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Human capital threshold, foreign direct investment and economic growth: evidence from sub-Saharan Africa

Friday Osemenshan Anetor (School of Management and Social Sciences, Pan-Atlantic University, Lagos, Nigeria)

International Journal of Development Issues

ISSN: 1446-8956

Article publication date: 4 June 2020

Issue publication date: 20 August 2020

438

Abstract

Purpose

The purpose of this study is to analyze the mediating effect of human capital in foreign direct investment (FDI) and growth nexus and establish the threshold of human capital in 28 sub-Saharan African (SSA) countries over the period 1999–2017.

Design/methodology/approach

This study used a secondary source of data obtained from the World Development Indicator and used the system generalized method of moments and dynamic panel threshold regression (TR) to analyze the data.

Findings

This study found that FDI and human capital have no significant impact on the economic growth in SSA. However, when the interactive term of FDI and human capital was introduced in the model, the economic growth effect of FDI became positive and significant, while the coefficient of the interactive term is negative and significant. This presupposes that SSA does not have a sufficient high-quality workforce that can absorb and transform the spillover benefits of FDI into economic growth. As a result, this study applied the TR to determine the minimum level of human capital and established a threshold level at 63.91%.

Practical implications

It, therefore, becomes pertinent for policymakers in the SSA region to have a human capital policy to build up their absorptive capacities to fully take advantage of FDI.

Originality/value

The contribution of this study lies in establishing a threshold of human capital at 63.91% for countries in the SSA region.

Keywords

Citation

Anetor, F.O. (2020), "Human capital threshold, foreign direct investment and economic growth: evidence from sub-Saharan Africa", International Journal of Development Issues, Vol. 19 No. 3, pp. 323-337. https://doi.org/10.1108/IJDI-01-2020-0014

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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