SSRN Id2599131

WORKING PAPER
Economic Charter Change:

Examining the Pros and Cons
Ronald U. Mendoza
AIM Rizalino S. Navarro Policy Center for Competitiveness
Monica M. Melchor
RSN-PCC WORKING PAPER 15-004
Electroniccopy
Electronic copy available
available at:
at:https://ssrn.com/abstract=2599131
http://ssrn.com/abstract=2599131
ASIAN INSTITUTE OF MANAGEMENT
RIZALINO S. NAVARRO POLICY CENTER FOR COMPETITIVENESS
WORKING PAPER
Economic Charter Change:

Examining the Pros and Cons
Ronald U. Mendoza
Monica M. Melchor
MAY 2015
The views expressed herein are those of the authors and do not necessarily reflect the views of Asian
Institute of Management.
Electroniccopy
Electronic copy available
available at:
at:https://ssrn.com/abstract=2599131
http://ssrn.com/abstract=2599131
Economic Charter Change: Examining the Pros and Cons
Ronald U. Mendoza and Monica Melchor
MAY 2015
Abstract
The Philippine House of Representatives commenced plenary debates on possible amendments
to the economic provisions of the Philippine Constitution in late August 2014. The charter
change proposal envisions adding the phrase “as may be provided by law” to at least 7 sections
of the Constitution. This would allow Congress to pass enabling laws that would relax
restrictions on foreign ownership in order to boost foreign investments. This policy brief
provides an update on the economic charter change (or “Economic Cha-Cha”) discussions and
reviews the international and national empirical evidence surrounding this issue. It finds
evidence that lifting foreign investment restrictions could improve FDI inflows into the
Philippines, particularly in the areas restricted in the Philippine Constitution (e.g. mining,
utilities, mass media, and education). At least one international study suggests that efforts to
remove ownership restrictions could help boost net FDI inflows by up to 78%. Nevertheless,
such an effort should ideally be part of a broader drive to improve on the other factors that
investors report are deterring their expansion in the Philippines—including, for example,
affordable and stable energy and better transport infrastructure. Economic Cha-Cha opens the
door to establish a stronger platform for promoting stronger investments and a more inclusive
economic development.
Corresponding authors:
Ronald U. Mendoza, AIM Rizalino S. Navarro Policy Center for Competitiveness
Tel: +632-892-4011. Fax: +632-465-2863. E-mail: [email protected]
Monica M. Melchor, AIM Rizalino S. Navarro Policy Center for Competitiveness

Tel: +632-892-4011. Fax: +632-465-2863. E-mail: [email protected]
Electronic copy available at: https://ssrn.com/abstract=2599131

1. INTRODUCTION
Foreign direct investment1 (FDI) is an important component of the growth and industrialization
strategies of many developing countries because FDI contributes to the further expansion of the
economy, spurring job creation, capital accumulation, improved competition, technological
catch-up, and higher consumer welfare (due to better goods and services) in the process.2
Nevertheless, some argue for limiting foreign ownership in key sectors, owing to the potential
harm to the domestic economy (e.g., displacement of local firms), as well as non-economic
reasons like economic nationalism (UNCTAD, 2006). While no cost-benefit analysis of
economic openness—particularly on FDI—has been done, the bulk of the empirical evidence
and policy experience (notably in Asia) points in favor of utilizing FDI as one of the engines of
economic growth and development. This is why the vast majority of professional economists
argue that the Philippines would stand to gain from policies that encourage the inflow of foreign
investments into the country.
Nevertheless, despite recent high growth in the country and an increase in FDI from an
average net inflow of nearly 1.5 billion USD from 2001-2010 to nearly 3.9 billion USD in 2013,
FDI flows into the Philippines have been paltry compared to those to its neighbors in ASEAN
(see Figure 1).3 Indonesia, for instance, has seen its FDI increase fourfold to 18.4 billion USD in
2013, from a 2001-2010 average of 4.7 billion USD. Similarly, Singapore has already reached a
net FDI inflow amounting to 63.8 billion USD in 2013, from its 2001-2010 average of 24.8
billion USD4.
In the other ASEAN economies, the FDI flowing into sectors that are identified as
restricted in the Philippines are larger in terms of both magnitude and share to total FDI (see
Table 1). FDI to these sectors accounted for an average of 28.5% of total FDI in Malaysia from
2009 to 2012. In Indonesia, these sectors comprised an average 11.4% of total FDI from 2010 to
2011. Mining and quarrying made up the bulk of inflows to restricted sectors in these countries,
1
According to the World Bank Development Indicators Database, foreign direct investments are the net inflows of
investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating
in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-
term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new
investment inflows less disinvestment) in the reporting economy from foreign investors. Data are in current U.S.
dollars.
2
See among others UNCTAD (2006), Urata and Ando (2010), and Aldaba and Aldaba (2012).
3
Data cited here are from the World Bank Development Indicators Database. Bangko Sentral ng Pilipinas (BSP)
reports the same figures.
4
For a depiction of this trend from 1981 to 2013, see Appendix 1.
1

averaging 30% and 20% of total FDI received by Malaysia (from 2009 to 2012) and by
Indonesia (from 2010 to 2011) (see Table 1 and Figure 2). In contrast, mining and quarrying
accounted for only an estimated 1.5% of total FDI inflows to the Philippines from 2009 to 2012.
These totaled 27 million USD, in stark contrast to Malaysia’s 2.4 billion USD. In Vietnam,
average FDI into sectors like electricity, gas and water, as well as transport, storage, and
communication (most of which face partially restricted ownership in the Philippines) from 2009
to 2012 was ten times the amount received by the Philippines (2.3 billion USD as against 235
million USD).
Figure 1. Net FDI Inflow among Selected ASEAN Countries, 2001-2013

(Current USD, billions)
70
60
50
40
30
20
10
-
2001-2010 2011 2012 2013
Philippines Malaysia Thailand Indonesia Singapore
Source: AIM Policy Center staff calculations based on data from the World Bank Development Indicators.
2

Table 1. FDI to Restricted Sectors as Percent of Total FDI for Selected ASEAN Countries
(USD, millions)
Philippines Thailand Vietnam Malaysia Indonesia
Average Latest Average Latest Average Latest Average Latest Average Latest
(2009- Available (2009- Available (2009- Available (2009- Available (2010- Available
2012) Year 2011) Year 2012) Year 2012) Year 2011) Year
FDI to
Restricted 235.4 25.7 487 517 2,333 1,014 2,335 3,316 1,444.7 3,977
Sectors
Total FDI 1,787 2,033 8,027 9,539 18,735 16,348 8,197 10,074 12,630 19,241
Restricted as
13.2 1.3 6.1 5.4 12.5 6.2 28.5 32.9 11.4 20.7
% of Total
Source: AIM Policy Center staff calculations based on data from the International Trade Center.
Figure 2. FDI to Restricted Sectors among Selected ASEAN Countries (USD, millions)5
4500
4000
3500 Motion Picture, Radio, Television,
3000 etc.
2500
Education
2000
1500
Electricity, Gas & Water
1000
500
Transport, Storage &
0
Communication
Last Available Year
Last Available Year
Last Available Year
Last Available Year
Last Available Year

