Editing IPCC:AR6/WGIII/Chapter-16 (section)

=== 16.4.5 Trade Instruments and their Impact on Innovation ===

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There has been long-standing interest on the impact of Foreign Direct Investment (FDI) on domestic capacity, innovation and environmental outcomes. While this section looks at the impact of trade instruments on innovation, it does not cover the much larger body of evidence on the relationship between FDI and economic development and growth.

Overall, research indicates that trade can facilitate the entrance of new technologies, but the impact on innovation is less clear ( ''limited evidence'' , ''low agreement'' ). A recent study indicates that, for countries with high environmental performance, FDI has a negligible impact on environmental performance, while countries with a lower environmental performance may benefit from FDI in terms of their environmental performance ( [[#Li--2019b|Li et al. 2019b]] ). One analysis on China links FDI with improved environmental performance and energy efficiency and also innovation outcomes in general ( [[#Gao--2013|Gao and Zhang 2013]] ). Other work links FDI with increased productivity across firms (not just those engaged in climate-related technologies) through spillovers ( [[#Newman--2015|Newman et al. 2015]] ). In addition, [[#Brandão--2019|Brandão and Ehrl (2019)]] indicate that productivity of the electric power industry is more influenced by the transfer of embodied technology from other industries than by investments of the power industry. Also, they find that countries with high R&amp;D stocks are the main sources of international technology spillovers and the source countries may also benefit from the spillover.

Other emerging work investigates the role of local content requirements on innovation outcomes and suggests that it can lead to increased power costs (negative distributional impacts). The benefits to the domestic innovation system, measured by patents or exports, are unclear if the policies are not part of a holistic and longer-lasting policy framework ( [[#Probst--2020|Probst et al. 2020]] ).

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