Exploring the Relation between Foreign Direct Investment and Human Capital: A South Asian Perspective

The paper examines the impact of Human Capital in attracting Foreign Direct Investments (FDI) to South-Asian economies, with particular emphasis on India, Bangladesh, Pakistan, and Sri Lanka. There have been immense studies concerning human capital and FDI on the growth of developing and developed economies. This study uses data on FDI, GDP, Secondary School Enrolment taken as a proxy variable for Human Capital, Consumer Price Index, Export and Import, Exchange Rate, and Domestic Credit to private sectors taken from World Development Indicators provided by World Bank. Empirical analysis has been conducted with time-series data on annual percentage change for 1995-2019 using Panel Regression Model. The results portray that these developing South-Asian economies with low levels of human capital attract more FDI. Thus, human capital has a positive impact on FDI inflows. Aside from human capital, other variables that affect FDI inflows include exchange rate, trade, domestic credit, and inflation. Exchange rate appreciation attracts foreign investment, which steadily stabilizes currency volatility and allows for necessary policies. In addition, financially well-equipped economies, i.e., have a high level of domestic credit, attract more foreign investment. JEL CLASSIFICATION: B23, C12, C23, C87, Y40, F35, F43, J2