Average (09-12)
Average (09-11)
Average (09-12)
Average (09-12)
Average (10-11)
-500
Mining and Quarrying
Forestry and Fishing
Philippines Thailand Vietnam Malaysia Indonesia

Source: AIM Policy Center staff calculations using data from the International Trade Center.
The Philippines moreover pales in comparison to its ASEAN neighbors in terms of the
net inflow of FDI as a percentage of GDP – an average of 1.3% of GDP from 2000 to 2013,
second only to Malaysia’s 0.94% and far from Singapore’s 17.19% of GDP (see Table 2).
5
Data is incomplete for the forestry and fishing as well as for the motion picture, radio and television sectors. For
the forestry and fishing sectors, figures are only available for Vietnam in 2009. Data on motion picture, radio and
television sector is only available for the Philippines. Malaysia and Indonesia have no data for the electricity, gas
and water sector. Education figures are only provided for the Philippines and Vietnam.
3

Table 2. FDI and FDI for ASEAN Countries
FDI, net inflows (current Foreign direct investment,
US$, millions) net inflows (% of GDP)
Ave. 2000-2013 Ave. 2000-2013
Singapore 31,434.68 17.19
Vietnam 4,856.36 5.24
Cambodia 573.65 5.91
Thailand 7,243.54 3.28
Lao PDR 168.11 3.02
Malaysia 6,452.69 3.27
Brunei Darussalam 398.75 3.12
Philippines 1,857.40 1.30
Indonesia 7,097.51 0.94
Myanmar 786.77 n/a
Source: The World Bank Database (Accessed at http://data.worldbank.org)
2. WHAT IS THE “ECONOMIC CHA-CHA?”

The 1987 Philippine Constitution contains provisions designed to favor Philippine nationals by
limiting the participation of foreign investors in key economic activities such as the:
(1) Exploitation, development and utilization of natural resources (such as minerals, forests,
lakes and rivers);
(2) Operation of public utilities (like electricity, water, transportation and communication);
(3) Ownership of educational institutions (like colleges and universities); and
(4) Ownership and management of mass media (such as newspapers, radio, and television);
and advertising.
These sectors comprised about 1.26 percent6 of total net FDI inflow into the Philippines
in 20127. When juxtaposed against total world FDI flows, FDI in these sectors accounted for
about 9.80 percent of the global net FDI inflows (see Figure 3). Figure 4 shows the distribution
of net FDI inflow in the world among the restricted sectors in 2012, indicating that FDI to
6
Sectors included for these estimates are (1) forestry and fishing, (2) mining and quarrying, (3) petroleum, (4)
education, (5) electricity, gas and water, (6) transport, storage and communication, (7) motion picture, radio and
television, and (8) advertising.
7
Data on FDI by country and by sector are available at http://www.investmentmap.org, an online database created
and maintained by International Trade Center. A caveat to this disaggregation is that the data may not match the
total FDI reported per country by World Bank Development Indicators due to the consolidation of different sources.
Another caveat is, as it takes time to collect sector-level data, only the latest year with available disaggregation of a
country can be reported.
4

mining and quarrying accounted for half of the FDI going to restricted sectors in that year.
Meanwhile, Figure 5 shows the distribution of FDI inflow to these sectors in the Philippines.
The Philippines continues to lag behind its neighbors in terms of FDI to restricted sectors.
The 25.7 million USD to these sectors in the country in 2012 (1.26% of the country’s total FDI
for that year) is dwarfed by the nearly 4 billion USD of FDI to restricted sectors in Indonesia. A
restrictive stance on foreign ownership has been cited as a contributor to the comparatively lower
FDI inflows into the Philippines, countering the gains yielded from improved investor
confidence in the country as well as from better governance (Habito, 2014).
Figure 3. Global Net FDI Inflow by Restricted and Non-restricted Sectors, 2012
Forestry and fishing
Advertising
Education
Motion picture, radio

and television
Petroleum
Electricty, gas and

water
Transport, storage and
communication
Mining and quarrying
Source: AIM Policy Center staff calculations based on data from the International Trade Center
5

Figure 4. Global Net FDI Inflow among the Restricted Sectors, 2012
Forestry and fishing

Mining and
quarrying Advertising
Education
Motion picture,
Petroleum radio and television
Transport, Electricty,
storage and gas and
communication water
Source: AIM Policy Center staff calculations based on data from the International Trade Center
Figure 5. Net FDI Inflow among the Restricted Sectors, Philippines 2012
Electricity, Gas and
Water
Transport,
Storage and
Communication
Motion picture,
radio and television
Education
Mining & Quarrying
Note: FDI value for electricity, gas and water is a net outflow.
Source: AIM Policy Center staff calculations based on data from the International Trade Center.
As envisioned by House Speaker Feliciano Belmonte Jr., the possible amendment to the
Philippine Constitution would add the phrase "as may be provided by law" to its following
provisions:
(1) Section 2, Art. XII on exploration, development, and utilization of natural resources,
(2) Section 3, Art. XII on alienable lands on the public domain,
6

(3) Section 7, Art. XII on conveyance on private lands,
(4) Section 10, Art. XII on reserved investments,
(5) Section 11, Art. XII on grant of franchises, certificates, or any other forms of
authorization for the operation of public utility,
(6) Section 4 (2), Art. XIV on ownership of educational institutions, and
(7) Section 11 (1 and 2), Art. XVI on ownership and management of mass media and on the
policy for engagement in the advertising industry.
Therefore, the goal of this amendment is merely to introduce the possibility of “enabling
laws” whereby future Congresses could begin to open up key aspects of the economy to foreign
investors. Proponents of this “economic cha-cha” argue that the timing is right to open up this
possibility--even if politically, they do not yet wish to commence the discussions on enabling
laws. The latter, they argue, would eventually allow the country to capitalize on the tide of
increased investor confidence in the economy, boosting its chances of sustaining the recent
impressive economic performance. Others also argue that relaxing economic restrictions could
make up for the country’s other constraints, including the lack of infrastructure, energy deficits
in some parts of the country, and other challenges impeding foreign investment. Table 2 below
briefly summarizes some of the views for and against economic cha-cha, based on a selection of
the country’s leading thinkers.
7

