Theories of Foreign Direct Investment (Fdi) and the Significance of Human Capital

Abstract

Not every country is able to attract the right mode of FDI, nor does every investor risks his investments without studying the conditions in the host country. The practice of FDI attraction generally incorporates numerous fiscal and monetary incentives. However, one should note that FDI attraction should be accompanied by development and an increase in the level of human capital, as a prerequisite to attract the right FDI and not every kind of foreign investment. FDI, together with human capital development, are considered among the key drivers of growth as they play complementary effects and reinforce each other. The role of human capital in stimulating FDI and vice versa is one of the controversial issues in the development literature. Human capital is the factor where the transition process has had significant and long-term implications. Human capital became a crucial determinant and a prerequisite for FDI attraction that a country, including Kosovo must have if willing to attract the right mode of foreign capital. Theory and empirical studies are inconclusive as per direct impacts of FDI in developed countries, but when it comes to transition and undeveloped economies, and Kosovo, there is more agreement on the positive effects of FDI in economic development and human capital. This paper seeks to understand the weight of human capital in different types of FDI theories.

Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa

“…The approach to intangible capital is another theory of FDI. In line with this theory, the influence of certain ' monopoly benefits ' or ' assets that are not tangible' for a company is imperative for its production from foreign countries (Lall, 1980;Bajrami and Zeqiri, 2019). The benefits could be the comprise of production procedures, industrial management, managerial skills, product knowledge, and factor of production markets.…”

The Impact of Foreign Direct Investment on Employment in Canada

“…These include the production cycle theory of Vernon, the theory of exchange rates on imperfect capital markets, the internalization theory and the eclectic paradigm of Dunning (Denisia, 2010). Bajrami and Zeqiri (2019) affirmed that the product life cycle theory was developed by Raymond Vernon in 1966 and that he combined micro theory of the product cycle with trade theory. Vernon itemized four stages of production cycle which includes innovation, growth, maturity and decline (Denisia, 2010).…”

“…Vernon itemized four stages of production cycle which includes innovation, growth, maturity and decline (Denisia, 2010). Bajrami and Zeqiri (2019) described eclectic theory as referring to the ownership, location and internalization paradigm, which attempts to explain the international flows and FDI in terms of what is the motive rather than what should be the level and the structure of foreign investment. Dunning (2008) defined ownership advantages as the degree to which a firm possess sustainable ownership-specific advantages over other firms in the market.…”

Is Foreign Direct Investment the Way Forward for Manufacturing Sector Renaissance in Nigeria?

“…Increase in volume of FDI globally has led to various theories propounded by different schools to explain the wave (Bajrami & Zeqiri, 2019). Theories from the era of Adams Smith in 1776, Ricardo in 1817 to Heckscher in 1919 and Ohlin in 1933 focused on international trade as a form of FDI; although Vernon in 1966 integrated international trade with international investment (Nayak & Choudhury, 2014).…”