Does Population Longevity Attract Foreign Direct Investments in Developing Countries?

Abstract

In a seminal paper, Alsan et al. (2006 , World Development, vol. 34, pp. 613–630) investigate the effect of population health on gross foreign direct investment (FDI) flows to the developing countries. The purpose of this article is to extend their work by exploring the causal effect of population longevity on attracting FDI flows to the middle-income countries over a longer and more recent period, while addressing endogeneity concerns through a novel instrumental variable (IV). The IV is constructed on the hypothesis of cross-country health convergence and generates plausibly exogenous variations in measures of longevity. Our IV estimates suggest that 1-year increase in a measure of longevity is likely to increase annual FDI inflows by at least 3 per cent in the sample of countries considered. Specifically, significant returns appear to emerge from increases in the longevity of the female population. In the current context of resurgence of FDI as a critical source of financial capital to the developing countries and the prevalence of frequent disease outbreaks, these results suggest that good health is not an end but a means to enable countries better integrate with the global markets.