Table 2. Views on the Economic Charter Change Initiative
For Economic Cha-Cha Against Economic Cha-Cha
Cielito Habito, Former National Economic Solia Monsod, UP School of Economics:

and Development Authority (NEDA) Director There is a lack of empirical basis for the
General: “...changing circumstances in argument to lift restrictions. Macro data may
technology and economic realities render show an association between higher levels of
many of our constitutionally mandated income and FDI, but do not show causality.
restrictions on foreign business participation Anywhere from 25 to 45 percent of FDI
obsolete, irrelevant or even projects have “deleterious effects” on national
counterproductive.” (Habito, 2014). income. Historically, FDI played only a minor
role in the growth of most high-performing
Albert del Rosario, Department of Foreign Asian economies. There are other, more
Affairs Secretary: "There may be a need to pressing, institutional obstacles impeding the
evaluate existing statutory economic growth of FDI. Foreign investors can be in
parameters as the Philippines further redefines effective control of firms by circumventing
its international economic policy." (Ordinario, regulations. “...Amending the Constitution is
2012) not likely to open any new doors to FDI
because for all intents and purposes, the doors
are already open. It is not necessary to amend
The World Bank: “Countries that relax foreign the Constitution.” (Monsod, 2012)
ownership restrictions in services stand to
attract more FDI, which will enhance the
competitiveness of producers of both services
and goods” (Leyco, 2014)
Calixto Chikiamco: “The number and quality Raul Fabella, UP School of Economics: Bad
of bidders for PPP infrastructure projects, experience, not restriction on foreign
especially in the construction and operation of ownership, is the reason for the country's low
airports, have been limited due to the 60:40 FDIs. For example, the Ninoy Aquino
rule imposed by the Constitution… It’s well International Airport (NAIA) Terminal 3, “the
known that despite these restrictions, Chinese country’s biggest ‘black eye’ in terms of
investors are already in control of a large foreign investments”, involved a dummy
shipping company and our national power contracted by foreign entities to do business in
grid. There may be others” (Dumlao, 2013). the country (Ordinario, 2012).
8

Table 2. Views on the Economic Charter Change Initiative (cont.)
Ramon del Rosario, Chairman of Makati
Business Club: Restrictive foreign ownership Constitutional commissioner Christian
rules are one of three major impediments to Monsod: 1) FDIs played a smaller role in the
Philippine growth alongside high levels of development of economic powerhouses Japan,
corruption and labor costs. The “protectionist South Korea, Taiwan and China (comprising
policies are not doing us any good in terms less than 2% of gross domestic investment
of improving the quality of our industries and during the period of highest growth rates
services” (Tacujan, 2013). experienced by those countries); 2) foreign
ownership of land could lead to speculation and
Canadian Chamber of Commerce President the inflation of land prices above equitable
Julian Payne: “The Joint Foreign Chambers levels; 3) economic charter change could give
of Commerce is supporting the Charter too much power to Congress and open the door
change to allow more foreign investments in to wider corruption (Basilio, 2014, Monsod
the Philippines... Liberalizing the rules on 2014).
direct foreign investments will stimulate
greater competition. Easing the restrictions
will improve inclusive economic growth in
the country” (Carillo, 2014)
Roberto de Ocampo: “What’s really

important here is that we are able to signal to
the world that we are open to change to make
our Constitution more hospitable to
investments.”
Sources: See among others, Basilio (2014), Carillo (2014), Dalangin-Fernandez (2014), de Vera (2014), Francisco
(2014), GMA (2007), Habito (2014), Ordinario (2012).
Barring foreign participation in key sectors of the Philippine economy could lead to,
among other things: (1) a slow take-off of public-private partnerships as the number of local
firms with the required financial capacity to undertake major infrastructure schemes—mostly in
public utilities—is limited; (2) a lost opportunity to help boost the country’s standing in the
global economic marketplace and help improve the quality of higher education; and (3) lost
capital, jobs and improved technology which may have accompanied the entry of foreign media
outfits (Habito, 2014).
The Foundation for Economic Freedom (2012) summarizes the arguments for
constitutional reforms as 1) efficiency gains accrued after ownership restrictions are lifted; 2)
capture of the state by oligarchs and vested interest groups as preferential treatment for Filipinos
may benefit selected individuals disproportionately; 3) adverse selection problems whereby
restrictive rules lead to prohibitive costs for compliance for most investors, allowing “bad”
9

foreign investors to be more likely to be selected. The organization advances the following
responses (among others) to arguments against constitutional reform:
 While the economy continues to experience strong growth, such growth has been
primarily driven by consumption rather than investment. The FDI received by the
country pales in comparison to that of its neighbors.
 Evidence-based arguments against amending the Constitution are likewise sparse.
 The fact that not all FDI contributes to sustainable development should not preclude
efforts to attract FDI. This holds true even if the direction of causality between FDI and
national growth in income cannot be established.
 While constitutional reforms will not remove all the obstacles to Philippine economic
competitiveness, they should still be part of a broader umbrella of reform efforts to
foster economic growth.
 Efforts associated with dealing with the imposed restrictions have costs and are
furthermore a bad signal to investors. Restrictions add to the complexity and
uncertainty of the rules of the game while presenting opportunities for corruption.
 The possibility of political exploitation should be a secondary issue. Vigilance during
the process is necessary; it should not be abandoned entirely. “We need not ‘throw out
the baby with the bathwater’…”
On the other hand, critics of Economic Cha-Cha point to the possible economic and
social harms that lifting foreign ownership restrictions can have, such as potential job losses due
to the displacement of local firms and stunted local industry, speculation of land prices,
environmental degradation8, and national security concerns (Bello, 2014). The security concerns
related to greater foreign involvement in public utilities were said to be all the more worrisome
in light of instances where foreign companies were able to translate minority rule of a company
into effective rule, to the detriment of the general public. Meralco was cited as a case in which
foreign involvement facilitated collusion with power suppliers to inflate the prices of electricity
at the expense of households (Bello, 2014).
Moreover, President Aquino has characterized changes to the economic provisions of the
Constitution as “not urgent”, elaborating that strong growth has persisted and expected to remain
8
Bello (2014) cites the Philippines as being the second top destination country in the Asia-Pacific region for large-
scale land acquisition, with investors eyeing 3.1 million hectares of land.
10

high. This sentiment is echoed in a 2013 survey of priorities of big business associations, in
which only the Joint Foreign Chamber of Commerce listed economic charter change as a priority
for the country (Bello, 2014). Nevertheless, a more thorough review of the evidence—both
international and national—is necessary in order to arrive at a more informed conclusion on this
issue.
3. RESTRICTIONS ON PHILIPPINE INVESTMENTS

