The Moderating Effects of Official Development Assistance on the Relationship between Foreign Direct Investment and Human Development

Abstract

Since the introduction of the notion of human development in the 1970s and its adoption into the Human Development Report by the United Nations Development Programme (UNDP), human development remains one of the most important agendas, requiring international effort to address. With the COVID-19 pandemic prevailing around the world, issues regarding human development have become even more important. In this study, we aim to assess the effect of foreign direct investment (FDI) on human development. Moreover, we investigate the moderating effect of official development assistance (ODA) on the relationship between FDI and human development. Using panel data from the Human Development Index (HDI), covering 130 recipients between 1990 and 2018, our empirical results indicate that FDI has a positive impact on human development in recipient countries. Moreover, the moderating effect of ODA on the relationship between FDI and human development is confirmed, indicating that ODA might weaken the relationship between FDI and human development. This study reveals the positive impact of FDI on human development, but raises questions of ODA effectiveness.