It is noteworthy that other studies-with somewhat different focus-have also
found an interaction effect between foreign financing and the level of human
capital in the domestic economy. Cohen (1993) finds a positive interaction
between human capital and the overall access to foreign financing of developing
countries. Our model may, in fact, provide a rationale for his finding, at least as far
as the FDI component of foreign financing is concerned. Romer (1993) finds a
positive effect on economic growth from the interaction between secondary school
enrolment and imports of machinery. He also finds a minimum threshold level for
the interaction term to have a positive impact on growth. While imports of
machinery and equipment may be one channel for the international transmission of technological advances, FDI has probably an even larger role, as it also allows the
transmission of knowledge on business practices, management techniques, etc.