This study investigates the impact of foreign direct investment (FDI) on economic growth across Vietnamese provinces during 2018–2022, considering the role of local capabilities and institutional quality. Using a balanced panel of 63 provinces, the analysis employs a dynamic panel approach (Difference GMM) for traditional economic variables and fixed effects estimation for institutional and social factors. The results indicate that FDI does not have a statistically significant direct effect on provincial GDP growth. In contrast, domestic factors—including digital transformation (DTI), information and communication technology (ICT) development, human capital, and institutional quality—emerge as key drivers of growth. Provinces with higher human capital and better digital infrastructure are better positioned to absorb technology and leverage spillover effects. These findings imply that the growth-enhancing potential of FDI is contingent upon complementary local capabilities. Policy implications include prioritizing education and vocational training, promoting digital infrastructure, and strengthening linkages between foreign and domestic firms to enhance absorptive capacity and foster sustainable, inclusive regional growth.