The Effects of <scp>FDI</scp> on School Enrollment in Developing Countries: New Evidence

ABSTRACT Using data on 118 developing countries over the period 1973 to 2019, this paper finds that FDI stocks have positive effects on school enrollment rates. The magnitude of the effects is modest. They are larger at the tertiary than at the secondary level. At both levels of education, females benefit more than males. The paper also explores the channels through which FDI might affect enrollment rates and finds that a well‐developed financial sector enhances the positive effects of FDI on schooling. In contrast to almost the entire literature, the paper uses data on stocks rather than inflows of FDI. FDI stocks are more likely to affect schooling decisions because they are much larger and less volatile than FDI inflows. Indeed, the paper finds that FDI inflows do not affect enrollment rates. Throughout, it accounts for endogeneity of FDI and controls for all major determinants of schooling.