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Optimal foreign direct investment in the presence of human capital formation

Asali, Muhammad and Cristobal-Campoamor, Adolfo (2011): Optimal foreign direct investment in the presence of human capital formation.

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Abstract

This paper gives both theoretical arguments and econometric support to the notion of optimal FDI levels, from the viewpoint of human-capital formation in the host country. The optimality of a limited FDI level depends on the local incentives to get trained. Those incentives are formed in the face of uncertainty and asymmetric information between the multinational and its potential workers. Our estimates confirm the significance of a negative, non-linear impact of FDI per capita on tertiary schooling, both in developed and developing countries.

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