Human Capital Formation and Foreign Direct Investment in Developing Countries

This paper synthesises the existing literature on human capital formation and foreign direct investment (FDI) in developing countries. The aim is to take a bird’s eye view of the complex linkages between the activities of multinational enterprises (MNEs) and policies of host developing countries. In doing so, general trends, best practices and policy experiences are extracted to evaluate the current state of knowledge. The literature indicates that a high level of human capital is no doubt one of the key ingredients for attracting FDI, as well as for host countries to gain maximum benefits from their activities. Most developing countries, however, underinvest in human capital, and the investment that is actually taking place is unevenly distributed across countries and regions that have adopted different human resource development (HRD) policies. To improve human capital formation and thus to attract more FDI would therefore require a more coherent approach that takes host country ...