An Empirical Study on Real Estate FDI Determinants in the Philippines

Katrina Feriz Baguisi & Ying Lin

Student thesis: Master thesis


This paper aims to examine the influential factors that attract foreign direct investment to the Philippines within the time period of 2005-2019, particularly in the real estate sector. Multiple regression analysis was utilized to estimate the underlying relationships of selected determinants on real estate FDI. Vector correction models (VEC) were developed to analyse the identified cointegrating relationships, while vector autoregression (VAR) was employed to understand short-run causalities. The empirical findings show that labor costs, infrastructure quality, and GDP per capita have positive effect on total FDI flows. In addition, trade openness appears to have long-run equilibrium relationship with total FDI flows. More importantly, this study reveals that traditional FDI factors are still applicable in determining the levels of real estate FDI flows, while real estate FDI determinants examined by past empirical studies are inadequate in explaining the significant factors in attracting these foreign real estate investments in the Philippines. Thus, the findings of the real estate FDI models imply that as population, house price, infrastructure and interest rates increase, higher levels of real estate FDI will flow into the Philippines, whereas an increase in corruption, FDI in other sectors and FDI in real estate will have the opposite effect. Moreover, Granger Causality test indicates a bilateral causality relationship among the variables: real estate FDI, tourists, and house price. We also extend the current empirical models by providing evidence of the impact of two new determinants: BPO sector and OFW remittances by which they are unique in the context of the Philippines. Surprisingly, they turned out to be negative, but significant.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2020
Number of pages135
SupervisorsAri Kokko