The Philippines is among the most restricted economies for foreign investments (World Bank,
2010). The country imposes foreign equity ownership restrictions on more sectors covered by the
Investing Across Borders (IAB) database9 than most other countries. Restrictions in many
industries, including service and primary sectors (notably in agriculture, which is among the least
restricted industries in the world) are found in the Philippines. In the Investing Across Sectors
component of the IAB database—which measures statutory restrictions on foreign equity
ownership in different economic sectors—the country scores lower (i.e. is more restricted) than
the regional and overall IAB averages on 8 out of 11 indicators (see Figure 6). In the mining, oil
and gas sector, the Philippine score is 49 percent and 56.7 percent lower than the regional and
IAB averages respectively and in the agriculture and forestry sector, its score is 51.7 percent and
58.4 percent lower than the regional and IAB averages.
The Philippines likewise performs poorly when evaluated against its neighbors and the
overall sample of 87 countries in the “Starting a Foreign Business” and “Accessing Industrial
Land” set of indicators. It is among 18 of 87 economies surveyed by the World Bank that does
not allow any form of private ownership of land10. It is also one of the ten weakest country
performers on the index measuring the strength of lease rights (see Figure 7). As regards
measures in starting a foreign business, the country scores low as the 17 procedures and 80 days
needed to establish a foreign-owned limited liability company in the nation’s capital is much
longer than both the IAB global average (10.1 procedures and 42 days) as well as the regional
average (11 procedures and 64 days).
9
The Investing Across Borders (2010) database presents cross-country indicators examining laws, regulations and
practices affecting the FDI in 87 countries. The indicator areas measured consist of 1) Investing Across Sectors, 2)
Starting a Foreign Business, 3) Accessing Industrial Land and 4) Arbitrating Commercial Disputes indicators
(World Bank, 2010).
10
Alongside Bosnia and Herzegovina, the Philippines moreover prohibits foreign companies from leasing public
land (World Bank, 2010).
11

Figure 6. Investing Across Services Indicators for the Philippines vis-à-vis IAB and
regional averages
120
100
100
80 75
60 65.7
60
40
40
Philippines
20
East Asia & Pacific
0
Media
Transport
Banking
Telecom
Electricity
Mining, oil & gas
Insurance
Construction, tourism
Agriculture & forestry
Health care & waste

Light manufacturing
IAB Average
management
& retail
Source: AIM Policy Center staff calculations based on data from the Investing Across Borders Database (2010).
Figure 7. Strongest and Weakest Country Performers on the

Strength of Lease Rights Index11
France 100
United States 100
United Kingdom 100
Spain 100
Singapore 100
Costa Rica 100
Canada 100
Bangladesh 100
China 96
Cambodia 93
Ethiopia 75
Philippines 69
Montenegro 69
Yemen, Rep. 69
Bolivia 65
Saudi Arabia 64
Ecuador 62
Liberia 58
Mozambique 53
Sierra Leone 44
Note: 0 = min, 100 = max

Source of basic data: Investing Across Borders Database (2010:45).
11
Data for the strength of lease rights index (scored 0-100, 0=min, 100=max) was collected through close-ended
survey questions which assessed whether certain provisions and clauses were present in a country’s legal and
regulatory frameworks (World Bank, 2010).
12

Furthermore, UNCTAD (2006) measures the observable restrictions that discriminate
between local and foreign investors in the services sector among developing economies across
the globe.12 The calculation for the FDI restriction index follows from Golub (2003), whereby
different restriction indicators are scored depending on the level of openness to foreign
participation13. Higher scores are given for higher degrees of restriction against foreign investors,
with a score of 0 signifying full foreign ownership allowed and 1 indicating no permissible
foreign ownership. Take note that Golub’s scoring system adds up the different scores per
indicator and scores that are higher than 1 are capped at 1 (see Appendix 2a for more on the
scoring system)14.
Figure 8 shows the level of restrictions for each industry based on the average among the
countries included in the UNCTAD study. Electricity is the most restricted sector with an
average score of 0.59, while environmental services is the least restricted with a score of 0.16.
Figure 9, on the other hand, shows the overall FDI restriction scores15 per country. The
Philippines and Ethiopia rank the highest in level of restrictiveness, with both scoring 0.69. And
while ASEAN countries included in the study also display high levels of restrictions (i.e.,
Indonesia scored 0.61, Malaysia 0.54, and Thailand 0.53), it is clear that investors in the
Philippines face relatively higher restrictions when compared to other ASEAN economies.
This sheds further light on the claim that “other ASEAN economies also restrict foreign
ownership anyway”. That is indeed true, but the overall figures suggest that the Philippines is
much more restricted when compared to the other ASEAN economies.
12
The study involves 50 developing economies and 11 industries in the services sector. To measure the level of
restrictions, the authors drew from materials by UNCTAD and OECD in order to supplement the questionnaire
distributed to member countries (UNCTAD, 2006).
13
See also Nicoletti, et al (2003).
14
A recent study by Urata and Ando (2010)—using a modified version of Golub (2003) (see Appendix 2b)—finds
that the Philippines is less restricted in foreign equity ownership with a score of 0.257 compared to others
(Singapore 0.197, Malaysia 0.320, Indonesia 0.364, and Thailand 0.423) (see Appendix 3). This score corresponds
to an allowed foreign ownership between 50% and 100% in the Philippines which is not consistent with UNCTAD’s
(2006: 11) findings that allowed foreign ownership is between 20% and 50% corresponding to a score of above 0.4 .
15
UNCTAD (2006) details the scores given to a country given the level of restriction to an indicator whereby the
resulting index ranges from 0 to 1. The indicators are: (1) foreign ownership, (2) screening and approval and (3)
operational restrictions.
13

Figures 10 and 11 illustrate the correlation between FDI measures and the FDI restriction
index calculated in UNCTAD (2006).16 The average net FDI inflow for years 2001-2013 as
percent of GDP is negatively correlated with the FDI restriction index with a correlation
coefficient of negative 0.25, which is statistically significant at the 10 percent level (see Figure
10).
The inward FDI stock for 2013 as percent of GDP is also negatively correlated with the
restriction index with a correlation coefficient of negative 0.31, which is statistically significant
at the 5 percent level (see Figure 11). Put simply, these statistical correlations illustrate a possible
reduction in FDI inflows due to relatively higher restrictions that place a country at a
disadvantage relative to other investment destinations.
Figure 8. Sectoral Restriction Scores by Industry, 2004 or Latest Available Year

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Source: UNCTAD (2006:12).
16
Figures 10 and 11 are replicated from UNCTAD (2006) using a different set of values for the FDI measures. The
FDI measures used in UNCTAD (2006) were limited to the services sector since the restriction index calculated was
only for this sector. Nevertheless, the same negative correlation can be observed here even when the FDI measures
used were FDI to all sectors.
14

