The Relationships Between National Intellectual Capital and Foreign Direct Investment

Abstract

Foreign direct investment (FDI) has a significant influence on economic development, productivity and competitiveness in host countries. Policymakers are eager to attract FDI. With the importance of the knowledge economy, intellectual capital becomes a critical determinant of FDI location choice. Thus, the study tries to understand the relationships between national intellectual capital (NIC) and FDI in host countries and to compare the differences between developed countries and developing countries. The study hypothesizes that each component of NIC (human capital, market capital, process capital, renewal capital and financial capital) is positively related to FDI. Moreover, in developed countries, human capital and renewal capital has more influence on FDI while in developing countries, market capital and process capital have more influence on FDI. The study uses data from United Nations Conference on Trade and Development (UNCTAD) and Taiwan Intellectual Capital Research Center (TICRC). Because of data availability, the sample needs to be both included in the database of UNCTAD and TICRC during 2001 to 2018. The final sample consists of 59 countries which extends over the five continents. The study proceeds by using panel data, pooling 56 countries for the period from 2001 to 2019 after the Hausman test to determine whether there are fixed effects or random effects. A generalized least square (GLS) model is used to test the hypotheses with country-year data for FDI analysis. The results confirm that each dimension of NIC is positively related to inward FDI, indicating to the importance of NIC to attract inward FDI. In addition, national market capital, national process capital and national renewal capital have more influence on inward FDI in developing countries than in developed countries. Conclusions and practical suggestions are also provided.