One of the characteristics of rich industrial economies is the availability of a workforce with a high level of human capital. Whether human capital has been the key driver of economic prosperity or vice-versa is still a matter of debate. Nevertheless, long time series trends in educational attainment and economic growth during the last century indicate that HRD and economic prosperity went hand in hand10. Some developing countries followed similar trends in human capital and economic growth. What was distinctive about these developing countries is that they appeared to have realised large economic benefits in attracting MNEs into host economies, and have thus mobilised inward FDI to attain rapid economic growth.
How do host developing countries attract FDI? Figure I.1 indicates the importance of an attractive investment climate and sound policy environment in order for host developing countries to successfully attract FDI. Investment climate includes availability/quality of factors of production, market size/access, logistic costs and numerous socio-political environments conducive for doing business with minimal risk.
Past experiences of countries that have successfully attracted FDI indicate that many of these factors were indispensable. Among these, the level of human capital has been a crucial factor that MNEs, especially the high value-added MNEs, were seeking when determining the new location of operation. This has recently become even more crucial as the mode of MNE production is becoming relatively skill-biased with an increasing number of high-technology manufacturing and services MNEs seeking labour force equipped with knowledge in engineering, technology, organisational skills and business administration.
This section evaluates host developing country efforts to develop human capital to attract inward FDI. The aim is to determine the following:
— Is human capital essential for attracting any type of FDI?
— What are the level and type of human capital necessary to attract FDI?
Both questions have become increasingly important but at the same time difficult to tackle since the type and the mode of FDI have changed dramatically during the past two decades and host countries are striving to upgrade/adapt their human capital as well as other key host country environments. The following evaluates empirical evidence on the role of HRD on inward FDI, and assesses policy experiences to mobilise HRD.
OECD DEVELOPMENT CENTRE Working Paper No. 211 HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES by Koji Miyamoto
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OECD Development Centre
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Created in 1962 by the Organisation for
Economic Co-operation and Development
(OECD) in Paris, the Development Centre is
an interface between OECD Member countries
and the emerging and developing
economies.
The Development Centre occupies a unique
place within the OECD and in the
international community. It is a forum
where countries come to share their
experience of economic and social
development policies. The Centre
contributes expert analysis to the
development policy debate. The objective
is to help decision makers find policy
solutions to stimulate growth and improve
living conditions in developing and
emerging economies.
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