However, the levels of technology gap are neither too large nor too small to create the
spillovers. The results reported in columns (2) and (4) point to this direction. Specifically, the
result does not support the hypothesis of Glass and Saggi (1998) that a relationship exists
between technology transfer and technology gap, thus demonstrating that the smaller the
technology gap, the larger is the extent of high-quality FDI. One plausible explanation for this is
that FDI firms have not really transferred the state-of-the-art technologies. Therefore, domestic
firms close to industrial frontier have not benefited from the FDI spillovers. This reflects the
current FDI environment in Vietnam, where almost all FDI projects concentrate in laborintensive
industries. The policy implication from the results is that the government has to support
domestic firms to help them catch up with the industrial technology frontier and reduce the
technology gap. By doing so, Vietnam may attract more high-quality FDI projects that transfer
technologies closer to the state-of-the-art technology.