FDI Location and Special Economic Zones in the Philippines

This paper analyzes the location behavior of foreign direct investments (FDIs) in the Philippines from 1987–1998 and points out the role special economic zones (SEZs) and infrastructure play in this location decision. The effects of real income, wages, skills, SEZs, highways and ports on the probability that a manufacturing FDI firm chooses a region are estimated using a negative binomial count model. Results yield expected signs and significant coefficients for all variables except for skills. Regressions were also run for 1987–1992 and 1993–1998 sub‐periods to examine structural changes. The stark shift of investments from Metro Manila into other regions during the latter period shows some possible spillover effects of the SEZs as well as infrastructure development carried out in the previous transitional sub‐period. Significant marginal effects are highest for paved highways and ports, which strongly indicate that improvement of these two regional factors increase the probability of FDI location.