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Knowledge Spillovers through FDI and Trade: Moderating Role of Quality-Adjusted Human Capital

Author

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  • Muhammad Ali

    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

  • Uwe Cantner

    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

  • Ipsita Roy

Abstract

The paper extends the findings of Coe and Helpman (1995) model of R&D spillovers by considering foreign direct investment (FDI) as a channel for knowl- edge spillovers in addition to imports. Deeper insights on the issue are provided by examining inter-relationship between knowledge spillovers from imports and inward FDI. Moreover, human capital is added to the discussion as one of the appropri- ability conditions for knowledge spillovers. However, in comparison to most studies that rely on physical, monetary or indicator-based measures of human capital, the current study proposes a quality-based indicator of human capital that allows for better comparison of human capital stock across countries. Quality adjusted hu- man capital is derived by weighting human capital data based on average years of schooling using journal publications in science and technology and patent ap- plications. Using cointegration estimation method on 20 European countries from 1995 to 2010, the direct effects of FDI-related as well as import-related spillovers on domestic productivity are confirmed. Furthermore, a strong complementary rela- tionship is found between knowledge spillovers through the channels of imports and inward FDI implying strong joint effect on domestic productivity. When consider- ing quality-adjusted human capital, countries with better human capital are found to benefit not only from direct productivity effects, but also from absorption and transmission of international knowledge spillovers through imports and inward FDI. Finally, technological distance with the frontier does not appear to play a role in the absorption of knowledge spillovers.

Suggested Citation

  • Muhammad Ali & Uwe Cantner & Ipsita Roy, 2015. "Knowledge Spillovers through FDI and Trade: Moderating Role of Quality-Adjusted Human Capital," Jena Economic Research Papers 2015-014, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2015-014
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    More about this item

    Keywords

    Knowledge spillovers; foreign direct investment; international trade; human capital;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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