Figure 9. Total Services Restrictions, 2004 or Latest Available Year
Philippines
Ethiopia
Saudi Arabia
Indonesia
Qatar
Malaysia
Thailand
India
China
Tunisia
Mauritius
Kenya
Pakistan
Mexico
Sri Lanka
Ghana
Korea, Rep.
Russian Fed.
Nigeria
Egypt
Venezuela
Mozambique
Brazil
Costa Rica
South Africa
Turkey
Tanzania
Dominican Rep.
Colombia
El Salvador
Uruguay
Trinidad & Tobago
Algeria
Slovenia
Poland
Ecuador
Peru
Morocco
Mongolia
Chile
Senegal
Hungary
Guatemala
Paraguay
Jamaica
Argentina
Uganda
Romania
Bolivia
Czech Rep.
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Source: UNCTAD (2006:11).
15

Figure 10. Scatterplot of Net FDI Inflows (as percentage of GDP) and FDI Restriction
Scores for all Services, 50 Countries, 2001-2013 Average
0.8
0.7 Philippines
FDI Restriction Index
0.6
0.5 Malaysia Thailand
China
0.4
0.3
0.2
0.1
0
0 2 4 6 8 10 12 14 16 18
Average Net FDI Flow as % of GDP
Source: AIM Policy Center staff calculations using basic data from UNCTAD (2006:18) and
World Bank Indicators.
Figure 11. Scatterplot of Inward FDI Stock (as percentage of GDP) and FDI Restriction
Scores for all Services, 49 Countries, 2013
0.80
0.70 Philippines
FDI Restriction Index
0.60 Indonesia
0.50 Malaysia Thailand
China
0.40
0.30
0.20
0.10
0.00
0 20 40 60 80 100 120 140 160
Net FDI Stock as % of 2013 GDP
Source: AIM Policy Center staff calculations using basic data from UNCTAD (2006:18) and
World Bank Indicators.
On the other hand, there are indications that the Philippines is slowly easing its
restrictions on foreign participation in the economy, at least for some sectors. A series of policy
reforms are already underway to allow full foreign ownership in various industries, such as RA
704217 or the Foreign Investments Act of 1991, which was amended through RA 8179 in 1996
17
RA 7042 was entitled “An Act to Promote Foreign Investments, Prescribe the Procedures for Registering
Enterprises Doing Business in the Philippines, and for other Purposes”
16

and RA 876218 of 2001 and RA 879119 which eased restrictions in the banking industry (Aldaba,
et al, 2013).
RA 106420, an act allowing for the full entry of foreign banks into the country, was
signed into law earlier in 2014, in preparation for the ASEAN regional economic integration in
2015. This law amended RA 772121, which stipulated that foreign banks could only operate
within the country’s banking system by acquiring, purchasing or owning up to 60 percent of the
voting stock of an existing bank (Esguerra, 2014).
Finally, the Department of Energy (DOE) Secretary Jericho Petilla has expressed his
interest in opening up the renewable energy sector to foreign investors in an effort to increase
foreign investments in the energy sector (Velasco, 2014). Nevertheless, this move comes
somewhat late, given the impending energy crisis.
With regard to the attractiveness of the Philippines vis-à-vis the rest of the region, the
results of the ASEAN Business Outlook Survey 2014, conducted by the US Chamber of
Commerce and AmCham Singapore ranked the Philippines as the 6th of 11 ASEAN countries
where firms plan to expand operations, with 29% of 475 US business leaders identifying the
country as an investment destination (see Figure 12). Indonesia, Vietnam, and Thailand were the
most popular locations identified for business expansion; Brunei and Laos were the least.
According to the business outlook survey, the top concerns or constraints to investment in
the Philippines are corruption, tax structure, infrastructure, laws and regulations and ease of
moving products through customs (with 59%, 56%, 54%, 46% and 44% of firms dissatisfied
with these indicators respectively). Ownership restrictions do not appear to be on the top of this
short list. The survey further finds evidence that the country fares poorly when compared with
the regional averages of these indicators but performs better than Indonesia and Vietnam (the top
two most popular destinations for business expansion) on three of the four indicators, with
Vietnam faring better solely on the tax structure indicator (see Figure 13). The Philippines
moreover emerged as the most improved country across almost all business environment
18
This was entitled “An Act Liberalizing the Retail Trade Business, Repealing for the Purpose Republic Act No.
1180, as Amended, and for Other Purposes” or the Retail Trade Liberalization Act of 2000
19
“An Act Providing for the Regulation of the Organization and Operation of Banks, Quasi-banks, Trust Entities
and for Other Purposes” or The General Banking Law of 2000
20
President Benigno Aquino III signed into law Republic Act 10641, “An Act Allowing the Full Entry of Foreign
Banks in the Philippines” on July 15, 2014. Under the new law, foreign banks are allowed to own up to 100% of the
voting equity of existing Philippine banks, establish fully-owned banking subsidiaries of the Philippines or establish
branches in the Philippines with full banking authority (Tato, Chen, Boado 2014).
21
An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines
17

indicators from 2008 to 2013, improving 50% in the stability of government and political system
and 25% in the availability of trained personnel.
Furthermore, the top business constraints identified in the Philippines by the World Bank
Enterprise Survey (2009) covering 1,326 firms operating in the country included: practices of the
informal sector (26.4% of firms), access to finance (14.8%), tax rates (13%), electricity (11.3%),
political instability (6.2%), business licenses and permits (5.8%), corruption (4.9%), crime, theft
and disorder (4.4%), customs and trade regulations (3.8%) and an inadequately educated
workforce (2.6%).
Figure 12. Response to the Question ‘Into which country or countries, if any, does your
company plan to expand?’
49%
43%
40% 39%
31% 29%
22% 20%
13% 11%
6%
Thailand
Malaysia
Singapore
Indonesia
None
Cambodia
Laos
Brunei
Myanmar
Philippines
Vietnam
Source: ASEAN Business Outlook Survey (2014:6).
18

Figure 13. Top Business Constraints in the Philippines vis-a-vis Indonesia, Vietnam and the
Regional Average
Regional 35%
products
customs
through
moving
Ease of
Philippines 44%
Vietnam 46%
Indonesia 45%
Regional 37%
Corruption Tax structure Infrastructure regulations
Laws and
Philippines 46%
Vietnam 59%
Indonesia 65%
Regional 48%
Philippines 54%
Vietnam 65%
Indonesia 65%
Regional 40%
Philippines 56%
Vietnam 57%
Indonesia 45%
Regional 48%
Philippines 59%
Vietnam 70%
Indonesia 80%
0% 20% 40% 60% 80% 100%
Source: ASEAN Business Outlook Survey (2014).
Overall these findings seem to indicate that other factors contributing to foreign
investment (such as economic governance, infrastructure, tax policy, trade facilitation, etc.)
might also be critical constraints to further FDI inflows in the Philippines, even as ownership
restrictions do contribute to the challenges for foreign investors. Yet the questions then are: What
blockage to foreign investment is relatively more important? Are ownership restrictions
necessarily the most important constraint, and therefore should be addressed first? International
evidence may have some insights on how to answer these questions.
4. INTERNATIONAL EVIDENCE
Foreign ownership restrictions could be detrimental to more robust foreign investments; however
it is not always the most binding constraint on investment and growth. For instance, the World
Bank’s Investing Across Borders Report in 2010 drew from surveys analyzing laws, regulations
and practices affecting foreign investment in 87 countries. This report presented evidence that
19

