FDI and human capital in the USA: is FDI in different industries created equal?

Abstract

We use data in the USA to study the effect of inward Foreign Direct Investment (FDI) in different sectors/industries on the state-level human capital, measured by the average years of tertiary schooling. We find that inward manufacturing FDI tends to lower the tertiary schooling in a host state while information FDI increases the tertiary schooling in a host state.

Acknowledgements

The author is grateful to Brian Brush for his helpful comments and suggestions and acknowledges the financial support from the College of Business Administration Miles Research Grant at Marquette University.

Notes

¹A recent Toyota plant was sought by 25 states and finally was located in Mississippi in 2007 (Arizona Daily Star, 28 February 2008).

²There are seven different answers involving tertiary education to the CPS questions. We assign number of years needed (beyond high school) to obtain the corresponding level of tertiary education as follows: some college but no degree (1 year of tertiary education), associate degree in college, occupational/vocational program (2 years), associate degree in college, academic programme (2 years), bachelor's degree (4 years), master's degree (6 years), professional school degree (8 years) and doctorate degree (9 years). Suppose we have a state, which has 1% of its adult population receiving some college education, but no degree, 1% of its adult population receiving an associate degree and so on. Then the average years of tertiary schooling in this state is calculated as 1% * 1 + 1% * 2 + … = …. The number of years assigned to each category is based on conventional wisdom, and our final results are not sensitive to it. For instance, changing the time to obtain a doctorate degree (beyond high school) from 9 to 10 years or to 8 years does not affect our final estimates qualitatively.

³The elasticity is calculated as β_income*(1/schooling) and evaluated at the sample mean.

⁴The mean of the average years of secondary schooling is 1.59 years.