IDEAS home Printed from https://ideas.repec.org/p/cuf/wpaper/455.html
   My bibliography  Save this paper

Does FDI Promote Human Capital Accumulation? The Role of Gradual Financial Liberalization

Author

Listed:
  • Qichun He

    (CEMA, Central University of Finance and Economics)

Abstract

We argue that how inward foreign direct investment (FDI) affects domestic human capital accumulation (HCA) depends on the degree of financial deregulation. Utilizing the Chinese experience and its panel data, the OLS (ordinary least squares) regressions suggest that FDI has a significant positive interaction effect with financial deregulation on HCA. Specifically, the estimated coeffcient on FDI is positive but insignificant, while that on its interaction with financial deregulation is significantly positive. It means that FDI promotes HCA in China, and higher degree of financial deregulation reinforces the promoting effect. Instrumenting FDI with two sets of instruments grounded on different rationales (which ensures valid identification), our limited-information maximum likelihood (LIML) estimation results are similar to those of OLS. The results are also robust when we control for other factors affecting HCA, and time and province effects.

Suggested Citation

  • Qichun He, 2011. "Does FDI Promote Human Capital Accumulation? The Role of Gradual Financial Liberalization," CEMA Working Papers 455, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:455
    as

    Download full text from publisher

    File URL: http://down.aefweb.net/WorkingPapers/w455.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cummins, J. David & Rubio-Misas, Maria, 2006. "Deregulation, Consolidation, and Efficiency: Evidence from the Spanish Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 323-355, March.
    2. Stijns, Jean-Philippe C., 2005. "Natural resource abundance and economic growth revisited," Resources Policy, Elsevier, vol. 30(2), pages 107-130, June.
    3. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    4. Beugelsdijk, Sjoerd & Smeets, Roger & Zwinkels, Remco, 2008. "The impact of horizontal and vertical FDI on host's country economic growth," International Business Review, Elsevier, vol. 17(4), pages 452-472, August.
    5. James Riedel & William S. Turley, 1999. "The Politics and Economics of Transition to an Open Market Economy in Viet Nam," OECD Development Centre Working Papers 152, OECD Publishing.
    6. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    7. Nunnenkamp, Peter, 2002. "Determinants of FDI in developing countries: has globalization changed the rules of the game?," Kiel Working Papers 1122, Kiel Institute for the World Economy (IfW Kiel).
    8. Branstetter, Lee G. & Feenstra, Robert C., 2002. "Trade and foreign direct investment in China: a political economy approach," Journal of International Economics, Elsevier, vol. 58(2), pages 335-358, December.
    9. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    10. Melvyn Weeks & James Yudong Yao, 2003. "Provincial Conditional Income Convergence in China, 1953-1997: A Panel Data Approach," Econometric Reviews, Taylor & Francis Journals, vol. 22(1), pages 59-77, February.
    11. Donald W.K. Andrews & James H. Stock, 2005. "Inference with Weak Instruments," Cowles Foundation Discussion Papers 1530, Cowles Foundation for Research in Economics, Yale University.
    12. Yudon, Y. & Weeks, M., 2000. "Provincial Income Convergence in China, 1953-1997: a Panel Data Approach," Cambridge Working Papers in Economics 0010, Faculty of Economics, University of Cambridge.
    13. Peter J. Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114, National Bureau of Economic Research, Inc.
    14. Mr. Abdelali Jbili, 1997. "Financial Sector Reforms in Algeria, Morocco, and Tunisia: A Preliminary Assessment," IMF Working Papers 1997/081, International Monetary Fund.
    15. Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(1), pages 1-16.
    16. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    17. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    18. Stijns, Jean-Philippe, 2006. "Natural resource abundance and human capital accumulation," World Development, Elsevier, vol. 34(6), pages 1060-1083, June.
    19. Ram, Rati & Zhang, Kevin Honglin, 2002. "Foreign Direct Investment and Economic Growth: Evidence from Cross-Country Data for the 1990s," Economic Development and Cultural Change, University of Chicago Press, vol. 51(1), pages 205-215, October.
    20. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2006. "Capital Controls, Liberalizations, and Foreign Direct Investment," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1433-1464.
    21. Jinyong Hahn & Jerry Hausman, 2010. "Estimation with Valid and Invalid Instruments," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 25-57, National Bureau of Economic Research, Inc.
    22. Gregory C. Chow, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 809-842.
    23. Alwyn Young, 2003. "Gold into Base Metals: Productivity Growth in the People's Republic of China during the Reform Period," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1220-1261, December.
