Linear and non-linear linkage between human capital and foreign direct investment inflows into APEC countries: an evidence from panel data

Amir Rahman (), Rafi Farooq () and Khalid Ashraf Chisti ()
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Amir Rahman: University of Kashmir
Rafi Farooq: University of Kashmir
Khalid Ashraf Chisti: University of Kashmir

SN Business & Economics, 2023, vol. 3, issue 7, 1-25

Abstract: Abstract This paper examines how human capital advancement affects FDI in 20 APEC members from 1990 to 2019. Prior literature has studied the subject matter repeatedly without reaching a consensus with some concluding positive and others negative impact. However, the possibility of the non-linear and asymmetrical impact of human capital on FDI has been left unattended. Therefore, this study, by using PMG-ARDL along with its Non-linear version, demonstrated that human capital attracts FDI only up to an extent, and beyond that limit human capital discourages foreign investors. The analysis verifies the Z-M Theory of the inverted U-shaped relationship between human capital and FDI inflows, meaning that advanced human capital no longer attracts FDI. Also, positive shocks in human capital could be seen as having a larger impact than negative shocks on FDI inflows. The robustness of findings was established through FMOLS and DOLS estimations techniques. Towards the end, the study offers some insights for policymakers and investors.

Keywords: Human capital; PMG-ARDL; Non-Linear ARDL; Fully modified ordinary least square (FMOLS); Foreign direct investment (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s43546-023-00507-3

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