The literature has discussed the impact of Foreign Direct Investment (FDI) on host economies, but has overlooked the case of the least-developed countries (LDCs) and, in particular, the transfer of knowledge to these economies. Drawing on different streams of the literature (FDI impact, knowledge transfer, and absorption capacity), this paper analyzes how a country’s absorptive capacity may moderate the transfer of knowledge. By collecting and analyzing secondary data of FDI inflows and education, we examine the case of Mozambique. Data show that a country’s low educational level, and thus low absorptive capacity, may prevent effective knowledge transfer. We argue that policies that are aimed at expatriation, emigration, and tertiary education can help to increase the potential impact of FDI inflows. The main contribution of this paper to the literature is to examine how absorptive capacity and transfer of knowledge inter-relate within LDCs.
Key words: FDI inflows, transfer of knowledge, absorptive capacity, education.