firms.'•decision

in the list of determinants labor,

tee other hand,

trade restrictions

important consideration

invest.

by Lindsey,,on

to

are factors

its cost .and its skill.

(1981a:

10-12) Allen

differentiates

aad conduciveness a_d economic

stability

invest."

There

of

exchange.

appear

the labor•force,

accessfro

local

restrictions

say they

is also a general

to foreign

climate.

Political

wo,uld "definitely concern

Beyond

these

to be more interested good

joint venture

finance.

on equity

for investin_

is at the top of the list; without

the respondents

the Japanese

reasons

of the investmentment

stability

access

between

Cn

expressed

for

two considerations in the stability

partners,

the other hand,

participation

not

and

lack of

and adequate

,.

support

.

facilities _llen

asked

are mentioned

by Americans

his respondents

to see the Southeast ends his monographs 16-18 _ 19755:19)

Asian

as being important.

what policies governments

by summarizin_

they

would like

implement.

the views.

He

(1975a:

..

- 27-

Inamura concern

also mentions

of the Japanese.

of the termination the ratification

including

government

for investing

climate

necessary.

Bank volume a rather

thePhilipplnes

foreign

In the two not

being

marked

of major

government

or requirements) questions Allen

by Otikker

in the Asian

extensive

Entitled

list.

Investment,"

both

and economic

Economy

.

in the .. --

__

"The

the section

on

to be much more concernedwith of the Philippine

economy

consideration. incentives

aS being

for

1971)

a few f,lctors were mentioned

the significance

does not

in passing

the political

(Stikker

surveys

Other authors,

...............

the suitability investment.

and

of Amity,

Sguth._._st is_a's

Foreign

appears

agreement Treaty

mention

The chapter

of Private

assessing

and

as a mjor

he notes the importance

(1978:55-57)

officials,

reasons

_mpact

In addition

of the Japan-Philippine

and Navig_tion.

qg?Os_ contains

stability

of the L_urel-L_l_[ley

Commerce,

D6vel0pment

political

Lindsey's

(as contrasted

unimportent, of tax

as

respondents with restrictions

while Allen

incentives.

Interestingly,

emphasize profitability.

It was clear from the intecviews that while profits are an underlying force in all [Ja_.anese]invest,nents, the return to a specific project in isolation plays a minimal role. The effect on overall consolidated accounts of the subsidiaries overseas and the home plants over a period of time is the more meaningful basis for consideration. (1973a:lln; similar comments are made in 1973b about __merican investors:qe) The one a_tempt

to quantify

investment

in the Philippines

The

concludes,

author

the determin;Jnts

is that

"On the whole,

of foreign

of ;]ubido (1974;

1975).'

the l_indings from the

- 28 -

study the

provide

rate of return

foreign data

empirical

support

is the primary determinant

investment."

(1974: 257)

for her investigation:

investment

from 1950

to 1970

and a cross-section

1965-1970

from the

Working

analysis

by profit

rate

the years

of import

and exchange

controls.

manufacturing

and wage rate variables, not

included

interprets variable

the statistical

on foreign

equity

of growth

Philippines

in the 195Os

to put her comment

record.

(See Tsud%

was double at variance

in interpreting

some

as•to

explanation

American

investment

Subido

uses

varied

a threshold

in her cross

the profit

rate and growth r_lated

in tariff

in the rex% are author

of the dummy

had a positive

effect

The fact that

investment

in the

that of the 49608 with the historical

III, 57.)

Also,

the •results

it would

to have had

why the overall profit

investment

to be positively

added

The

(1974:258)

of U.S.

have been useful

from the period

discussed

decontrol

et a.___l 1978:

distinguishing

and the nominal

presented.

investment."

rate

is explained

for value

significance

"that

the average

seem

controls

although

in the equations

as evidence

Group.

and a dummy variable

significant,

of

investment

investment

The coefficient

is not

of

of American

of all foreign

primarily

without

of direct•

from the U.S. Department

Inter-Agency

series

that

She uses two sets

a time series

Commerce,

In the time

to the hypothesis

rate

of

in the first place. model to explain

secticu

model.

Below

rate of revenue

foreign certain

levels

are postulated

to the size of foreign

investment;

- 29 L

above

those

The model

levels,

is estimated

6 groupings

of firms,

the threshold rate

than the growth

debt

is highly

loan financing relationship" but Also

though

rate

significant

between

the

in our

view

results Lindsey.

rates

substantially

production

desire

to use

investaent,

or why.(1974a

to explain

196_ profit

They find market

and low-cost

comment

and foreign

direction

work is _mportant

differ

all _roupings.

to Allen's

investors

long

249)

1965-1970

it would have been preferable

to have used

Subido's

rate

there will be a "direct

say in which

is bothersome;

so for the profit

On the other hand,

variable

the use of 1970 profit

for

to confirm

The effective

refers

and concludes

she doesn't

investment

more

in almost

and American

points

tended

variable.

the author

both Japanese

cut-off

and the results

is not significant.

In her discussion that

does not hold.

for different

hypothesis,

of protection term

the relationshi_

rates.

in part because

her

from those of Allen size and growth,

possibilities

and

tariffs,

the major

deter"

i.

minants More

of the decision

work

in this

difference

V.

to invest, .while Subido

area is needed

in survey

to reconcile

and econometric

does

not.

the

work.

Be nefit.s and Cos_ts:.[5ome Preli_inarie.s. The debates

investment and costs. calculations

between

can usually

proponents

be described

Even when this are almost

and critics

of foreisn

in terms of benefits

is not the case, these

always

a part

of the ar_u:,lent.

- 50 -

Below

are noted

literature.

items that

The list is not

representative. point,

are often referred

there

The reader are positions

exhaustive,

but

to in the it is

will note theft fol- every pro s_id contra.

Boner it.S of .Fore iKn Inve stT_e n.t_ 1.

Provide

needed

2.

Improve the balance of payments a. Capital inflow b. Exports c. Import substitution

5.

Transfer

_.

Generate employment opportunities a. Directly by hiring workers b. Indirectly through purchases of materials _nd services for the production process and t_ough employees spending incomes

5.

Develop

and upgrade

skills

6.

Develop

and upgrade

management

7.

Stimulate new industries a. Directly through investment b. Indirectly through purchases Stimulate

9.

Increase

11.

of workers capabilities

and sales (linkases)

competition national

natural

income

resource

Contribute to the growth, of the economy

Costs

throu_h

technology

8.

10. Develop

capital

(Limits

to Benefits)

industries

of the country

development,

and modernization

of Foreign Investment

1.

Utilize local capital at the expenses of domestic enterprise; use retained earnings rather than new capital

2.

Worsen balance of payments by a. Repatriating capital and remitting profits, royalties, technical and management fees, and other service incomes

•- 31 -

b. c.

Rest,rioting the exports of goods produced by local subsidiaries Maintaining a hiEh import content in goods produced by local subsidiaries

3.

