This paper takes the case of Southeast Asia to examine the role played by multinational corporations (MNCs) in the transfer of knowledge and formation of human capital in FDI host nations. It explores the changing nature of FDI within the region and the diversity of environments in which FDI operates. The author finds that there is evidence to support the idea that MNCs not only locate to regions where there is already a stock of skills, but that they enhance these skills and cause a “spillover effect” outside their own operations, depending on the domestic policy environment. The paper concludes that the state must form a partnership with MNCs and co-ordinate interaction between economic actors in order to maximise human capital formation in the economy as a whole ...