Forum Scientiae Oeconomia • Volume 11 (2023) • No.

The role of human capital

in the relationship between foreign
direct investment and exports
in the Association of Southeast
Asian Nations
HONG THU NGUYEN

Abstract DOI: 10.23762/FSO_VOL11_NO1_8

Foreign direct investment (FDI) plays a vital role in capital
formation and is also an indispensable factor in economic
growth in developing countries. While human capital is an
important resource for the production process, this capital
includes skills, knowledge, and experience in the working
and learning process of employees. The research objective
is to investigate the role of human capital in the relation-
ship between FDI and exports (EXP) in the Association of
Southeast Asian Nations (ASEAN). The present study used
the Pooled Ordinary Least Squares model, the fixed effects
model and the random effects model to analyse balanced
panel data from nine ASEAN countries in the period from
1990 to 2020. The research results show that FDI has a posi-
tive and significant impact on EXP in ASEAN countries. At
the same time, human capital plays a moderating role in the
relationship between FDI and exports in ASEAN countries.
From the findings of this study, several recommendations
to boost the absorption capacity of FDI in order to increase
exports in ASEAN countries are proposed.
Hong Thu Nguyen
Key words e-mail: [email protected]
exports, foreign direct investment, human capital, moder-
ator, trade. Thu Dau Mot University, Vietnam

Introduction
International commerce takes place to ful- revenues necessary to fund the acquisition
fil the needs of a nation, in which exports, in of products and services; achieving econ-
particular, are a way of generating the foreign omies of scale, scope, and specialisation in

Paper received: 27 April 2022 • Paper revised: 13 October 2022 • Paper accepted: 5 November 2022
150 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

production; and gaining expertise on a global than improving domestic manufacturing

scale (Prasanna, 2010). In a globalised world, capacities. As a result, FDI plays a vital role
each country has its own particular advantag- in the host countries’ capital accumulation
es in exported products; the country is then and technological resources, where abundant
recognised as being competitive in the trade and economical labour resources are avail-
of specific product(s). Exports, therefore, play able. Moving production to another nation is
an essential role in bringing in foreign curren- a strategic decision for parent firms, for exam-
cy to serve the fiscal and monetary needs of ple, to escape high environmental or labour
a country. However, the comparative advan- taxes in their own countries while expand-
tages of most developing countries still de- ing manufacturing in host countries. From
pend on primary goods and labour-intensive the perspective of the host countries, FDI
manufacturing industries. Countries chrono- has gained greater recognition as a critical
logically develop and accumulate capital and tool for resource movement across national
skills, wages increase, and their competitive boundaries to boost economic performance,
base also adapts to the new conditions. competitiveness, and exports. Therefore, FDI
Consequently, economies had to upgrade flows seem to benefit both investors and host
their labour-intensive exports into ones with countries, which helps to rebalance and op-
higher added value, and they had to move on timise capital flows because of imperfectly
to new, more advanced operations. Such an competitive economies. From these analyses,
upgrade requires higher skills and techno- developing countries can receive FDI inflows
logical inputs. Countries can achieve these when the resources, i.e. labour, manufactur-
goals in several ways. One approach is to im- ing capacities, and materials, are available
prove the capacity of local investments, while to absorb FDI. In turn, FDI bolsters exports
another is to attract FDI for export-oriented by enhancing the specific export capabilities.
activities. For developing countries, where In this context, the Association of Southeast
technology and capital are lacking, relying Asian Nations (ASEAN) has indeed become
on external resources to promote production a region which reliably absorbs FDI from
processes and capital accumulation is faster multinational enterprises around the world.

Figure 1. Evolution of FDI and Exports in ASEAN, 1990-2020

100 10

80 8

60 6

40 4

20 2

0 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

FDI Export

Source: World Development Indicators (2022a, 2022b)

