FOREIGN DIRECT INVESTMENT AND COUNTRY‐SPECIFIC HUMAN CAPITAL

This paper exploits an international bilateral data set over the period 1963–1998 to investigate the relationship between foreign direct investment (FDI) and foreign‐educated labor in an FDI host country. Workers educated abroad acquire country‐specific human capital that is more productive in the host country of study. A foreign subsidiary sharing a parent firm's technology will invest more if it has more foreign‐educated labor, since it can utilize this labor more productively because of the country‐specific human capital. Consistent with our predictions, our empirical findings show that foreign‐educated labor accounted for a sizable portion of growth in FDI flows. (JEL F21, F10)