The impact of FDI on host countries’ social welfare: a panel data analysis of 146 countries over the period 2002–2019

Foreign direct investment (FDI) is an important driver of the increasing globalization of the word economy, and despite being a widely studied phenomenon, studies on the effects of FDI on host countries’ social welfare are scarce. So, this work aims to analyze the impact of FDI on welfare measured through the human development index and its three dimensions (education, life expectancy, and income). Based on a sample of 146 countries for the period 2002–2019, the results obtained by two-staged least squares-instrumental variable estimation suggest that FDI impact on social welfare depends on the countries’ human capital which reflects countries’ absorptive capacity. Results also highlight the role of government expenses in consumption, political stability, and quality of technological infrastructures. Therefore, the results suggest that, in order to improve social welfare, countries should focus and gear their policies towards fostering the improvement of their human resources, political stability, and technological infrastructures.