New Book: Investimento Directo Estrangeiro, Capital Humano e Inovação

New Book: Investimento Directo Estrangeiro, Capital Humano e Inovação

A new book by Aurora A.C. Teixeira (Scientific coordinator of UITT) and Ana Teresa T. Lehmann will be published in the end of September by Vida Económica. This is a prize winning book (1st Prize Foreign Direct Investment API-Universidade Coimbra) addressing three areas of paramount relevance to the economic growth and prosperity of any developed nation - Foreign Direct Investment (FDI), Human Capital, and R&D.

13th September 2007

Summary of the book

Foreign Direct Investment (FDI), Human Capital, and R&D are, beyond any doubt, three areas of paramount relevance to the economic growth and prosperity of any developed nation.

Over the last few decades, these distinct topics have been very widely (and richly) researched. However, despite the vast amount of literature they have generated independently, and given the fact that it is generally acknowledged that they are related in multiple and complex ways, it is has not to date been possible to clearly determine, based on hard data for representative, wide-ranging samples, whether foreign multinationals are more human capital intensive than their domestic counterparts, and to what extent human capital is a significant determinant of a country’s FDI attractiveness. Most certainly, this has not been done for the Portuguese case.

This study aims precisely to focus on these issues. The potential two-way causality between FDI and human capital, deemed to be mediated by R&D, is here discussed, using Portugal as an empirical setting. It provides a contribution at three distinct, yet complementary, levels:

-  conceptually, it discusses FDI, human capital, and R&D as key engines of economic growth, delving specifically into the potential two-way causality between FDI and human capital; it presents and analyzes the state-of-the-art of the literature on this relationship, which acknowledges the scarcity of (especially empirical) work on the complex ways in which FDI and human capital interact;

-  empirically, it provides two applications, based on the Portuguese case, aimed at unveiling whether FDI, Human Capital and R&D are related in this setting:

1) it tests whether human capital is a significant determinant of Portugal’s FDI attractiveness (first research question), based on hypotheses formulated beforehand, using a meticulous econometric methodology and a wide-ranging sample of companies;

2) the study also tests, based on similarly meticulous methods, whether foreign-owned multinationals (MNCs) display higher human capital intensity than their domestic counterparts (second research question).

- The study’s third main contribution is at the policy level; the topics analyzed and the two empirical research questions put forward warrant an important policy debate, and thus, a policy focus is at the core of this project. Hence, policy conclusions will be derived, and practical proposals advanced as regards public-policy vis-à-vis FDI, and complementary policies aimed at making Portugal a more successful and dynamic FDI location.

The results obtained here leave no room for doubt: FDI and human capital are directly related in the Portuguese case. First, human capital matters greatly for Portugal’s FDI attractiveness – the proportion of workers with high levels of education is significantly and positively related to FDI; thus, if FDI is to be promoted, more emphasis should be put on education (and on the training of engineers, as we will prove). Secondly, foreign-owned MNCs tend to display greater human capital intensity than domestic companies, lending support to proactive FDI-promotion policies.