Do business students go with the flow? Foreign direct investment flows and the allocation of talent in emerging economies

Abstract: As a country develops, the relative importance of higher education increases. Emerging markets need capital for investing in the latest technology and a workforce able to make use of the same. Foreign investments can bring both physical capital and technological know-how, as well as provide work opportunities for skilled graduates with the right education. In this spirit, this paper asks whether inflows of foreign direct investment to emerging economies influence the relative attractiveness of university level studies in business and administration-a field possibly affected by the new employment opportunities in foreign affiliates. Employing a fixed-effects panel data estimation for 48 emerging economies over the years 1992-2012, a positive but insignificant effect from inflows of foreign capital on the share of business graduates is found. When considering regional effects, post-Soviet states stand out as they exhibit a negative effect from foreign capital inflows on the share of business graduates, also differing drastically from the other transition economies. Moreover, it seems possible to estimate the proposed effects from the inflows of foreign direct investment on two other fields of study, namely education and engineering, providing support for our main analysis. Hence, the results hint at an important effect from foreign direct investment flows on the allocation of talent in emerging economies.