fairly closely the framework developed in Section 2, the significance of the
interaction term may be the result of the omission of other relevant factors, in
particular, the FDI variable by itself. Thus, it is necessary to include FDI and
secondary school attainment (our measure of human capital) individually alongside
their product. In that way, we can test jointly whether these variables affect growth
by themselves or through the interaction term. Such specification is adopted in
regression 1.3, which shows that the coefficient on FDI is negative, although
insignificant, while the interaction term is positive. The values of these regression
coefficients indicate that all countries with secondary school attainment above 0.52
14 will benefit positively from FDI. In our sample, 46 out of the 69 countries satisfy
this threshold in 1980. Hence, for example, in an economy with a human capital
stock of 0.91 years-which is the average value of the sample countries in 1980-an
increase of 0.005 in the FDI-to-GDP ratio (equivalent to one standard deviation)
raises the growth rate of the host economy by 0.3 percentage points per year.
fairly closely the framework developed in Section 2, the significance of the
interaction term may be the result of the omission of other relevant factors, in
particular, the FDI variable by itself. Thus, it is necessary to include FDI and
secondary school attainment (our measure of human capital) individually alongside
their product. In that way, we can test jointly whether these variables affect growth
by themselves or through the interaction term. Such specification is adopted in
regression 1.3, which shows that the coefficient on FDI is negative, although
insignificant, while the interaction term is positive. The values of these regression
coefficients indicate that all countries with secondary school attainment above 0.52
14 will benefit positively from FDI. In our sample, 46 out of the 69 countries satisfy
this threshold in 1980. Hence, for example, in an economy with a human capital
stock of 0.91 years-which is the average value of the sample countries in 1980-an
increase of 0.005 in the FDI-to-GDP ratio (equivalent to one standard deviation)
raises the growth rate of the host economy by 0.3 percentage points per year.
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