Does FDI promote higher education: evidence from developing countries

This paper studies the impact of foreign direct investment (FDI) inflows on human capital growth in recent years. It investigates the determinants of tertiary and secondary education during the studied period, with a special focus on economic growth. The paper tries to avoid the pitfalls of studying countries at disparate levels of economic development at the same time, and so examines low- and middle-income countries (LICs and MICs respectively) separately.

The paper finds a statistically significant negative impact of FDI on both tertiary as well as secondary education. Yet, the absence of appropriate infrastructure and institutions in LICs may indicate that there are some short-term adjustment costs that should not be neglected by the governments.

On the other hand, the paper thinks that the wave of foreign investments that flooded the shores of developing countries in recent years may not yet have had the time to show its beneficial effects. These effects should appear on people's higher education preferences, as these individual incentives-based decisions take shape after a period of contemplation.

In sum, the paper confirms that a country's growth rate exerts a strong positive impact on education. In addition, it finds that per capita gross national income (GNI) has a very strong positive impact on both levels of education in both groups of countries. However, it seems that the importance of GNI in the evolution of education enrollment is much higher in the LICs than in the MICs.

Likewise, important differences have been identified between the MICs and the LICs, suggesting that the level of development has an impact on the evolution of various macroeconomic indicators. Accordingly, the paper recommends that national and regional development policies need to be tailor-made to take into account the countries' specific level of human capital and economic development.