A cross-country analysis of the relationship between human capital and foreign direct investment

Title

A cross-country analysis of the relationship between human capital and foreign direct investment

Creator

Sethi M.; Baby S.; Sharma A.M.

Description

Purpose: The ZhangMarkusen (Z-M) inverse U-shape theory uses education as a human capital variable to investigate the impact of educational attainment on foreign direct investment (FDI) inflows to a country. The objective of this research is to empirically test this theory in a cross-country framework. Design/methodology/approach: Fixed effect panel regression has been used to test the Z-M hypothesis for 172 countries for the period 19902015. For the purpose of this study, countries were divided into four groups as per the World Bank classification: Low-income economies, lower middle-income countries, upper middle-income economies and high-income economies. Findings: The findings of this study reinforce the proposition that macroeconomic factors are the major determinants of FDI inflows into various countries. The authors find that the size of the market measured by gross domestic product (GDP), the growth potential of the market measured by real GDP growth rate and the availability of infrastructure are the major factors that enhance the attractiveness of a country as an FDI destination. Originality/value: Though the Z-M theory has been empirically tested in cross-country frameworks, no consensus has been reached. Thus, it is interesting to look again at the validity of the Z-M hypothesis using data covering longer and more recent periods. The study includes both macroeconomic and human capital determinants of FDI, so as to arrive at a comprehensive model explaining the FDI flows into various countries. 2021, Emerald Publishing Limited.

Source

Journal of Economic Studies, Vol-49, No. 7, pp. 1197-1211.

Date

2022-01-01

Publisher

Emerald Publishing

Subject

Country groups; Educational attainment; FDI; Human capital; Panel regression; ZhangMarkusen hypothesis

Coverage

Sethi M., Symbiosis Institute of Business Management Bengaluru, Symbiosis International (Deemed University), Pune, India; Baby S., Management, Symbiosis Institute of Business Management Bengaluru, Symbiosis International (Deemed University), Pune, India; Sharma A.M., Department of Professional Studies, Christ University, Bangalore, India

Rights

Restricted Access

Relation

ISSN: 1443585

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1108/JES-07-2021-0348

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