New Directions in Theory and Policy
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 15: Knowledge, Human Capital and Foreign Direct Investment in Developing Countries: Recent Trends from an Endogenous Growth Theory Perspective
Diana V. Barrowclough* I. INTRODUCTION – THE LENS OF ENDOGENOUS GROWTH THEORY This paper describes recent new trends in foreign direct investment (FDI) in developing countries from an endogenous growth theory perspective, with the aim of highlighting the importance of an enabling policy framework to help make the most of the opportunities that the new trends contain. The focus is on FDI in research and development (R&D) and in tourism: two new and dynamic economic activities that rely on high valueadded forms of human capital, characterised by knowledge, experience and technical expertise. These forms of human capital are important for their contribution to the process of innovation and technological change, which in turn feeds into productivity, competitiveness and, ultimately, human and social development. The experiences of the countries described in each activity reﬂect their diﬀering sources of comparative advantage, stemming for the most part from relative endowments of expertise, knowledge and experience. In the R&D sector, developing countries act as sellers of their endowments of human capital and expertise. In tourism, the same countries are buyers. The insights of endogenous growth theory (EGT) can oﬀer a useful conceptual framework with which to analyse the trend and its determinants, and to make some observations about the role of policy to help create a * Dr Barrowclough is an economist at the United Nations Conference for Trade and Development in Geneva; and a member of the Cambridge Centre for Economic and Public Policy. The comments expressed here are not...
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