Endogenous specification of foreign capital inflows, human capital development and economic growth

Abstract

PurposeThe purpose of this paper is to empirically investigate the relationship between foreign capital inflows, human capital development (HCD) and economic growth in ECOWAS countries.Design/methodology/approachIn line with the augmented Solow model, the relationship between foreign capital inflows, human capital development and gross domestic product in the ECOWAS member countries is investigated using the pool mean group method.FindingsThe authors find overwhelming evidence that foreign capital inflows and human development have a significant effect on economic growth in ECOWAS member countries. However, foreign direct investment (FDI), official development assistant, HCD and gross domestic investment are positively related to economic growth in sub-regions economies. Conversely, migrate official remittance, portfolio investments and external debts are negatively related to economic growth.Research limitations/implicationsThe authors recommend that sound economic policies should be targeted in encouraging foreign capital accumulation and HCD, especially on FDI, official development assistance that exerts a positive impact on the economic growth of the sub-region. Therefore, training is required to prepare the labor force to work with new technologies and promote efficient enterprise for ECOWAS economies to compete with developed countries and emerging economies.Social implicationsThis study argued that the development of human capital is a pathway that may lead countries away from sustained growth. In the context of any economy which lack well-developed capital and education markets, many otherwise qualified citizens may be denied the basic skills they need in order to contribute fully to the nation’s economic development. HCD would encourage foreign investments, resulting in reduction in poverty in ECOWAS countries.Originality/valueSeveral studies have been done on foreign capital inflow and economic growth nexus such as Orjiet al.(2014), Ajide and Raheem (2016), Musibauet al.(2017), etc.; however, none of the research studies has actually examined the effect of the relationship between foreign capital inflows and HCD on economic growth in ECOWAS countries. This study is designed to fill the vacuum.