By Dr. Otitodiri Ogadinma Onyema
QES Postdoctoral Fellow, Centre for Law, Open AIR
In October, 2025, I had the privilege of presenting my research at the International Conference on Science, Technology, and Innovation, organized by the International Association of Research Scholars and Administrators Corporation (IARSAC) in Chicago, Illinois, United States of America. The conference brought together a global network of researchers, policymakers, and innovators exploring how science, technology, and regulatory systems shape the future of sustainable development.
My paper, titled “Impact of Regulation for Innovation on Foreign Investment in Developing Countries: The Dynamics of the Police Powers Doctrine in Focus,” examined how regulatory frameworks designed to foster innovation can influence the flow of foreign investment into developing economies.
The main question is, can regulation inspire innovation without discouraging investment?
The starting point of my research is a paradox that many developing countries face. The issue is that while effective regulation is necessary to encourage innovation and ensure public interest, overregulation or legal uncertainty can deter foreign investors. Governments can strike the right balance by using regulation as a strategic tool for innovation rather than as a constraint.
At the core of this discussion is the Police Powers Doctrine (PPD) – a principle of international law that recognizes a state’s inherent right to regulate in the interest of public welfare (such as public health, environment, and security). Under the PPD, such regulatory intervention is not considered expropriation of investments. Another important interpretive doctrine relevant to this discourse is the principle of ejusdem generis. It supports a more disciplined reading of investor protections so that broadly worded standards are not interpreted in a manner that unduly constrains states’ regulatory autonomy. When juxtaposed with the police powers doctrine, the ejusdem generis rule reinforces the view that regulatory measures within the same class of legitimate public objectives are upheld as opposed to being compensable expropriations.
Understanding the Police Powers Doctrine in the Context of Innovation
The Police Powers Doctrine has long served as a legal safeguard for sovereign regulatory authority. It provides that not all state actions that affect investors amount to expropriation, particularly when such actions are taken for legitimate public purposes.
In the context of innovation governance, PPD is increasingly relevant. It can be made to interact with modern innovation policies and be deployed to legitimize regulatory reforms that encourage technological advancement and knowledge-based investment in developing countries. This is because governments are introducing new regulations on digital trade, intellectual property, data protection, renewable energy, and emerging technologies such as artificial intelligence and biotechnology. While these measures are intended to promote sustainable innovation, they can also unintentionally reshape or disrupt the investment landscape. There is then need for clarity, predictability, and a proper interpretative approach in regulatory design to avoid investor disputes and to sustain investor confidence. The Police Powers Doctrine, when properly applied, empowers states to regulate responsibly while maintaining compliance with international investment obligations.
Interaction of PPD and Modern Innovation Policies in developing countries
In developing countries, regulation should go beyond enforcement to incentivize technology upgrading, foster R&D, and promote collaboration between domestic and foreign innovators. PPD through regulation of digital trade, data protection, intellectual property, renewable energy, AI, and biotechnology, provides the necessary legal and ethical framework for innovation. Far from stifling progress, these controls reduce uncertainty, build investor and public trust, and ensure safe, equitable development. In practice, enforcement of such regulations enables digital markets to thrive securely, supports commercialization of research, and facilitates responsible deployment of emerging technologies.
Key Insights from My Research
- Regulation as an Enabler of Innovation:
Contrary to the view that regulation stifles growth, the research shows that transparent, innovation-oriented rules can attract responsible investment. Clear IP regimes, digital policies, and competition laws give investors the stability they need to operate confidently.
- Balancing State Sovereignty and Investor Protection:
Developing countries must balance their sovereign right to regulate with the need to remain attractive to investors. A clear and well-defined PPD helps achieve this by distinguishing legitimate regulation from unlawful expropriation.
- The Role of Legal Certainty:
Investors commit more readily when legal frameworks are predictable. Using the ejusdem generis rule helps align innovation policies with investment and trade obligations, reducing contradictions in regulatory interpretation.
- Innovation Policy as a Development Strategy:
For developing countries, regulation should not merely enforce compliance but should create incentives for technological upgrading and capacity building. Strategic regulation can encourage technology transfer, promote local research and development (R&D), and foster collaboration between foreign and domestic innovators.
- Case Studies and Comparative Perspectives:
Examples from various investment treaties show how well-crafted regulations can attract innovation-driven investment. Conversely, the study highlights that poorly designed regulations often lead to arbitration disputes or investor withdrawal.
Broader Implications for Developing Countries
Developing countries cannot rely solely on liberalization to attract investment. Sustainable investment requires credible regulation. The future of innovation-driven growth depends on creating legal environments that are both protective and progressive.
This involves:
- Incorporating broader carve-outs and interpretative guidance clauses that expressly safeguard the regulatory autonomy of host states when pursuing legitimate public welfare objectives, particularly innovation-driven;
- ISDS tribunals adopting an interpretative balance that preserves the state’s regulatory sovereignty while guaranteeing legal predictability and confidence for investors;
- Policymakers/governments designing innovative regulatory frameworks that are both consistent with international investment obligations while capable of achieving economic development of developing countries
Through these measures, regulation becomes not a burden but a bridge between innovation and investment, thereby supporting inclusive economic transformation.
Looking Ahead: The Future of Regulation for Innovation
As the global economy transitions toward digitalization and sustainability, the relationship between regulation, innovation, and investment will continue to evolve. Developing nations must craft context-sensitive policies that protect national interests while integrating into the global innovation system. In summary, the goal is to promote a new regulatory culture, one that values innovation as a public good, encourages equitable participation in global value chains, and aligns with sustainable development priorities.