Transfer inappropriate and/or outdated technology; transfer only portions of relevant technologies; restrict dissemination of technolo_y throughout the economyby patents, secrets, and other means; undertake only insignificant amoLmts of research and development locally

_.

_imit employment generation a. Directly because of high capital intensity of production units b. Indirectly because of high import content of production processes and because of limited direct e mp 1oymen

5.

Confine skill development to a few areas because of limited demend for other than unskilled labor, • and because of limited range of skills utilized due,to simple nature of equipment and processes transferred to the local economy

6.

Restrict development of local managerial talent because control of operations is to a large extent retained by the home •or regional office of the foreign _investor, and because expatriates are used in key positions •• ' :

7,

Contribute little to the stimulation of new industries because a. Investment by foreigners:is usually in industries in which others - foreigners or Filipinos - are already producing b. Linkage effects are limited due to high import . content of goods produced by foreign firms and because local production is usually not of .... •intermediate goods

:8. .i

Create monopoly preserves, driving out loCalproducers, and use world wide economic power, to intimidate . potential Filipino competitors _.

9.

Contribute of income

to the skewness

of the existing

10.

DepleTe country

11.

Distort the pattern of production_ reinforce the existing pattern of wealth .and power; infringe upon the sovereignty of the nation; and perpetuate and intensify the dependent, as contrasted with independent or autonomous, condition of the economy and society

and exhaust the natural ?esources for the bene.fit of foreigners

distribution of the

3:"

Several First, cost is

comments

few,

if

any

analysis

for

a compilation

the

view

both

on

has

been

of

the

listed

impact

attempt

a comprei_ensive

include

factors

cost

side.

up

not

only

listed

Second, fall

_klso there

one

much

is

that

stril_-e a balance

taken

Fourth,

government

wr_te_.s.

li_t.

benefit/

what

of many

the

to

have

above.

of

may and

tl_e above

situ_tion;

points

writer

writers

made, about

Philippine

side

no

be

attempted

the

benefit

most

points

the

one

almost

below);

have

of

any

the

should

is

(but

or

two

known

see of

the

about

policies.

"Relatively little is known about the interaction of industrial policies and foreign investment in the Philippines. The casual relationship has not.been examined; the structure of industrial policies, nob clearly defined until recently; aJ%d foreign invest!nen_ data is often inadequate." (3ubido 1978, as quoted i_ Tsuda, et a.._l 1978: 111,20) Finally, each

of

the

the

above

dependency, power They

are

go

part

most

from The

investigate

them, must

suggestive as

a combination

theory

is

advantages

however,

than of

issues,

the

inquiring

in

to

is

enormous.

these

more in difficult

required Even

the

and

must

co:_sensu_

to best

often

do.

political,

the more

_d

calculus.

more

conditional,

for

on

significance

analysis

definitive

to

wealth,

other

their

the

chances

item

modernization,

the

of

be

las_

benefit/cost

sociological,

re lui1'ed the of

normal

relationship

complexity

the

relations,

deriving

necessarily

rather

social

important

their

in

development,

the

items,

questions.

attempts

on

beyond

narrowlydefined large

--

impact

well

the

mentioned

lists

and

--

issues

the

Inasmuch

and

ec0no_ic

are

nil.

narrowly

defined

The topics

thus presents limit

itself.

the arena

Therefore,

The

results

of debate

we largely

this review

Cumagtun is the only author attempts

to evaluate

social

addition

he uses

benefit. divided

into

concentration and number The

finds

based

being

measured

criteria

_nvestment.

In

by both criteria whether their

and

private

and/

High and low, however,

looks at the concentration in each indus " "_ _ry ,.

in turn by sales,

assets,

of firms. of the exercise,• of course,

concentration

Bud high public-low Unfortunately,

to benefit

is to relat_

and cost.

in the hish public-high

private

groups

nor does

be put

private

concentration

forth

any explanation

that he found. (I.979: 75-101)

do, however,

Cumagun

of industries.

he does not say which

is used,

for the pattern results

we are aware

to assess private

or low.

activity

TNCs concentrated

measure

upon

The author firm

object

industrial

of foreign

criteria

is high

uadefined.

of transnational

impact

are ranked

groups

benefit

of _hich

issues.

to the former.

to use socio-economic

business

Industries

or social remain

the

can help

over the more complex

confine

who consciously

obtained

tend to support

Cumagun's

The conclusion.

As a conclusion, this paper reiterates in the affirmative the original premise of the study: that multinationals have contributed positively to our economic growth, and that given the propel • guidelines and perspective, _Cs can be harnessed to contribute even more in our country's quest for faster socioeconomic development. (13_) If arise.

we look

at Cumagun's

For his socio-economic

indexes

even more problems

criteria,

he uses 6 variables:

- 54 -

export

orientation,

linkages, value of

backward

added

per

whether

weights first

proper

employed,

industry

other

Cumsgun's

value

on

the

although do

his

not

s0oio-economic There _enewal

in

(and of

us

also

been

the

it

because

it

can Bos,

model

to

be

of

the

and

to

work.

are

than

If socio'dividing

worke#. his

understanding

to

Although we

issues

of

the

firms.

construct

foreign

than and

interesting,

attempt

other

larger

the

per

of

not.

scheme.

multinational

of the

The

a

investment

not take

stl,ictly it up

an

here

simultaneously

place

that

a

•

discussion

inserted). Lecchi

impact

countries.

countries their

one

several

the

an

proper

magnitude,

more

quite

of

conveniently

examine

developing

is

the

be

describes,

added

analysis,:

is no

Sanders,

in

•examine

there

of

value

Philippines.

addresses

orders

much

with

model

in benefit/cost

because

of

contribution

has

will

not

approach

equilibrium

process

to

or

as percentages

worker

he

and

questions

problem.

weighting

as

forward

worker,

unfortunately,

the

are

provide

chosen

expFe_sed

per

by

basis

per

inevitable

were

several

amount

added the

two,

added by

criteria

results

last

potential,

a more • basic

all

compensated

industries

effort

the

calculations

economic

Thus,

is

are

variables

is not

Beyond

there

output;

value

variables

variables

In particular,

this

iinka_es,

capital.

the

four

the

import-substitution

which 2he

built of

p_ivate

Since the

a mac_o-economic

the

model

authors'

_or,:[gn

investucnt

Philippines

is

one

is

we

shall

applied,

mo_Jel consists

of

38

2

r-

N

/'_

--

e,luatioll_ J i,/.i,..]_._J ""'-"" and

the

(1974:

74-78)

on the the

re_;t of

foreign size of

o.[ o_

rest

the

the

differer'.ce

and

that

of

wish

have

ac..'ess

The

that:

seeo_d

t},e

abroad;

all

current

acc,.,unt" - - d6. f'.icJ."_,

in_;o

ir, cre:.,:ie_;

equil]bir,

J.u_r..

grows

at a

constant

claim

on

doEs'_,e:J*,,J

resources balance as

a

that

actions

of

Having p_oceed

C

and

ul:,c,n

f,:.2ei.:-ne.t's. _ev,;

to .:teriv_

I o;.e.,

p.,,.'.:_

'_l?::_th?;i,l,

%t;,:_._._

_,"[.t..t

t i_-,e to

:-.,..i.:]c:.'_'.

