A developing country is generally focused on economic, human capital and technology development. However, the impact of digital transformation and capital investment on economic performance has shown inconsistencies, partly due to variations in human capital levels. Therefore, this study aims to analyse the effects of digitalisation, foreign direct investment (FDI), and human capital on economic performance, which is measured by gross regional domestic product (GRDP) per capita. The sample comprises 34 provinces in Indonesia from 2014 to 2023, utilising the Generalised Method of Moment (GMM) and dynamic threshold regression. The finding indicates that digitalisation, Foreign Direct Investment (FDI), human capital, and government expenditure have a positive impact on economic performance. Interestingly, human capital could moderate and strengthen the effect of digitalisation and FDI on economic performance. Human capital reached the substantial critical threshold value at which point FDI begins to exert a positive effect. In contrast, the impact of digitalisation, although positive in high threshold of human capital, is statistically not significant, implying that the success of digitalisation also relies on adequate infrastructure readiness. Therefore. The government needs to improve the quality of human capital, especially in provinces where the Human Development Index (HDI) is below the threshold, to fully leverage the benefits of digitalisation and foreign investment.

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The Impact of Digitalisation and Foreign Direct Investment on Economic Performance: Is the Role of Human Capital Important?

  • Laili Nafisah,
  • Suhal Kusairi

摘要

A developing country is generally focused on economic, human capital and technology development. However, the impact of digital transformation and capital investment on economic performance has shown inconsistencies, partly due to variations in human capital levels. Therefore, this study aims to analyse the effects of digitalisation, foreign direct investment (FDI), and human capital on economic performance, which is measured by gross regional domestic product (GRDP) per capita. The sample comprises 34 provinces in Indonesia from 2014 to 2023, utilising the Generalised Method of Moment (GMM) and dynamic threshold regression. The finding indicates that digitalisation, Foreign Direct Investment (FDI), human capital, and government expenditure have a positive impact on economic performance. Interestingly, human capital could moderate and strengthen the effect of digitalisation and FDI on economic performance. Human capital reached the substantial critical threshold value at which point FDI begins to exert a positive effect. In contrast, the impact of digitalisation, although positive in high threshold of human capital, is statistically not significant, implying that the success of digitalisation also relies on adequate infrastructure readiness. Therefore. The government needs to improve the quality of human capital, especially in provinces where the Human Development Index (HDI) is below the threshold, to fully leverage the benefits of digitalisation and foreign investment.