The Impact of Human Capital on FDI with New Evidence from Bootstrap Panel Granger Causality Analysis

This study evaluates the causality relationship between human capital and foreign direct investment inflow in twenty-six OIC (the Organization of Islamic Cooperation) countries over the period 1970–2014. We employed the panel Granger non-causality testing approach of Kònya (2006) that is based on seemingly unrelated regression (SUR) systems, and Wald tests with country specific bootstrap critical values. The approach allows one to test for Granger non-causality on each member of panel, separately by taking into account the cross-sectional dependency and slope heterogeneity among countries investigated simultaneously. We found that the hypothesis of Granger non-causality from human capital to foreign direct investment (FDI) was rejected for more than half of the sample countries, mainly among African states. In addition, the effect magnitude of human capital on FDI varies among the states significantly.