Does Human Capital Augment FDI's Impact on Economic Growth? A Theoretical Explanation

Abstract

In the foreign direct investment (FDI) literature, human capital is regarded as an important factor in augmenting FDI effects on economic growth in host counties. To test for this hypothesis, we develop an endogenous growth model that incorporates human capital development and learning-by-doing effects for examining the impact of FDI on the growth of the host economy. The theoretical explanation indicates that both the industrial and locational human capital augments FDI-growth effects.