IDEAS home Printed from https://ideas.repec.org/a/eee/inteco/v164y2020icp168-182.html
   My bibliography  Save this article

Economic complexity, human capital, and FDI attraction: A cross country analysis

Author

Listed:
  • Sadeghi, Pegah
  • Shahrestani, Hamid
  • Kiani, Kambiz Hojabr
  • Torabi, Taghi

Abstract

Foreign direct investment (FDI) inflows dynamics indicate that its new wave is efficiency-seeking and, thus, the recent literature emphasizes the host countries knowledge role and productive capabilities. This paper holds forth the new factor of economic complexity, which is an indicator of national productive capabilities and knowledge. Two proxies are used to measure the countries economic complexity, including economic complexity index (ECI) and economic sophistication (EXPY). The results indicate that economic complexity is one of the main determinants of FDI inflows with statistically and economically robust positive effects on FDI inflows to host countries. Furthermore, our findings explain why countries with equal human capital endowment have different performances in FDI attraction.

Suggested Citation

  • Sadeghi, Pegah & Shahrestani, Hamid & Kiani, Kambiz Hojabr & Torabi, Taghi, 2020. "Economic complexity, human capital, and FDI attraction: A cross country analysis," International Economics, Elsevier, vol. 164(C), pages 168-182.
    • Handle: RePEc:eee:inteco:v:164:y:2020:i:c:p:168-182
    DOI: 10.1016/j.inteco.2020.08.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S211070172030264X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.inteco.2020.08.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Costinot, Arnaud, 2009. "On the origins of comparative advantage," Journal of International Economics, Elsevier, vol. 77(2), pages 255-264, April.
    2. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2014. "How rich countries became rich and why poor countries remain poor: It's the economic structure…duh!," Japan and the World Economy, Elsevier, vol. 29(C), pages 46-58.
    3. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    4. Poncet, Sandra & Starosta de Waldemar, Felipe, 2013. "Export Upgrading and Growth: The Prerequisite of Domestic Embeddedness," World Development, Elsevier, vol. 51(C), pages 104-118.
    5. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    6. Magnus Blomström & Ari Kokko, 2002. "FDI and Human Capital: A Research Agenda," OECD Development Centre Working Papers 195, OECD Publishing.
    7. Petrakis, P. E. & Stamatakis, D., 2002. "Growth and educational levels: a comparative analysis," Economics of Education Review, Elsevier, vol. 21(5), pages 513-521, October.
    8. Milner, Chris & Reed, Geoff & Talerngsri, Pawin, 2006. "Vertical linkages and agglomeration effects in Japanese FDI in Thailand," Journal of the Japanese and International Economies, Elsevier, vol. 20(2), pages 193-208, June.
    9. David Atkin, 2016. "Endogenous Skill Acquisition and Export Manufacturing in Mexico," American Economic Review, American Economic Association, vol. 106(8), pages 2046-2085, August.
    10. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn & Bacate, Marife, 2012. "Product complexity and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 36-68.
    11. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    12. Sandra Poncet & Felipe Starosta, 2013. "Export upgrading and growth in China: the prerequisite of domestic embeddedness," PSE - G-MOND WORKING PAPERS halshs-00960684, HAL.
    13. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
    14. John H. Dunning & Sarianna M. Lundan, 2008. "Multinational Enterprises and the Global Economy, Second Edition," Books, Edward Elgar Publishing, number 3215.
    15. Benno Ferrarini & Pasquale Scaramozzino, 2013. "Complexity, Specialization and Growth," CEIS Research Paper 275, Tor Vergata University, CEIS, revised 30 Apr 2013.
    16. Rabin Hattari & Ramkishen S. Rajan, 2009. "Understanding bilateral FDI flows in developing Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 23(2), pages 73-93, November.
    17. Hausmann, Ricardo & Hidalgo, Cesar, 2014. "The Atlas of Economic Complexity: Mapping Paths to Prosperity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525429, December.
    18. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    19. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    20. Cleeve, Emmanuel A. & Debrah, Yaw & Yiheyis, Zelealem, 2015. "Human Capital and FDI Inflow: An Assessment of the African Case," World Development, Elsevier, vol. 74(C), pages 1-14.
    21. W. W. Rostow, 1959. "The Stages Of Economic Growth," Economic History Review, Economic History Society, vol. 12(1), pages 1-16, August.
    22. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
    23. Guzmán Ourens, 2012. "Can the Method of Re?ections help predict future growth?," Documentos de Trabajo (working papers) 1712, Department of Economics - dECON.
    24. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    25. Pereira, João & St. Aubyn, Miguel, 2009. "What level of education matters most for growth?: Evidence from Portugal," Economics of Education Review, Elsevier, vol. 28(1), pages 67-73, February.
    26. Aziz, Omar Ghazy, 2018. "Institutional quality and FDI inflows in Arab economies," Finance Research Letters, Elsevier, vol. 25(C), pages 111-123.
    27. W. A. Naude & W. F. Krugell, 2007. "Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1223-1233.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Soyyiğit Semanur & Michalski Bartosz, 2022. "The Economic Complexity of the Visegrád Countries and the Role of Trade with Germany," Central European Economic Journal, Sciendo, vol. 9(56), pages 219-236, January.
