Impact of Foreign Direct Investment on Productivity Growth with Emphasis on Human Capital and Institutional Quality in Iran: An Application of Wavelet Analysis.

The examination of correlation between foreign direct investment (FDI) and total factor productivity growth is one of the controversial issues in economy. Total factor productivity is one of the most important sources of economic growth in many countries, but it remains at low level in Iran's economy. On the other hand, foreign direct investment can be effective in increasing productivity by transferring technology, provided that there are absorption capacities in the host country. Therefore, it is necessary to examine the idea that FDI in interaction with human capital and institutional quality, as absorptive capacities, has a significant impact on productivity growth. For this purpose, in this study, data from 1989-2017 period in Iran and continuous wavelet analysis in content software were used to provide a new insight into time-frequency analysis. The results show that FDI alone in the short and medium term stimulates productivity growth in a limited way. In terms of human capital and institutional quality, long-term foreign direct investment (over 6 years) has a direct and significant impact on productivity growth. According to the findings of the study, skilled human capital and institutional reforms are needed to attract foreign investment and influence its productivity.