Abstract:
In this paper, we address the question that does FDI alone affect economic growth or interaction of FDI and human capital is required to boost economic growth. We develop the model with an expanding variety of products. We estimate the model using some advanced tests utilizing data on FDI flows from developed countries. We find stronger complementary effects between FDI and human capital on the productivity growth rate instead of having them as separate variables. This result is consistent with the idea that the flow of advanced technology brought along by FDI can increase the growth rate of the host economy only by interacting with that country's absorptive capability.
Machine summary:
"Keywords: Foreign Direct Investment, Human Capital, Economic Growth, Host Economy, Developed Countries JEL Classification: F21: O49 1.
For this reason, using two threshold variables (host country’s human capital level and the share of R&D performed by business sector on total GDP, this research revisits the relationship between FDI and economic growth.
Table 4: Panel Unit Root Test Variable FDI x Human Capital Domestic Investment x Human Capital Method I(0) I(1) I(0) I(1) Levin, Lin & Chu 8.
011) Source: Authors Regression 1 shows that FDI has a positive impact on economic growth, after controlling for initial GDP per capita, human capital, government share in real GDP, and population.
The results reported in Table 6 state that the interaction term of human capital and FDI has significant positive effect on productivity growth and technological progress.
(1998), which shows the interaction term of human capital and FDI has a positive effect on economic growth, and Xu (2007), which concludes MNEs are an important channel of international productivity spillovers for a country reaching a human capital threshold level.
This result shows that since East Asian countries have relatively large human capital, domestic investment is also an important factor to increase productivity growth.
Table 6: Panel Least Squares Estimation Independent Variable Dependent Variable Productivity Growth Efficiency Improvement Technological Progress Domestic Investment x Human Capital 0.
When FDI combines with human capital, it increases productivity growth of East Asian countries mostly by increase technological progress rather than efficiency improvement."