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CONCLUSION: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
Written by: OECD Development CentreArticle Overview: The literature on human capital formation and FDI provides tentative answers to the five questions posed in the introduction of this paper.
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CONCLUSION: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
literature on human capital formation and FDI provides tentative answers to
the five questions posed in the introduction of this paper. First, to attract any type of FDI,
host developing countries need an adult population with at least basic schooling. The
type of human capital necessary to attract FDI obviously depends on the type of FDI host
countries seek. To attract high value-added MNEs, it is necessary to develop the tertiary
education sector with close collaboration with the industry so as to formulate demanddriven
programmes. Second, MNEs can contribute to the HRD of the host developing
country by providing training and supporting formal education. Small and medium
domestic firms tend to underinvest in training as compared to MNEs and large domestic
firms, even though the former group usually enjoys higher productivity gains from
training. The underinvestment appears to be due to market failures including lack of
information, financial constraints and training spillovers. Third, MNEs contribute to
technology transfers through numerous channels of training spillovers, including
vertical/horizontal linkages, labour turnovers, and spin-offs. Host country efforts to
improve the absorptive capacity have also been shown to facilitate technology transfers.
Fourth, government policies have been important to facilitate training, to minimise
financial constraints and market failures, and to promote MNEs to invest in HRD of the
host economy. Most of the successful training policies have been demand-driven,
involving industries, MNEs, IPAs, and foreign academic institutions that have close ties
with the advanced developments in technology, business administration and
management. Lastly, there is limited evidence of a virtuous circle of inward FDI, HRD
and technology transfers. Governments that emphasise flexible demand-driven HRD
strategies, target MNEs in high value-added areas, and co-ordinate education and
training policies are more likely to lead the country into a virtuous circle.
The arguments made in this paper are based on limited evidence extracted from
the literature on human capital and FDI, and a number of selected case studies of firms
operating in developing countries. Obviously, more evidence and detailed analyses are
required to gain clear and in-depth understanding of the changing role of HRD, FDI and
economic growth. In particular, there are few areas that may help extend the
understanding on this issue. One is to initiate globally comparable firm-level surveys that
contain detailed information on HRD activities among firms. While the World Business
Environment Survey provides some cross-country information on training in East Asia
and Latin America, it is limited with respect to its small sample size (per-country), limited
coverage (East Asia and LAC-region), and lack of information on inter-firm linkage.
Another area that may facilitate this line of research is the analyses of matched
employers-employees surveys that contain detailed information on employee training
and inter-firm linkages. While such surveys have become increasingly available in developed countries, only a limited number exist in developing countries. The last area of
research could be on the collaboration between different actors of FDI and HRD
including MNEs, IPAs, governments and educational institutions, which would provide a
better understanding of how synchronisation among different stakeholders can be best
made so as to attain flexible and demand-driven HRD policies.
OECD DEVELOPMENT CENTRE
Working Paper No. 211
HUMAN CAPITAL FORMATION
AND FOREIGN DIRECT INVESTMENT
IN DEVELOPING COUNTRIES
by
Koji Miyamoto
Summary: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
Preface: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
Questions Posed: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
HUMAN CAPITAL FORMATION BY MNES AND TECHNOLOGY TRANSFERS
THE VIRTUOUS CIRCLE OF HUMAN CAPITAL FORMATION, INWARD FDI, AND TECHNOLOGY TRANSFERS
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About the Author: OECD Development Centre RSS for OECD's articles - Visit OECD's website  Click here to visit OECD's website   Proper Regulation Is Crucial to Ensure Welfare Gains The Efficiency and Labour Market Impact Have Varied Across Sectors The Rise of China and India Whats in it for Africa Trends in Human Capital Formation in Developing Countries Background Improving business conditions Increasing SME Access to Finance A Four Pronged Approach |
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