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Talent vs. Hard Work: On the Heterogeneous Role of Human Capital in FDI Across EU Member States

Author

Listed:
  • Lubica Stiblarova

    (Faculty of Economics, Technical University of Kosice, Slovak Republic)

  • Anna Tykhonenko

    (Université Côte d'Azur, CNRS, GREDEG, France)

Abstract

his paper explores the intricate relationship between human capital and foreign direct investment (FDI) across 28 European countries from 2003 to 2022. To address this relationship's complex and often ambiguous nature, a Bayesian shrinkage estimator is utilized to capture significant heterogeneity across different regions. The results indicate that the discouraging role of human capital in FDI is most pronounced in the "Eastern bloc," where cost-effectiveness serves as the primary driver of investment. In contrast, efficiency-seeking motives prevail in Western Europe, where higher levels of human capital contribute to increased FDI. Sectoral analysis further reveals that the critical transition for attracting FDI occurs not between the secondary and tertiary sectors, as traditionally believed, but between the tertiary and quaternary sectors. In these advanced sectors, quaternary FDI leverages innovation potential through high-skilled labor, underscoring the critical importance of human capital. These findings highlight the nuanced and region-specific dynamics of FDI, emphasizing the need for tailored policies to maximize the benefits of human capital in attracting foreign investment.

Suggested Citation

  • Lubica Stiblarova & Anna Tykhonenko, 2025. "Talent vs. Hard Work: On the Heterogeneous Role of Human Capital in FDI Across EU Member States," GREDEG Working Papers 2025-11, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2025-11
    as

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    References listed on IDEAS

    as
    1. Gary S. Becker, 1994. "Introduction to the First Edition of Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 11-14, National Bureau of Economic Research, Inc.
    2. Root, Franklin R & Ahmed, Ahmed A, 1979. "Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(4), pages 751-767, July.
    3. Josef C. Brada & Ali M. Kutan & Taner M. Yigit, 2006. "The effects of transition and political instability on foreign direct investment inflows," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(4), pages 649-680, October.
    4. Gary S. Becker, 1994. "Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition," NBER Books, National Bureau of Economic Research, Inc, number beck94-1, October.
    5. Gary S. Becker, 1994. "Appendix A, Sources and Methods, Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 351-369, National Bureau of Economic Research, Inc.
    6. Gary S. Becker, 1994. "Introduction to the Second Edition of Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 3-10, National Bureau of Economic Research, Inc.
    7. Mohammad Shaiful Islam & Ahmed Beloucif, 2024. "Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies," Foreign Trade Review, , vol. 59(2), pages 309-337, May.
    8. Gary S. Becker, 1994. "Summary and Conclusions, Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 245-256, National Bureau of Economic Research, Inc.
    9. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Human capital; foreign direct investment; regional heterogeneity; multi-speed Europe; Bayesian shrinkage estimator;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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