Foreign Direct Investment-Growth Nexus in Emerging Markets: does Human Capital Development Matter?
Foreign Direct Investment-Growth Nexus in Emerging Markets: does Human Capital Development Matter?

Summary/Abstract: The study explored the impact of foreign direct investment (FDI) on economic growth and examined if human capital development is a channel through which FDI influence economic growth.Literature shows that the impact of FDI on economic growth is no longer a disputed matter. What is still unresolved is an agreeable list of channels through which FDI affects economic growth. This prompted the author to investigate 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) technique. Moreover, majority of 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 takes place in emerging markets. FDI positively but non-significantly influenced economic growth in emerging markets. When FDI was interacted with human capital development, the size of the positive impact on economic growth improved but was still non-significant. Emerging markets are therefore urged to implement policies aimed at increasing human capital development in order to enhance FDI‘s ability to influence economic growth.

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