Impact of Foreign Direct Investment, Inflation, Labor Force, and Population on Improving Living Standards in the Philippines

Abstract

Vast amount of literature has well-established FDI as an important determinant of technology acquisition and modernization, economic development, capital accumulation, and employment. Economists are too engrossed in how FDI positively affects the economic growth of both the home and host countries; only a few have been associated with investigating how FDI actually improved the living standards of the people. This paper examined the impact of FDI, Inflation, Labor Force, and Population on improving living standards in the Philippines from 1985 to 2021 using the different econometric tests which are: (1) Augmented Dickey-Fuller Test, (2) Jarque-Bera Normality Test, (3) Variance Inflation Factor, (4) Breusch-Pagan Heteroskedasticity test, (5) Breusch-Pagan-Godfrey Autocorrelation test, (6) RAMSEY Reset test, (7) Correlation Matrix, (9) OLS Multiple Regression, (10) Johansen Cointegration and (11) Granger Causality. The findings in the various tests revealed that FDI, Inflation, Labor Force Participation, and Population have cointegrating relationships with Self-Rated Poverty Rate within the time series. Moreover, the OLS regression model has shown that Labor Force Participation and Inflation have significant relationships with living standards while the country’s FDI and Population are insignificant. Granger Causality also revealed that Inflation, Labor Force, and Population Granger caused living standards in the Philippines and only FDI not. With all of the results of the tests, it is evident that the dependent variables affect the living standards in the Philippines, it just varies on how little or extensive it is. This study supports the loosened restrictions to foreign ownership as the results affirmed the significant effects of most of the dependent variables on the Self-Rated Poverty Incidence; however, must still take precautionary measures as some variables exhibit insignificance in the long run. The paper recommends implementing policies that are moderately reliant on Foreign Direct Investment, Population, Inflation, and Labor Force Participation rate because all of the variables are proven to be related to the Self-Rated Poverty Incidence, which is the variable used to measure the living standards in the Philippines. However, the Philippine government should focus and be meticulous on policy clauses that would benefit not just the corporate but also its employees to help attain prosperity for the country and its countrymen and to help alleviate poverty.