    24. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
    25. Miao Wang, 2010. "Foreign direct investment and domestic investment in the host country: evidence from panel study," Applied Economics, Taylor & Francis Journals, vol. 42(29), pages 3711-3721.
    26. Niels Hermes & Robert Lensink, 2003. "Foreign direct investment, financial development and economic growth," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 142-163.
    27. Peter D. Goldsmith & Thomas L. Sporleder, 1998. "Analyzing Foreign Direct Investment Decisions by Food and everage Firms: An Empirical Model of Transaction Theory," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 46(3), pages 329-346, November.
    28. Mazhar Mughal & Natalia Vechiu, 2009. "Does FDI promote higher education? Evidence from developing countries," Post-Print hal-01881854, HAL.
    29. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Qichun, 2011. "Home-bias Politics, Financial Deregulation and Economic Growth: A Causal Relationship," MPRA Paper 34482, University Library of Munich, Germany.
    2. Quichun He & Meng Sun & Heng-Fu Zou, 2013. "Financial deregulation, absorptive capability, technology diffusion and growth: Evidence from Chinese panel data," Journal of Applied Economics, Universidad del CEMA, vol. 16, pages 275-302, November.
    3. Mazhar Mughal & Natalia Vechiu, 2011. "The role of Foreign Direct Investment in higher education in the developing countries (Does FDI promote education?)," Working Papers hal-01885159, HAL.
    4. David Mayer‐Foulkes & Peter Nunnenkamp, 2009. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 304-318, May.
    5. He, Qichun, 2011. "Dances with Chinese data: are the reform period Chinese provincial panel data reliable?," MPRA Paper 35418, University Library of Munich, Germany.
    6. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    7. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197.
    8. Iamsiraroj, Sasi, 2016. "The foreign direct investment–economic growth nexus," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 116-133.
    9. Dalila NICET- CHENAF (GREThA-GRES) & Eric ROUGIER (GREThA-GRES), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GRES (2002-2009) 2008-17, Groupement de Recherches Economiques et Sociales.
    10. Busse, Matthias & Groizard, José Luis, 2005. "FDI, Regulations and Growth," Conference papers 331335, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. He, Qichun & Zou, Heng-fu, 2016. "Does inflation cause growth in the reform-era China? Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 470-484.
    12. Dierk Herzer & Julian Donaubauer, 2018. "The long-run effect of foreign direct investment on total factor productivity in developing countries: a panel cointegration analysis," Empirical Economics, Springer, vol. 54(2), pages 309-342, March.
    13. Matthias Busse & José Luis Groizard, 2008. "Foreign Direct Investment, Regulations and Growth," The World Economy, Wiley Blackwell, vol. 31(7), pages 861-886, July.
    14. Rosemary Stanley Taylor, 2020. "Foreign direct investment and economic growth. Analysis of sectoral foreign direct investment in Tanzania," African Development Review, African Development Bank, vol. 32(4), pages 699-717, December.
    15. William R. Cline, 2010. "Financial Globalization, Economic Growth, and the Crisis of 2007-09," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 499, January.
    16. Arazmuradov, Annageldy & Martini, Gianmaria & Scotti, Davide, 2014. "Determinants of total factor productivity in former Soviet Union economies: A stochastic frontier approach," Economic Systems, Elsevier, vol. 38(1), pages 115-135.
    17. Yi Che & Danny T. Wang, 2013. "Multinationals, Institutions and Economic Growth in China," Asian Economic Journal, East Asian Economic Association, vol. 27(1), pages 1-16, March.
    18. Mazhar Yasin MUGHAL & Natalia VECHIU, 2010. "The role of Foreign Direct Investment in higher education in the developing countries (Does FDI promote education?)," Working Papers 2010-2011_10, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2010.
    19. Sodiq Arogundade & Mduduzi Biyase & Hinaunye Eita, 2021. "Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries:Does local Economic Conditions Matter?," Economic Development and Well-being Research Group Working Paper Series edwrg-01-2021, University of Johannesburg, College of Business and Economics, revised 2021.
    20. Delgado, Michael S. & McCloud, Nadine & Kumbhakar, Subal C., 2014. "A generalized empirical model of corruption, foreign direct investment, and growth," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 298-316.

    More about this item

    Keywords

    Foreign Direction Investment; Human Capital; Gradual Financial Deregulation; Interaction; Panel Data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cuf:wpaper:455. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Qiang Gao (email available below). General contact details of provider: https://edirc.repec.org/data/emcufcn.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.