FDI and Human Capital Development

Subbarao Srinivas P

No WP2008-02-01, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: FDI has considered a major catalyst in promoting sustainable development in developing countries. FDI has the potential to generate employment, raise productivity, transfer skills and technology, increased income, enhance exports and contribute to the long-term economic development of the world’s developing countries. The investing countries usually supply superior technologies to the host countries. At the initial stages, however, the less developed countries (LDC) lack not only the necessary skills and infrastructure to attract FDI in high technology sector but also the knowledge for proper implementation of technology. Since this requires less technical capabilities, skill building in the host LDC is less. However, such skill building, even though small, creates a platform for the LDC to develop their existing technology and capital productivity. This helps in improving the human capital of the country by facilitating education and technical training to a greater mass of people. Eventually, with the development of the economy the country moves from the subsistence level to the point where the dependence on FDI gradually shifts from mere manufacturing level to the managerial level of a company. At this point of time, the LDC should aim at attracting effective FDI. By effective FDI, we mean the FDI that is development friendly – FDI that fosters not only growth of the nation, but also growth and development of each resident of the country. In other words, effective FDI indulges in enhancement of human capital of the country. The growth of an economy can sustain only though the growth of an increasing, economically productive labor force. This paper explains importance of human capital skilling, the relation between the FDI and Human Capital development besides the experiences of these two in different regions of the world i.e., Asian and Latin American experiences.

Date: 2008-02-01
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