Acta Universitatis Danubius. Œconomica, Vol 13, No 6 (2017)

Foreign direct investment-growth nexus in emerging markets: Does human capital development matter?

Kunofiwa Tsaurai

Abstract


The aim of the current study is to explore the impact of foreign direct investment (FDI) on economic growth and to examine if human capital development is a channel through which economic growth triggered by FDI happens. Theory and majority of empirical studies shows that the impact of FDI on economic growth is no longer a disputed matter. What is still not yet resolved is an agreeable list of channels through which FDI affects economic growth. It is for this reason that the current study focused on finding out if human capital development is a channel through which FDI influence economic growth in emerging markets using a dynamic panel generalised methods of moments (GMM) estimation technique. Most of the previous studies on FDI-growth nexus overlooked the endogeneity issues and the dynamic nature of economic growth data. According to the author’s best knowledge, this is the first study which investigated if human capital development is a channel through which economic growth triggered by FDI inflows takes place in emerging markets. FDI was found to have had a positive but non-significant influence on economic growth in emerging markets. When FDI was interacted with human capital development, the size of the positive impact on economic growth was found to have improved but still non-significant. The implications of the study are that emerging markets should implement policies aimed at improving human capital development in order to directly boost economic growth or to enhance FDI’s ability to influence economic growth. 


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