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Foreign direct investment and human capital in developing countries: a panel data approach

Author

Listed:
  • Veasna Kheng

    () (James Cook University)

  • Sizhong Sun

    () (James Cook University)

  • Sajid Anwar

    () (University of Sunshine Coast, Maroochydore DC
    University of South Australia
    Shanghai Lixin University of Commerce)

Abstract

Abstract Theoretical studies have shown that there is a direct relationship between human capital and foreign direct investment (FDI). However, only a few available empirical studies have attempted to investigate this relationship simultaneously. Using country level panel data from 55 developing countries over the 1980–2011 period, this paper examines the interrelationship between FDI and human capital. Statistical analysis, based on simultaneous equations fixed effect estimation, reveals significant bi-directional causality between human capital and FDI, which suggests that FDI and human capital development policies need to be coordinated. FDI-led economic growth models may not be entirely suitable for all developing countries aiming to replicate the economic success of countries such as Brazil and China unless attention is also paid to human capital development through increased spending on education and training.

Suggested Citation

  • Veasna Kheng & Sizhong Sun & Sajid Anwar, 2017. "Foreign direct investment and human capital in developing countries: a panel data approach," Economic Change and Restructuring, Springer, vol. 50(4), pages 341-365, November.
  • Handle: RePEc:kap:ecopln:v:50:y:2017:i:4:d:10.1007_s10644-016-9191-0
    DOI: 10.1007/s10644-016-9191-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign direct investment; Human capital; Two-way causality; Developing countries; Panel data estimation;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development

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