'..,.,l.'m.:,:

cf

. OC(.'.UF

b..,l:._n_:e

f.._re.i..:s;-, "

iiuii;tl.fi

*s

•

t_:t;_e,

#:., of

claim

I;0

ol'f.:,.:t

of

p_.,j:u, ..... ..,.s

jnvet:;t;i:.e:.t

-

,J.v.,.lt. '_,'"-. J.c

de,:c::d.nou

J:._ve:;_.::::e .t:

hi:_t:-er..,

ar>t

t,:.e

eie:-;..._;t:__

tl_e

a_)pe._r_. ::ur:'e:_t, _r.,:._ v'._:i;,,l,_.

, v"fe,;t._

i'c-,....i

foeeIL,,_.rs }_ave fir':,t-

Dou:estJ.c

:_e iv

"'a:,;./jlnal

J 'O

Chl:i'51.*_l.

the

[,h:_,I:

lh-_t

i.:_ '_',:e

C that

_

.... - _-....:

_.,;Jc.,_._c..."

:_:;-t t.._ke

that

:_,.>th

,[,_'_

i._; a re:._J,.iu;:l,

.._;:,;u¢,_.;ti,-;_

tl_ey wi.ll. _ctually

[).'._s,.:d

;

-_ .....:t_l,'[;

fiq-.__,.,.ial

bi'ir_t__ t.:_e

z-,,teand

t.-_8-,_..

1£.

J:l't _

t,*_'.i')|l

tkto_a; ,..,,_.

J'Ol'3it_[l

.z'e:iu.tlPet2:_

:al

t:l_J

_:, (,-,,rl:;';,,;:tj

[i_e,

iuv,;-st::,..,._t

r:.,ct:,r

,_utonc,

irl

t

::,:;d

T.'e:;Ou."..?..'2-;

,.io

Kw"4e:aLe_'in

o.fi :,ay::_ents residual

":,,3

ou_'.!,ors

"_z,e ,,to

tL,

,

i';_; ,,.f

i_,;,1 , .....

finan.:.t;.,1 ./'he

d.D:_-;,::;l:

"

d.clrles"ic

c(r_.['l.ic;,!;Jn_;

_,,,;, ..

payments.

t;ot;J1 :',_me'_ _ ic

tO

_J .

o iu_!;i.::_,,.

__;.,J.r;ly fc_, t:,,;..) _,,.:;,:;o:_.,.'..

to uti. l-i. zo.

foreigners

implications

cI.,_L ","

co:.*:uonent of

por.tion

first

caD kt_ll,

ecot:omy

between

'._.ii..J.

Io. .... -:,..., .;..

complic;_ted,

domestic

/

,,

]'e(J',.J.]{.-,l to

for_.i.Lr, n

more

'.

,.-:uppIjsici.:;:, .,!.-.] , .!,:,-_,_:d,,,_,t ]a,_".,, ;-:

-_k....',f

o:" the

somewhat

First,

e

'

t.,.,_._J , .-:.,:. ,:.j('0

cr',.wt],_,;._.... _,_.t_

growth

The are

i.s a

sect,.:P c;_,_i be

initial rate

eco_, ;aj and

It

rate. of

'P

A.:...:,.._.,li.-:,f

_. to

t}_e

-

authors,

the

situations,

with

behavior

their

assumptions

describe

approach

because

196_

196_.

and

the

the

simplifications

and

after

these

part

assumptions,

they

in the

GNP,

contributes

still

income;

the

foreign

investment

balance

directly

and

(229) ,•

•

•Gives

difficult

the

contribution

that the

believe to

in the

exercise

Philippines,

empirical

of of

that

our

t'IYeywrite

"the

the

marginal only

for

and

e._]ti,_atecoefficients, results their

ar_

and

sensitive

conclu_ions: altl;ough

d_ficit

to the

to

private

s small growth

that results

savin£s

foreign

limitations

assumptions •to

investment

by

for

difficulties

favorably

is limited;

indirectly

difficult

available

Philippines,

of payments

restrictive

of from

Eeneratcd

investu_unt

is

_._ina].l, •

restrictive

concur;

present

is

data

to

investment

of

duta

the

(floe)

additional

utilizes

discussin_

that

sector."

behavior",

Philippines

out

pract i_tal

oi" :_n irl-egular

mak.irkg,it voz7

necessary

pointing

foreign

however,

z'equisite

After

in m_ny

investment]

"irregular

on the

useful

avail_bility,

effect,

necessary

chapter

"is

foreign

marginal

to

The

data

private

are

model

approach

little

of[the

To get

the

marginal

36-

their

the their

_nderstanding

Philippines. in their can

' but

application

be

"marginai _

_od,Jl and

" approach, "

wol.k pi_vides of The

chaptul,

the

_he

of

all,

any

the it is "

useful_

£ore ig/_

autho.rs c,,:_ the

considel:'ed _, 'c_

most of

general

_eem

to

[-hiliF_pin_s study

of

it rc;,:.-u:_:,_ts an

metho,dolo_fj

. . . °" [ __'_;_,. )

- 3?-

VI.

Ca_i_sl 2ontribu[ion Among

the firut

items mentioned

the benefit_

of foreign

investment

contribution

of capital

funds.

low level •of per capita is argued

that there

undertake

the investment

been

the strongest

inflow

of foreign

advocates

foreign

currency Given

Philippine

case and

elsewhere,

the broad

ential nature

of their

inflow

discussion,

define

it is indicative

of the importance

They

also argue

from

Several

reasons

direct

loans

would

loans

debt;

investment

both for the foreign

equity

and given

it is interesting in this manner. and others

because

But place

be willing

capital

than from loans.

are limits

the Central

to what

Bank is monitoring

of the large size of the existing are unlikely

such as pioneer

be unrealistic

of foreign

rather

there

will lend;

and Filipinos

in areas

"It would

for investment

of funds,

they

that the bulk

are given:

foreign creditors

foreign

the process

as "the

flows.

must be

additional

has

investment

investment

on whether

that the authors

on financial

of foreign

the debates,

significant

to

B. Villegas

into the country

(1977z _)

saving

it

et a___l he and his colleagues

direc_

purposes."

investments

countries,

for development;

is needed.

In Villegas,

so far as to define

the relatively

is a lack of sufficient

from the outside

for this reason.

Given

necessary

of

is that of the

GDP in third world

assistance among

in most listings

or preferred

to expect

to lend large

to obtain

projects.

that foreign

amounts

foreign

creditors

to Filipinos

who

go

-

are

venturing

(17"18)

for

the

A cursory

(see

Table

have

been

1) an

first

look

shows

at,

that

important

Philippines,

time

it' new

balance

b,_th offtci._l

source

projects."

p_.W::_er_ts fi.gureJ

of

loans,

particularly

indus,tr£al

a__d

priv..'_e,

off fo_._:i._;_-_ _:a[_it_l ['or the

since

th_

.,:_i.d-1_:_60._. The :

position long

of

term,

argument

Ville_as, but

does

however,

is

Wewould

not

both

like

...... Anal_sis is

an

for

most

_he

flow

topic.

non-Fil_pinos

-comes . ,.

