This paper investigates the domestic productivity and spillover effects of foreign technology and embodied R&D on Egyptian manufacturing industries, 2003 to 2009. It also analyses the heterogeneous sectoral effects of technology transfer by focusing specifically on the productivity effects on highly internationalised and technology intensive industries. These are expected to have greater absorptive capacity with respect to foreign technology and therefore greater productivity effects because of their greater exposure to foreign competition and greater technological capacity respectively. The study is the first to analyse the efficiency effects of foreign technology by classifying industries in this manner. The study finds that foreign technology and embodied R&D have positive and significant industry-specific effects on domestic productivity and TFP in technology intensive industries but these are weaker in internationally-oriented industries. The findings suggest that only the technological intensive industries in Egypt have sufficient absorptive capacity to assimilate foreign technology effectively. The paper’s findings highlight the key role of foreign technology in domestic productivity growth, subject to the absorptive capacity of the domestic labour force, and the need for improved policies to promote the domestic benefits of technology transfer through the accumulation of local technological competences.