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Local human capital formation and optimal FDI

Muhammad Asali (), Adolfo Cristobal-Campoamor () and Avner Shaked

The Journal of International Trade & Economic Development, 2016, vol. 25, issue 5, 691-705

Abstract: This paper lends both theoretical and empirical support to the notion of optimal foreign direct investment (FDI) levels. It does so by uncovering an inverted-U-shaped relationship between FDI and human capital formation. The optimality of a particular FDI inflow depends on the educational incentives induced by FDI on the local, heterogeneous population. Our estimates confirm the significance of a positive (linear) and a negative (non-linear) impact of FDI stocks on tertiary schooling, which are exclusively relevant in developing countries.

Date: 2016
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