FDI dominance and the scope for a modern domestic industry

This paper examines the “more is actually less” FDI argument in the context of a high-tech industry using Vietnam's electronics industry as a case study, where multinational corporations dominate output and capital investment. We connect Gereffi's global value chain governance framework with Meyer's country-of-origin perspective to analyze intra- and inter-industry spillovers. In doing so, we examine how FDI shapes domestic firms' managerial capabilities and technological upgrading. Using a ten-year firm-level panel and a metafrontier approach, we find that domestic firms achieve only 52 % efficiency in converting inputs to outputs and operate at just 64 % of the FDI technological frontier, with little improvement over time. Horizontal FDI enhances domestic management practices but fails to deliver meaningful technology spillovers. Its growing dominance also widens the technology gap, indicating the growing backwardness of domestic technology. Vertical FDI has mixed effects: upstream FDI supports managerial improvement, while downstream FDI encourages technological upgrading under competitive pressure. Spillovers vary by industry and FDI origin, with ASEAN- and China/Taiwan-based FDI offering modest technological and productivity gains. Our findings highlight the asymmetry between managerial and technology spillovers, suggesting that without stronger local linkages, FDI dominance may constrain, rather than enable, domestic upgrading in high-tech sectors.<p></p>