The relevance of human capital in attracting FDI : evidence from BRICS Countries

Abstract: This study investigates the relevance of human capital proxied by the gross secondary school enrolment in attracting FDI into BRICS countries, which include: Brazil, Russia, India, China and South Africa for the period 1980-2013. After controlling for heterogeneity, endogeneity, and spatial effects, aggregate results from different panel techniques indicate that human capital is a significant and relevant factor in attracting FDI into BRICS countries. However, gross public expenditure on education and health care are found to be negatively related to FDI. This implies that wholesale public expenditure is undesirable, but rather a more prudent targeted sectorial public expenditure can produce the desired outcomes. The spatial effects analysis indicates that there is cross sectional dependency amongst BRICS countries. Consistently, country level results indicate that human capital is significant in attracting FDI in almost all the BRICS countries. Furthermore, all the models are checked for robustness by using different diagnostic tests in order to ascertain that the results are accurate and reliable. The results are consistent with prevailing economic theory except for the outcomes of public expenditure on education and health care. Thus, the study concludes that human capital has a positive effect on FDI in BRICS countries and that policy makers are justified in seeking synergies between educational and FDI policies in order to propel future economic growth rates.M.Com. (Economics