Foreign Direct Investment as a Catalyst for Sustainable Knowledge-Economy Transitions: Skill Demand, Institutional Co-Creation, and Human Capital Formation in Morocco (1975–2020)

Sustainable development depends on whether emerging economies can convert foreign direct investment (FDI) into durable, knowledge-based capabilities rather than transient, low-skill employment. This paper asks how FDI catalyzes sustainable human-capital formation and whether multinational enterprises (MNEs) can help build the institutions that underpin a knowledge-economy transition. Using a single-equation instrumental-variables (2SLS) model for human-capital formation, with secondary-school enrolment as the dependent variable over 46 annual observations for Morocco (1975–2020), we find a positive and statistically significant FDI effect (β = 0.0029 per million USD of FDI inflow, p = 0.006), robust in sign and significance across OLS, 2SLS, and Dynamic OLS specifications. The result is consistent with a skill-demand channel through which knowledge-intensive MNEs are associated with higher private and social returns to education and with increased targeted public and private training investment. Sectoral evidence from Morocco’s aerospace and automotive clusters shows enrolment in vocationally oriented program growing 312% between 2005 and 2022, concentrated in curricula co-designed with foreign investors. Communications infrastructure carries a positive and significant coefficient across all four estimators but loses significance once urbanization is added as a control, so we do not treat it as a confirmed independent channel, while public education expenditure carries a negative and significant coefficient that is not stable in sign under Fully Modified OLS, indicating that its independent contribution is not well identified with the present instrument set. We interpret these findings through a sustainability lens, linking the mechanism to Sustainable Development Goals 4 (quality education), 8 (decent work and growth) and 9 (industry, innovation and infrastructure), and we specify three boundary conditions—skill specificity, investor commitment, and state coordination capacity—and argue that the mechanism should be expected to transfer to other developing economies, including in the MENA region and sub-Saharan Africa, only where these conditions co-occur, rather than as a general claim. The study advances the literature on MNE-led institutional co-creation and offers policy guidance for designing FDI strategies that support inclusive, sustainable knowledge-economy development across the MENA region and sub-Saharan Africa.