The effects of foreign direct investment on the accumulation of human capital in developing countries: Are there implications for future growth?
This research analyzed the impact of foreign direct investment, (FDI) on the accumulation of human capital in developing countries using the General Method of Moments (GMM) Difference Estimator. School enrollment estimates were used as a proxy for human capital. Panel data covering the period 1970--2000 were constructed and five year averages were taken in order to minimize business cycle effects and control for the hypothesized dynamic effect of FDI on human capital development. Generally the results suggest that FDI has a positive effect on school enrollment rates at the primary and secondary levels. However no such correlation was found at the tertiary level. We tested the robustness and sensitivity of our results by using other measures of schooling to proxy for human capital, and using a different information set. The variables average years of primary schooling, average years of secondary schooling, educational attainment, and higher education in the population replaced school enrollment levels in the regressions. These regression coefficients were positive but statistically insignificant. Finally, we regressed school enrollment levels on a slightly different information set. FDI has a positive and statistically significant impact on school enrollment rates at the primary and secondary levels.
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