The Effect of Human Capital Flow on Fdi Technological Advances

Topics: Economics, Capital accumulation, Investment Pages: 8 (2274 words) Published: February 26, 2013
The Effect of Human Capital Flow on FDI Technological Advances : An Empirical Study Based on Absorptive Capacity
Abstract Human capital flow is an important factor that affecting the “absorptive capacity” of host countries, it is of great significance to strengthen the host countries’ absorptive capacity of FDI technology spillovers. Taking China for example, this paper made an empirical analysis about the effect of human capital flows on FDI technological advances, we selected the number of foreign students and the number of students that return home, as well as the employment rate of foreign Enterprise as proxy indicators of human capital flows, using data envelopment analysis (DEA) to measure the technological progress of China. The empirical results showed that: FDI and human capital flows, combined with technological advances were positively correlated, but the positive effect was not significant. China should improve the quality and enhance the overall level of human capital flows, in order to create a superior environment of qualified personnel for FDI technology spillover. Key words Human Capital Flows, FDI Spillover, Absorptive Capacity I.Introduction

The new theory of economic growth suggests that, technological progress is the driving force of economic growth. Subject to their own capacity of innovation constraints, FDI technology diffusion is an important source of technological progress in developing countries. The degree of FDI technology spillovers is closely related to the absorptive capacity of host countries. By sorting out the literature at home and abroad, we find that the situation of host country’s human capital flows is a very important aspect of FDI technological absorptive capacity, which can restrain or enlarge the technology spillover effect of FDI by staff mobility between TNCs and local enterprises, multinational companies and personnel training input (cost savings), competition among enterprises and other channels. Rational and orderly flow of human capital can provide a good environment for FDI in the host country to improve the host country’s technological absorptive capacity and promote FDI technology spillovers. Technology spillover and knowledge dissemination with talent mobility as the carrier is becoming an important channel for developing countries’ enterprises to improve their ability to innovate. However, previous studies are mostly qualitative research, few articles about the production and implementation mechanism of human capital spillover effects are from a quantitative point. This study will incorporate the domestic human capital flows of host countries into one of the main factors of FDI technology absorptive capacity, to further improve the research of technological absorptive capacity of the host country in enhancing the FDI spillover effects, and it is of great practical significance for better interpretation of differences in FDI spillover effects. II.Model settings and measurement of variables

A.Model Settings
Based on the basic econometric model of international R&D spillover given by Coe and Helpman in 1995, and in order to test effects of human capital flows’ technological progress, we use the commonly used cross-item testing methods to test its effects. We take on the values of all variables, in order to eliminate the Heteroscedasticity, the model is as follows: (1)

Wherestates the capital stock by means of FDI, states the domestic R&D stock of the host country, TFP is total factor productivity, states technological level, states human capital flow, which includes international human capital flow (), domestic human capital flow () and an integrated variable (). The final models are as follows: (2)

(3) (4)
B.Measurement of Variables
Estimates of TFP: This paper used DEA-based Malmquist index method proposed by FAR et al. (1994) to estimate the total...
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