Figure 1 shows that FDI inflows to the economic crisis and the global financial
ASEAN region have a typical N-shaped crisis in 1997-2002 and 2007- 2009, re-
pattern, beginning to increase in the 1990s, spectively, and finally growing rapidly
then decreasing along with the Asian in the period after 2009. As a result, FDI
The role of human capital in the relationship between… 151

in the region reached a record high of an export-oriented policy, which enhanc-

US$182 billion in 2019, making ASEAN es the potential impact of FDI on exports.
the biggest beneficiary of FDI in the de- The purpose of this article is to determine
veloping world. Due to the unprecedented if FDI has been a critical factor in the
consequences of the COVID-19 pandem- growth of exports from ASEAN countries.
ic, FDI in the region decreased to US$137 To do so, the researchers examine and seek
billion in 2020, a considerable reduction. to account for the influence of FDI on host
However, compared to the worldwide FDI economy exports. Previous studies have re-
decline, ASEAN did significantly better, vealed that FDI has historically played a sig-
with its share of global FDI increasing nificant role in exporting natural resources
from 11.9% to 13.7% in 2020 (ASEAN & (Asiedu & Lien, 2011; Hayat, 2018; Kinda,
United Nations, 2021). On the other hand, 2013), and its involvement in the export
the average export values for the period of certain processed agricultural goods is
1990-2020 also have the same change trend expanding (Amighini & Sanfilippo, 2014;
as FDI (as shown in Figure 1). In particu- Vural & Zortuk, 2011). It is also becoming
lar, the export trend line also decreased in more prevalent in the service sector, par-
the two phases of the Asian financial cri- ticularly tourism (UNCTAD, 1994). As
sis and the global financial crisis, before a result, FDI inflows directly influence ex-
increasing in the remaining periods. This ports; thus, obtaining further FDI would
suggests that there is a link between FDI be justifiable.
and exports. Specifically, FDI has an im- In the next section, the literature review
pact on the exports of countries, in which is presented; while Section 3 describes the
the spillovers of FDI impacts emerge be- model and data measurement. The experi-
cause foreign capital inflows may bring mental results and discussion are presented
about a variety of competitive advantages, in Section 4. Finally, the policy implications
such as greater knowledge and technolo- and conclusions based on the empirical re-
gy, resulting in increased productivity, or sults are discussed in Section 5.
improve the export markets in compari-
son to domestic enterprises (Frankel and 1. Literature review
Romer, 1999; Helpman and Hoffmaister,
1997). 1.1. FDI and exports
This increased trend reflects increasing FDI inflows bring valuable investment
investor interest and confidence in invest- to host countries, including increased pro-
ing and conducting business in the ASEAN duction capacities and export values. In
region. Indeed, ASEAN has become one detail, FDI inflows can enhance produc-
of the focal points for attracting FDI be- tivity through spillovers of technology and
cause it simultaneously satisfies various advances such as the importation of modern
conditions to engage investors. Specifically, equipment, as well as learning by watching
ASEAN is a large market, with a population (Barro and Sala-i-Martin, 1997; De Mello
of approximately 600 million people, and Jr, 1997) and promoting domestic produc-
the economies within continue to grow, tion through participation in the supply
meaning that purchasing power is increas- chain of joint-venture multinational enter-
ing. In addition, the ASEAN region has prises (De Mello Jr, 1997). In addition, FDI
abundant labour resources and reasonable enterprises directly increase host countries’
labour costs that can meet the outsourc- export capability (Borensztein et al., 1998).
ing and assembly needs of large corpora- Several empirical studies have support-
tions. Most importantly, the region has ed this relationship; however, the inverted
152 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

