This paper aims to examine the extent to which the technology generated in US parent firms is transferred to their Scottish affiliates in the form of productivity gains. Using a firm-level panel data set, the empirical results show that the labour productivity growth of Scottish subsidiaries is positively linked to the R&D activity of their US parents. The R&D variable, however, is not as significant as the subsidiary's own human capital in explaining productivity growth. The impact of human capital is particularly important in smaller firms competing in the process industries. In contrast, technical knowledge appears to be transferred more readily to larger subsidiaries; those that already have achieved a relatively high level of productivity; and those that compete in industries based on product technology. The results have implications for policy makers looking to reap the greatest benefits for their local and regional economies from FDI.