Foreign direct investment and local technological capabilities in least developed countries: some evidence from the Tanzanian manufacturing sector

Foreign direct investment has been found to be one of the very important ways of building local technological capabilities for developing countries, and an important channel through which international diffusion of knowledge and technology takes place. While this has been demonstrated in some of the middle income countries, very little is known on the extent and how this can happen in an environment of a least developed country. Focusing on the Tanzanian manufacturing sector, this study sought to shed some light on this crucial issue. Specifically, the study attempted to determine the extent to which the Tanzanian manufacturing sector has acquired technological capabilities as a result of the presence of foreign firms. The result indicates that the Tanzanian manufacturing firms – including foreign – demonstrate technological capabilities at a basic level, and extremely few local firms acquired these from the foreign companies. While a number of reasons – including weak linkages between foreign and local companies – have been offered, the major one seems to be the negligible technology gap between foreign and local companies. Consequently, this is one area among others that the government needs to address.