pattern has been quite different. Aitken et found that FDI has a positive effect on ex-
al. (1997) demonstrated the external effect port quality in developing countries, based
of FDI on exports in Bangladesh, where on an examination of 105 countries from
the entry of a single Korean multinational 1984 to 2000. Specifically, sectors hierar-
to the garment exports industry led to the chised in national efforts to attract FDI have
establishment of several domestic export 11% greater unit values of exported products
firms, resulting in the creation of the coun- than other sectors. As a result, the policies,
try’s largest export industry. The authors which aim to attract FDI to upgrade the
argued that entering overseas markets low- export structures of developing countries,
ers entry costs for other potential exporters, were deemed necessary. More importantly,
either through learning effects or business there is no evidence that FDI enhances the
relationships. The spillover effects of one similarities between the export structures of
firm’s export activities help other enterpris- developing and developed nations, respec-
es minimise the cost of exporting. However, tively. In other words, attracting FDI can be
Aitken and Harrison (1999) were concerned a realistic approach for low- and middle-in-
about the negative effect of FDI, arguing come countries seeking to improve the qual-
that multinational corporations generate ity of export values. Anwar and Sun (2018)
fierce rivalry with indigenous enterprises also found that increased FDI in China’s
due to their low marginal production costs. manufacturing sector resulted in a consider-
The advantage allows FDI corporates to cap- able improvement in the quality of Chinese
ture a substantial portion of local demand, exports.
forcing domestic enterprises to reduce out- On the other hand, Rehman and Ding
put, thereby increasing their average costs (2020) observed that FDI outflows (OFDI)
and diminishing their competitiveness. As significantly boost export sophistication in
a result, FDI inflows may have no effect on China. As a result, the nexus between them
the economy, despite the increase in exports could enhance the quality of exports and
(Nguyen et al., 2022). enable them to catch up to developed econo-
Kutan and Vukšić (2007) explained the mies. Zhang and Chen (2020) added empir-
success of host countries through the prism ical evidence that OFDI has a positive and
of the activities of multinational compa- substantial effect on export sophistication
nies, which possess superior expertise and in established coastal districts, but no effect
technology, have a better understanding of is observed in less developed inland loca-
export markets, or have a stronger connec- tions. Regarding the ASEAN region, Anwar
tion to the parent company’s supply chain and Nguyen (2011) emphasised transac-
than do local enterprises. However, the au- tional connections which formed between
thors also note that the evidence supports foreign firms and domestic ones, followed
their hypotheses only for some countries by FDI inflows in the case of Vietnam. It is
which have recently joined the European revealed that the presence of foreign firms
Union. Prasanna (2010) stated that FDI in- in Vietnam, via horizontal and forward con-
flows have a considerable beneficial effect nections, has a significant impact on local
on export performance when examining the firms’ decisions to export and their subse-
FDI-exports nexus in India. Additionally, quent share of total exports. This means
the study argued that domestic initiatives that the export spillovers experienced by
to boost manufacturing exports should be Vietnamese manufacturing firms are pri-
reassessed in light of the FDI regulatory marily the result of horizontal and forward
scheme to obtain superlative and long-term connections facilitated by FDI. Based on
advantages. Harding and Javorcik (2012) these analyses, FDI may boost a country’s
The role of human capital in the relationship between… 153

export quality by enhancing domestic pro- the role of HCA in attracting FDI. One such
duction capability in the region. Therefore, example was research by Ramasamy and
the hypothesis is formed to show the rela- Yeung (2010), who examined a sample of 20
tionship between FDI and exports. provinces in China. The empirical evidence
shows that cheap labour attracts FDI, espe-
H1: FDI enhances the value of exports in cially for inland provinces, while rising FDI
ASEAN countries. inflow influences wage rates in the coastal
provinces. However, the authors also not-
ed that the benefits of cheap labour is only
1.2. FDI and human capital relevant in the short term. The favourable
Human capital (HCA) may be defined as the business climate, a suitable education pol-
components of health, education, and skill icy, and incentives for increased R&D are
which are incorporated in each individual long-term strategies to attract FDI inflows.
(Sehrawat & Singh, 2019), public education Abbas et al. (2021) investigated a cross-sec-
and research expenditure (Kohpaiboon, tional sample of 103 developing and tran-
2003), or the multi-dimensional index sition countries, discovering that the wage
(Alvarado et al., 2021). Although the mea- bill is the most significant factor in attract-
surements vary, the association between FDI ing FDI. This implies that multinational
and HCA is widely observed. Borensztein corporations find cheap labour in the host
et al. (1998) argue that the extent of the in- country. Additionally, the authors observe
fluence of FDI on growth in general, and no contradiction between enterprises seek-
exports in particular, in the host countries ing HCA and firms seeking inexpensive
depends greatly on the human factor as well labour, meaning that FDI firms also ob-
as the ability to implement advanced tech- tain skilled labour. Kheng, Sun, and Anwar
nologies brought by FDI, otherwise FDI (2017) analysed data from 55 developing
will be ineffective. Furthermore, Alvarado nations from 1980 to 2011, discovering
et al. (2017) reveal that the low level of hu- a bidirectional causal relationship between
man capital may explain the negative FDI HCA and FDI, meaning that FDI and HCA
in the economies of Latin America. Lipsey development strategies should be coordi-
and Sjöholm (2005) also argues that the nated. Additionally, the authors highlighted
host country can only receive the benefits the fact that governments should invest in
of FDI if these countries have a highly qual- HCA development by increasing education
ified workforce. Therefore, the mechanism and training expenditures to achieve similar
for the relationship between FDI and HCA economic success to that of countries such
is based on labour advantages, which are as Brazil and China.
determined by several factors, e.g. skills, Dutta and Osei‐Yeboah (2013) added
education, labour force structure, labour the role of political rights and civil liberties
costs, and technology transfer. For instance, in the relationship between FDI and HCA.
technology transfer is thought to occur Specifically, these two factors enable HCA
through five channels: learning by watch- to profit more efficiently from FDI inflows.
ing, labour mobility, supplier contacts, cus- Moreover, the existence of these two elements
tomer contacts, and networking (Günther, strengthens the correlation between HCA
2002), amongst which the development of and FDI inflows. On the other hand, Zhuang
human capital and learning by watching (2017) showed that FDI from OECD nations
are the most critical factors in determining had a favourable influence on secondary and
economic growth (Balasubramanyam et al., university education in 16 East Asian coun-
2019). Several previous studies focused on tries from 1985 to 2010. The reason for this
154 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