    2. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    3. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.
    4. Sèna Kimm Gnangnon, 2022. "Does poverty deter foreign direct investment flows to developing countries?," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 297-330, February.
    5. Nguyen, Canh Phuc, 2021. "Gender equality and economic complexity," Economic Systems, Elsevier, vol. 45(4).
    6. Wajid Ali & Ambiya & Devi Prasad Dash, 2023. "Examining the Perspectives of Gender Development and Inequality: A Tale of Selected Asian Economies," Administrative Sciences, MDPI, vol. 13(4), pages 1-21, April.
    7. Rafei, Meysam & Esmaeili, Parisa & Balsalobre-Lorente, Daniel, 2022. "A step towards environmental mitigation: How do economic complexity and natural resources matter? Focusing on different institutional quality level countries," Resources Policy, Elsevier, vol. 78(C).
    8. Philippe Le Houérou & Hans Peter Lankes, 2023. "Mustering the private sector for development and climate in the Global South. Is it realistic? WP323," Working Papers hal-04123874, HAL.
    9. Gnangnon, Sèna Kimm & Iyer, Harish, 2021. "Effect of Aid for Trade and Foreign Direct Investment Inflows on the Utilization of Unilateral Trade Preferences offered by the QUAD countries," EconStor Preprints 238211, ZBW - Leibniz Information Centre for Economics.
    10. Jiangling Yu & Feng Ju & Muhammad Wahab & Ephraim Bonah Agyekum & Clement Matasane & Solomon Eghosa Uhunamure, 2022. "Estimating the Effects of Economic Complexity and Technological Innovations on CO 2 Emissions: Policy Instruments for N-11 Countries," Sustainability, MDPI, vol. 14(24), pages 1-15, December.
    11. Amir Rahman & Rafi Farooq & Khalid Ashraf Chisti, 2023. "Linear and non-linear linkage between human capital and foreign direct investment inflows into APEC countries: an evidence from panel data," SN Business & Economics, Springer, vol. 3(7), pages 1-25, July.
    12. Edouard Mien, 2023. "Statistical Overview and Empirical Literature on Foreign Direct Investment in Developing Countries WP326," Working Papers hal-04123985, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shujin Zhu & Renyu Li, 2017. "Economic complexity, human capital and economic growth: empirical research based on cross-country panel data," Applied Economics, Taylor & Francis Journals, vol. 49(38), pages 3815-3828, August.
    2. Naima Chrid & Sami Saafi & Mohamed Chakroun, 2021. "Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 811-841, June.
    3. Ridha Nouira & Sami Saafi, 2022. "What Drives the Relationship Between Export Upgrading and Growth? The Role of Human Capital, Institutional Quality, and Economic Development," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1944-1961, September.
    4. Vu, Trung V., 2020. "Economic complexity and health outcomes: A global perspective," Social Science & Medicine, Elsevier, vol. 265(C).
    5. Kang-Kook Lee & Trung V. Vu, 2020. "Economic complexity, human capital and income inequality: a cross-country analysis," The Japanese Economic Review, Springer, vol. 71(4), pages 695-718, October.
    6. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    7. Mohamed Chakroun & Naima Chrid & Sami Saafi, 2021. "Does export upgrading really matter to economic growth? Evidence from panel data for high‐, middle‐ and low‐income countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5584-5609, October.
    8. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    9. Mealy, Penny & Teytelboym, Alexander, 2017. "Economic Complexity and the Green Economy," INET Oxford Working Papers 2018-03, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, revised Feb 2019.
    10. Ferrarini, Benno & Scaramozzino, Pasquale, 2013. "Complexity, Specialization, and Growth," ADB Economics Working Paper Series 344, Asian Development Bank.
    11. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    12. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    13. Daniela MAGGIONI & Alessia LO TURCO & Mauro GALLEGATI, 2014. "Does export complexity matter for firms' output volatility?," Working Papers 407, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    14. Saleh Albeaik & Mary Kaltenberg & Mansour Alsaleh & Cesar A. Hidalgo, 2017. "Improving the Economic Complexity Index," Papers 1707.05826, arXiv.org, revised Jul 2017.
    15. Ming-Yang Zhou & Xiao-Yu Li & Wen-Man Xiong & Hao Liao, 2018. "Quantifying the Robustness of Countries’ Competitiveness by Network-Based Methods," Complexity, Hindawi, vol. 2018, pages 1-10, December.
    16. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(3).
    17. Gnangnon, Sèna Kimm, 2021. "Do Unilateral Trade Preferences Help Reduce Poverty in Beneficiary Countries?," EconStor Preprints 247346, ZBW - Leibniz Information Centre for Economics.
    18. Iamsiraroj, Sasi, 2016. "The foreign direct investment–economic growth nexus," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 116-133.
    19. Katharina Längle, 2020. "Upgrading of Exports: Does the Integration into Trade Agreements Pave the Way to Product Upgrading?," Documents de travail du Centre d'Economie de la Sorbonne 20006, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    20. Dany Bahar & Hillel Rapoport & Riccardo Turati, 2019. "Does Birthplace Diversity Affect Economic Complexity? Cross-Country Evidence," CESifo Working Paper Series 7950, CESifo.

    More about this item

    Keywords

    Economic complexity; Economic sophistication; FDI; Human capital;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inteco:v:164:y:2020:i:c:p:168-182. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.sciencedirect.com/science/journal/21107017 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.