Policy makers in developing and transition economies place attracting FDI high on their agenda, expecting FDI inflows to bring needed capital, new technologies, marketing techniques and management skills. All of these potential benefits of FDI are viewed as important; however particular emphasis is placed on the contribution of FDI to increasing productivity and competitiveness of the domestic industry as an external effect of the latter in the host country. It has been noted in the literature that different types of spillovers may provide important benefits for the countries which host them. To examine the effect of FDI, an industry level panel data covering selected manufacturing firms in Latin America and Asia is being used. The empirical results show that the presence of FDI does benefit local firms but the effect differs between groups of industries. A positive and more statistically significant spillover in industries with low technology gap is analyzed as compared to that of a high technology gap.