is that FDI from the OECD countries may HCA plays an important role in attracting
contain more advanced technology that de- FDI inflows due to the abundant resources
mands more skilled labour. In other words, in the region. Additionally, countries in the
FDI stimulates the human capital in the host region have a suitable labour structure that
countries to meet the beneficial effects of re- can meet the human resource requirements
ceiving FDI from technologically advanced for multinational companies. In turn, FDI
countries. Regarding the ASEAN region, pre- boosters a country’s export quality by en-
vious studies indicated several factors that af- hancing the domestic production capability.
fect the FDI-HCA. Thangavelu and Narjoko Therefore, the following hypothesis pertains
(2014) emphasised the importance of the to the relationship between FDI and exports
domestic absorptive capacity of the econ- given the presence of HCA:
omies. ASEAN countries, therefore, ought
to align their infrastructure, especially HCA, H2: HCA boosts the relationship between
to provide multinational companies (MNCs) FDI and EXP in ASEAN countries.
with the necessary linkages to the global
network and also to move the domestic in- 2. Research model and data
dustries seamlessly up the global production
value chain. Asada (2020) found that FDI in 2.1. Research model
Vietnam contributes to HCA in the long run; To analyse and evaluate the role of human
albeit the relationship was ambiguous in the capital in the relationship between FDI and
short run. EXP, this study used a multivariable regres-
Based on these studies, a relationship be- sion model to test the two research hypothe-
tween FDI and HCA may exist, inasmuch as ses as follows:

Figure 2. Overview of the research model

FDIit H1
EXPit

H2
HCAit
Control variable
HCAit*FDIit
IMPit and GCFit

Source: Own elaboration

In which:
EXPit : Exports of country i at time t;
FDIit : the amount of foreign direct investment capital of country i at time t
HCAit : Human capital of country i at time t;
HCAit*FDIit : the interaction between FDI and HCA of country i at time t;
IMPit : the import of country i at time t (the control variable );
GCFit : the Gross Capital Formation of country i at time t (the control variable).
The role of human capital in the relationship between… 155

According to this research model, be- specifically, to test the first hypothesis, the
sides determining the impact of FDI on EXP, study examined the multivariate regression
HCA and HCA*FDI on EXP, there are also FDI-EXP as follows.
the control variables IMP and GCF. More

EXPit = + FDIit + IMPit + GCFit +    (1)

where EXP and FDI are exports and foreign 1, 2,…,n denotes the period of examination,
direct investment, while IMP and GCF are and denotes the error terms in the model.
imports and gross capital formation, which To test the second hypothesis, the study
play the role of control variables to measure investigated the equation to test the mod-
the possible effectiveness of export values. erator as introduced by Baron and Kenny
i = 1, 2…,n represents the countries while t = (1986).

EXPit = β0 + β1FDIit + β2HCAit + β3FDIit * HCAit + β4IMPit + β5GCFit + e1it (2)