.

the

- '..

,

.

•

third

point,

cr_e mo_t

intri6ui.n6.

uti!iz:,t_c_

of

in_mUcii in

the

loan

capital

as most

of :the

Phili[>i:,ines de_-_Is

_,, __h_.llrefer

to

it

this review. pellet .of V_ew,

been

vJ.ewed

equity

invest_nents

re_l.lze

.

thaithe

bulk

of

investment

,_;avinEs a_:_d_...,,) ma_,.t_,_r how

incentiv__

m_y

be,

liberal

(:n],?_ _:_i:_llhumbert

of

.

.foreign

i=vestors

conentious basic;

point

namely,

time

a net

into

the

complete

in has

inflow

country. or

have

usually

been

one

of

do

c_.,,_,_...,o" (Vir._.,t _,.1_)'/2a: 265) uhe

cf

been

Althoug_h

been

definition

been

as the and

mol'e

fo._.-.arWdr_fiue.d period

the

one

'fhe

rather

e.luity-link,:-d, fiu_:_c_ai

as .precise not

].i_z.atu_r_ _:as

there

by

_:::.:_i_,_d_,.'hl:..._y tO IO.C-_I s.:_vin_ .

, •

fiscal •

and

psr_icipati,Jr_

official

domestic

the

evidence,

•

from

:

-

and

in

_future t:hoir first

Their

investment

in

."Ou_"policy-make._.s

.

hold,

However,

equ.ity

have

a:]d ne_r

importuner

of

foreign

•.l_mom the

.

to

the

with

,..

appear

see

isfrequently

•.

present

to

literature.on

,.omly

a______l majr hav_: ...... " _.e]evance

the

the

important

primarily

et

:.tt;:._t;i._tJ.,:s

wou[d

issue, loijic,

reso_cces not

are

<i,._J_-e_the i_uther, b_e

the

o£

_s

numbers

debate

h:._s

,i_:_..-..u_._si.ons in

j

"I';_Z!LE t_!_]' !.7.C',,,.3 CN ECUIF'/ ,\k_] Lx;._.?J ,.IAP.i L.\ L TO "I'i_t.' i ';i, L '! i' i i :i d_3 (Irl

I.H

I

l tkll[.ar_:_)

tier, Oire<t

Yt, ac

I:,ve_

l.,.:r-<t %.,t-m i__,:n

N_,_

tmen t a (I)

_'zl w t:o (2]

Ci.:pttal

_ i t- _,c i al (3) [

_3u./_

912 ..,0

171 .C,.r

20'3.25

081.86

%977

216,,19

133.')3

.,,-7.97

1976

_4J ,68

3 .t6 ..1O

"?0_ .*12

19 75

125.15

125.96

;:3: r .'11

Z_.-, 79

8_].%5

1'_ ;s

1974

28.02

1973

64

1972

77.02

,')7%

i

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(I%1

9

7

0

'._

6

9

(

2

4

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('16

1966

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=;_

l_-_'_S

'

I

I

II

I

II

lsuue'_o

Bantegui Group

(q965),

Sura:_-_th (l),.-_),

(Philippines

Magallona

1972b,

(fl977),

(1978),

Tsuda,

B.

e_:

197_._c), E_;i_-itu

Villegas,

,,:l. (_978),

(1977),

<:r .-_]. ('Ig77))

i<._I.Villegus

C_,_I_:_.(_'>/':)),

_d

i l_nares

(1979 ). Three used:

major

the

balance

survey

Current ._ :

of

Business _ .

of Commerce. results

do

larger,,

is

true

not.

often

_suda,

the

ns_ U.S. not

the

For

Statistics

by

Henares periods.

al

for

"16_)

Department

Central

period for

the

Inasmuch

_years , this

a r_

"196_ to 19_9-1960 thero

]97J and

by wa.'_ ..

were

III)

given

"]971

"Ic)6.5to

7

1974)

_.eceived

("l:J"7<]:

Bank

as

and

remittances

.i_flo_.

of

q9'i76. In

IU69,

2%

pe_'[od

period

the

summaries

('1979a:

ea<ir_

the

latter

independe_:o.

19:)6 to

1969,

ot!te.r

I a the

the

for

p,_riod

_inc_

6_-_'eater_t},_:_n. income

c.upital

from

Maga!lona gives

the

double

the

")96_-1965)

.

_ompared

orde.t,,.-_ .... _f m._t_nitt_de. .,r,,_h._" s-

•[_,omthe

was

are

m<_:e

date

(1957,

differ)the

:._).,,.,,.;u_d, the

a_.__!l gathered

approximately

and

I'it"m_.f

et

for

ti_.eU .o. _' l)opal,tmenb

c,_.,.,_t._l flows

p(_riod

• companies

et

or

ti'_

defi:_itic,ns

time

case.

Villegas,

equity

_'_'_'_''__r ......... or from

of

_easonable

inflow

parent

and

any

years

cap_tal

annual

and

by parent

publications 31

C_._utra] _<,_ikof

publications

net

one

by

its

coverage

When

th_

Research,

other

remittances

for

Commerce

Economic or

_.<,._q{in_,_ Gi.oup,

from in

Lccn

flow:.__"_

inter-Ag_1_cy

statistics

Although

income

is

of

the

as published

Department

with

by

of payment's

the. Philippines its

sou_.c_.s on fina_cial

_1-_5) in

B.

(_977: 59) (1977 :_"115). 196_-'19'_6

a.:'esmall

- 41

•discrepancies• periods

presented

gather note

in the

the that

the

slightly

by

inflow

and

resources

capital

in

fees,

fees

are and

•used

to

first

and

royalty

that

transfer

are

much

does

lurc.i6__-u,_ncd include

i.nc,_',c_ ,. on

both

{ and

_i_:t ez':_,..,:, ional fo_.cl._..,..._'__

inve._,:_,nt Two

_,o_;--iout f]ow_,

not

includ_

payment_._

the.p_j:.,.;_r__" _," "

of

inve;_i'_.._.c:_..

by

the

re,,_,_,._ will

i_L.._i_d,::a dii'_':.._-:,,._

rei'ez-to

Filipinos

The

9he

limitations:

securities

royalties

given.-

2).

movements

non-resident and

is

to dita

capital

we _]_cid_:d to

wi-_Lti_

l-epatriation

copyright

Thereason

fable

of

Philippine

(presumably)

totals

due

_hol-t,

(see

classification

; portfolio

income,

iou ..,'(._ort.,_l_r" ._/,,.I Lh,..' ti_!_

relatively

ourselves

columll

transactions and

infermat

are

data

-

mana_c_ment

the

second

..... _q *_o:_

,.i(,_.:.

c.+_t._:C..._._?,:_" ' _r_.

ir_w:._:,. ....... '<,..__.;.. b,:.,£__'ei._3_,:_..._,:'s, _.,u[. _,_::___

"

"

• of

it is

payment

' available of

the

by

Thu_,

[;_e .first tot:_l

statistics,

'situation',

r

Fii,i.pino firms.

