The Philippines is now becoming an investment-driven economy as capital formation further rose in the first semester day of the year, the Department of Finance (DOF) said yesterday.

Based on the latest DOF economic bulletin, the department noted that the country’s capital formation as a percentage of Gross Domestic Product (GDP) was recorded at 27.4 percent at end-June, an increase from 25.4 percent in the same period last year.

Likewise, the latest capital formation figure is an improvement compared with 24.4 percent in 2016 and 25.1 percent last year.

Finance Undersecretary and Chief Economist Gil S. Beltran said that capital formation is the most comprehensive measure of investment as well as one of the foremost determinants of future growth.

Other determinants are employment and factor productivity, Beltran said.

Capital formation, which is tracked by the National Income Accounts issued by the Philippine Statistics Authority, showed a real growth of 9.4 percent in 2017 and 16.4 percent during the first half of 2018.

“These growth rates are higher than real GDP growth of 6.7 percent and 6.3 percent, respectively,” Beltran said.

Of the major components of investments, fixed capital which consists of construction and durable equipment also increased by 9.5 percent last year and 14.8 percent in the first two-quarters of the year.

Another measure of investment is foreign direct investment (FDI) and portfolio investments tracked by the balance of payments account which is released periodically by the Bangko Sentral ng Pilipinas (BSP).

“FDI is the more important indicator because it measures the amount of investment through controlling ownership in a business by foreign investors which implies more active participation and more commitment by the investor in business policies and management,” Beltran said.

“It is distinguished from foreign portfolio investment in that the investor in FDI exercises some degree of control. A portfolio investor may buy and sell stocks daily and shifts from one bond or stock to another and generates profits on price differences,” he added.

FDI increased by 21.4 percent to $10.05 billion last year and further by 48.9 percent in the first five months of 2018.