where HCA denotes human capital, and examined to confirm the reliability of the
FDI*HCA is the interaction between FDI model.
and HCA. IMP and GCF are imports and
gross capital formation, which play the role
2.2. Data measurement and data collection
of control variables to measure the possible Exports (EXP) were measured by exports
effectiveness of export values. i = 1, 2,…,n of goods and services (% of GDP), indicat-
represents the countries, while t = 1, 2,…,n ing the total export values compared with
denotes the period of examination, and e1it the total GDP in a country within a year.
denotes the error terms in the model. The higher the EXP, the more open to trade
Human capital (HCA) is proven to be the a country is. Foreign direct investment
moderator if β3 is significant. Additionally, (FDI) was calculated by the ratio of FDI in-
the significant values of β1 and β2 reveal how flows to GDP. The human capital variable
the magnitude of the moderator affects the (HCA) was indicated by the labour force
dependent variable. participation rate, or the ratio of the work-
The Pooled Ordinary Least Squares force to the total population aged 15-64
model (Pooled OLS), fixed effects model (refer to previous studies for a similar ap-
(FEM), and random effects model (REM) proach). The labour force was a proxy for the
were applied for the equations (1) and (2) HCA due to the available labour in a coun-
to find an appropriate estimator, which try, indicating the availability of labour
captures the relationship between vari- to meet the needs of multinational com-
ables in the study. It is noted that the het- panies. Imports of goods and services and
erogeneous panel could affect the chosen gross capital formation measure the other
appropriate estimator in the proposed two control variables, IMP and GCF, respec-
model. To confirm the reliability of the re- tively. These two variables were also denoted
sults, the F-test to compare results between by the ratio of GDP, capturing the possible
Pooled OLS and FEM estimators, and effects on exports. These variables were de-
the Hausman test for the choice between rived from World Development Indicators
FEM and REM were also employed (refer for all nine ASEAN countries, i.e. Brunei,
to Islam et al. (2020) and Siriopoulos et al. Cambodia, Indonesia, Lao PDR, Malaysia,
(2021) for a detailed discussion). In addi- the Philippines, Singapore, Thailand, and
tion, the correlation and Wald tests are also Vietnam, for 1990-2020. Due to a lack of
156 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

data in the same period, data for Myanmar The measurement of the variables in the
was removed from the sample. In total, the research model and the expected impact of
data sample consists of 279 observations. these variables are summarised in Table 1.

Table 1. Measured Variables

Variable Abbreviation Description Reference Expected sign

Exports EXP Exports of goods and ser- Anwar and Sun (2018),
vices divided by GDP (%) Harding and Javorcik
(2012)

Foreign FDI The ratio of FDI inflows and Prasanna (2010), Jawaid, Positive
Direct GDP (%) Raza, Mustafa, and Karim
Investment (2016)

Human HCA Labour force participation Tebaldi (2011), Blanchard Positive

capital rate (%) and Olney (2017)

Imports IMP Imports of goods and ser- Irandoust and Ericsson Positive
vices divided by GDP (%) (2004), Feng, Li, and
Swenson (2016)

Gross Capi- GCF The ratio of Gross Capital Tebaldi (2011), Kabaklarli, Positive
tal Formation Formation and GDP (%) Duran, and Üçler (2017)

Source: own elaboration

3. Results and Discussion a crucial difference between the maximum

and minimum values visible, the former
3.1. Description of which belonged to Singapore in 2008,
The variables described in this study are while the latter was from Cambodia in 1990.
shown in Table 2. The results reveal that Additionally, the standard deviation of the
the average export values in the ASEAN re- exports equals 48.94%, which is higher than
gion for the period 1990-2020 were 66.63%, the minimum value, indicating a consider-
indicating that openness to trade in this re- able difference in exports between countries
gion was relatively high. However, there is in the ASEAN region.

Table 2. Description of variables

EXP FDI HCA IMP GCF
Mean 66.63% 5.41% 73.75% 63.16% 25.71%
Median 56.44% 3.44% 70.9% 51.24% 25.42%
Maximum 228.99% 32.17% 87.98% 208.33% 43.64%
Minimum 10.16% -2.76% 61.77% 16.02% 7.92%
Std. Dev. 48.94% 5.82% 7.63% 41.31% 7.85%
Observations 279 279 279 279 279
Source: own elaboration
The role of human capital in the relationship between… 157

A similar trend is also found in exports, 3.2. Correlation of variables

which has the same fluctuation in terms of Regarding the correlation test for the vari-
FDI inflows, since there are significant dis- ables included in the proposed model, Table
parities in high- and middle-income coun- 3 shows that most of the variables are cor-
tries compared with lower-income countries. related at different levels of statistical sig-
Specifically, Singapore continued to attract nificance. It is noted that one pair of inde-
FDI when reaching a regional peak of 32.17% pendent variables has a high correlation
in 2019; meanwhile, Indonesia continuously coefficient at 1% statistical significance;
demonstrated lower FDI inflows than out- for instance, r (FDI, IMP) = 0.746, indicat-
flows in 1999-2001. This suggests a correla- ing that there is a possible overlap between
tion between exports and FDI inflows in FDI and IMP. In other words, the model is
ASEAN countries, in which countries with likely to bear the risk of a multicollinearity
high FDI inflows are directly related to high problem. Therefore, the Wald test was un-
levels of exports. It is also worth noting that dertaken to confirm the necessity of these
Singapore is the leading country in the re- two variables in the proposed model. The
gion in terms of both exports and FDI in- results reveal that the statistical significance
dexes, with an average value of 186.8% and F-value (FDI, IMP) = 25.94 at 1%, implying
17.5%, respectively, both of which are more the rejection of the null hypothesis H0 (a =
than three times the ASEAN average. This b = 0). Furthermore, the variance inflation
implies that countries with a high level of factors of each independent variable are
openness to trade achieve the dual goals of lower than 5, indicating that there is no col-
attracting FDI and increasing exports. For linearity. In other words, the selected vari-
the HCA variable, a degree of uniformity in ables are eligible for presentation in the pro-
the mean, median and standard deviation posed model without facing the problem of
imply that there is a certain similarity in the collinearity.
labour force in ASEAN countries.