.and

the

second

may

bu

an. ove_-_atom_i:_',t:.

.

..

FOr

..

the

20 year

morenarrowly

[_eriod

beginning

.defined.impact

in

of foreign

"1961, u.,in_ tr_ investment

,... ....

domestic

saving

(Total

I)

1976, and _978) did net ,

If

" :

is an.tm_ierstate!:_ent • ..

•-

._";iventhe

the

broader

in only

capital,

..

,

. .

inflow •

uxceed, •

•.is used,

remit.tauce.'_ '.

.

• "

outflows •

'i

on.

.

(q975, J97>,

fouryears

.

definition

•

:

. .

exceeded

.

•

:".::

.

c

inflows short

every of

USSJ.O

repot.ted

a net

The

year

975. .The

except

billion. outflow

Inter-A_ency

• For of

equity

capital

U_207

Working

_955 to q970 on 900 large of

the

minus

period mill ion.

Group

firms remitted

total

show

data

outflowis

just

1949-_960 Hen_res (_979s : q6_) for

ti_._,the

_he net

income--_ su_u_]to

pe]._iod inflow

-F_79 million

"

TABLE

tlet Flow ' Remltt_.ces

of of

2

Forel_n Direct Investment and Profits T Earn.inas! ._nd Lllvldends (in {135 mi!l!ona)

Wlthd_awa]

_itt_._=e

Ma._age_ent

of Profits, r._xzTLings,& Divlden_ c (4)

Copyright and Pa_entsc

fees

_._d

Direct Investment infiowa,b (I)

of Equity Capital Invested i_nthe Philipp*-_es a_ (2)

_.980 1979 _978

221.94 62.07 _31.3_

:04.35 65 .C7 _-_.52

( 0.IO) 13.22 : 3.63

145.57 90.70 _5.17

56°44 53.6_ 36.32

( 26.0S) (100.45) 29.25

( 84°52) (154.16) ( 7,C7)

1977 I_76 1975 1974 1973 1972

330.48 90.70 116.39 64.00 82.74 1.40

12.C8 24.62 17.53 6D.3_ _8.,3 "_3.42

6.2"6 :_.16 27.2-I 24.45 I ._2 (i.53)

155.50 65.22 72.77 79.E3 59.51 32.9%

29.70 38.28 37.35 16.59 12.25 4.51

( 33.8A} "" _ 53.4C (51.77) _._2 (46.46)

(63.54) (24.26) 16.65 (6B.36) ( 6._) (50.97)

2.¢7 "._': _.57 C.!O { _._ " =,"] { 0.73)

26._2 2_.55 47.39 79.36 5_.C! 26.34

2.74 3.!4 4.67 7.51 5.£5 2.56"

(25.24) ( 4c.._ "_ _) { 4i.50) ( &5._O) ( 62 86) (2'_.37)

(27.95) (51,54) [ 46.57) ( 9:.£!} ((:.73) ('i;,92]

Year

Net Portfolio Capital inflow b • (3)

(5)

Royalty

Total

Z

(6) (6)=(3)-(2)

Total

II

(7)

`/X°€(7)-(6)-

1971 1970 _9.9 19EB :_:_7 1965

3.33 4.28 6 7 6.30 9.6C 21.37

4.12 2_.61 4.2512.34 17.91. 33.67

:965

16.96

25.93

-

!7.D3

3.34

( f.i,06)

{ 25.45)

3963 ".,962 I_61

6.56 :_.24 1.80

15.53 _4.50 5"_.2C d

-

12.55 19.91 40._3

0.46 -

(71.52) (23.17) { 90.42,_

( 21.9&7 (23.17) ( 90._ _.;

317.CI

(641.87)

(958.8_)

97O.Ef'

" $03.18

(36=.c_ --

(;_:4.=6_,

7&0.27

280.61

(%12

(392.29

To'.al.

997.42

588.31

304.65

41 • -,I.O 3

_C5.94

_,".55.63

T_tal

...

196 B---gO 920.91.

, • .

_ta/ 1973-£0

. .

£99.63 /

353.29

.,

=3_2.25 . ,

.

. •

•

..

..

68)

_

_

- 43 -

SEntry owned

is that of foreign-owned direct i:_v_:st_c_t, and Filipino-owned capital movec_lents.

_irect investment (Columns (I) outside of the stock exch',nge. to investments that take place exchange_ desirable

CEntry

is

_ncludes

Source: Data for accounts_

as well as to exclude

gross

sale

Centre!

1978

not

_um

of

foreizf]-

and (._))ref_:rs to [n ve:_tn,,Âąi_tsin fil:ns Portfolio jnvest_'_nt (Co!um.u _%)) rely:re through DUtCh,,co an...] sale on the stock

other security the latter.

outflows,

:_ot the

net

tran:sactions.

It

WOU.hL[ have

been

flows.

of _leralco.

B_nk

of

the

Philippines,

De_::irtment

o i Econo;_ic

through 1980, from invisible r_ceipts and data for other years, from balance of F_yments

]_e-_:_;:_.z'ch.

d:isb'._'rse_.e_,ts accounts.

or-US$95

million.

All agree, the conclusions argues

that

or less,

differ

foreign

of considerable (1977111@)

more

(Philippines,

investments

scarce

85-84)

on the numbers;

dramatically.

resources

The proponents

have been

1972c:

however,

Magallona,

"entail

a critic,

a siphoning

off

from the country."

counter

that reality

could

otherwise.

Some may use these data to prove one point: that we used to harass foreign investors with too many restrictions and with a very uncertain investment atmosphere. Consequently, foreigners invested very little additional capital in the Philippines. (Villegas, eta ! 1977: 59) A corollary situation

of this

could

Simulations

counter-factual

now be reversed

to determine

importantly,

for how long

occur,

further

could

Currently, whether

is legitimate.

Some

is that the

on a sustained what conditions

such a sustained

the discussion

the more

the summing

under

approach

substantive

of capital flows

basis' end,

inflow

could

along these lines. debate,

centers

and income

around

remittances

say not.

