The impact of FDI on human capital development in SACU countries

Abstract

Purpose

This paper aims to examine how FDI trickle down to human capital development in SACU member states.

Design/methodology/approach

A longitudinal research design and feasible general least squares was used over the periods 1990 and 2018.

Findings

There is supporting evidence that FDI enhances human capital when primary school enrolment rate is used. However, the reverse holds for the secondary level of education. It can be argued that although FDI exhibits a positive effect on primary education, optimal spillovers to human capital development has not been realized. An indication that certain level of human capital may be required to ensure the optimal benefit of FDI or the types of current FDI does not enhance FDI-led-human capital hypothesis.

Practical implications

The negative effect of FDI toward secondary level of education could be an indication of a weak absorptive capacity. SACU's current dominance of FDI activities toward extractive industries could limit potential benefit of FDI due to capacity constraints. Practical policy implications indicate that SACU member states need to ensure that it attracts FDI toward smart investment that enhances human capital development.

Social implications

There is need to a gear FDI firms toward corporate social responsibilities that will stimulate secondary education.

Originality/value

The novelty of this paper is twofold. First, it focuses on SACU countries where majority of the people are trapped with poverty and inequality issues. Second, SACU member states have used greenfield FDI as a policy instrument to enhance human capital. However, human capital link remains weak. This creates a need to search for smart FDIs that are committed toward community transformation through human capital development.

Citation

Henok, W. and Kaulihowa, T. (2022), "The impact of FDI on human capital development in SACU countries", International Journal of Social Economics, Vol. 49 No. 2, pp. 268-279. https://doi.org/10.1108/IJSE-02-2021-0123