The Relationship Between Foreign Direct Investment and Tertiary Education in Developing Countries

Abstract

Foreign Direct Investment (FDI) is widely believed to play a key role in economic development. Existing research suggests that FDI may be positively related to technology transfer, industrial productivity, and overall economic growth. As such, substantial amounts of FDI have flowed into developing countries in recent decades. In this study, I hypothesize that inward FDI contributes to the demand for skilled labor in host countries, which may in turn increase investments in human capital. Specifically, I study the relationship between inward FDI and tertiary education enrollment in developing countries for the period between 2001 to 2015. Although not generally statistically significant, I find some evidence of a positive relationship between FDI inflows and tertiary education enrollment in developing countries. Additionally, I find statistically significant differences in the relationship between FDI inflows and tertiary education enrollment between low-income and middle-income countries. While FDI is negatively related to tertiary education enrollment in low-income countries, this relationship is positive in middle-income countries.