The comparison [between capital flows and remittamcesJ does not prove that direct foreign investment is undesirable. The two sets of data are so completely unrelated that even if the entry of new capital would dwindle to zero, there is no reason for remittances of profits and earnings to also drop to zero. (Villegas, et a_l 1977: 59) Critics always makestatements like "$8 were remitted for every dollar that was brought into the country." These statements are made because of the confusion between the concepts of flows and the concept of stocks. They are comparing remittances which are the returns for accumulated investments (stocks) against new investments (flows). (Cumagun 1979: 70) Magallona, appropriate.

on the

other

hand, feels the comparison

is

It: can be argued that: the i_J-..:_,remitted for a particular ye,_r is not _:_ec_:._z,._ri?-F ._ro:.-,,t e_r__ed, on investment of that; sam,_ 3v:_r. f't_i__._r_ju_entmight hold true if each ye:_r i:_ t:,_cn s<;p._rni_-_]yand considered in isola_;ion fl-o:_e_.:h individual yearly record. The problem precis._ly is r_!___cd by a consistent aegative act out[[o._ <;vtr a dumber of years taken together. (!977;"I16) [

AS each and

in

many

other,

appear as III

Cf_e p_r_],zif{_nt_

addressing

Cumagun

HOWeVer,

debates

differe:_t

are, 'in part,

make

a legitimate

a long

term

balance

(197a)

of

states

aFS

point

that

payments it

shall

vague, could

issue.

more

tai_ing

past

Villogas,

::_swe

statements

to

in NEPA

issues.

incorrect

althoughthelr

are

et

show

they be

al

below.

do

classified

Sixto

K.

Roxss

clearly.

All foreign finance must eventually be liquidated by a net export of real resoure_,s from the country. Whether the financing from abroad come in the form of loans or equity, ultimately the serviciag of it and zts eventual retirement or repatriation must be elf erred by a next export of Philippine goods and services. If the finance has achieved for the country, a net increase in production and productivity commensurate with the cost of it, then the foreiga investment is . . For a foreign, investment to self-liquidating be adw_ntageous, it must produce n_t real growth in the nation's capability to produce or e3rn or save foreign exchange.

Here

We

shall

we

.are

contribution across

payments

Of

payments.

of

of

make

this

issue

with

the

foreign

and

can

be

they

the

impact

the

or

capital issue

section.

saving, the

upon

examining

Discussions to

following

Since

by

a separate

contribution. reference

the

capital,

analyzed

Neverthelmse, is

in

investment.

boundaries,

investment

payments

usually

concerned

national

of

foreign

explore

flows

the

balance

the

balance

coutribution from of

wo_,k of J째S,

the

the

are

of

balance

former

Cair:_es,

- 46

Some in

Leading

the

P rLinciples

1870s,

Cairnes

process

as

debtor,

immature

first

two

of

four

creditor,

these

(1962:_8-21

). ) debtor

a net

flow

of

allowing

it to

run

a net

services

(excluding the

begin

import

foreign

other

on

investment).

occur

and

as

the

Gordon

country, a1:d

payments

There

is

and

other

capital

the

investment

_oods

see'vice

However, as profits

to

from

recipient

balance

and

is

in discussing

fo!._ign

the

mature

It

is drawn

the

into

debtor,

creditor.

of_ interest

f_mds

profits

transfer of capital. remittances

mature

stage,

investment

immatu_.e

(Wl_at follows

immatu_ce

with

foreign%

stages:

are

involves

con_ected

!'_"c_n,:_._mj. W:citing

the

and

which

situation.

the

Political

described

constituting

Philippine

In

of

-

_ '

is repatri_ted, i

part

of

any

outflows. becomes (it

If

not

in

the

of

capital

The

funds,

and

consequently

and

service

Philippines

can

the

country

with

an

immature

debtor

be

or

is

of

on

the

to

stages should to

another

longer

an

importer

balance

an

exporter

no

one

count2y

on

the trade

above. foreign a capital

translated

a mature

from

the

the

stages

e_eport balance

made)

respect

offset

Cairnes'

the

then

it_ is

to

formeg,

whether

described

(oz- has

the

is,

an

of whether

is making

the

second

rather run

as

be used

the movement

country

must

account

here

or

net;

question

the

us

order

must exceeds

debtor,

strict

reversable).

The

latter

concern

be

process

investment

a mature

need

occur

new

to

contribution

a question

foreign debtor.

investment

direct The

of

to

whether

investment,

data

reviewed

- 47 -

above

show

scattered a net

that,

with the possible

years,

importer

who claim

the economy

the Philippines'

(or has in the pas_ been) foreign

investment

the available may feel that But

information.

investment

at which immature

it must debtor

that would

stage.

They

before

the point,

First,

debtor

a sustained

to aggregate

so, it would

have

upon

during

through (For

re investment

to remain

some vignettes

to hhe

an immatur_ debtor

stage.

discussion

is

ever an immature

in the form

income

of equity

payments_ ever made

in the Philippines?

_o independence.

a

If

We have

that would throw light Many

of the foreign

colonial

beginning

of profits

level of

or, to put the question

saving

the American

and

and the r a_e

to the mature

investment

question.

often

of

et al,

the

to return

some additional

a data series

in the Philippines,

on the basis

also give some indication

country

to be prior

this important

investors

should

of the associated

across

of direct

now be needed

period,

has foreign

is being

like VilleEas,

was the Philippines

contribution

not come

saving

Those

there could be a net inflow.

it again reverts

required.

capita], net

finance.

upon them to demonstrate

debtor

differently,

incorrect

policies

long they expect the

for

since 19_9

because

grow for the country

made

of a few

is due to past restrictions

of how

Having

domestic

They,

that the problem

it is incumbent

rel_ted

increased

are simply

with enlightened

foreign

has not been

of equity-capital

that

exception

period

were resident

small and growing

and local borrowing.

of American-owned

businesses,

see

- 48 -

Gleek

(1975).)

a net

outflow. Second,

mature

It is quite

according

debtor

and services

Since

the Philippines deficit,

argument..

The

investments

to Cairnes'

is associated

trade

account

possible

account

there

(other

has been

past

A significant

account;

they

we confine concensus. loans,

equity

that show period

investment

an almost

from the

indicate

between

1955

difference

meeds

survey

much more

rather

there

net

there

is not a

income

outflow

flows

for the

On the other hand, the

of the Inter-Agency of a little

is too great;

Working

over _1.0 billion Part

the last mentioned

of the

data refers

but not very

this is an area that

examination.

is a separate as a source

foreigners'

If

Bank data on private

than foreigners,

detailed

investment

to do with

Central

however,

purposes.

and 1970. (1972b: [8]; 1972c_83)

The discrepancy

foreign

117)

may be because

Thirdly,

loans,

of the

and services

for investment

billion

a net inflow

to non-residents much.

for most

and the associated

US_5.O

on equity

of the loans,

on the trade

presents

in the

are included,

debtor

portion

to private

19694--1973.(1977:

statistics Group

have not been

Magallona

somewhere

If loans

an immature

deficits

ourselves

run a current

is tha_ we have focused incomes.

on the

than remittances).

must be a problem

and related

to cover

beinK a

with an e xpor_ balance

the Philippines

have been

typology,

has persistently

answer

30 years.

that there was always

argument

of finance

contribution

in favor of that has nothing

to the aggregate

level

Of

saving,

The

althou_._h it is

discussion

local

financial

provide It

sta_'t_

for

then

sources,

must

argument

is

that

assets

the

total

IsrÂŁo

in of

and

assets

of

ir_J[ity

aaJ

th:-ouy_i ]chef term

soul.eel,

An

example

Villegas,

over

_4.9

of

After in

in

of

poJntin

their

industries;

billion

equity

tl_i._typ_

firms

vehicle

of

loanJ.

