helong-termgrowthrateofincome.Technologicalprogresstakesplacethroughaprocessof‘capitaldeepening’intheformoftheintroductionofnewvarietiesofcapitalgoods.MNCspossessmoreadvanced‘knowledge’,whichallowsthemtointroducenewcapitalgoodsatlowercost.However,theapplicationofthismoreadvancedtechnologiesalsorequiresthepresenceofasufficientlevelofhumancapitalinthehosteconomy.Thestockofhumancapitalinthehostcountry,therefore,limitstheabsorptivecapabilityofadevelopingcountry,asinNelsonandPhelps(),andBenhabibandSpiegel().Hence,themodelhighlightstherolesofboththeintroductionofmoreadvancedtechnologyandtherequirementofabsorptivecapabilityinthehostcountryasdeterminantsofeconomicgrowth,andsuggeststheempiricalinvestigationofthecomplementaritybetweenFDIandhumancapitalintheprocessofproductivitygrowth.WetesttheeffectofFDIoneconomicgrowthinaframeworkofcross-countryregressionsutilizingdataonFDIflowsfromindustrialcoun