Human capital and FDI inflows to developing countries: New empirical evidence

Despite the dramatic increase in total foreign direct investment (FDI) flow s to developing countries in the last few years, the bulk of the inflows ha s been directed to only a limited number of countries. It has been argued t hat developing countries might enhance their attractiveness as locations fo r FDI by pursuing policies that raise the level of local skills and build u p human resource capabilities. Nevertheless, the empirical evidence in the literature in support of this recommendation for a large sample of developi ng countries is scant. This paper evaluates this argument in the light of t he evolution in the structural characteristics of FDI and empirically tests the hypothesis that the level of human capital in host countries may affec t the geographical distribution of FDI The empirical findings are: (a) huma n capital is a statistically significant determinant of FDI inflows; (b) hu man capital is one of the most important determinants; and (c) its importan ce has become increasingly greater through time. (C) 2001 Elsevier Science Ltd. All rights reserved.