Table 3. Correlation tests

EXP FDI HCA IMP GCF

EXP 1

FDI (2.47) 0.711*** 1

HCA (1.12) -0.119** 0.205*** 1

IMP (2.43) 0.965*** 0.746*** 0.009 1

GCF (1.07) 0.165*** 0.119*** -0.141** 0.215*** 1

***p < 0.01, **p < 0.05, and *p < 0.1. Values in parentheses present the centred VIF of each variable.
Source: own elaboration
158 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

3.3. Analysis of the hypotheses

3.3.1. The first hypothesis
The regression results derived from three FEM and REM, on the relationship between
estimation techniques, namely Pooled OLS, variables are shown in Table 4.

Table 4. The relationship between FDI and exports

EXP is the dependent variable Pooled OLS FEM REM

FDI 0.21* (1.04) 0.07* (1.87) 0.06* (1.68)

IMP 1.18*** (41.49) 1.09*** (36.24) 1.11*** (37.69)

GCF -0.28*** (-2.79) -0.71*** (-12.73) -0.70*** (-12.72)

C 0.63 (0.23) 15.15*** (7.25) 14.76*** (3.25)

1st test (F-value) F-value = 107 > F-critical = 0.23

2nd test (Hausman test) Chi-Sq. Stat = 3.73, d.f = 3, Prob = 0.29

***p < 0.01, **p < 0.05, and *p < 0.1. t-statistics are in parentheses ( ).
Source: own elaboration

The regression results of Eq.(1) show some results derived from REM are as
that the statistical evidence supporting hy- follows.
pothesis H1 is weak (at a 10% significance First, FDI inflows have a positive im-
level). Specifically, all three estimation pact on exports. Our findings are in line
methods, Pooled OLS, FEM and REM, re- with those of Prasanna (2010) in India,
veal that FDI weakly affects exports with- Jawaid et al. (2016) in Pakistan, and Anwar
in the ASEAN countries. Model selection and Nguyen (2011) in the ASEAN region.
tests were also applied to find the appro- The cause of this phenomenon can be ex-
priate estimator. In particular, for the com- plained by the fact that FDI inflows in the
parison between Pooled OLS and FEM (the region directly serve export products. The
first test), the F-value equals 107, which increasing trend of export-oriented coun-
is larger than the F-critical value (0.23), tries in the ASEAN region links FDI and
implying the rejection of hypothesis H0: exports in the region. For example, sever-
there is no difference between countries al Australian MNCs operate in only one
in the model. In other words, FEM is more nation, utilising it as a base from which
suitable than Pooled OLS. For the com- to undertake business in other countries.
parison between REM and FEM models For example, Treasury Wine Estates utilis-
(the second test), the Chi-square statistic es Singapore as its headquarters for coor-
equals 3.73 with probability at 0.29, indi- dinating sales to other ASEAN countries,
cating no rejection of hypothesis H0: there whereas Graincorp, a producer of grain and
is no correlation between the errors and other commodities, operates a single sales
the regressors in the model. In other words, office in Singapore for its exports through-
REM is more appropriate than FEM. out the ASEAN region (ASEAN & United
Based on these findings, REM was cho- Nations, 2021). However, it is also note-
sen to present the obtained data set, and worthy that both the impact coefficients
The role of human capital in the relationship between… 159

and the amount of statistical evidence are positively correlated with IMP. Figure 2
relatively small, suggesting that boosting also shows that during periods of the most
FDI does not lead to a significant increase substantial increase/decrease in exports,
in exports in the region. In other words, imports also increase/decrease according-
countries in the region need to consider ly, implying a solid relationship between
their policies carefully if they promote ex- them. The correlation suggests that trade
ports through attracting FDI. openness-oriented policies, which aim
Second, exports are closely related to the to increase the production of export goods,
two control variables in the model, name- need to gradually increase imports of raw
ly imports (IMP) and gross capital forma- materials, machinery, and equipment.
tion (GCF). Specifically, EXP is strongly

