Eleventh Global Studies Conference

Abstract

Public policy designers make great efforts to create incentives and establish a propitious context for Foreign Direct Investment (FDI) attraction given its positive effects on the socioeconomic health and the role that it plays as an instrument for socioeconomic development and welfare. Transfers of technology, human capital development, knowledge transfers, employment creation and inequality and poverty reduction are some of these positive externalities of FDI that encourage policy makers to design more FDI attraction policies in host economies. Indeed, economic literature and experience have shown FDI’s role in technology transfers thanks to the commercial relationships existing between local and foreign investors where foreign firms supply quality inputs and advanced technology to local ones. Moreover, foreign firms invest more than local ones in training and are, generally, up-to-date with tendencies in terms of training and competencies creation, what improves human capital in the host country. On the social level, FDI would contribute to the improvement of work conditions and unemployment reduction in host countries (foreign firms hire more employees compared to local firms, especially in the case of new investments called “Greenfields”) and would decrease inequality and poverty thanks to the economic and social mobility generated when creating stable jobs, with higher salaries. Thus, on the one hand, the present work aims to pinpoint how FDI could be a development and welfare strategy by determining the externalities that it generates in some developing host countries (particularly in Africa) and the transfer channels of these externalities. The study also identifies some of the features to be developed in host countries in order to attract FDI projects, orientate them to strategic sectors and maximize the absorptive capacity of FDI’s positive externalities. On the other hand, the present paper proposes an econometric methodology to evaluate the role of FDI and other influent variables in the explanation of human capital variations in host countries, one of the welfare and development aspects that could be improved when receiving FDI projects.