foreign investment was most likely to accrue to countries which (1) allowed foreign ownership
of companies in a range of sectors, (2) increased the transparency and efficiency of land
acquisition and business start-up procedures, and (3) had a clear legal framework with which to
protect investor interests.
The World Bank maintains the position that the benefits resulting from openness to
foreign capital participation outweigh the arguments for restriction. In their report, they argue for
neutral and clear policies with which to govern the processes in starting up a business and
accessing industrial land whereby foreign and domestic companies are afforded fair and equal
treatment (World Bank, 2010).
Meanwhile, a simple correlation analysis between the foreign equity ownership index
devised by the World Bank and net FDI inflows as a percentage of GDP displays a weak but
positive and statistically significant association between FDI and openness (see Figure 14). The
correlation coefficient computed was 0.23 significant at 5% level.22
The results of the World Bank Enterprise Surveys also indicate that business licensing
and permits serve as a major constraint to investing in a location. Access to land was likewise
identified in the surveys as a major or severe obstacle to operating and expanding businesses
around the world (see Figure 15). Stricter regulation of entry of firms is furthermore associated
with sharply higher levels of corruption and the greater relative size of the unofficial economy
(World Bank, 2010).
22
Figure 14 is a replication from World Bank (2010). This includes all countries in the dataset except for Papua
New Guinea which did not report an index for the “Investing Across Borders” component of the database.
20

Figure 14. Statutory Restrictions on Foreign Equity Ownership
Net FDI Inflow as % of GDP (2005-2007 25
20 Singapore
15
Average)
10
5
Malaysia
0 Philippines Indonesia
40 50 60 70 80 90 100 110
-5
Foreign Ownership Index
Source of basic data: Investing Across Borders database, World Bank Indicators.
Figure 15. Percentage of Foreign-owned Manufacturing Firms Identifying Access to Land

as a Major or Severe Obstacle to Operating and Expanding Business
Sub-Saharan Africa (38) 20.4%
Eastern Europe & Central Asia (28) 19.3%
East Asia & Pacific (11) 19.2%
Middle East & North Africa (4) 18.2%
Global average 18.0%
South Asia (4) 17.4%
High-income OECD (14) 14.1%
Latin America & Caribbean (20) 11.2%
Source: World Bank Group Enterprise Surveys Database (2010:40).
Some econometric studies also point to the critically important role of restrictions on
ownership in influencing foreign investment flows. For example, one study examines restrictions
on FDI for OECD countries, and notes that foreign ownership is “a necessary and essential
condition” for FDI (Golub, 2003:93). Furthermore, UNCTAD (2006) examines restrictions on
FDI in services in developing and transition economies, and finds evidence that the correlation
between foreign investment restrictions (including limitations on foreign ownership, screening or
21

notification procedures, management restrictions and operational restrictions) and FDI stock in
1997 is -0.52 while the coefficient between the restriction index and FDI flows for 1997 to 2002
is -0.5323.
That study suggests that restrictions on FDI account for roughly 40 percent of the
variation in FDI in services. In an analysis of the FDI outstocks and instocks of 28 OECD
countries from 1980-2000, Nicoletti et al (2003) also find evidence that FDI restrictions by the
partner economy have a significant negative impact on bilateral FDI outstocks. For instance,
their semi-elasticity estimates indicate that restrictions “could be depressing FDI outstocks by
between 10 and 80 percent depending on the restriction considered” (Nicoletti, et al, 2003:49)
(see Table 3).
Table 4. FDI Positions: The Hypothetical Effect of Removing FDI Restrictions24

Average across Countries
Percent change in inward
FDI position
Removal of foreign equity ceilings 77.9

Removal of approval and national interest tests 21.2
Easing of nationality requirements on 10.1

management
Source: Nicoletti, et al (2003:54).
23
As in Golub (2003), 0 represents full openness and 1 signifies a de facto or actual prohibition of FDI.
24
These estimates take into account other influences on the investment climate, including non-policy factors
(distance, transport costs, market size, similarity in size and factor endowments, and other country and time-specific
effects) and policy influences (FDI restrictions, tariff and non-tariff barriers, participation in free trade areas, and
product and labor market arrangements). The regressions cover bilateral FDI relationships between 28 OECD
countries over the 1980-2000 period (Nicoletti et al, 2003).
22

Box 1.The Effect of Restrictions on Foreign Direct Investments to the Country25
Restrictions to FDI may be grouped into two categories: (1) those that restrict the market
access of foreign investors to the local economy and (2) those that regulate or restrict the
operations of the foreign affiliates in the firm established in the local economy. The first
category may be further broken down into a) foreign equity ownership restrictions, b)
screening and approval tests and c) other requirements.
Nicoletti et al (2003) simulated the effects of the three types of restrictions to FDI that are
listed in Table 3. These simulations are based on empirical evidence that higher levels of
FDI restrictions decrease inward FDI. Put simply, a higher index score means that the
foreign investors’ market access and operations are more constrained. (See footnote 26 for
more details.)
Foreign ownership restrictions were found to potentially decrease inward FDI by as much
as 78% (see Table 3). Furthermore, allowing foreign nationals to take management
positions is shown to potentially increase FDI by as much as 10 percent.
This evidence, however, is based on data from OECD countries and might not be
applicable to the Philippines and other developing countries. However, there is evidence
that relaxing the foreign equity ownership restriction can potentially increase inward FDI
the most.
Source: UNCTAD (2006), Nicoletti et al (2003:54).
Finally, in what has been labeled the “apparent paradox of East Asia and the Pacific”, the
region continues to experience strong economic growth26 despite being among the most
restricted areas in the world and scoring lower than any other region in nearly all sectors
measured by the World Bank’s Investing Across Borders indicators (see Appendix 4). FDI has
played a crucial role in the region’s overall growth trajectory during the past 40 years in spite of
a low regional average foreign equity ownership index.
25
Nicoletti et al (2003) estimated panel regressions of bilateral FDI stocks on a set of non-policy factors and policy
factors (see Appendix 5). The FDI restriction index used in the regression is comprised of the three types of FDI
restrictions listed in Table 3—removal of foreign equity ceilings, removal of approval procedures, and easing
nationality requirements on management. Nicoletti et al then used these regression estimates in Appendix 5 to
simulate what would be the effect to inward FDI when different types of foreign restrictions are lifted. The results
are shown in Table 3.
26
The region was cited as being the largest regional contributor to global growth and trade with growth expected to
remain at 7.1% for 2014 as well as in 2015 and 2016 (World Bank, 2014).
23

