Role of human capital and foreign direct investment in promoting economic growth

Muhammad Azam (School of Economics, Finance & Banking, Universiti Utara Malaysia, Sintok, Malaysia.)
Ather Maqsood Ahmed (School of Social Sciences and Humanities, National University of Sciences and Technology, Islamabad, Pakistan.)

International Journal of Social Economics

ISSN: 0306-8293

Publication date: 9 February 2015

Abstract

Purpose

The purpose of this paper is to validate the Endogenous Growth Model by examining the impacts of Human Capital (HK) and Foreign Direct Investment (FDI) on economic growth in ten countries from Commonwealth of Independent States (CIS).

Design/methodology/approach

For empirical investigation, a linear regression model based on growth theory and panel data set covering the time-period from 1993 to 2011 are used. Fixed and random effects models are applied. On the basis of the Hausman test, the fixed effects model has been preferred over the random effects model.

Findings

The results support the hypothesis of the study by confirming that HK development is critical for economic growth. Similarly, FDI has been found to have a facilitating role in promoting growth in the former Soviet Republics now comprising Central Asian independent economies. This is despite of the fact that there are country-specific differences across CIS.

Practical implications

The findings suggest that investment climate in the host countries must be enriched through suitable policies. Improved domestic conditions not only enhance the performance of multinational corporations but also allow host economies to reap greater benefits of FDI inflows. Moreover, the findings demonstrate that investment in both education and health are indispensable. Therefore, improved levels of education and health should be the primary objective running concurrently with other factors in order to stimulate economic growth.

Originality/value

The choice of CIS has been made because very little research has been found for the region particularly in the area of economic growth despite strong evidence of commonality in terms of landlocked geographical layout and economic and political structures of these economies. The region has gained importance gradually after independence of these states; and it has started to attract foreign funds in the shape of FDI only recently. Thus, there is a need to evaluate the future prospects pertaining to the importance of FDI and HK on growth performance of these economies and will insistently contribute to the literature.

Keywords

Citation

Muhammad Azam and Ather Maqsood Ahmed (2015) "Role of human capital and foreign direct investment in promoting economic growth", International Journal of Social Economics, Vol. 42 No. 2, pp. 98-111

Download as .RIS

DOI

: https://doi.org/10.1108/IJSE-05-2014-0092

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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