Foreign direct investment: An argument for least developed countries to invest in female education



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Least Developed Countries (LDCs) are defined by unique characterizations in their economies which set them apart from developing and developed countries and is one of many reasons LDCs are so interesting to study. LDCs have made a point to attract Foreign Direct Investment (FDI) into their economies through policies that are inviting to foreign entities. This thesis argues that LDCs are rational in doing so. However, as a vast amount of literature suggests, LDCs can only benefit from FDI when they have the human capital, measured as education, to absorb the new technologies being introduced. This thesis is a cross-country study of the relationship between FDI and economic determinants of growth: Urban population, primary and secondary education and labor force participation. Specifically choosing to look at LDCs and female enrollments rate in education. I use the most recent data from the United Nations Conference on Trade and Development and the World Bank. I first correlate FDI and economic determinants of growth to find a positive relationship among all correlation pairs. Assuming all possible delay times, the average and weighted correlation coefficients peak among all pairs suggest that when Urban population increases (decreases) there is an increase (decrease) in female enrollment in primary education 5 years later, ten years from an increase in primary education, female participation in the labor force increases (decreases) and finally, FDI increases (decreases). I then consider four measurements of education suggested by the World Bank: participation, efficiency, inputs and outputs. I break LDCs into high and low groups based on their ranking in each respective measurement to calculate the dependence of GDP per capita on FDI. The results suggest that countries with lower female participation, lower female transition rates from primary to Gross enrollment ratio, secondary, female and lower female completion of secondary education have a smaller GDP per capita and receive a smaller percentage of FDI relative to their GDP. For almost all measurements of education these countries that are in the low group depend more on FDI.