Foreign Direct Investment (FDI) Types and Theories: The Significance of Human Capital

One of the economic problems of undeveloped countries, and Kosovo, is that they do not have enough national savings to finance their investments. They are in constant need of foreign capital in forms of both direct and indirect investments, but not every country is able to attract the right mode of FDI, nor does every investor risks his investments without studying the conditions in the host country. The practice of FDI attraction generally incorporates numerous fiscal and monetary incentives. However, one should note that FDI attraction should be accompanied by development and an increase in the level of human capital, as a prerequisite to attract the right FDI and not every kind of foreign investment. FDI, together with human capital development, are considered among the key drivers of growth as they play complementary effects and reinforce each other. The role of human capital in stimulating FDI and vice versa is one of the controversial issues in the development literature. Human capital is the factor where the transition process has had significant and long-term implications. Human capital bacame a crucial determinant and a prerequisite for FDI attraction that a country, including Kosovo, must have if willing to attract the right mode of foreign capital. This paper seeks to understand the weight of human capital in different types and theories of FDI. Theory and empirical studies are inconclusive as per direct impacts of FDI in developed countries, but when it comes to transition and undeveloped economies, and Kosovo, there is more agreement on the positive effects of FDI in economic development and human cap.