From these studies, it is not possible to conclude, however, that export‐oriented firms do not tend to generate linkages and spillovers. Piermartini and Rubínová (2014) use industry‐level R&D and patent data in 29 countries for the period of 2000‐2008. They find that greater participation in supply chains leads to greater transmission of knowledge through effects of foreign R&D spending on patent applications in host countries. The effects increase with the intensity of production network links between the sender and the recipient country. The elasticity of home country patenting with respect to foreign R&D is 0.0042 percent for most intensive production links. For example, if the Unites States doubled its R&D in transport equipment, the number of innovations in the sector in Canada would increase by 0.4 percent. The elasticity, however, declines rapidly with weaker supply chains. Additionally, mere imports or export‐type platforms do not facilitate such spillovers. They only occur when a country is fully integrated in a global value chain network, meaning cases when a country offshores the production of certain components to re‐import them back.

To conclude, the FDI typology seems to be quite relevant for a better understanding of spillover potential. It could therefore be applied more in research, and developed further to account for the specific characteristics within the broader FDI types. For example, not all efficiency‐seeking investment will have the same effects on productivity, innovation, jobs quantity or quality, as was shown by Piermartini and Rubínová (2014). Equally, there is a substantial variation in market‐seeking investment, which can generate many jobs and linkages. However, its potential to foster value‐added in the long‐term seems to vary. The experience of some countries shows that the transition from market‐ to efficiency‐seeking investment can happen naturally over time as a part of multinational companies’ expansion strategies. For host countries’ FDI policies, it is important then to distinguish between market‐seeking FDI that offers the potential to grow into becoming an efficiency‐seeking, supply‐chain enhancing operation— and market‐seeking FDI that does not. Equally important will be to build local capacity to facilitate the transition to higher value‐added segments of the value chain. All of these issues are areas for future research.

# _b. Local content performance requirements_

As part of their policies to “promote” linkages, developed and developing countries have for decades imposed performance requirements on foreign and sometimes domestic investors in an effort to promote local industries, jobs, and/or exports. Performance requirements require investors to meet certain goals with respect to their operations in the host country.<sup>6</sup> They have been used even though they are generally prohibited by World Trade Organization (WTO) agreements. For example, the General Agreement on Tariffs and Trade, Trade Related Investment Measures, and Agreement on Subsidies and Countervailing Measures prohibit requirements for trade in goods because they violate the national treatment principle and distort trade flows. The General Agreement on Trade in Services has a similar but less stringent regime

> 6 Performance requirements either condition an investor’s ability to formally start a business or to receive an investment incentive in the host country. Typical requirements include the use of a certain percentage of local inputs (local content requirements), the conditioning of imports on export volumes (trade balancing requirements), or requiring direct or indirect transfer of know‐how to domestic firms (see UNCTAD 2007 for more examples).

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