[articul<_l-ly

eta].

multinational motor

_L" unwillingne_s

crack: w_._,!_jl_11old_:L'sto

pro,Jects

tapped.

found

c-,._n:u_,_,J _,J._;_.. _.ki_ issue.

the

th:_t foreign

be

the petroleum

from

in._titutiuus

funds

follows

often

had

g out

study

in

co_nbine<_

1975, they

gO

C_ to

say: Considering this staggering amount which is rough.[.y around 42 percent of ot_ international reserves of $1,5 B in 1975, we could not have ma_e any heaCway >An these two sub-industries without any investme_ts item the M2{C's. It is precisely because of this tna'_ the Philippines welcomes foreign investments to help in the development and economic growth of the cottutry.

(1977: _I) /-

Of

/Comparison

remittances of

the

are

control would

provides

that

total only within some

To

is

which

Another,

these

to

this of

foreign

of

time.

our

Filipino

resources

equally

important,

I:_veatiga_ions

legislation than of

_xploit Why

the

the is

40 percent

it

of

economy

industry tha_

capitalists

ara

has

on

in

not

are?

discussion

capital

income

;_nd finance,

areas

not

firms

issue.

greater

do

period

reiaSsd

example,

in certai_

investors

and

wealth

For

investment

allowed

point

flOWS

utilization

industries

when this

relevant

foreign

a stipulated of

capital

pertinent.

Filipino

investing

to

be

equity if

not and

however,

net

are

flowi_g

issue, in

focused in the

fro_

the

ext_nt

abroad.

literature

h_s

-

been

whether

use on

or

not

of domestic source

period

of

funds

sources.

The

investment

arrives

at

point

the

same

that

short

term

borrowers

for

Hena_es 31

local of

financial

had

on

gives

of

Ford

million

and

but

in

paper

most

their

from extreme

1975

Ford

however,

for

95)

the

assets

the

which

commercial

period

local

the

91,

information

From

acquired

of

(1973:

)'1.3 million

had

thirteen

were net

examples,

Ford,

Martin makes

lenders

that

million.

local

The

determined

to

the

Suva

obtained

Philippines.

only

short-term

the

1971-1976

increase

several

Henares

-_4.8

the he

new that

1966-1970.

which

their

net

196_,

during

invested

Y168.5

(1979a:

l_lotor

after

losses

had

borrowed

authority

_2_,2.95

to

million

more.

155-15_)

Using examine The

He

that

reduced

issue

Of

statement,

Company

locally

that

firms

sources. is

period

was

argues

borrow.

were

and

total

Alsaaty

as

study

the

net

on

information

non-U.S.

Tables _ VIII)

well

1966

longer

7_ percent

which

was

in his

reports

foreign-owned

financed

as

between

the

He

excessive

for

other

heavily

and

lend

firms funds

the

conclusion.(1972:582)

firms

foreign-owned

oÂŁ

includes

relying

(1965:8

firms

from

earnin(_s.

were

market.

or

q6 percent

reinvested firms

percent

m_de

presents

,imerican-owned

Philippines

remainin_

forei_-owned financial

108

Bantegui

Eighty-four the

and

fi:,ms have

so_rcCs.

for

1956-1965. within

the

foreign-owned

credit

generated

50 -

data

ratio

the of

from

the

structure

of

local

to

Central borrowings

Bank,

foreign

of

borrowings

Vill_gas,

et

transzational of

the

al i'i.rms.

T:_Cs was

-

51:#9

in

and

that

there

however,

1970

from in

95:7

the

in the

The

can

main

credi_

interest (Tran

that

foreigners

Bank

issued

be

borrowed

of

foreign

remains

VII.

the

as the in

this

of

of

balance the

73:27

t,he chemical

_his

u_u_lly

frc_

by

financial

Dang,

a bearing:

liberal

firms

TNCs,

own_.rs possess

1977: @5) have

a_-ea is that

high

howevel-,

dev_luaticn

remission

notes r i_k,

[_olicles,

qS@) has

reacted

over-borrowing tying with

to

locally.

the

maximum

the

The

equity

pattern

ca_e Cent:-al

a_ount

foreign-owned

Whether

the

that to

will

could

the

_ize

change

Payments

previous of

which

an

ratio,

seen.

section

foreign is

repatriation is

_n

equity,

government

investment.

contribution

the

1977:

firms

be

_n

foreign

and

a circular

Balance

aspect

might

are

by

to

In

their

Philippine

that

10:90

treatment

levels,

Dang

,i_ the

i_,_u_tz-_Jand

to

concern

(Esplritu

rate

The

for

because

Thanh

detergent

industry

preferential

factors

_,,It_:_o_-_ _ot_,

variations

foreign-owned

ratings.

other

Ti_

q5,_7)

substantial obtain

1975.

wide

and

reason

institutions

and

soap

(q977:

in

are

pharmaceutical

industry.

with

49:51

51 -

the of

literature

about

examined

investors, flow

the

of money

earnings,

international

of payments.

we

fact,

foreign

most

capital important

capital

fees,

process, In

the

from

it

etc.

much

impacts

investment

of the in

abroad

Inasmuch upon discussion the

Philippines effects

under

is

is too

narrow;

broad

and

balance

is

effects,

The

difficult

pa4fments

process

requires

factual

h_otheses:

foreign

investment

a situation

in

project

not

did

of

what did

which occur,

did

not

had

ever

occurred,

A_d,

of

course,

only

he

alternative

or in

actually

she an

environment

only

no

economic,

He

balance

the

effects,

bal:_r_ce

is that

the

co[_nt_,r

happened

Jf

the

r_searcher foreisu_

foreign •other

explicitly

may

the

a significant

as many

which

Dasari.

implicitly)

The

c_n ,envision investment

number

of

investment

alternatives.

or implicitly

polit

or may

of

(1972: 5)

particular

which

balance

Philippines

estimate

have

one

as well

of

invest_:ent

occt_r.

in

foreisq_

a/,eas_ initial

to

in which

occuac,

the

effects.

would

not

of

dividing

broad

foreign (if

This

ex_m[.,_e the

scheme,

attempts

making

projects

to

s_ud terminal

impact

effect

dissertation

three

with

flow_.

investl_le_,.tin

the

into

profit

[)ayments

area,

attempt

a classification

recurrent

•cultural

wider

of foreign

impact

bul_,r_ce of

of pay_a_nts

systematic

context

of'pa_rments

_ not

situa_:es

societal resemble

and

w_ac

exists.

