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Does Institutional Quality Matter for Foreign Direct Investment and Human Development?
Van Thi Cam Ha1, Tinh Doan2, Mark J Holmes3
1School of Business and Management, RMIT International University, Vietnam.
Evaluation Review
|August 17, 2023
Summary
Foreign direct investment (FDI) significantly boosts human development, especially in developing nations. High-quality governance amplifies this positive effect, making it crucial for host countries seeking progress.
Area of Science:
- Development Economics
- Socioeconomic Indicators
- International Investment
Background:
- Foreign direct investment (FDI) is a key driver of economic growth.
- Human development, measured by the Human Development Index (HDI), reflects overall well-being.
- The interplay between FDI, institutional quality, and human development requires further empirical investigation.
Purpose of the Study:
- To analyze the relationship between FDI and human development across diverse economies.
- To assess the moderating role of institutional quality, particularly governance, in the FDI-HDI nexus.
- To provide evidence-based insights for policymakers aiming to leverage FDI for human development.
Main Methods:
- Utilized a panel dataset of 143 countries (2002-2019).
- Employed a Generalized Method of Moments (GMM) estimator to handle unobserved heterogeneity and simultaneity.
- Measured human development using the Human Development Index (HDI).
Main Results:
- Found a significant positive relationship between FDI and HDI.
- Observed a stronger FDI impact on HDI in developing countries compared to developed ones.
- Demonstrated that moderately high institutional quality enhances the FDI-HDI link, with good governance being particularly impactful in developing economies.
Conclusions:
- FDI can be a potent tool for enhancing human development, particularly in developing countries.
- Improving governance quality is crucial for maximizing the benefits of FDI on human development.
- Host countries should focus on strengthening institutions to foster inclusive growth through foreign investment.
Keywords:
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