paper 2 ruiz

paper 2 ruiz - F D I, Human Capiitall and Educatiion iin...

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F F D D I I , , H H u u m m a a n n C C a a p p i i t t a a l l a a n n d d E E d d u u c c a a t t i i o o n n i i n n D D e e v v e e l l o o p p i i n n g g C C o o u u n n t t r r i i e e s s T T e e c c h h n n i i c c a a l l M M e e e e t t i i n n g g 13-14 December 2001, Paris GOVERNMENT POLICIES TOWARDS INWARD FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES: Implications for human capital formation and income inequality By Dirk Willem te Velde φ organised by the O ECD Development Centre φ Research Fellow, International Economics Development Group, Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD, UK, dw.tevelde@odi.org.uk . The aouthor is grateful to Richard Kohl for helpful suggestions.
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1 Abstract : This paper discusses host-country government policy options available to policy makers to attract foreign direct investment (FDI) and to influence the behaviour of Transnational Corporations (TNCs), with focusing on their effects on human capital formation and income inequality. This paper first reviews FDI policy, with the aim of discussing FDI policies affecting human capital formation. It introduces a simple demand and supply framework of the market for skills, which allows us to analyse the effects of TNCs on human capital and income inequality. FDI policy options are analysed within this framework in order to see how FDI policy may have affected human capital formation and income inequality. The paper concludes with suggestions for further research.
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2 1. Introduction Making globalisation work for development and the poor is a major challenge facing many developing countries. In particular there is a debate about whether and how governments can influence and regulate foreign direct investment (FDI). This paper discusses policy options available to policy makers to attract foreign direct investment and to influence Transnational Corporations (TNCs) once they are operating inside a country. There are three reasons for the focus on the interaction between FDI and human capital formation: human capital formation is often seen as one of the long- term benefits of FDI; human capital is increasingly important in attracting FDI; and human capital is an important determinant of spillovers of FDI to the local industry 1 . The main question in this paper is what can host-country policy makers do to improve the impact of TNCs on human capital formation? It is important to understand how FDI policy affects human capital formation as this is one route by which FDI can have consequences for long-term economic development. FDI policy includes a range of policies that directly or indirectly affect potential or existing foreign investors or suppliers to TNCs. An understanding of the effects of FDI policy on human capital formation also enables us to focus on the effects of FDI on the distribution of wages since the distribution of human capital is a major determinant of the distribution of wages, for instance between skilled and unskilled workers.
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paper 2 ruiz - F D I, Human Capiitall and Educatiion iin...

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