Foreign direct investment and human capital: The role of political and civil rights

Domestic human capital is definitely a determinant of foreign direct investment (FDI) inflows for the developing world. Yet, the contribution of human capital will depend to a great extent on the institutional framework of a nation. Good political (civil) rights favor human capital to reap the benefits of FDI inflows more efficiently. Our paper show that the interlinkages between FDI, human capital and political (civil) rights play a very important role in explaining FDI inflows to developing countries. Using a panel of 76 developing countries, we show that human capital can have both linear and non-linear impact on FDI inflows. Unskilled human capital is always needed to attract FDI into a country and the linear positive association is enhanced by the presence of good political (civil) rights. Yet, skilled human capital may have both a concave and a convex association with FDI inflows, depending on the level of political (civil) rights of the country.
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