Vietnam offers one of the clearest examples of this divide. Between 2017 and 2022, its FDI inflows increased by 27%, while domestic value added rose by a whopping 51%. Taken alone, these figures suggest a successful investment story. But when observed alongside the measure of foreign value added, the story changes. Over the same period, Vietnam’s FVA increased by 86%, outpacing domestic value creation. As a result, the ratio of domestic to foreign value added declined substantially. Even as Vietnam attracted more foreign investment, it simultaneously became more dependent on imported intermediate goods.

Thailand presents a different picture. Between 2017 and 2022, FDI inflows increased by 49%. However, domestic value added rose by only 0.2%, while foreign value added grew by 30%. This indicates that while foreign investment and imported inputs continued to flow into Thailand, domestic value creation failed to keep pace.

Singapore and Malaysia, however, offer a more positive contrast. Alongside rising FDI inflows, both countries continued to develop their domestic capacities, improving their domestic-to-foreign value added ratios by 0.05% and 0.08%, respectively. This suggests that more established industrial systems and supplier networks may help economies absorb foreign investment in ways that support strong domestic value capture.

Quantity versus quality

This distinction can be illustrated by mapping countries across two dimensions: growth in FDI inflows over the five years on the X-axis, and the change in the economy’s DVA/FVA ratio on the Y-axis.

This framework does not necessarily suggest that FDI alone determines changes in the DVA/FVA ratio. Other factors, such as domestic productivity, industrial policy, sectoral composition, and exchange rates, also matter. But it does show where high investment inflows are, or are not, matched by stronger domestic value creation. Economies with high FDI growth, but a declining DVA/FVA ratio warrant closer attention because they may be attracting more capital without capturing more value locally.

Applied to a set of Southeast Asian economies, the chart reveals four distinct trajectories:

Domestic-led upgrading: low FDI growth but rising domestic value creation
High-quality FDI: high FDI growth and rising domestic value capture
Quantity without upgrading: high FDI growth but falling domestic value capture
Weak performance: low FDI growth and falling domestic value capture

The chart shows that rising FDI inflows do not necessarily lead to stronger domestic value creation. Singapore and Malaysia, positioned in the upper-right quadrant, see a combination of high FDI inflows and an improving DVA/FVA ratio. This suggests that foreign investment is increasingly contributing to developing stronger domestic production capabilities. Indonesia, with a more moderate FDI growth of 23.4%, recorded a larger improvement in its value-capture ratio, showing that domestic capabilities can strengthen even without exceptionally high foreign investment growth.

Thailand and Vietnam, by contrast, recorded higher FDI growth than Indonesia but experienced declining DVA/FVA ratios. Thailand’s position in the lower-right quadrant depicts an increase in quantity without upgrading: foreign capital continued to flow in but was not accompanied by rising domestic value creation. Vietnam presents a more complex case. Despite significant increases in exports and domestic value added, its DVA/FVA ratio declined, suggesting that its manufacturing success remains closely tied to imported intermediate goods and dependence on foreign-led production chains. Vietnam, therefore, highlights a wider challenge for developing countries: rising FDI inflows alone are not enough unless they are accompanied by stronger domestic value creation and an improving position in global value chains.

Overall, the chart shows that sustainable development cannot be driven by foreign capital alone. The quality of FDI depends on whether investment enhances domestic capabilities, raises local value capture, and increases the domestic share of value created in exported goods.

Why this matters in the long run

The quality-versus-quantity debate is becoming even more pertinent as artificial intelligence (AI), advanced robotics, and digital manufacturing reshape global production. Labor-intensive manufacturing and export-led growth have supported developing countries for decades, but the gains from assembly-based production may become harder to sustain as technology changes the economics of production.

Stöllinger (2019)⁵ warns that countries that remain entrenched in production-stage specialization risk being locked into the least profitable segments of the value chain, where competition is fierce, margins are thin, and the potential for upgrading into higher-value functions is often structurally constrained. This challenge is further intensified by automation and is increasingly materializing in traditionally labor-intensive industries. As the cost competitiveness of low-wage assembly erodes under the pressure of automation, countries that remain anchored in production-stage activities face the prospect of diminishing returns from investment-led growth.⁶

Geopolitical tensions are also continuously altering global production networks. Southeast Asian economies have significantly benefited from China+1 diversification strategies⁷, but relocation alone is only a first step. The bigger test is whether incoming investment strengthens domestic value creation or simply shifts assembly operations from one location to another. In this context, development strategies concentrated only on attracting foreign capital become risky.

Moving beyond quantity attraction toward quality value creation

The ASEAN experience shows that while foreign investment remains a critical driver of economic growth, the developmental impact depends on how deeply it is embedded in the domestic economy. The contrasting outcomes across the region reveal that rising FDI inflows do not automatically translate into enhanced domestic capacities.

For policymakers, the priority is to move beyond a singular focus on attracting investment toward maximizing the value generated from it. Vietnam’s Prime Minister Le Minh Hung captured this shift when he stated that, “While ASEAN’s workforce and strategic location have made it a key link in global supply chains, the future belongs to economies that create, innovate and lead technological development.”⁸

Treating the DVA/FVA ratio, and domestic value creation more broadly, as key performance indicators would help economies reorient policy toward enhancing domestic capabilities. As highlighted by the ASEAN Investment Report 2025⁹, countries need to invest more in research and development, talent development, supply chain resilience, and workforce skills suited to AI and automation.

Foreign investment will become truly transformative only when it leaves behind more than capital: creating knowledge, strengthening local firms, and expanding domestic participation in value creation.