Figure 3. Evolution of Imports, Gross Capital Formation, and Exports in ASEAN,

1990-2020
85 32

75
28
65
24
55

45 20
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
GCF Import Export

Source: World Development Indicators (2022a, 2022c, 2022d)

In contrast, GCF shows a significantly intercepts and slopes, in other words, the
negative impact on exports. The expla- differences in the degree of reactivity be-
nation for this phenomenon could be that tween independent variables and exports
the total domestic investment capital is not indeed exist. Thus, it is necessary to con-
concentrated on the production of goods sider the specificity of each country instead
for export. Instead, GCF focused on oth- of a standard policy for all countries in the
er economic interests such as infrastruc- region. The difference (if any) is beyond the
ture development and domestic demand scope of this article. One may therefore sup-
production. Thus, even during periods of pose that additional variables are needed in
a sharp decline in exports, such as during the following studies to measure the respon-
the global financial crisis of 2008-2010, siveness of one or more variables that can
GCF has remained at pre-crisis levels. The affect exports.
empirical evidence implies that increasing
imports can boost exports; meanwhile, do-
3.3.2. The second hypothesis
mestic capital could crowd out the effects of The regression results derived from three es-
FDI on exports. timation techniques, i.e. Pooled OLS, FEM
Third, since REM is a method suited and REM, testing the moderator role of
to the dataset, implying that each country HCA in the relationship between FDI and
has distinguished characteristics for both exports, are shown in Table 5.
160 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

Table 5. The moderator role of human capital in the relationship between FDI and
exports

EXP is the dependent variable Pooled OLS FEM REM

FDI 0.15 (0.08) 7.06*** (6.38) 7.06*** (6.49)
HCA 0.96*** (7.12) 0.58** (2.11) 0.76*** (3.17)
FDI*HCA 0.01 (0.26) 0.09*** (6.45) 0.09*** (6.59)
IMP 1.13*** (42.68) 1.11*** (37.87) 1.11*** (40.20)
GCF -0.39*** (-4.56) -0.69*** (-13.02) -0.69*** (-13.20)
C 74.5*** (7.54) 57.26*** (2.76) 70.29*** (3.84)
1st test (F-value) F-value = 84 > F-critical = 0.23
2nd test (Hausman test) Chi-Sq. Stat = 1.06, d.f = 5, Prob = 0.59
***p < 0.01, **p < 0.05, and *p < 0.1. t-statistics are in parentheses ( ).
Source: own elaboration
The regression results of Eq. (2) show sol- between the errors and the regressors in the
id statistical evidence supporting hypothe- model. In other words, REM is more appro-
sis H2 at a 1% significance level. Specifically, priate than FEM. From these results, REM
FEM and REM methods both show the im- was chosen for further analyses on the ob-
pact of the interaction variable (HCA*FDI) tained data set, and the present interpreta-
on the exports of ASEAN countries. In ad- tion was drawn from REM as follows.
dition, the FDI coefficient on exports in the First, the results from the regression mod-
presence of HCA in both FEM and REM el show that HCA plays a role in enhancing
reached 7.06%. In other words, human capital the FDI-EXP nexus in ASEAN countries.
promoted FDI with a more substantial effect The study also compares the magnitude
on exports. This implies that human capital of the FDI impact on exports in Eq.(1) and
is a moderator in the FDI-Exports nexus. The Eq.(2). The results show that the presence of
finding contributes to the literature that the HCA has made FDI have a more substantial
HCA bolsters the FDI-Exports nexus, since effect on exports in the region. In detail, if
its presence may influence the magnitude of FDI increases by 1%, then exports only in-
the effect of FDI capital on exports. crease by 0.07% in Eq.(1); meanwhile the
Model selection tests were also ap- ratio is 1:7.06 in Eq.(2), showing that the im-
plied to find the best estimation method. pact of FDI on exports increases significant-
Specifically, for the comparison between ly in the presence of HCA. This also suggests
the Pooled OLS and FEM (in the first test), that FDI in the region flows into intensive
the F-value equals 84, which is larger than labour export industries. Our findings sup-
the F-critical (0.23), implying the rejection port hypothesis H2 that in ASEAN coun-
of the null hypothesis H0: there are no dif- tries, where the labour force is abundant,
ferences among countries in the model. In export flows will benefit from FDI inflows
other words, the FEM model is more suit- into the region. Our findings are in line with
able than Pooled OLS. Regarding the com- those of Thangavelu and Narjoko (2014) and
parison between REM and FEM (in the sec- Zhuang (2017) on the importance of HCA
ond test), the Chi-square statistic equals 1.06 in attracting FDI. In addition, the present
with probability at 0.59, indicating the rejec- study adds the moderating role of HCA in
tion of hypothesis H0: there is no correlation the FDI-EXP nexus to the literature.
The role of human capital in the relationship between… 161

