Foreign Direct Investment in Africa – Does Human Capital Development Matter?

Abstract

The aim of this study was to examine the effect of human capital development on foreign direct
investment (FDI), using a panel of nine African countries, during the period 2009 -2016. Building on from the
eclectic paradigm, the results from the random effects model show that human capital development positively
influences inward FDI, and that the relationship is statistically significant. Other FDI determinants that emerged
were real exchange rate that was positive and very significant at 1%, while the lag of FDI and infrastructural
development were positive and significant at 5%. In light of these findings, we therefore recommend that host
countries promote the attainment of secondary school education and post-school skills in order to enhance the
attraction of host countries to FDI inflows. This was also reiterated at the recent World Economic Forum (WEF)
in Davos. The fourth industrial revolution will see the automation of many previously manually done operations
requiring an upskilling of human capital. Further to this, they should ensure that their investment and
macroeconomic policies are suitable to ensure capital accumulation, which will spur productivity and increase
employment. As such, we can confirm that indeed human capital development matters for African economies.