Mechanisms to Explain FDI Impacts in Less Developed Countries Growth: The Case of the Industrial Development Level in Turkey, Egypt and Morocco

The industrial development level proposed in this essay is the key factor to explain how Foreign Direct Investment (FDI) impact may turn from positive to negative. It is shown that, the role of FDI inflows in host countries’ growth will be effective for those applying not only the right policies, but also raising their local aggregate industry level up from a certain threshold (without necessarily applying home country content policies). Interaction between industrial development level and FDI may also be considered to be the second and long term effect of the FDI on a country’s growth. Hence, when lacking or too weak, industrial development level may be crushed by FDI, turning the interaction from positively impacting on growth to play the malign role, and then explaining why in some countries FDI appear negatively related to local development.