The Effect of Human Capital on FDI Inflows: Evidence form Internationally Standardized Testing
Few empirical studies have been conducted to support the argument that countries with stronger human capital attract more foreign direct investment. Where available, these studies use quantitative measures of education attainment that do not account for varying quality of education systems across countries. Using four years of test score data from the Programme for International Student Assessment conducted in a sample of middle-to-high income countries, this paper tests the hypothesis that the quality of human capital affects the amount of foreign direct investment a country attracts. The empirical results show a statistically significant negative correlation between test scores and inward foreign direct investment, suggesting that countries that perform better on the test receive less foreign direct investment, on average.
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