Second, the REM estimation method is compared to other regions. Accordingly, the
suited to the data, which measures the mod- presence of HCA strengthens the impact of
erating role of HCA. Thus, similarly to the FDI on exports. In other words, FDI inflows
results in Eq.(1), each country is different are also channelled into labour-intensive
in terms of both intercepts and slopes, im- export manufacturing industries. Therefore,
plying that the degree of reactivity between this advantage is still a crucial factor within
independent variables and exports is distin- the region. Policies focusing on attracting
guished. Therefore, it is necessary to consid- FDI should be associated with the struc-
er the specific policies of each country rather ture of labour resources. As a result, coun-
than for all standard policies applied to all tries need to pay attention to the local labour
countries in the region. The differences in resources in order to meet production re-
each country’s labour structure can affect quirements, which have increased sharply in
the level of impact on FDI inflows both di- recent years.
rectly and indirectly. Subsequent studies In addition, exports are also closely cor-
may measure the response of exports to FDI related with two other factors, namely im-
and HCA in order to identify other factors ports and gross capital formation, in which
which potentially explain these differences. an increase in imports supports exports;
meanwhile, domestic capital tends to be
Conclusions inversely related to exports. This evidence
suggests that export-promoting FDI access
The study analyses the relationship between policies need to be adequately optimised
FDI, HCA, and EXP by means of quantita- so as not to overlap with domestic capital,
tive analysis based on the panel data estima- not supporting exports. Econometrics ex-
tion for nine ASEAN countries within the ercises show that REM estimation applies
period 1990-2020. Three estimation meth- to both Eq.(1) and (2), implying that indi-
ods, namely Pooled OLS, FEM, and REM, vidual countries have different respons-
were applied to examine the proposed model. es regarding the FDI-EXP nexus and the
At the same time, reinforcement tests were moderating role of human capital. As
also employed according to the proposed a result, policies which aim to attract FDI
hypotheses. The empirical results show that based on human capital advantages that
FDI inflows have a significantly positive ef- promote exports need to be carefully de-
fect on exports in the region. Although the signed following the labour structure for
impact is small and the statistical evidence each country.
is weak, it is crucial to recognise the impor- However, due to this being beyond the
tance of attracting FDI in the region to pro- scope of the present research, the present
mote export production and the associated study has not classified the categories of
benefit to individual national economies. FDI inflows, which may individually affect
More interestingly, the main contribution the relationship between FDI and exports.
of this study points to the mechanism of the For example, industry-oriented FDI capital
reinforcing effect of HCA on the FDI-EXP has different effects on exports compared
nexus, which still represents a gap in the to service/infrastructure-oriented FDI capi-
current literature. The statistical evidence tal. Furthermore, the chosen method (FEM)
suggests that the reinforcing effect is pres- has not provided statistical evidence for
ent and relatively straightforward in terms amending policies for each individual nation.
of coefficient effect and statistical levels. Future research may consider both limita-
Specifically, ASEAN is a region with abun- tions presented in this study in order to more
dant labour resources with reasonable prices deeply analyse the FDI-exports nexus.
162 Forum Scientiae Oeconomia • Volume 11 (2023) • No. 1

ASEAN, United Nations. (2021). ASEAN invest-

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Dr. Hong Thu Nguyen is currently employed at the Scientific Management Department of
Thu Dau Mot University. She has a decade of experience in both instruction and scientific
research. Her research interests include banking and finance, social capital, corporate so-
cial responsibility, microfinance, microeconomics, economics, financial inclusion, and the
development of banking and financial goods and services. She has also published numer-
ous research articles in prestigious national and international journals. In addition, she has
assisted other individuals in obtaining master’s degrees from Thu Dau Mot University and
other institutions. https://orcid.org/0000-0002-5775-1898