FDI determinants and growth in developing and transition economies

What is it about?

The paper investigates the growth effects of human capital (i.e., labour skills and education) and political factors (measures of democracy) with respect to inflows of foreign direct investment (FDI) into 61 transition economies (formerly centrally-planned) and developing countries between 1989 and 2013. The statistical analysis uses panel data methods to investigate the growth impact of FDI inflows to these countries with respect to the separate and combined roles of human capital and political regime measures

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Why is it important?

The paper uses up-to-date data to analyse the influence of labour skills (human capital) and political regime. It finds that the impacts of FDI in transition and developing countries are not as straightforward as the case of more advanced economies; the contribution of FDI and human capital to growth is found to vary across regime types - Democratic, Hybrid Democracies and Authoritarian - not always in the expected ways. Further, there are marked differences in the findings between for transition and developing economies - human capital and political development are found to suppress growth with little role for FDI while in developing economies FDI is a driver of growth but human capital is not.

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