Direct foreign investment and intellectual property reform in the South

• Published in: Journal of international development Vol. 35; no. 6; pp. 1456 - 1477
• Main Authors: Kanwar, Sunil, Sperlich, Stefan
• Format: Journal Article
• Language: English
• Published: Chichester Wiley Periodicals Inc 01-08-2023
• Subjects: Developing countries; foreign direct investment inflows; Foreign investment; Intellectual property; intellectual property reform; LDCs; post‐TRIPs implementation; Reforms; Robustness
• ISSN: 0954-1748; 1099-1328
• DOI: 10.1002/jid.3735

We study the association between intellectual property (IP) reform in developing countries and their foreign direct investment (FDI) inflows over 2004–2015, after their transition period under the World Trade Organization. Using conditional difference‐in‐differences estimation, we find unambiguous evidence that stronger IP rights spur FDI inflows. Further, this response is heterogenous across countries and time. Whereas the effect of a unit increase in IP protection on the percentage increase in
FDI$$ FDI $$ inflows remains about 0.50 for countries with small magnitudes of knowledge assets (roughly 15 ‘international patents’), it declines to about 0.25 for countries with larger knowledge capital (say, 5000 ‘international patents’). The results are robust to numerous robustness checks.