The role of foreign direct investment in human capital and economic growth relationship: The case of OECD countries

Countries need especially human capital, one of the factors of production, in order to increase their production amount in order to ensure their economic growth. Considering the productivity effect of human capital on other production factors and the increase in output, countries aim to achieve their economic growth by increasing their human capital investments. However, in countries that aim for economic growth, there must be sufficient capital to realize human capital investments. While developed countries meet this condition, developing countries are looking for alternative solutions in order to realize their human capital investments. Foreign direct investment is important for developing countries in terms of increasing their human capital and thus making a positive contribution to their economic growth. In this study, the role of foreign direct investment in the relationship between economic growth and human capital on the basis of OECD 38 nember countries was examined by using the Soft Transition Panel Regression Model by considering the 1990-2019 period. According to the findings, it has been concluded that the threshold level of the share of foreign direct investment in GDP is 12,939%. Therefore, below the said threshold level, human capital affects economic growth negatively, while above the threshold level, human capital affects economic growth positively. In this context, developing countries that host investments need to develop policies that will encourage foreign investors by providing an environment of trust in order for the increase in human capital to have a positive effect on economic growth.