DOING BUSINESS IN PHILIPPINES INVESTMENT 在菲律宾投资做生意.doc

DOING BUSINESS IN PHILIPPINES: INVESTMENT CLIMATE, COMPETITIVENESS AND POVERTY Background paper for the Philippines Poverty Assessment 2004 Jose G. Montalvo 1. Introduction: investment climate, economic growth and poverty. It is a well established fact that one of the most effective ways of reducing poverty is fostering economic growth. In the period 1981-99 it is easy to show that income growth is strongly correlated with poverty reduction. There is an increasing body of literature that documents the positive correlation between growth and poverty reduction Dollar and Kray (2001), Besley and Burguess (2003) or Ravallion (2001).. Dollar and Kray (2001), Besley and Burguess (2003) or Ravallion (2001). One of the basic factor enhancing economic growth is private investment since this is the most important determinant of technological change, productivity and competitiveness. There are many economic conditions that explain the evolution of investment. However recently there has been an increasing interest to study the effect of institutional arrangement, ranging from political conditions to economic institutions. This background paper analyses the investment climate of Philippines and its influence on foreign direct investment. 2. Investment climate: the macroeconomic perspective The evolution of population and GDP growth in Philippines allows per capita income to grow by approximately 2-2.5% per year. This growth rate is not enough to reduce poverty at an acceptable rate, specially if we consider that the potential growth rate is close to 5%. Besides the necessary measures to reduce population growth the Philippines’ economy needs to implement measures to increase investment and increase capital formation to absorb the increasing labor supply and reduce unemployment and underemployment. The conditions that favour the acceleration of capital accumulation can be characterize under the umbrella of investment climate. Recently several institutions, mainly the World Ba