Dasari's

alternative

different

from

of

output

currently

by

imoorts

output

capital

a much

impact

u_derta/fes

their

to

the

most

payments

of

of

covers

The

its

heading

l_mited

investment

in

the

by

at

the

local

world

situations

actual: produced prices;

firms;

(3)

(I) by (2)

are

only

replacement

of

the

local

by

the

level

subsidiary

replace:_lent

replacement

m_rginally

of

t_le level

imports

in

areas

of

- 53-

where and

there

does

production

exist;

and,

output

of

i_s

by

least

empirical

(2)

above of

decided

would

desirable

might

look

of

of

Dasari

implictly

other as the

luxury

that

investor.

important

at

Dasari's

data

he

has

variations one

to

in

question

for

payments from

firm

conjunction the

of payments

other

foregone

value

Otherwise, of

equally,

pe_,haps

the

precisely

in

firm. wi_h

0ÂŁ

in his

o,_e

the

can

and

size

limited the

at

the

exe:_ci_es,

patterns

do

production same

be

directed

he used. the

of

First,

impact

on

alternative the

_ample

av_,ages

and

fashion

hypothesized The

the

make

that

firms, each

look

consumption

assumptions

under

might

added,

however,

17

or

For example,

one

producers

u_efulness

worsen

consumption,

Or,

that

to

year

as a result

scenarios.

only

four of

investment.

items.

the

the

firms

160-164)

comments,

and

information

widely

balance

suggest

domestic

foreign

for

loc_-_l double

17

assumptions

mostly

domestic

decisions

of

the

the

of

assumes

More

varies

to

business

balance

examines

foreign

impact

increased

and

author

alternative

impact

alter

easy

at the

particularly

the

(101-102,

be

more,

to _'_c_re than

equity

cur_-cnCly

that

expand

improvements,

replacement. It

the

the

except

not

under

does

whc_,e they

a._ (5)

foreign

Only

a consequence

not

work

51 percent

1966"1970.

import

_ame

(93-95)

at

are

the

level.

his

there

(4)

e_i.,_t dcme._;:.[ccompetition,

competitor_,_

does

alternative as

domestic

competitors

In

period,

currentlj

lastly,

current

with

not

size

that

lead

al'e

- 5#

presented. year

This

span

that

Given include the

firms

He

the

by

the

any

stud#,

the

lack

the

short, fouz"

Dasari

original

however. the

initial

"initial

this

It

as

consequence of

effects"

not of

presents

a

cannot

Inasmuch

stage

does

investments

that

of data.

approach,

from

is that

of

acknowledges

pleading

micro

information

reinforced

effects

dismissed,

level,

onward

frame

initial

so easily

firm

time

(122),

is

investigated.

surveyed.

problem be

was

the

under

feeling

-

he

uses

of not

the

firm's

a

having

activity

calculated

are

not

meaningful. Lastly,

the

foreign

investment

he

not

author

does

reduced

imports,

into

account

the

or,

that

produced

for

purchased

inputs.

Although

difficult

to

attention

problem.

Lindsey

the

he

firms

procured This

is

find,

reports

surveyed

inputs

are

true

with

is

heavily

dependent

energy

supplies.

prior

to

the

interesting be

heavily

altered

raw

at present

by

see the

how

their

addition

on

the

enez.gy costs.

to

be th_s

(1981a:

the

world data

his

in

locally

inputs

In

situation.

would

tile executives

in

chan_ed

domestically

aependent.

_Jy,

of

of

that

of

calculations

given

collected

if

in his

be

Dasari

much,

benefit'

content

manufactured

materials.

escalation to

of

but

numbers

many

import

the

matter

should

that

of

import

precise

mentioned

particularly

contrasted

its

most

to

take

domestically

ascribes

as Philippines

market for

7#)

fozj

a period

It would

be

ce_:clu-_ions

would

Although work

that

we

we

put

forth

the

size,

if

abou_

impact

of foreign

payments,

work

with

it

So on

the

about

analysis

of

if

not

we

have

balance this.

of As

Philippines

shortly

shift

the

economy

balance

of

investors, in

this

world

wide

market

import

substitution

there,

has

level

of exports

with

to

the

or

to

of

the

been

certain foreisn

arrangements

could

TNCs,

little

(Lindsey.1981: clauses

re_ions

in •that

or,

investor, are

no

longer

in

firms

effort

to

Many

forbid

expo_t_

cases, I07_b) in

of

the

cate_ory

increase

and

allowed

bu_k

and

is of-the

licensing

(Virata

foceign

a m_jr,r role

in this

83-8_).

some

in f._a;.t

know!eddie the

]ate

goverr,_nent to

today

Among

to

ar&-,,_edthat

requisite

Philippines

the,

tile mid-

play

However

s_y

_ndu_tl, ia!i;_ation

the

_s

exports

to

o_-ien_ation,

the

variety_.

affiliate

by

it

the

a

places,

_ince

reasons,

the

only

an

little

substitution

connections. in

be

in many

expor_

have

tae

i_up_ct of

has

efforts

an

shoulJ

the

independence.

toward

hi_,._s

others.

Dasari

ongoing

the

h_._:__ttempted

It

discussed

relatively

include local

issue.

import

They

investment

as

an

particularly

process.

that

that

for

rais_

l:},ii.!i_!Ji_b_lance

touched-on

payments

foreign

far

the

'

dlrc'cci_:_._,of

the

familiar

been

been

the on

payments.

after

has

not

,C '"

_ub:_t:-_:_[;ivo and

emphas_z_:d

not

entered

there

are

a guide,

has

1960s

for

be

are

far

process

must we

inducement,

crit]cisu_:_

invo_tment

which

systematic

the

have

doubts

of

believ_

TNCs

other

the go

agreements

either

with0L_t Although

so

entirely

the

consent.

such

_:_hil.i[_pinese

-

there in

is

one

little

form

Among mining see

of

a smaller

20

that based

50-58)

sales.

industry

43

percent

from

of

exports. Gross

the

(EPZs)

to

foreign

sales

those

encourage that that

Snow

reports

that

the

overhead

rentals

(1977: 7_)

The

may

of

the

B0I

in

of

with showing

agro-

89 percent

._id mine_-als in

the

metal-b_sed

chemical

industries

the

ent;erprises

overstate are

oriented

the

came

of

export

toward

generate"

the

a sii,[nific-,ut amount howevei-,

when

queried,

"a high

exchange

This

buildings,

and

however,

is

zones

m_ _ be

of

diffei_e_ito

I'_JZofficial

st:_ted

ga-n_, e:_v_:_io_._edfrou,

retention

exper,ses.

zone,

p;_ocessin_

_-orId '.na._ket. It

reality,

the

The

of manufactu_in_

The

was

21_Cs contribution,

manufactul-er-s.

development

foreign

investors

the

those

a number

_--PZswill

that

with

fir.as linked a table

registered

which

the

are

primary

their

of

1975

_._Iinclude

mining

in

in

do

. 6L;)

exchange.

foreign

and

from

equivalent

percent;

has,created

industries is hoped

in

figures

for

Philippines

labor,

Those

percent;

sales

et

that

we

fil'ms re___istered

came

with

an

(1977:

particularly

(BOI)

exported