Methodological and Technological Issues in Technology Transfer

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5.4 Private-Firm Investment Decisions and Foreign Direct Investment

While Section 5.3 has looked at external private sector investment, in many areas the most significant investment decisions are those made within firms. Within a single country, such investment decisions have an important role to play in the diffusion of technology. Across borders such investment forms Foreign Direct Investment (FDI), increasingly seen as one of the largest and most important financial flows (see Section 2.2.2 in Chapter 2).

Particularly in the buildings, industrial, transport, and energy sectors, investment decisions made by private firms can significantly affect greenhouse gas (GHG) emissions in firms' processes and products, and in firms' conduct of environmentally sound technology transfer along private-sector-driven pathways. These decisions are often at variance with simple economic models that assume universal optimisation, because of barriers that can exist within firms to technology transfer. Private-sector investment comes in many varieties (see Section 5.3), but whatever form the financing mechanism takes, obstacles originating in the organisational structures and decision-making procedures of firms may limit adoption of the most environmentally sound technologies. Internal barriers within a firm are those that slow down the adoption of technologies that would be in the firm's own interest given prevailing market prices, external macroeconomic conditions, and regulatory requirements. Both local and multinational firms are subject to internal barriers, but the ways in which technology transfer is impeded by the barriers may differ across classes of firms, depending on the nature of the barriers.

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