Abstract

The event of globalization and the increasing inflows of foreign direct investment (FDI) to developing countries create a potential for technology transfers and spillovers which suggest a potential for future growth of human capital, and output. There is a noticeable lack of empirical findings in the literature on the impact of FDI on the accumulation of human capital in developing countries. In this paper, we investigate the relationship between accumulation of human capital and FDI inflows for three ASEAN countries (Malaysia, Thailand and Indonesia) during period 1985 to 2005. We use a new human capital indicator and an econometric method which is based on a panel dynamic method [System generalized method of moments (GMM)], the empirical finding shows FDI inflows has a positive and statistically significant impact on accumulation of human capital in Malaysia, Thailand and Indonesia.

Key words: Foreign direct investment (FDI), Human Capital, dynamic panel data.