Title: FDI led financial development hypothesis in emerging markets: the role of human capital development

Authors: Kunofiwa Tsaurai

Addresses: Department of Banking, Risk Management and Finance, University of South Africa, P.O. Box 392, UNISA 0003, Pretoria, South Africa

Abstract: The study investigated if human capital development is a channel through which foreign direct investment (FDI) affects financial development in emerging markets using dynamic generalised methods of moments (GMM) with data ranging from 1995 to 2014. Although literature exists, which conclusively found that FDI and human capital development separately influence financial development, none of the existing studies to the best of the author's best knowledge has so far investigated if human capital development is a channel through which financial development is influenced by FDI. The interaction between FDI and human capital development enhanced stock market development whereas the complementarity between human capital development and FDI was not enough to overturn the negative impact of FDI on bond sector development triggered by crowding out effects. The study therefore urges emerging markets to implement a policy that increases human capital development in order to enhance FDI's positive influence on stock market development.

Keywords: foreign direct investment; FDI; human capital; financial development; emerging markets.

DOI: 10.1504/IJEED.2018.092193

International Journal of Education Economics and Development, 2018 Vol.9 No.2, pp.109 - 123

Available online: 24 May 2018 *

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