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Foreign Direct Investment and Economic Growth in the Southern African Development Community (SADC): The Role of Human Capital

IJED, Vol. 12 No. 1, (2018)

The relationship between foreign direct investment (FDI) and economic growth has received considerable empirical attention in the Southern African Development Community (SADC) but the role that human capital plays in this nexus is not well-understood. This is despite economic theory firmly suggesting that human capital plays a pivotal role in fostering the adoption of superior foreign technologies and enhancing the spillover benefits (learning-by-doing) that emanate from inward FDI in host countries. Against this background, therefore, the paper utilizes the Mankiw-Romer-Weil growth model in examining linkages between human capital (in form of education), FDI and economic growth in 15 SADC countries. After running cross-country regressions on data covering the period 1990-2015, human capital is found to positively influence the size and significance of the FDI-effect on economic growth in SADC. This suggests that SADC countries should continue upgrading the quality and quantity of their education in order to maximize FDI-induced development.
Keywords: Foreign Direct Investment, Economic Growth, Human Capital, Mankiw-Romer-Weil growth model, SADC

JEL Classification Numbers: F21, O4, I25

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