The report argues however that this should not be an indication that the relationship
between openness to foreign capital participation, particularly foreign equity ownership, and
actual FDI inflows is tenuous for three reasons. First, the measure of the percentage of foreign
equity ownership allowed in a sector, while significant, is an incomplete indicator of overall
openness to FDI. Second, the region performs well in other factors which attract FDI such as the
size and growth prospects of an economy and moreover ranks low only in relative terms when
compared to the average equity limit of other regions27. The report also claims that further
opening of some sectors in East Asia further boost its already robust FDI inflows (World Bank
2010). Lastly, the performance of FDI inflows to the region is uneven and varies with the
measure used.
Nevertheless, openness to foreign ownership is said to be a necessary albeit insufficient
condition for attracting foreign investment. Actual FDI inflows are determined by a range of
factors from the size and growth prospects of an economy, low transaction costs, predictability,
stability (World Bank, 2010:24). Other important requirements include good regulation and
strong macroeconomic and investment climate fundamentals, with features such as well-
functioning institutions and respect for the rule of law. Furthermore, having an economy
completely open to foreign capital participation does not guarantee success in attracting more
foreign investments as is the case in Afghanistan, Bangladesh, Kosovo and Senegal (World
Bank, 2010).
4. CONCLUSIONS AND POLICY RECOMMENDATIONS

This policy brief provides an update on the economic charter change (or “Economic Cha-Cha”)
discussions, and it reviews the international and national empirical evidence surrounding this
issue. There is strong evidence that lifting foreign investments restrictions could improve FDI
inflows into the Philippines, particularly in the areas restricted in the Philippine Constitution (e.g.
mining, utilities, mass media and education). At least one international study suggests that efforts
to remove ownership restrictions could help boost net FDI inflows by up to 78%. Nevertheless,
such an effort should ideally be part of a broader drive to improve on the other factors that
27
The report states that an average equity ceiling of around 75% is sufficient to encourage FDI, a ceiling which the
region meets in eight out of eleven sectors. Countries with blanket restrictions in many sectors are said to be certain
to receive little FDI. It is indicated however that equity ceilings alone are not a major deterrent to FDI and that there
may be market failure reasons for regulating certain sectors (World Bank, 2010).
24

investors report are deterring their expansion in the Philippines, including for example,
affordable and stable energy and better transport infrastructure. Easing restrictions on foreign
ownership is necessary to encourage FDI and solidify the economic gains experienced in recent
years but international experience and evidence suggests that it is not a silver bullet – other
reforms need to be undertaken to ensure that the rapid economic growth and expansion is
sustained.
25

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cha>, accessed 22 September 2014.
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provisions”, Interaksyon, 25 June 2014,
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charter-change-in-economic-provisions>, accessed 29 September 2014.
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Ballroom, Makati Shangri-La Hotel, 26 February 2014.
26

de Vera, B., “Charter change needed to boost competition”, Philippine Daily Inquirer, 25
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the Philippines [media release], 2012, Department of Energy,
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2014.
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accessed 4 October 2014.
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27

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28

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+AMDG
29

APPENDIX
Appendix 1. Net FDI Inflow among Selected ASEAN Countries, 1981-2013 (Current USD,
billions)
70
60
50
40
30
20
10
-10
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Indonesia Malaysia Philippines Singapore Thailand
Source: AIM Policy Center staff calculations based on data from the World Bank Development Indicators.
30

Appendix 2a. FDI Restriction Scores
Foreign ownership
No foreign equity allowed 1
1 to 19 % foreign equity allowed 0.6
20-34% foreign equity allowed 0.5
35-49 % foreign equity allowed 0.4
Screening and approval

Investor must show economic benefits 0.2
Approval unless contrary to national
interest 0.1
Notification (pre- or post-) 0.05
Operational restrictions
Board of directors/managers
majority must be nationals or residents 0.1
at least 1 must be national or resident 0.05
Movement of people
less than one year 0.1
one to two years 0.05
three to four years 0.025
Other operational restrictions

Labour market or other restrictions up to 0.1
Total (capped at 1.0) Between 0 and 1

Source: UNCTAD (2006: 4)
31

Appendix 2b. FDI Restriction Scores
Restriction on Ownership and Market Access (weight = 0.4)
No foreign equity is allowed 1
1-19 percent is allowed 0.9
Reservation on ownership and market access 0.75
No restriction but bound 0.1
Commercial presence is required 0.1
No restrictions 0
National Treatment (weight = 0.2)
No national treatment 1
Reservation on national treatment 0.75
No restrictions 0
Screening and Approval (weight = 0.1)
Objections in case the investment is contrary to national interest 1
Investment is required to show economic benefits before approval 0.9
Reservations for future limitations 0.75
Objections based on the size of investment 0.5
Prior or post notification 0.1
No restrictions 0
Board of Directors and Management Composition (weight = 0.1)
All members of the management should be local 1
Reservations for future restrictions 0.75
Majority should be local 0.5
At least one is local 0.25
Should be locally license 0.1
No restrictions 0
Movement of investors (weight = 0.1)
No entry 1
Less than one year 0.9
Reservations for further measures on entry 0.75
One to two years 0.6
Three to four years 0.5
More than four years but less than 10 0.2
No restrictions 0
Performance requirements (weight = 0.1)
Local contents 0.25
Others 0.1
Source: Uruta and Ando (2010: 182)
32

Appendix 3. Assessment of FDI Policy Regimes of ASEAN Countries
Foreign National Screening & Board of Movement of Performance Total
Ownership Treatment Appraisal Directors Investors Requirement Score
Weight 0.4 0.2 0.1 0.1 0.1 0.1
Cambodia 0.140 0.183 0.622 0.000 0.750 0.117 0.242
Singapore 0.197 0.143 0.154 0.356 0.074 0.091 0.175
Brunei 0.243 0.795 0.434 0.590 0.180 0.180 0.394
Philippines 0.257 0.279 0.112 0.519 0.043 0.107 0.237
Malaysia 0.320 0.833 0.250 0.397 0.562 0.227 0.438
Vietnam 0.338 0.262 0.364 0.286 0.469 0.152 0.315
Indonesia 0.364 0.198 0.789 0.308 0.546 0.255 0.375
Thailand 0.423 0.000 0.500 0.000 0.805 0.000 0.300
Lao PDR 0.428 0.392 0.410 0.608 0.250 0.793 0.428
Myanmar 0.463 0.378 0.401 0.921 0.399 0.714 0.463

Source: Uruta and Ando (2010: 184).
33

Appendix 4. Selected Investing Across Borders Indicators for East Asia and Pacific Countries
Investing Across Sectors Starting a Foreign
Foreign equity ownership indexes (100 = full foreign ownership allowed) Accessing Industrial Land
Business
Construction, tourism & retail
Time to lease private land (in

