Macroeconomic Determinants of Public Debt in the Philippines

Abstract

In this study, the researchers discussed the underlying determinants of public debt in the Philippines, namely: Foreign Direct Investments Inflow, Gross Capital Formation, Inflation Rate, and Trade Balance. The goal of the researchers is to identify how these determinants affect the accumulation of public debt and to answer which of the variables would be possible to be recommended to the policy-making body with the hopes of gradually lessening public debt. The study utilized Multiple Linear Regression to clearly unfold if there is any attribution that exists between the variables and public debt. The data for the mentioned independent variables will be gathered from The World Bank Data. The platforms used to run the statistical tests are EViews 11 and Microsoft Excel. The final outcomes show that FDI had a negative and significant impact where a unit increase in FDI would result in a 272.559 decrease in debt. The trade balance showed a negative impact as well; however, the result was similar to the inflation rate, which manifested insignificant results to the study. Based on the findings, the researchers recommend making use of other variables similar to interest rates, exchange rates, and the debt-to-GDP Ratio. The researchers concluded that FDI could be relied upon as a debt reduction measure with its negative coefficient. To be specific, a unit increase to FDI is equivalent to a 272.559 decrease in public debt. Increasing FDI inflow will be favorable in mitigating the heavy reliance on debt and gradually finance the indebtedness of the country. On the other hand, inflation rate and trade balance were inconsiderable to the study as both variables exceeded the level of significance established by the researchers at 5%.