Foreign direct investment (FDI) has played a significant role in recent globalization, particularly for developing economies, which have become the primary recipients of these investment flows. While much of the existing literature has focused on productivity spillovers from multinational corporations (MNCs) to local firms—highlighting both positive and negative effects—this review explores the concept of innovation spillovers. Unlike productivity spillovers, which emphasize improvements in efficiency, innovation spillovers focus on the transfer of technology and are essential for understanding the technological impact of FDI. The review also addresses the methodological challenges inherent in studying innovation spillovers, including issues of endogeneity and the complexity of measuring innovation outcomes. The entry concludes by emphasizing the importance of understanding local specificity in the context of international knowledge transfer, with significant implications for public policy.