University Honors

Human capital, through education, skills, and productivity, enables domestic firms to absorb the technological and managerial spillovers brought by foreign investment, while strong institutions provide the stability necessary for these benefits to materialize. Existing literature often frames FDI within the ìrace to the bottomî theory, where developing countries weaken institutions and lower wages to attract multinational corporations, reinforcing the middle-income trap. This study reinterprets these dynamics not as contradictions, but as stage-based processes of investment development entry, retention, and long-term embeddedness, which vary across a countryís income level. Using OLS regression, this study analyzes three measures of FDI, gross inflows, net inflows, and FDI stock across countries grouped by income status (low, lower-middle, upper-middle, and high income). The findings suggest that the impact of human capital and institutional quality differs significantly across development stages, supporting a more dynamic understanding of FDI beyond the traditional static framework.