Abstract
This study uses country-level panel data to investigate the impact of foreign direct investment on the gross domestic product per capita in the Common Market for Eastern and Southern Africa region over the 2000-2015 period. The estimates are generated using the one-step generalized method of moments-difference estimator. The study found that foreign direct investment exerted a negative while human capital development has a positive impact on the gross domestic product per capita in the region. Additionally, the development of human capital has a positive effect on the ability of the region to absorb and benefit from the spillovers of foreign direct investment. The findings suggest that the countries of the region should target to attract foreign direct investment which complements economic growth and improve on the development of human capital in order to continue realizing positive economic growth from the said investment.
Highlights
Foreign direct investment (FDI) is defined as an investment made by an investor to acquire a lasting interest of management of 10% or more of voting stock and equity shares in a business enterprise with operations in an economy different from that of the investor (Mwilima, 2003; World Bank, 1996)
Foreign direct investment is in forms of brick and mortar investment and Merger and Acquisition (M&A), which involves the acquisition of existing interest as opposed to a new investment
The data on the human capital development was obtained from the United Nations Development Programme (UNDP), Human Development Index (HDI) report
Summary
FDI is defined as an investment made by an investor to acquire a lasting interest of management of 10% or more of voting stock and equity shares in a business enterprise with operations in an economy different from that of the investor (Mwilima, 2003; World Bank, 1996). FDI could close the gap between desired levels of investment and savings mobilized from domestic sources, increase tax revenues, improve skills of management, technology and workforce skills in recipient economies (Hayami, 2001; Todaro and Smith, 2003). FDI may include the acquisition of modern technology, creation of employment opportunities, development of human capital, improved integration of foreign trade, complement domestic investment, generation of revenue, introduction of modern and efficient processes, impeccable skills of management and knowhow in the local market, employee training, improved foreign production networks and improved access to large markets (Ajayi, 2005; Findlay, 1978; Jenkins and Thomas, 2002; Mwilima, 2003; World Bank, 2000)
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