Human Capital and Inward FDI

Abstract

After a review of the literature, we conclude that there is potential for significant 'spillover effects' from FDI into host countries. We identify some limitations of this potential, however, to do with the stock of human capital, the interest in local firms of promoting skills transfer and the competition environment. We suggest comparing conditions and effects between regions, particularly between East Asia and Latin America, where transfer in the former has been more consistent than in the latter. We propose further that an analysis of the type of FDI flowing to different regions and countries could provide clues to the potential for maximizing the gains to local skills accumulation. Finally, studies are needed which examine the nature of skills provided by FDI, and ways in which training institutions, business schools, for example, can complement in-service training by firms in FDI host countries.

Keywords: MNCs, FDI, spillovers

JEL Classification: J23, O12