Foreign direct investment and 'human capital enhancement' in developing countries

The focus of this paper is on foreign direct investment (FDI) and 'human capital enhancement' in developing countries. While there are of course vast literatures on both FDI and human capital enhancement, the specific issue of how, if at all, the behaviour of multinational enterprises (MNEs) impacts on human capital enhancement in developing countries has not as yet been explicitly researched at a micro-level in any great detail. The major impact of FDI on human capital enhancement appears not to have been through any action on the part of MNEs but rather from governments seeking to attract FDI via enhanced human capital. One policy question is how to encourage MNEs to invest in human capital enhancement. The key mechanisms, it is suggested, are those already being pursued, not all of which are obviously connected with human capital. Thus public education is vital. But so too are policies to enhance technological diffusion. Firstly such policies will inevitably lead to further intervention from government and other public agencies to enhance human capital, as requirements and opportunities become uncovered. Secondly, technological diffusion will increase the incentives for companies to take advantage of the new technologies, which will in turn require human capital enhancement. And thirdly it will be an attractor not only to further FDI, but to FDI going into relatively high value added areas.