Strength of lease rights index
Time to lease public land (in

Strength of ownership rights
Ease of establishment index
Access to land information
information index (0-100)

Agriculture & forestry
Procedures (number)
Light manufacturing
Health care & waste
Availability of land
Region/
Mining, oil & gas
Economy
index (0-100)
index (0-100)
management
Time (days)
Electricity
Transport
Insurance
Telecom
Banking
(0-100)
(0-100)
Media
days)
days)
Cambodia 100 100 100 100 85.7 100 100 69.8 100 100 100 10 86 44.7 92.9 N/A 41.7 52.5 41 119
China 99.5 100 75 49 85.4 62.5 50 69.4 0 100 85 18 65 63.7 96.4 N/A 50 52.5 59 129
Indonesia 97.5 72 68.8 57 95 99 80 49 5 85 82.5 12 86 52.6 78.6 N/A 21.4 85 35 81
Malaysia 70 85 100 39.5 30 49 49 100 65 90 65 11 14 60.5 78.5 87.5 23.1 85 96 355
Philippines 40 40 75 40 65.7 60 100 40 0 100 100 17 80 57.9 68.8 N/A 23.5 87.5 16
Singapore 100 100 100 100 100 100 100 47.4 27 100 100 4 9 78.9 100 100 55 80 56 98
Thailand 49 49 87.3 49 49 49 49 49 27.5 66 49 9 34 60.5 80.7 62.5 27.8 70 30 128
Vietnam 50 100 75 50 71.4 65 100 69.4 0 100 75.5 12 94 57.9 77.3 N/A 57.9 92.5 120 133
East Asia &
Pacific 78.4 82.9 86.8 64.9 75.8 76.1 80.9 66 36.1 93.4 84.1 11 64 57.4 84.9 83.3 35.1 67.5 66 151
IAB
Average 92.5 96.1 96.7 88.5 88.7 92.0 91.7 79.6 67.9 98.8 96.0 10.1 41.8 64.5 82.1 92.2 41.2 70.6 60.5 140.7
Note: Table was put together by AIM Policy Center Staff from the online database.
Source: Investing Across Borders Database (2010).
34

Appendix 5. The Influence of Policies on Foreign Trade and Investment
Dependent variable (ln) FDI
Outstock Total Instock
Specification Bilateral TLS
Multilateral Dynamic IV
Country Partner
Total GDP 3.342 1.328 0.283 0.389 0.363
[8.39]** [3.78]** [3.76]** [5.01]** [4.56]**
Size similarity 2.187 0.968
[11.43]** [5.64]**
Factor similarity –0.059 –0.794
[0.63] [6.90]**
Human capital dissimilarity –0.844 –1.383
[3.57]** [6.08]**
Human capital endowment 1.248 0.658 1.219
[2.83]** [1.42] [2.67]**
Transport costs
R&D intensity 0.323 0.403 0.485

[4.93]** [5.71]** [6.66]**
Bilateral exchange rate 0.283 –0.97
[1.61] [5.70]**
Effective exchange rate 0.004 0.003 0.004
[4.15]** [3.33]** [3.70]**
Exchange rate variability 0.024 –0.0001 –0.008 –0.008 –0.011
[5.45]** [1.23] [1.33] [1.47] [1.80]
Lagged dependent variable 0.626 0.558 0.519
[15.19]** [12.42]** [10.98]**
Free trade area 0.366 0.482
[5.22]** [5.84]**
FDI restrictions –0.019 –0.007 –0.002 0.006
[3.06]** [2.62]** [0.50] [1.58]
Bilateral tariff barriers –0.1 –0.059
[6.08]** [4.07]**
Non-tariff barriers 0.011 0.112 0.143 0.166
[1.89] [3.55]** [4.44]** [4.89]**
Employment protection ratio –0.032 –0.053 –0.007 –0.007
[2.62]** [5.37]** [2.91]** [2.46]*
Labour tax wedge ratio –0.925 –2.297 –0.005 –0.008
[9.20]** [11.65]** [1.10] [1.75]
Regulation ratio –0.142 –0.1 –0.006 –0.010
[8.25]** [6.11]** [1.53] [2.53]*
Infrastructure 0.008 0.013 0.006
[2.12]* [2.92]** [1.35]
Constant –0.87 –3.29 –0.008 –0.007 0.009
[1.75] [7.97]** [1.07] [0.88] [1.04]
28 countries and
Notes: partners 16 countries 14 countries 10 countries
Period 1980-2000 1980-2000
Observations 3.792 3.601 169 163 134
R-squared 0.71 0.72 n.a. n.a. n.a.
35

Appendix 5. The Influence of Policies on Foreign Trade and Investment (cont.)
Sargan test 223 (-340) 205 (-693) 151 (-338)
Autocorrelation in first-
differenced residuals
First-order –3.45 –3.30 –3.30
Second-order –1.93 –1.94 –1.73
Source: Nicoletti et al (2003:44-45)
36


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WORKING PAPER

Economic Charter Change:

RSN-PCC WORKING PAPER 15-004

Economic Charter Change:

RSN-PCC WORKING PAPER 15-004

Monica M. Melchor, AIM Rizalino S. Navarro Policy Center for Competitiveness

RSN-PCC WORKING PAPER 15-004

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Figure 1. Net FDI Inflow among Selected ASEAN Countries, 2001-2013

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Last Available Year

Last Available Year

Last Available Year

Last Available Year

Forestry and Fishing

Philippines Thailand Vietnam Malaysia Indonesia

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2. WHAT IS THE “ECONOMIC CHA-CHA?”

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Forestry and fishing

Motion picture, radio

Electricty, gas and

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Forestry and fishing

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Cielito Habito, Former National Economic Solia Monsod, UP School of Economics:

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Roberto de Ocampo: “What’s really

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3. RESTRICTIONS ON PHILIPPINE INVESTMENTS

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Health care & waste

Figure 7. Strongest and Weakest Country Performers on the

Note: 0 = min, 100 = max

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Figure 8. Sectoral Restriction Scores by Industry, 2004 or Latest Available Year

Source: UNCTAD (2006:12).

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Source: ASEAN Business Outlook Survey (2014:6).

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Figure 15. Percentage of Foreign-owned Manufacturing Firms Identifying Access to Land

Sub-Saharan Africa (38) 20.4%

Eastern Europe & Central Asia (28) 19.3%

East Asia & Pacific (11) 19.2%

Middle East & North Africa (4) 18.2%

Global average 18.0%

South Asia (4) 17.4%

High-income OECD (14) 14.1%

Latin America & Caribbean (20) 11.2%

Source: World Bank Group Enterprise Surveys Database (2010:40).