Complementarity Relationship between Foreign Direct Investment, Human Capital Threshold and Economic Growth: Empirical Evidence for the MENA Region

The complementarity between foreign direct investment (FDI) and human capital constitutes a key interconnected factor that plays a crucial role in encouraging the growth and economic development of nations. This paper processes data from the Middle East and North Africa (MENA) region from 2000 to 2023 to determine the moderating effect of human capital between FDI and economic growth and to establish the human capital threshold which guarantees the advantages of the IDE. It uses the generalized moments method (GMM) and the regression threshold (TR) as part of the dynamic panel data model as estimation strategies. The results note the absence of significant contribution of FDI and human capital to economic growth. After the interaction between FDI and human capital, they justify the significant positive effect of foreign direct investment. However, the coefficient of the interaction variable is significantly negative. This implies that the MENA workforce is unable to transfer the benefits of foreign direct investment. For this reason, this paper resorted to applying the regression threshold to determine the minimum threshold of human capital that guarantees the positive effect of FDI on economic growth. It established a threshold of human capital of 74.58%. It therefore becomes necessary for the MENA region to develop human capital to strengthen its absorption and capacity to diffusion of new technologies in order to reap the full benefits of foreign direct investment.